Tag: alliances

OM in the News: Rival Drugmakers Form Alliances

Some of the world’s biggest drugmakers are joining forces with rivals to help produce Covid-19 vaccines, forging unusual alliances that promise to substantially increase supplies by this summer. As we write in Chapter 5, Design of Goods and Services, alliances are a good strategy “when substantial resources are required and sizable risk is present.”

Normally big pharm companies compete to sell cancer, arthritis and other drugs. The desperate need for Covid-19 vaccines, however, is turning fierce industry competitors into fast pandemic friends. Sanofi SA recently agreed to help make a vaccine from Pfizer after Sanofi’s experimental Covid-19 shot suffered a 5-month setback, freeing up a production line in Frankfurt. Novartis AG also agreed to hep Pfizer produce more doses.

Endo International has agreed to help Novavax produce its shot.

The collaborations, along with the authorization of newer vaccines and fine-tuning by the vaccine makers themselves, could help significantly boost global output, reports The Wall Street Journal (Feb. 24, 2021). Early supplies have been limited, as vaccine makers needed time to increase production and overcome early hiccups and problems getting raw materials.

The production alliances are the latest example of industry rivals coming together to fight the pandemic, starting with research tie-ups. They build upon a year-long effort by the drug industry and partners to crank up capabilities to make everything from the tiny vials that hold the shots to raw ingredients that make them. But production can’t start overnight. Vaccine manufacturing is a complex process that often requires training staff, upgrading facilities and buying new equipment. 

Novavax, which has a vaccine in the late stages of development, doesn’t own a manufacturing plant and has to lean on other companies to produce the shot. Baxter said one of its plants in Germany will help fill and finish Novavax’s vaccine, as did Endo in Rochester, Michigan–under pressure from the U.S. government.

Classroom discussion questions:

  1. What will happen to these alliances once the pandemic is under control?
  2. Why is it challenging to produce the new vaccines for another company?

OM in the News: GM and Honda Now in Strategic Alliance

In Chapter 5, Design of Goods and Services, we note that as the speed of new products and their technological sophistication increases, so do risks.  One way to mitigate this risk is via alliances (page 175). This is exactly  what GM and Honda are doing as they invest billions in an “automotive alliance” in the North American market, including plans to co-develop a range of vehicles to be individually branded by each partner.

GM and Honda plan to share vehicle platforms, including both electric and internal combustion propulsion systems. Earlier this year they agreed to jointly develop two EVs to be branded by Honda, based on the General Motors’ EV platform and powered by its Ultium battery technology.

The two automakers have been partners in selected projects over more than 20 years, including their recent collaboration fuel cell and battery technologies and production, and the Cruise Origin autonomous vehicle.  Beyond the new vehicle technologies, GM and Honda will work to coordinate materials purchasing, logistics services, and localization activities, to create cost efficiencies by leveraging respective scale, insights, and best practices, reports American Machinist (Sept. 3, 2020). And, the two organizations will explore combining R&D related to advanced technology areas, including electrical architecture, advanced driver assist systems, infotainment, connectivity and vehicle-to-everything communication.

“Combining the strengths of each company, and by carefully determining what we will do on our own and what we will do in collaboration, we will strive to build a win-win relationship to create new value for our customers,” said Honda’s VP.

Classroom discussion questions:

  1. What is the definition of an ‘alliance’?
  2. What are the risks to GM and Honda when they establish such alliances?

OM in the News: The Ford-VW Electric Car Alliance

(From L-R) Jim Hackett, Ford CEO, Bryan Salesky CEO of Argo AI, and Herbert Diess, VW CEO.

As we discuss in Chapter 5 (see the Product Development Continuum and Figure 5.6), alliances are often appropriate for exploiting opportunities where substantial resources and risk are involved. We now see Ford and VW investing in Argo AI to pursue the market for electric and self-driving cars.

Unprecedented shifts facing the auto industry are forcing players to consider new partnerships and potential consolidation, writes Industry Week (July 12, 2019). VW, the world’s top automaker, offers the industry’s most ambitious roll-out of electric models, while Ford, also in the top 10, is developing advanced self-driving technology with Argo. For VW, the Argo investment offers an opportunity to potentially catch up with Alphabet’s Waymo, and GM’s Cruise unit. Road tests and accumulating huge amounts of data are critical for the further development of self-driving cars, and few apart from Waymo are equipped to do it alone.

