Strategic Alliance Between GM and Daewoo

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Strategic Alliance Between GM and Daewoo

  1. 1. A Strategic Alliance GM and Daewoo
  2. 2. Joint Venture Highlights <ul><li>Daewoo Automotive Components “DAC JV” was formed in 1984 </li></ul><ul><ul><li>Alliance between Saginaw Division of GM and Daewoo Motors </li></ul></ul><ul><ul><li>Enable GM to establish a manufacturing presence in Asia Pacific region. </li></ul></ul><ul><ul><li>To manufacture “LeMans” vehicle assembly in South Korea </li></ul></ul><ul><li>Both invested $100m in a 50/50 JV </li></ul>
  3. 3. Organisation Chart
  4. 4. About Saginaw <ul><li>Subsidiary components division of GM </li></ul><ul><li>Major Profit center for GM </li></ul><ul><li>Supplied components to GM (including Opel), Chrysler, and Toyota </li></ul><ul><li>Source of “LeMans JV” for General Motors </li></ul><ul><li>Competed with Hyundai’s “Mando” component division </li></ul>
  5. 5. GM Objective <ul><li>To provide financial returns (dividends, royalties, source plant profits) </li></ul><ul><li>Support Overseas programs (specifically the Pontiac LeMans JV) </li></ul><ul><li>To support GM’s cost, quality and capacity for NA market </li></ul><ul><li>Attain low cost manufacturing source for South Asia Pacific region </li></ul><ul><li>To penetrate strategically insignificant emerging market </li></ul><ul><ul><li>To learn key market characteristics </li></ul></ul><ul><ul><li>To understand design preferences in Asia Pacific region </li></ul></ul><ul><li>To compete successful Asian imports in NA market </li></ul><ul><li>To supplement GM’s product offerings on a global basis </li></ul>
  6. 6. Daewoo Objective <ul><li>To explore Export market opportunities </li></ul><ul><li>New technology and Engineering Skills needed to compete effectively in the domestic market </li></ul><ul><li>To supplement GM’s product offerings on a global basis </li></ul><ul><li>To produce components for major Brand vehicles in the domestic Korean market </li></ul><ul><li>To compete with “Mando” division against “Hyundai” </li></ul>
  7. 7. Joint Venture Highlights (cont’d) <ul><li>GM (Saginaw) provided </li></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Process Knowledge to manufacture and assemble component </li></ul></ul><ul><li>Daewoo provided </li></ul><ul><ul><li>Manufacturing facilities </li></ul></ul><ul><ul><li>Management of daily operational activities </li></ul></ul><ul><ul><li>Labor </li></ul></ul><ul><li>GM (Saginaw) maintained its “rights”, to access the market opportunities for DAC components outside of Korea. </li></ul>
  8. 8. Joint Venture Highlights (cont’d) <ul><li>Existing Daewoo Motors facilities were converted into DAC manufacturing facilities </li></ul><ul><li>A Board of Directors (BoD) formed </li></ul><ul><ul><li>Comprised of 12 members, 6 from each parent </li></ul></ul><ul><ul><li>To stamp final authority on decisions affecting business </li></ul></ul><ul><ul><li>To review and approve all business plans and strategies </li></ul></ul><ul><li>Daewoo’s original management team retained, </li></ul><ul><ul><li>Provided day-to-day management services to DAC in return for a management fee. </li></ul></ul><ul><li>GM placed one person in the Korean facilities as a manager of DAC </li></ul><ul><ul><li>To protect the interests of GM during DAC’s daily activities. </li></ul></ul>
  9. 9. Evolution of Events <ul><li>1987 South Korea had attained democracy </li></ul><ul><ul><li>Workers demanded in wage increases </li></ul></ul><ul><ul><li>Frequent delay at LeMans production plant </li></ul></ul><ul><ul><li>Daewoo responded by doubling wages ( overall 215% increase) </li></ul></ul><ul><ul><li>Quality issue </li></ul></ul><ul><ul><li>“ LeMans” production became costlier compare to “Opel” produced in Germany plant </li></ul></ul><ul><li>GM disappointed with Daewoo on produced component quality and “LeMans” car </li></ul>
  10. 10. Evolution of Events (cont’d) <ul><li>Daewoo was equally frustrated with GM </li></ul><ul><ul><li>Daewoo Group Chairman Mr. Kim complained that he was treated shabbily and GM executives were arrogant </li></ul></ul><ul><ul><li>GM did not permit Daewoo to expand their market in the US or Eastern Europe </li></ul></ul><ul><ul><li>GM did not allow Daewoo to double its existing capacity </li></ul></ul>
  11. 11. Options available for GM <ul><ul><li>GM has 3 options </li></ul></ul><ul><ul><ul><li>Dissolve the relationship </li></ul></ul></ul><ul><ul><ul><li>Maintain the status-quo </li></ul></ul></ul><ul><ul><ul><li>Change the way the JV operates </li></ul></ul></ul>
  12. 12. Recommendation <ul><li>We recommend that GM should </li></ul><ul><ul><li>Continue JV </li></ul></ul><ul><ul><li>A learning opportunity for GM </li></ul></ul><ul><ul><li>“ To better understand”, how to manage future joint ventures </li></ul></ul><ul><ul><li>To gain stronger foot hold in market share </li></ul></ul>
  13. 13. How ? <ul><ul><li>To implement a better organizational and administrative structure </li></ul></ul><ul><ul><li>Dedicated resource to restrict </li></ul></ul><ul><ul><ul><li>The flow of proprietary knowledge analysis </li></ul></ul></ul><ul><ul><ul><li>Management of financial returns </li></ul></ul></ul><ul><ul><li>Improvement of DAC’s </li></ul></ul><ul><ul><ul><li>Allowing DAC to export components </li></ul></ul></ul><ul><ul><ul><li>To build better quality </li></ul></ul></ul><ul><ul><ul><li>Learn from their partner. </li></ul></ul></ul>
  14. 14. Result <ul><li>Inability to build cohesive strategy for operations of the JV made both parties to dissolve the strategic alliance </li></ul><ul><li>Daewoo bought GM’s interest in 1992 </li></ul>
  15. 15. Questions
  16. 16. Was alliance proved strategic for both organizations?
  17. 17. What went wrong? <ul><li>“ Hyundai” competitor to Daewoo, had larger car market share in Korea </li></ul><ul><li>“ Mando” an “Hyundai” chassis division existed before initiation of the DAC joint venture </li></ul><ul><li>GM never made an effort to sell “DAC JV” products outside Korean market </li></ul><ul><li>GM restricted Daewoo to export outside Korean market </li></ul><ul><li>GM assumed that “Korean” and “Asian” market were synonymous </li></ul><ul><li>DAC’s natural desire to grow, created possible threat to GM’s Saginaw </li></ul>
  18. 18. Post JV <ul><li>A Decade later </li></ul><ul><li>GM bought Daewoo </li></ul>
  19. 19. Participants Detail <ul><li>Group 7 </li></ul><ul><ul><ul><ul><ul><li>Bharat Sharma -5009 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>David Thomas -5013 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Bobby Chacko -5031 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Nirmala Gilbert -5014 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Fahad Siddiqui -5018 </li></ul></ul></ul></ul></ul><ul><li>Thank you </li></ul>

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