Making Strategic Choices SLP-Module 4

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Making Strategic Choices SLP-Module 4 [Pick the date]

Strategic choices are the core of every business. Recently, General Motors have decided to enter into strategic alliance with PSA Peugeot Citroen, the much talk about topic in automotive sector these days. In the past, we have observed that the in order to make maximum benefits of economies of scale, companies would have entered into mergers however the changing global trend entails strategic alliances with reference to individual projects.

Even Peugot has entered into various alliances with other competitors of GM. This alliance has two main areas:

the sharing of vehicle platforms, components and modules and the creation of a global purchasing joint venture for the sourcing of commodities, components and other goods and services from suppliers, with combined annual purchasing volumes of approximately $125bn. (bbc.co.uk, February 2012)

The agenda of this alliance is to focus on products and projects tailor made for European market and acquisition of 7% shares in Peugot.

Considering porter's generic strategies; GM has been religiously following low-cost strategy along with product differentiation. Every year, a new variance of existence model can be seen easily in the market. And its distributed structure across the globe is one of its methodologies of reducing production cost.

Considering the current alliance with Peugot which if takes place would enable GM address its opportunities in hand and also the threats that it is facing. A combined production facility with Peugot will enable GM reduce its production cost per unit which would enable it to response to the global market's demands which is increasing every day. Furthermore, Europe is the only zone where GM has shown losses. Since Peugot has got strong grip in European region, this would also help GM get its balance sheet straight. Since GM is a huge structure having a relatively high fixed cost as compared to its peers, sharing a production facility with Peugot would help it overcome this threat.

GM by having an alliance with Peugot can also bank on its strengths and mitigate its weaknesses. GM always had a distributed manufacturing structure which makes it rely less on exports. Having a combined production facility with Peugot will reduced capacity of its own will enable it to continue its existence in Europe but at a relatively low production cost. Also having a combined research and development done with Peugot would further strengthen its own innovation, something that GM is already known for. This alliance however doesn't address much of GM's weaknesses as they mainly related to its huge vertical structure and permanent workforce. But probably, if GM makes good profits in Europe, this will show figures relatively better in the balance sheet and might overcome the cost that it is bearing as of now.

We can conclude that this alliance might turn out to be synergetic for both the companies. Peugot will get to spend on its research and development, and marketing and situation might get better for GM in Europe. Furthermore, it also addresses the strengths of General Motors and allows it to duly exploit the opportunities in hand and mitigate the threats that it is facing.