Besides sharing costs for the development of self-driving cars, Ford will use VW’s electric-car underpinnings that form to backbone of the most aggressive rollout of electric cars in the industry, with VW spending $34 billion. Adding more vehicles to production lines would help gain scale and save costs, and offer Ford a platform to better comply with tougher rules on carbon-dioxide emissions in Europe. Ford will build at least one mass-market battery car in Europe starting in 2023 and deliver more than 600,000 European vehicles based on VW’s platform, dubbed MEB, over 6 years.

“Our global alliance is beginning to demonstrate even greater promise , and we are continuing to look at other areas on which we might collaborate,” said VW’s CEO.

Classroom discussion questions:

  1. Define an alliance.
  2. What are the advantages and disadvantages of an alliance such as one described above?

OM in the News: Honda to Invest $2.75 Billion in GM’s Self-Driving Cars

Honda’s investment will give the auto maker a 5.7% stake in GM Cruise.

Honda is investing $2.75 billion in GM’s self-driving car unit, for the joint development of a mass-produced fully autonomous car, writes The Wall Street Journal (Oct. 7, 2018). Auto makers and technology giants have been scrambling to plant stakes in a transportation landscape that is swiftly being reshaped by technology. Honda will work with GM Cruise LLC to develop a driverless car from the ground up that can be manufactured in high volumes and deployed globally. (GM set up Cruise as a separate business unit to draw in investors who don’t want exposure to the cyclical, low-margin business of manufacturing cars).

Honda’s decision to invest in GM’s self-driving arm reflects a culture change under way at the Japanese car maker, which long prided itself on its engineering prowess, shunning technologies developed by outside companies. One industry analyst said he expects only a handful of “winners” to emerge from the race to commercialize driverless vehicles. That prospect and the large capital outlays required to develop the technology could lead to more collaboration among automotive competitors.

Car companies have been teaming up with tech firms and suppliers to develop driverless technology. GM’s pact with Honda is a further sign that traditional auto makers will look to join forces with one another as they try to fend off Waymo and others vying to lead in a technology that could upend the transportation sector.

Fiat Chrysler has joined a BMW-led consortium to develop self-driving car technology with the aim of producing fully automated vehicles by 2021. BMW launched the partnership with Intel and Israeli car-camera software provider Mobileye. Toyota just announced it would invest $500 million in Uber to work jointly on autonomous vehicles. Uber will integrate its self-driving technology into Toyota minivans for use in Uber’s ride-hailing network.

Classroom questions:

  1. Name other companies that are forming “alliances” ( a topic in Chapter 5).
  2. Why are such alliances useful in designing goods and services?

OM in the News: The Mercedes-Renault Alliance

mb1The New York Times (June 28, 2014) brings us a great example of today’s alliances as a strategy for product development, a topic in Chapter 5. Daimler and Renault-Nissan just significantly expanded their automaking alliance, with plans for a production plant in Mexico that will build a new generation of compact Mercedes and Infiniti cars. The companies will invest $1.4 billion in the factory 300 miles north of Mexico City. While the vehicles produced at the 50-50 joint venture will carry different brand names and look different from one another, they will share many components.

The companies will also share some of the costs of developing the new vehicles. But they said they were not worried about cannibalizing each other’s sales. There is virtually no overlap between buyers of Mercedes cars from Daimler and Infiniti cars from Renault-Nissan. Mercedes has been cooperating for 4 years with Renault-Nissan, itself a longstanding French-Japanese alliance. Among other things, they produce 4-cylinder engines together at a factory in Tennessee. They also shared the cost of developing major components for the next generation of their flagship small cars, the Renault Twingo and Daimler Smart.

The alliance is part of a trend for car companies and, in some cases, competitors to share the enormous costs of developing and producing new models while maintaining separate brand identities. When the Mexico plant reaches capacity, it will be able to produce 300,000 vehicles a year and will employ 5,700 people. The factory will begin producing Infinitis in 2017 and Mercedes in 2018. While the companies will initially maintain separate production lines, both lines will eventually be able to produce either brand, making it easier for the companies to respond to fluctuations in demand.

Classroom discussion questions:

1. Why do competitors enter into alliances?

2. What are the risks to Mercedes and Renault-Nissan?