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Opinion: Investing in new technologies will not save German car manufacturing industry

Dries Faems: February 12, 2020

The German car manufacturing is facing challenging times. Last month, Tesla has overtaken Volkswagen as the world's second most valuable carmaker behind Japan's Toyota. This week, Daimler had to report dreadful financial results, forcing CEO Ola Källenius to announce massive cost cuts and job losses. Next to the traditional cost cutting announcements to calm down investors, these German car manufacturers promise to heavily invest in new technologies to turn around the negative spiral and rebuild a prosperous future. E-mobility and digital transformation are the magical words that represent this technological change trajectory.

My core argument is that pouring money and resources into new technologies will not be sufficient to save the German car manufacturing industry. In my opinion, these companies need to establish a new organizational approach to successfully implement such technological transformation processes. In particular, I advocate the need for establishing an ecosystem approach, implying building an extensive network of strategic partnerships.

For decades, German car manufacturers have relied on their dominant technological position in combustion-based technologies to treat their broad network of suppliers as servants, who should faithfully execute their orders at extremely competitive margins. These servants were often extremely dependent on these car manufacturers and were therefore willing to please the kings of the industry at any cost. This approach allowed German car manufacturers to appropriate a dominant share of the profits that were generated in the value chain.

Today, the industrial landscape has radically changed. In the setting of e-mobility and digital transformation, we see that start-up companies are the proud developers and owners of vital technologies, which gives them a dominant position when negotiating with car manufacturers, who are eagerly looking for new technological opportunities. Moreover, the shift toward digitalization implies that car manufacturers now face competition of the new digital kings such as Google, Apple and Amazon.

How can German car manufacturers successfully deal with this changing landscape when engaging in technological transformation? I propose the need for an ecosystem approach, which meets the following characteristics. First, car manufacturers should no longer see external partners as dependent suppliers, but rather as equal partners with whom value can be jointly created. Such shift will require different types of contracts, mindsets, and time horizons. Second, they should realize that sharing knowledge is often more helpful for the ecosystem than protecting knowledge. Tesla’s decision to open up its patent portfolio for battery technologies in 2014 can be seen as an illustrative example in this respect. Finally, embracing an ecosystem approach requires a different leadership style. Instead of nurturing an alpha-male leadership style, where CEOs highlight their eager to dominate the industry at any cost, we need leaders, who have the necessary diplomatic skills to orchestrate and consider the diverse interests of a complex network of strategic partnerships.

In sum, it is vital for the German car manufacturing industry to catch up with novel technological trends such as e-mobility and digitalization. However, these companies will only succeed in doing so when they simultaneously adopt an ecosystem approach where strategic collaboration with external partners is fully embraced.

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