Case 1

Erich Spencer
Section 1

Group 1
Fabián Abarza
Agustín Campos
Nicolás Garafulic
Kevin Meneses
Catalina Rojas
Lucas Velasco

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 1. Executive Summary

Fiat Group is a very well known car manufacturer, established in Italy since 1899. The group
comprised five business areas, but almost half of its revenues (49,3% of net revenues) come from
the car manufacturing and selling business.
The car manufacturing industry is a highly competitive one. In 2006 there were 18 manufacturers
that produced more than one million vehicles per year, and the top 10 companies represented more
than 68% of the industry’s output (Mitchell, 2008). Also, the industry requires large initial capital
investments, and the developing of new car models is extremely high (approximately $1-2bn). As a
result, manufacturers operated with profit margins under 3%. In this context, Fiat had remarkable
results in the business, with 13,8% of market share in western Europe until 1990. The group has
always focused their production in small compact cars, relatively low priced and suitable mainly for
urban spaces, and of course with some models specially design to sell in the USA, Southamérica and
Asia. Despite the success Fiat witnessed all these years, market share started falling since 1990,
reaching 6,5% in western Europe in 2005, and losing nearly $12 billion in this last years.

In a business that crosses borders, such as that of car sales, it is important to create strong long term
alliances in order to penetrate international markets, and Fiat hasn’t been able to accomplish this.
Now, a new Joint Venture has started with indian Tata Group. So, what should be changed in order
to secure the longevity and success of this alliance?
In order to answer this question, we will analyze the main factors that could prevent this alliance
from working in the long term, and how Fiat should approach them.

2. Analysis
Regarding the past 1JV’s of Fiat in the european market with GM, we could consider that its main
problem is to ensure the permanence of the JV with Tata Motors and the profits that this could
mean, for a long term. So it is necessary to make a strategy that would give stability to the relation of
both companies. In order to create that strategy, it is important to point that there are 3 subtopics
that could affect the function of the alliance and risk the permanence of the JV. These are the ones
that we are going to discuss in this case. Those are: Cultural differences, geographical difficulties,
and competitive structures.

● About the cultural differences, Fiat had some difficulties in the past because of the
differences between the italian and the indian culture. In fact, they need to understand the
indian consumer and the market and that’s where Tata showed as the better commercially.
It is important to understand the differences of both cultures and work towards better
agreements and collaborations, by good manners and empathy. In other words, Fiat workers
need to be cultural awareness and by that way beat any case of cultural collision (Spencer,
2020). By maintaining that relationship, it’s going to help to maintain the stability of the JV.

● Concerning the geographical difficulties, is important to remark that all the meetings are
made in India, because indian citizens that enter to Europe require a week long waiting
period. On the other hand, Fiat executives say that they prefer face to face conversations
over phone calls, this is a very good decision because they avoid the fragmentation and
possible loss of control, which would turn the Indian operation into a “fiefdom” (Spencer,
2020). They had some complications with the meetings. Sometimes, if they scheduled an

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Joint Venture.
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 appointment at 10 am, they could start at 11 am, because the workers in India could still
have work to do at the office. Also they would probably being interrupted constantly by
others issues at the company. This issue can affect the communications of the 2 companies
and result in misunderstandings. That is risky for the collaborations that these companies
have.

● About the different competitive structures, it is remarkable that these two companies have a
difference in company culture, In Fiat they work on speeding the process, they might have
one position then three days later they have another one. Also, they have a lot of autonomy
in the decisions. Unlike Fiat, in Tata we can see that the organizational structure is more
vertical or hierarchical, because the decisions need to be escalated up higher in the
organization. This could reflect in discoordinations with the decisions times or conflicts in the
process.

Hence the need to analyse the internal and external factors of the alliance, the ​SWOT ​model is the
one that suits the best to analyse this case. The principal problems, mentioned earlier, in the JV are
the cultural and internal differences, this impact the way of working and producing. For this reason is
important to recognize the weaknesses and threats that affects them in order to find possible
solutions.

