Peugeot is considered as the flagman of the French automobile production, as well as the pioneer in industrial sphere. The company counts over two centuries of organizational activities, which allowed it to develop new technological ideas and passion for automobile manufacturing (Peugeot, 2014). The care manufacturer has fostered the spirit, triggering the company to the top of car producers. In contrast, Dongfeng brand has strong positions in China and also specializes in producing cars. The focus on the investment into Chinese automobile production amounts to $2 billion (Dongfeng Motor Co., 2003).
In 2014, Peugeot’s strategy remains stable, while introducing its business activities in Europe, along with the introduction of RCZ R and the new 208 SW (Peugeot, 2014). The Chinese automobile producer Dongfeng does not lag behind either and focuses on the development of a new brand that would become popular at the international level (Dongfeng Motor Co., 2003). The core competence of Peugeot lies in the development of innovative techniques and cooperating on the international level. Dongfeng also collaborates at the international level.
Dongfeng Motor, the joint acquisition of the French government, earlier Chinese side came PSA and Dongfeng Motor intends to 10 billion yuan to buy 30% stake in PSA echoes the message, the message said easterly and French government will spend about 1,5 billion euros (about 12,4 billion yuan), respectively, the acquisition of 20-30% stake in the French side has sent a delegation for negotiations in China (Pearson, 2014). The final agreements between Dongfeng Motor Group and PSA Peugeot Citroen are aimed at deepening and strengthening the current production and sales partnerships. The production synergy focuses on 400 euro annually for PSA Peugeot Citroen (PSA Peugeot Citroen, 2014).
Comprising governmental officials, corporate executives and banking and finance industry, signed an agreement to prepare for the Peugeot Citroen hopes equity acquisition agreement, completed during the year. PSA Peugeot Citroen is the largest shareholder, the current PSA Peugeot Citroen Peugeot family owns 25.4% of the share and 38.1% of the voting equity if inject successful acquisition of their shares will be diluted and, thus, lose control over last year General Motors acquired PSA 7% also will share diluted French government shareholding in part from the increased portion of the sale of new shares Peugeot family, and the rest through completion of the capital reserves (Pearson, 2014).
As Arnaud Montebourg asserted, “We want to create a giant with global reach” and “an alliance with Dongfeng will create relationship of equals while at the same time preserving decision center and R&D outlets in Europe” (Rosemain, 2014). In this respect, the analysis of this situation proves that external environment in the capacity of French government could provide the driving force for incorporating efforts.
PESTEL introduces political, economic, social, technological, legal, and environmental factors, contributing to the synergy of two companies. In general, the cooperation between two companies could create valuable condition for both companies (Cavusgil, 2014). Hence, Peugeot can expand its influence on the local markets, such as Chinese market, whereas Dongfeng’s brand can have an opportunity to enter the international market due to the cooperation with the well known brand.
The analysis of the industry through Porter’s Five Forces can explain the current success of the acquisition, as well as predict how it can affect the cooperation in future. More importantly, the new microeconomics emphasize the role of government in creating an environment that increases productivity and promote the development of new production lines (Porter, 1998).
International management has many undercurrents, which are represented by many economic factors in an external environment (Sanyal, 2001). This is of particular concern to the 2008 financial crisis and its influence on the revenues and production sales in Peugeot.
Specifically, due to the irresponsible mortgage lending, many businesses fell apart and ceased cooperation. Therefore, Peugeot realized consequences of the crisis and started searching for constant partnerships (The Economist, 2014).
In a year after the 2008 financial crisis, the world witnessed Lehnam Brother bank’s bankruptcy, followed by the takeover of Merrill Lynch bank. A series of takeovers, economic losses, and acquisition, 2009 was regarded as the most difficult period in the global economy. Many developed countries witnessed the downgrade of IMF. According to Gokay (2009), “in the new forecast, the advanced economic are expected to contract by ¼% on an annual basis in 2009.” Therefore, the economic success can contribute to the operational activities of the carmakers.
The globalization strategy has a direct impact on the production process in automobile industry. According to Kluyver (2010), “Market situation, high level of motorization, and political pressures on automakers to “build where they sell” have encouraged the dispersion of final assembly which now takes place in many more places” (p. 34). Therefore, such markets as China and India can create the growth through investment made from the developed world in an attempt to restore the world’s economy.
