This assignment basically consists on continuing with the critical analysis of the vertical boundaries strategy of the company chosen to work with your team.
As usual, your answer will consist of the proposals that you will present in class to your team colleagues as a part of the Strategic Analysis that you will be preparing collaboratively throughout the course.
It does not have to be extremely well written (you will do it for your professional report in your personal blog at the end of the course), but it is expected to be the outcome of an individual deep reflection on the topic at hand.
In this assignment, in particular, you are required to give an answer to the following question:
Is there any activity in the Value Chain of the chosen company for which you would recommend other ways of organizing exchanges different from arm’s-length market contracting and vertical integration?
Justify your answer: give the reasons why the proposed alternative may be more efficient than “making”, and the reasons why it could be more efficient than “buying”.
Strategic alliances involve cooperation, coordination and information sharing for a joint project by the participating firms. A joint venture is an alliance where a new independent organization is created and jointly owned by the promoting firms. Strategic alliances and joint ventures fall between pure market exchange and full vertical integration. Alliances rely on trust and reciprocity instead of contracts. Disputes are rarely litigated but resolves through negotiation.
It is costly for any one party to develop the necessary expertise. Market opportunity for the transaction is not expected to last very long making a long-term contract or merger unattractive. Regulatory environment necessitates acquiring a local partner for the venture
Tesla and Panasonic: Related to the battery production, from their very initial years, Tesla started to collaborate with Panasonic to produce the highest energy density electric vehicle battery packs. Since then, the Tesla-Panasonic partnership has come a long way. In 2009, Panasonic signed an agreement to supply lithium-ion battery cells to Tesla Motors for its electric vehicles. Later, the Japanese company decided to invest 30 million dollars in Tesla. Both companies started to collaborate in the development of a next generation of battery cells for electric vehicles, and Tesla chose Panasonic as its preferred lithium-ion battery cell supplier. the collaboration reached a new level when in 2016 Panasonic decided to invest up to 1.6 billion dollars in the Gigafactory project that Tesla initiated two years earlier.[1]
This agreement may be ending in some cases but the deal at Gigafactory Nevada to produce battery cells for Tesla’s Model 3 and Model Y is reportedly intact.[2]
If the agreement is going well, there is no need for Tesla to start manufacturing what it is supplied by Panasonic. According to the agreement, Tesla will prepare, provide and manage the land, buildings and utilities. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval. A network of supplier partners is planned to produce the required precursor materials. Tesla will take the cells and other components to assemble battery modules and packs. To meet the projected demand for cells, Tesla will continue to purchase battery cells produced in Panasonic's factories in Japan. The Gigafactory will be managed by Tesla with Panasonic joining as the principal partner responsible for lithium-ion battery cells and occupying approximately half of the planned manufacturing space; key suppliers combined with Tesla's module and pack assembly will comprise the other half of this fully integrated industrial complex.
The Gigafactory is being created to enable a continuous reduction in the cost of long range battery packs in parallel with manufacturing at the volumes required to enable Tesla to meet its goal of advancing mass market electric vehicles.
Cost reductions will be achieved through optimized manufacturing processes driven by economies of scale previously unobtainable in battery cell and pack production. Further price reductions are achieved by manufacturing cells that have been optimized for electric vehicle design, both in size and function, by co-locating suppliers on-site to eliminate packaging, transportation & duty costs and inventory carrying costs, and by manufacturing at a location with lower utility and operating expenses. [3]
Interesting analysis!
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