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300 CHAPTER 8 • PRoduCT And sERviCE dEvEloPmEnT And oRgAnisATion

a new vehicle and to fill a hole in both companies’ product line-ups. The collaborative under-
taking was designed to bring together the development expertise, knowledge and financial
resources of two of the most successful automobile companies in what they called ‘a mid-to-
long-term collaboration on next-generation environment-friendly technologies’. BMW’s chairman at
the time, Norbert Reithofer, emphasised the strategic importance of the partnership: ‘Toyota is
the leading provider of environment-friendly technology in the volume segment and the BMW Group is
the most innovative and sustainable manufacturer of premium automobiles. We are now joining forces
to further develop environment-friendly technologies and to expand our innovation leadership in each
of our segments.’ Akio Toyoda, president of Toyota, said the deal was ‘a great joy and a thrill’ and
that he looked forward to allying his company to one that ‘makes cars that are fun to drive. Both
companies will bring their wide-ranging knowledge, starting with that concerning environmental tech-
nologies, to the table and make ever-better cars.’ The new sports car was intended to bring together
Toyota’s world-class manufacturing expertise with its BMW partner’s engineering talents and
understanding of high-performance engines. ‘We could do a sports car by ourselves. But if you look
at the whole package … it makes sense. Both companies can have benefits. Sports cars are all about
volumes because they can be relatively small,’ said Herbert Diess, BMW board member and head of
development. The new model could be powered by hybrid engine technology similar to that
established by Toyota in its Prius models.
Alliances and shared products are becoming increasingly common in the automobile
industry, mainly to keep down escalating development costs and to share the, sometimes
considerable, investment needed to meet new regulatory curbs on such things as carbon
dioxide emissions and safety standards. Yet not all alliances have been successful. Two years
before the announcement of the Toyota–BMW deal, a partnership between VW and Suzuki
broke up acrimoniously. The original intention was for the largest European carmaker, VW, to
share development of a small car with Suzuki – the fourth player in the Japanese market. The
jointly developed model was supposed to be aimed at growing markets such as India through
Suzuki’s leading position in that country. However, the deal fell apart. There were claims that
VW was not doing as much sharing of its technology as Suzuki had envisaged (VW denied
the claims), while VW argued that a deal between Suzuki and Fiat for diesel engines was a
contractual breach. Suzuki had formed an alliance with Fiat some years earlier to make diesel
engines in Asia and then extended the deal by sourcing diesel engines from Fiat for cars built
in Hungary (Suzuki denied that the deal broke the agreement). After the break-up, industry
analysts said that the partnership had failed to benefit either company. Part of the problem
seemed to be a lack of strategic fit. Volkswagen was a very big company trying to become the
world’s biggest automobile company, while Suzuki was a relatively small company trying to
focus on specific regional markets. But there were also different, and contrasting, corporate
cultures that inhibited cooperation. Some saw Volkswagen as wanting to be the lead player
in the partnership and Suzuki, with a reputation for valuing their independence, refusing to
play the role of junior partner.

In-house and subcontracted development
Companies position themselves on a continuum of varying degrees of design engage-
ment with suppliers. At one extreme, a firm may retain all the necessary design capa-
bilities in-house, while at the other end it outsources all its development work, acting
only as a focal point for the coordination of the design process. Between these extremes
there exist options with varying degrees of internal and external design capability. In
general, though, few companies are at the extremes of this continuum since process
development necessitates some kind of interaction.

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