With reliance to the environmental issues, the introduction of alternative energy, eco-mobiles, and hybrid cars is a sort of response to the client’s demand, as well as to the demand of external stakeholders, such as environmental organizations that have a potent influence on the client’s environmental awareness (Golinska, 2013).
When it comes to bargaining power of suppliers, the attention should be given to the vertical integration of parts’ supplier with auto makers. In other words, both parties involved should cooperate with the leading suppliers of auto parts to ensure timely production of vehicles. As for the bargaining power of buyers, the demand trend should be taken into consideration to develop an integrated scheme for managing the production lifecycle at both companies. Bargaining power of competitors would be minimized significantly because the synergy contributes to the competitiveness of both automobile producers. The threat of entry introduces the possible decline in production due to the increased tendencies of operating in economies of scale. Additionally, the access to supply and distribution channels should also be reduced due to the necessity for other rivals to sustain a competitive edge. Treats of substitutes is not for the cooperation between Peugeot and Chinese automobile producers because both companies are unique in their spheres, in terms of quality and brand.
There are three major purposes and motives of synergy and collaboration – market-seeking motives, resource or asset-seeking motives, and efficiency-seeking motives. To begin with, market-seeking motives are pursued by Dongfeng Motor Co. that will have a possibility to access new markets, follow key clients, and take a competitive advantage over a number of local producers. In regards to resource motives, both parties have entered a win-win solution because access to raw materials, knowledge, and technology could be exchanged among two companies to increase their competitiveness. Finally, efficiency-seeking motives Management style and structure refers to two directions – complementary and synergetic, which shape the core competence. Nature of products or services is strongly associated with geographical coverage, which contributes to the amelioration of international relationships. The attention should also be given to the fact that automobile industry is premised on supply chain management, which is the key to successful production (Chandram & Grabis, 2007). Relative risk of failure can be defined by considering the previous history of collaboration. Specifically, Peugeot was involved in many other partnerships and relations with other leading producers in the field (Guillaume, 2014). The collaboration features with Ford and BWM are worth analyzing because they show the effectiveness of uniting the efforts at enhancing the well-known brands.
It should be stressed that any governmental participation in Peugeot’s activities would seek to protect the balanced ownership. Similar concerns relate to the control imposed by the government on the Chinese company. Such discussions show that both companies are in need of partnership and cooperation to exchange resources and potential. As it can be seen, political, social, and economic factors affect the governmental intervention into cooperation of Peugeot with Dongfeng. In this context, the French government has taken the facilitative role which drove the process of cooperation between two companies at the international level. It also supported and directed the business activities which make these actions appropriate and adequate. The financial market should undergo a downturn to renew the infrastructure and redevelop the new economic strategies for political and social restoration. The deteriorating setting also led to the decline in GDP.
In conclusion, it should be stressed that the cooperation between the world’s known brand Peugeot and Chinese auto maker Dongfeng has a positive influence on both parties because of the external environmental factors. Peugeot sought to enter the local markets and strengthen its position, whereas Dongfeng strives to enter the global market. In this context, the French government served as a facilitator and a foundation for affirmative action on the part of Peugeot.
The partnership and cooperation between Peugeot and Dongfeng is represented as an acquisition. However, this participation and interaction can also be regarded as a balanced ownership, which is beneficial for both parties. As such, the French Company seeks to create a large and powerful organization with global reach. At this point, the partnership with Dongfeng can create an equal relationship, as well as preserve the R&D focus in Europe.
Although the type of cooperation is acquisition, the relationship between two companies is equal and, therefore, the shareholders agreed the terms of acquisition that would be beneficial for both parties. Hence, Peugeot will become less dependent from the European market and will be integrated into Southeast Asian market (Pearson, 2014). The recovery plan of Peugeot is a cooperation deal that focuses on the capital boost for the financial groups. In contrast, Dongfeng can open new opportunities for global reach.
When it concerns the company’s base, it should be stressed that the entry strategy is considered the most difficult one because it implies multiple stage of adjustment and change. PSA Peugeot Citroen has approved an agreement to expand cash by selling assets to Dongfeng and the French government. In such a way, they will open new opportunities for final negotiations. The agreement also seeks to introduce low-cost small vehicles for the Asian market clients. Peugeot’s managers stated that the deal is beneficial for all the parties concerned because it satisfied the needs of all the parties involved. However, Peugeot is more interested in the integration of Dongfeng because it allows the producers to enter the new markets (Stothard, 2014). Although the company already operates the manufacturing venture with other companies, such as Honda, Nissan, Renault and Kia, the new partnership are still beneficial due to the globalization process.
