Week 4 Application Assignment: Peggy O'Connor

This week’s reading about the science of partnerships, alliances and collaborations was particularly meaningful to me since I have been alive long enough to remember international partnerships from the last century, once of which occurred when the American Motors Corporation (AMC) and France’s Renault collaborated on the manufacture and sale of two rather forgettable vehicles, the Renault Alliance and the Renault Encore. The Alliance is unforgettable to me, however, since it was the first new vehicle I ever purchased. It lived a fairly good life for three years and then the engine blew up. It was too difficult and expensive to repair, since repairs required specific tools and parts from Europe…and the car and I lived in Detroit.

Of course the Renault-AMC alliance (the business relationship, NOT the car) was somewhat of a troubled partnership (Renault owned first some shares and later controlling interest in what was then the smallest U.S. auto company) from the beginning – a fact of which I was unaware as a first-time car-buyer.

The challenges that Renault and AMC faced in this collaboration are well documented in Detroit auto making history, with the Alliance winning initial favorable reviews and healthy sales in the United States, but failing to fully impress the French marketplace as so many earlier Renault models had previously done.

As time went on and sales eventually lagged in the U.S., other problems turned up, such as the fact that Renault also “failed to fully accommodate the European cars to U.S. market demands. These included the car's less powerful engine whose output limited by the more demanding U.S. emission requirements, as well as the popularity of air conditioning that was still a rare option in Europe.” (Jones, Gálvez-Muñoz, 2001). Other challenges the partnership faced included exchange rate difficulties between U.S. and French currency (during a period of U.S. inflation, 1983-87), as well as numerous quality control problems in the French distribution process which resulted in “disastrous consequences for the image of the automobiles as well as increasing warranty costs.” (Jones, Gálvez-Muñoz, 2001).

What went wrong with this partnership, I wondered, thinking back to my first car while working through this week’s reading. In her study of productive partnerships, Rosabeth Moss Kanter observed that “North American companies, more than others in the world, take a narrow, opportunistic view of relationships, evaluating them strictly in financial terms or seeing them as barely tolerable alternatives to outright acquisition,” (Kanter 2010).

Was this part of the reason that the AMC-Renault relationship eventually failed? Did AMC ignore warning signs of incompatibility because it desperately needed the financial boost it received from its partial ownership agreement forged with Renault? It does seem that – typical of the North American corporate behavior outlined in Kanter’s research – AMC was more focused on the economics of the partnership than on producing a quality vehicle.

Did Renault rely too heavily on its history of building vehicles popular in France, pushing forward with a tight hold on its own design and tooling concepts (which AMC had ceded as part of the collaborative process) while apparently neglecting to conduct basic market research – which meant it would have to become more involved on an interpersonal basis with their American counterparts AND customers – to find out the kinds of options Americans preferred in the cars they purchase?

It seemed that, looking back through a 1980s lens, both AMC and Renault failed to successfully process even the basic issues in alliance management, as outlined in another of this week’s readings, "Managing International Alliances: A Conceptual Framework,” (Comes-Casseres, 1993). In that article, the first two key issues in alliance management are, “I. The logic of collaboration (identifying when, where, and why to collaborate); and II. Selecting partners (knowing how to maximize benefits and minimize risks of partnerships).” (Gomes-Casseres 1993).

Without delving deeply into the history of the failure of the AMC-Renault international partnership to see if my impressions are valid, one thing is obvious: in the end, the partnership failed. AMC failed, among other reasons, because it had been forced by the partnership to give up its more lucrative product line, AM General (which produced military and government vehicles) because U.S. regulations prohibit military suppliers to be owned by foreign governments. Production on the Alliance ended in 1987, just four years after it began. AMC was purchased by Chrysler Corp. Renault was damaged in its future attempts to launch profitable, popular vehicles in the United States (Jones, Geoffrey; Gálvez-Muñoz, Lina, 2001).

So as much as I was disappointed in the eventual outcome of my first new vehicle purchase, it could have been much worse. And for AMC and Renault, it was.

References

Kanter, R. (2010). "Collaborative Advantage: The Art of Alliances. “Harvard Business Review. pp. 1-16.

Gomes-Casseres, (1993). "Managing International Alliances: A Conceptual Framework." Harvard Business School. pp. 1-20.

Retrieved from http://en.wikipedia.org/wiki/Renault_Alliance, February 19, 2012

Jones, Geoffrey; Gálvez-Muñoz, Lina (2001). Foreign multinationals in the United States: management and performance. Taylor & Francis. pp. 110–112.