Co-operation in a niche market: The case of fiat and PSA in multi purpose vehicles

Stimulated by the success of Renault in Europe and Chrysler in North America, PSA and Fiat decided to enter the emerging multi purpose vehicle market by forming an alliance to design, develop and manufacture an entirely new vehicle. The study of this case shows that the narrowness of this segment combined with a growing entry cost reduce the possibility of autonomous moves. As a consequence, the alliance has mainly been designed for sharing investments and risks, and for gaining economies of scale in a joint plant. As such, it offers a typical example of a scale alliance. However, we stress that those benefits are counterbalanced by the fact that when the allies go back to competition for commercialising the vehicles in their respective distribution networks, they offer quite similar products. It shows how far scale alliances are constraining (for example, reducing industrial diversity) and reduce the span of differentiation. The two partners agreed to entrust PSA with the day-to-day management of the alliance. As Fiat has similar responsibility for a previous ongoing alliance with PSA in light trucks, the new deal in multi purpose vehicles allowed the two partners to balance their respective powers and to create mutual dependence between themselves. This organisational form demonstrates how it is possible to solve classical problems in alliance management, that is, to limit the probability of opportunistic behaviours. This case also shows that dedicating the management of the alliance to one partner notably prevents the partners from learning from each other.