After the Breakup:The Troubled Alliance between Volkswagon and Suzuki – Case Study Analysis

Summary

            The decline in auto sales in the wake of a global financial recession prompted leading international carmakers to resort to radical strategies to remain afloat. One such approach entailed forming conglomerates to increase productivity and sharing of information critical to the development of ultramodern automobiles. In 2009, Volkswagen AG (VW) and Suzuki Motor Corporation (Suzuki) struck a trailblazing liaison which would allow the former to enter the Indian market (Kluyver 33). However, the partnership crumbled shortly after with Suzuki Motor Corporation (Suzuki) ending the framework agreement between the two former allies. The following is a comprehensive evaluation of the case study dubbed “After the Breakup: The Troubled Alliance between Volkswagen and Suzuki” to gain a better understanding of the dynamics in this relationship and reasons for its unexpected end. Additionally, this report will also explore essential facts, critical problems, alternatives, and the best course of action moving forward.

Important Facts

Expansion of the Automotive Industry

The global increase in population and income saw major players prompted major players to strive to improve their designs and manufacturing capabilities. Volkswagen was among such manufacturers that initially enjoyed market success since its inception in 1937.  The European market was capable of affording Volkswagen models, allowing the company to enjoy relative success within the region. Volkswagen is among the most significant vehicle manufacturers with accomplishments linked to its global expansionist policy. Similarly, the collapse of the cotton industry in Japan gave rise to Suzuki as a primary motor vehicle manufacturing company in Japan. The company’s attributes its success to a willingness to incorporate new technology and research findings into designs while endeavoring to set up shop in new locations across the globe.

Partnership between Suzuki and Volkswagen

The alliance between Volkswagen AG (VW) and Suzuki Motor Corporation (Suzuki) aimed to address the growing need for fuel and cost-effective cars especially since this emerging eco-friendly trend was gaining traction globally. These new innovations initially targeted the Chinese and Indian markets due to the presence of a sizable middle-income population. Volkswagen’s strategy was to become a global leader in the automotive industry while embracing sustainability. The 2009 partnership pact with Suzuki aimed to fulfill the objective mentioned earlier while still remaining a formidable force in the market. Under the terms of this new partnership, Volkswagen was expected to 19.9% of Suzuki’s shares while Suzuki obtained a 1.5% voting stake in Volkswagen (Deresky). The alliance was expected to cause a rise in shares across the Japanese and German markets.

Termination of the Framework Agreement and Resulting Blame Game

Suzuki terminated the framework agreement on November 18, 2019, after a series of irreconcilable differences.  Suzuki’s Chairman had earlier expressed his reservations regarding the new leadership structure and was vehemently opposed to serving under a German (CEO).  Both companies had expressed the need for cooperation to increase their production capacity and a joint electric car project. However, Suzuki was against sharing dealership as earlier proposed by Volkswagen due to a high comparative cost of production. Suzuki’s Chairman finally decided to terminate the framework agreement since the collaboration was not viewed as a profitable venture.

Key Issues

Cultural Incongruity

The alliance between Volkswagen and Suzuki seemed doomed from its inception due to the stark cultural mismatch that existed between the two partners. Leadership approaches in Japanese and German culture were dissimilar, which then created friction during daily interactions. While the Japanese strived for personal responsibility and devotion, German culture espoused a management style comprising of meticulous planning and a clear work structure. These differences posed an existential challenge whenever the partners sought to agree on an issue of grave importance to the joint venture. For instance, Suzuki was adamant that it was only through a collectivist attitude that the merger would succeed while their German counterparts focused solely on final performance.

Communication Gap

The styles and frequency of correspondence between Suzuki and Volkswagen impaired progress that would have been made through their collaboration.  Communication during important meetings was punctuated by vagueness since the cultural differences hindered meaningful progress (Verbeke). Oral agreements also played a significant role in the ensuing confusion, which fundamentally worsened the relationship. The result was a general lack of transparency during crucial phases in the relationship which created an air of suspicion between the partners. A communication gap emerged during the decision-making process since participants failed to understand each other’s viewpoint.