● First the ​strengths​. Both enterprises have a long history in their business, Fiat has extensive
experience in the automotive world such as the production of cars and machinery,
construction equipment among others. Tata on the other side, had experience, excellent
reputation and local success in the Indian market. The automobilistic industry in India is
quite important globally, so it is good for Fiat to join this market although this does not
guarantee full success. Therefore is a strength to alliance with a well-known company as
Tata, the group was one of India´s largest industrial conglomerate running in that country,
this gives them good position in the industry as well as an advantage over competitors.
● Secondly, the ​weakness of the JV, are the past of Fiat. First the past history with GM was a
failure so maybe is an indicator that Fiat has same internal problems of communication.
Second, Fiat tried to enter India´s industry with bad results, they were loss-making with
some plants operating under capacity so the alternatives are closing the Indian operation or
to look for a local partner. This shows some risk to the operations.
● Thirdly, the ​opportunities​. For both companies the alliance is a opportunity for growing and
expanding. Fiat has the vision of gaining more product technology, industrial know-how and
scale and geographical markets with this JV. By working together they reduced costs,
created new models and expanded their production variety. The Indian market was growing
and also the Asian one. So this is a huge opportunity to exploit the industry nationally and
internationally.
● Finally, the ​threats​. It is a threat for the future success of the JV the cultural differences that
can hinder relationships and operations.

After the analysis we can conclude that both enterprises have potential working together, the JV is a
suitable commercial strategy for this kind of context. Controlling and working on the cultural
problems, there is a lot of market opportunities to make business on. Although the internal strategy
has to change in favor of the future of the alliance.

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 3. Solutions + Course of Action
Given the problem, what we are looking for is to maintain this relationship and manage it until it be
successful and beneficial for both parties, both Fiat and Tata seek to profit from each other. So to
ensure that this happens, we must ensure that a channel of communication is sincere and truthful
with respect to everything that affects both companies. Legally guarantee the union of the two, that
is, clearly establish the terms of the union and exit clauses. An important edge of this JV is Tata's
knowledge of the Indian market and its market penetration, so Fiat must ensure that this exchange
of information and knowledge is permanent and continuous, stipulating it in the contract, since
without this access Fiat could see its indian operations threatened. Also, the success of this union lies
largely with the joint operational results, so taking advantage of the great market penetration that
has tata, various market studies must be carried out, to always be aware of the public response to
the products it puts on the Indian market Fiat, the future joint projects that they have, and the brand
that would gradually be positioned there , in addition to correctly measuring the market sensitivity
to various variables that are added to the models, be it price, performance, interior space for
passengers, among others. This is different paths to follow in the future, to ensure success of this JV.
Culturally, it is important to keep in mind the time in the adoption of processes. Based on studies of
process diffusion, the number of people who adopt the innovations carried out in an organization
has the form of a campaign.

● Therefore, in the ​short term we begin the awareness stage. To execute it, due to cultural
differences, Fiat workers who travel to India or that usually interact with Tata´s people
should be informed (by short and punctual guidebooks tips, research, or reports) of how
they should behave and work with them, asking as a requisite for them to get informed and
read specific information (political and economical country situation as well as manners and
behaviour). This info should be gathered by professionals or top people from Fiat who are
used to work with them and given directly to Fiat staff. Later, incorporating common
activities at least among senior executives (since implementing it productively would be not
feasible because of costs) with activities from both countries, in order to build a relationship.
That would definitely ensure avoiding cultural collisions and problems.
● According to the geographic difficulties, the obstacles in conducting meetings must be
resolved after consolidating awareness stage (​medium term​, 4 months) and have advanced
to the interest stage in adopting processes to establish policies/instructions regarding
meetings, evaluate them, test them and finally adopt them as an organizational culture, thus
strengthening a single culture as a company. Besides, if both companies need to regularly
feedback and give information to each other, taking the advantage of technology by using
methods like videocam meetings would be much more efficient, easy, and cheap (saving the
costs of traveling).
● In the ​long term​, we assume the consolidation of the organizational culture, because the
adapters matured, so the changes may be faster and of greater magnitude. Thus, the
problem based on having different competitive structures, each company can take
advantage of that. It’s said that Tata’s method is much more hierarchical, while Fiat’s is more
horizontal. But for example, if the italians see that in certain area Tata is much more efficient
having an expert commanding and taking decisions instead lot of people, they should learn
from it, apply it and take advantage from that. Same for Tata’s team, which can analyze and
learn from Fiat’s methods, where horizontal structures work better, apply it, and benefit

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 them too. That's an effective method of learning of the other culture, and taking the best of
it.

References

● Mitchell, Jordan (2008). Fiat`s Strategic Alliance with Tata.

● Spencer, Erich (2020). Interpreting and Working in the Strategic Context for
International Business: The Cultural Framework.
● Spencer, Erich (2020). The organization of international Business.