For the purpose of achieving profitability, Peugeot Citroen should change its culture and promote new assimilation policies because of the cooperation with the Chinese market. In response to this need, the French automobile producer plans to create a new joint venture with Dongfeng, aimed at designing and selecting products to permit the two companies to drive revenues and synthesize two different organizational cultures, which is the key to the productive cooperation (Foy, 2014). In such a way, it will be possible to get access to the Chinese supplier.
At a very beginning of the partnership, the French carmaker expressed negligence and skeptical attitude to the cooperation with the Chinese company. However, this confrontation did not last long because of the deeper industrial partnership with the Chinese group was necessary to reduce dependence from the European market and enter the new market segment (Stothard & Foy, 2014). In fact, it should be recognized that the company is currently in a much stronger position to move forward and make important decisions.
On the one hand, the cooperation with Dongfeng can have a positive influence on the French carmaker. However, the situation could be complicated, in case the Chinese producer admits the products promoted by Peugeot to the Chinese market (Klayman, 2014). The Chinese partner could provide new opportunities for commercial and business relations. Specifically, the alliance could bring in benefit for both parties (Tierney, 2014). Therefore, despite the possible threats of failure to enter the foreign market, the opportunities the coalition can open are much more promising and worth to take a risk.
Doing business at an international level depends on several important factors, including economic, cultural, and political challenges. To begin with, economic challenges imply that the companies originating from the developed economies have higher potential for entering the international market and sustaining a competitive advantage over the companies that operate in the developing world (Moffett, Stonehill & Eiteman, 2009). From the cultural viewpoint, both companies involved into partnership should be ready to accept the difference in corporate cultures, as well as accept the cultural diversity issue. Therefore, both Peugeot and Dongfeng should be ready to adjust to cultural variations and promote new cultural principles of operating business in a host environment (Engine Technology International, 2014). From the political viewpoint, each company acting international should take into consideration the position taken by the government of the county in which this company operates, including their political interest, public needs, and a social environment (Eiteman, Stonehill, & Moffett, 2004). In such a way, it will be possible to retain the respectable image and keep the customer loyalty.
Importance of Considering these Challenges for the Future of International Business Carrying out business at an international level is always a challenge for any multinational corporation, not mentioning small businesses that suffer aggressive competition at the global market. Therefore, the importance of overcoming economic, cultural, political, and social challenges is enormous. The legal systems should also be taken into account to make sure that the production process corresponds with the accepted norms. In this respect, the presence of international standards is the key to successful cooperation, as well as to the development of new opportunities for business management, as well as for the analysis of new threats and pitfalls of cooperation in the future (Levin, 2014). Despite the evident economic recession, the developing countries have received a chance for advancing their economies and entering new products and services to the international market. Hence, the earlier underestimated developing economies, such as India, China, and the Middle East, have come to the forth as the potential partners of the firmly established multinational corporations (Gokay, 2009). In this respect, multiple agreements and acquisitions took place due to the crisis.
The success of international operation largely depends on the company’s objectives and tools by means of which they plan to accomplish those objectives. Operations influence physical and social aspects of a competitive environment. Therefore, companies should also present the internationally predetermined goals that would respond to the needs of the global community (Dunning, 2010). In this context, companies of local importance can meet significant challenges while entering the global commercial relations. Corporate social responsibility and awareness of the cultural gaps require specific attention in case of partnership between Peugeot and Dongfeng. In particular, the international arena serves as the monitoring committee for the companies acting at the international level (Harris, Kuivalainen, & Stoyanova, 2012). The main essence of their alliance consists in increasing their profitability and competitiveness, as well as enhancing the brand position.
The in-depth analysis of the partnership between Peugeot and Dongfeng, as well as the role of French government uncovers many undercurrents, including political, cultural, and economic dimensions. The agreement signed between the leading automobile producers has had benefits for both parties. In particular, Peugeot can move away from the European market and expand its influence to the Asian market. In response, the Chinese producers can also enter the international arena and increase their profitability. The French government, in this context, serves as a supporter of the political and economic consequences of organizational activities.
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