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A Strategic Alliance

GM and Daewoo

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Joint Venture Highlights

Daewoo Automotive Components “DAC JV” got formed in 1984

Alliance between Saginaw Division of GM and Daewoo Motors

Enable GM to establish a manufacturing presence in the Asia Pacific region.

To manufacture “LeMans” vehicle assembly in South Korea

Both invested $100m in a 50/50 JV

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Organisation Chart

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About Saginaw : “GM” Korean Division

Components division of GM

Major Profit center for GM

Supplied components to GM (including Opel), Chrysler, and Toyota

Became source of “LeMans JV” for GM’s request

Competed with Hyundai’s “Mando” component division

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GM Objective

To provide financial returns (dividends, royalties, source plant profits)

Support Overseas programs (specifically the Pontiac LeMans JV)

To support GM’s cost, quality and capacity for NA market

Become a low cost manufacturing source for product and manufacturing in South Asia Pacific region

To penetrate strategically significant emerging market To learn about key market characteristics To understand design preferences in the Asia Pacific region

To compete successful Asian imports in NA market

To supplement GM’s product offerings on a global basis

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Daewoo Objective

To tap export market opportunities

New technology and Engineering Skills needed to compete effectively in the domestic market

To supplement GM’s product and offerings on a global basis

To produce for other vehicles in the domestic Korean market

Compete “Mando” division from “Hyundai”

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Joint Venture Highlights (cont’d)

GM (Saginaw) provided Technology Process Knowledge to manufacture and assemble component

Daewoo provided Manufacturing facilities Management of daily operational activities Labor

GM (Saginaw) maintained its “rights”, to access the market opportunities for DAC components outside of Korea.

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Joint Venture Highlights (cont’d)

Existing Daewoo Motors facilities were converted into DAC manufacturing facilities

A Board of Directors (BoD) formed Comprised of 12 members, 6 from each parent To stamp final authority on decisions affecting business To review and approve all business plans and strategies

Daewoo’s original management team retained, Provided day-to-day management services to DAC in return for a

management fee.

GM placed one person in the Korean facilities as a manager of DAC To protect the interests of GM during DAC’s daily activities.

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Evolution of Events

1987 South Korea had become a democracy

Workers demanded in wage increases

Frequent delay at LeMans production plant

Daewoo responded by doubling wages ( overall 215% increase)

Quality issue

“LeMans” production became costlier compare to “Opel” produced in Germany plant

GM disapproval with Daewoo

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Evolution of Events (cont’d)

Daewoo was equally frustrated with GM

Daewoo Group Chairman Mr. Kim complained that he was treated shabbily and GM executives were arrogant

GM did not allow Daewoo to expand their market in the US or Eastern Europe

Did not want to allow Daewoo to double capacity

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Available Options to GM

GM has 3 options

Dissolve the relationship

Maintain the status-quo,

Change the way the JV operates

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Recommendation

We recommend that GM should continue in the JV

A learning opportunity for GM

“To better understand”, how to manage future joint ventures

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How ?

To implement a better organizational and administrative structure

Dedicated resource to restrictThe flow of proprietary knowledge analysisManagement of financial returns

Improvement of DAC’s

Allowing DAC to export components

To build better quality

Learn from their partner.

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Result

Inability to build cohesive strategy for operations of the JV made both parties to dissolve the strategic alliance

Daewoo bought GM’s interest in 1992

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Questions

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Was alliance proved strategic to both companies?

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What went wrong?

“Hyundai” competitor to Daewoo, had larger car market share in Korea

“Mando” an “Hyundai” chassis division existed before initiation of the DAC joint venture

GM never made an effort to sell “DAC JV” products outside Korean market

GM restricted Daewoo to export outside Korean market

GM assumed that “Korean” and “Asian” market were synonymous

DAC’s natural desire to grow, created possible threat to GM’s Saginaw

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Post JV Events

A Decade later

GM bought Daewoo

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Participants Detail

Group 7

» Bharat Sharma -5009» David Thomas -5013» Bobby Chacko -5031 » Nirmala Gilbert -5014» Fahad Siddiqui -5018