Strategic Management Case Study
Q1. Expand on the rationale behind the Fiat and Chrysler strategic alliance.
In December 2008 Fiat witnessed such a drop off in its demand for cars that they were forced to close for a month and lay off close to 50,000 workers. The company indicated that amid the financial crisis it was looking for a partner who could give the company the much needed push in the North American market. Fiat learned about Chrysler’s bankruptcy problems and put an offer on the table for the purchase of Chrysler. Experts felt the alliance was part of Fiat’s expansion and risk diversification strategy. On Jan 20th, 2009 as part of its bankruptcy filing, Chrysler announced its plans to establish a global strategic alliance with Fiat.
The rationale for this alliance is very simple. Commenting on the alliance, CEO of Fiat and Chrysler Sergio Marchionne summed it up by saying, “This transaction represents a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole. Bringing together Fiat’s world class technology, platforms and power trains for small and medium sized cars and its extensive distribution network in Latin America and Europe with Chrysler’s rich heritage, strong North American presence, and talented and dedicated workforce will create a powerful new automotive company while helping preserve jobs and a manufacturing industry that is critically important to the US and Canadian economies.
The alliance is a good example of horizontal integration.
Benefits of horizontal integration include:
1. Reducing costs- horizontal integration allows company’s to grow and therefore to realise economies of scale. As part of the alliance both of the companies would reportedly launch seven new vehicle models in the US market. This will be cheaper to do as they will use Chrysler’s plants across North America aswell as Fiats complementary technology and expertise. Observers
In December 2008 Fiat witnessed such a drop off in its demand for cars that they were forced to close for a month and lay off close to 50,000 workers. The company indicated that amid the financial crisis it was looking for a partner who could give the company the much needed push in the North American market. Fiat learned about Chrysler’s bankruptcy problems and put an offer on the table for the purchase of Chrysler. Experts felt the alliance was part of Fiat’s expansion and risk diversification strategy. On Jan 20th, 2009 as part of its bankruptcy filing, Chrysler announced its plans to establish a global strategic alliance with Fiat.
The rationale for this alliance is very simple. Commenting on the alliance, CEO of Fiat and Chrysler Sergio Marchionne summed it up by saying, “This transaction represents a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole. Bringing together Fiat’s world class technology, platforms and power trains for small and medium sized cars and its extensive distribution network in Latin America and Europe with Chrysler’s rich heritage, strong North American presence, and talented and dedicated workforce will create a powerful new automotive company while helping preserve jobs and a manufacturing industry that is critically important to the US and Canadian economies.
The alliance is a good example of horizontal integration.
Benefits of horizontal integration include:
1. Reducing costs- horizontal integration allows company’s to grow and therefore to realise economies of scale. As part of the alliance both of the companies would reportedly launch seven new vehicle models in the US market. This will be cheaper to do as they will use Chrysler’s plants across North America aswell as Fiats complementary technology and expertise. Observers
Bibliography: Arnaldo Camuffoo and Giuseppe Volpato. (2010). Partnering in the global auto industry: the Fiat-GM strategic alliance . International Journal of Automotive Technology and Management. 2 (3-4), p335-352 Kiley, David Seetharaman , D. (2011). Chrysler dealers to service rival vehicles . Available: http://www.msnbc.msn.com/id/42573120. Last accessed 5/4/2011 Bobby, M Hofstede, G. (2009). Cultural Dimensions. Available: http://www.geert-hofstede.com/hofstede_dimensions.php. Last accessed 5/4/2011. Abildtrup, F. (2010). 23 facts about customer loyalty and customer satisfaction. O’Sullivan, N. (2011) Strategic Management class notes.