Absence of Teamwork and Breach of Contract

A general lack of cooperation created cracks in the alliance and consequently resulted in its disintegration. During the formative stages, Suzuki’s Chairman had expressed a need for operational autonomy to avoid being overshadowed by its German partner. The Indian/Asian market emerged as an area of contention especially since Suzuki felt threatened by Volkswagen’s presence in the region. Resistance to these efforts finally resulted in a breach of contract when Suzuki sought engine blueprints from Fiat that Volkswagen had been unable to provide.

Alternative Course of Action

 The alliance between Suzuki and Volkswagen was among the best witnessed in the automotive industry. It was capable of producing mutual benefits which would have gone a long way in enabling the two partners to achieve their objectives. The best course of action would be an in-depth review of the relationship and the impact of cultural differences on a partnership to avoid similar pitfalls in the future.  Cultural differences are a reality in this contemporary market which is why it is critical to address them and the threat they pose to cooperation.

Recommendations

 In the future, companies seeking to partner in a joint industry venture should first review their partner’s cultural disposition to avoid conflict. A cross-cultural alliance should early involve an understanding of background while working on filling existing communication gaps. Volkswagen and Suzuki should concentrate on creating a clear memorandum of understanding to avoid contractual misunderstandings. Furthermore, a measure of performance is imperative to collaboration since it increases the chances of success. Understanding one’s partner and whether they are an appropriate match is also important and may determine a partnership’s success.

Assessment Questions

What are the significant cultural differences between European and Japanese managers that affect implementing strategic and collaborative agreements such as a joint venture?

Cultural differences among the Suzuki’s and Volkswagen’s leadership was chiefly to blame for the partnership’s abrupt ending. European and Japanese cultures are entirely dissimilar, which is also why the joint venture failed to succeed.  For instance, German managers focus on careful preparation and planning when seeking to implement a strategy. They are also keen on details and strict adherence to a specific agenda. German managers also favoured written documents during essential deliberations. On the other hand, the Japanese management style focused on hard work and loyalty when seeking to make headway. They also relied heavily on oral agreements during crucial meetings which were often disregarded their German counterparts.

Why did VW believe that Suzuki could assist in developing the Indian market?

After the 2009financial crisis, multinational companies sought to improve their global standing by creating subsidiaries in emerging Asian markets. The Indian market was of particular interest to Volkswagen due to its rapid population and a vibrant middle-class who would provide a ready market for the German automaker (Verbeke). Suzuki’s position in the market and its influence in India, therefore, became instrumental to Volkswagen when seeking to make headway in the market. Additionally, Suzuki had a better understanding of the Indian market, which would have been instrumental in developing vehicles that were specifically tailored for this particular population.

Is it normal for international companies that partner within a joint venture terminate the agreement in time? Why?

International companies forge joint ventures intending to reap mutual benefits from the partnership. Nevertheless, disputes and irreconcilable differences may emerge, which usually causes the termination of such agreements. It is, therefore, reasonable for international companies partnering under a joint venture to end their contract especially when the relationship fails to work.  Failure to agree on essential tenets may result in regular skirmishes. Poor communication, a lack of flexibility and compromise also results in regular tension which reduces productivity between business partners, leading to a termination of the agreement.

4. Did the problems between VW and Suzuki cause other international partners to avoid either company after the event? Problems between international partners are a regular feature in such alliances. Although a partnership may start on an optimistic note, challenges are always bound to emerge given the myriad of dynamics which often emerge. The problems witnessed between VW and Suzuki commonly occurs in joint ventures between companies with starkly disparate cultural backgrounds in an international setting. It is, therefore, quite unlikely that international partners would avoid either company for a classic example of incompatibility in a joint venture.

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