Fiat, Tata, International Partnerships

Fiat and Tata

There are several different criteria by which a company can choose an anchor partner. An anchor partner is defined as one that "holds back the development of a successful strategic alliance because it cannot or will not provide its share of the funding" (p.357). If a partnership is struggling, typically a company will want to look at what it is doing, and what the partner is doing, to determine what factors are causing the partnership to fail. The first criterion for identifying an anchor partner is one that is not able to contribute the desired legal, local market or other expertise. Fiat's partnership with Tata sought to improve the Fiat dealer network and access to parts in India, whereas Tata perhaps would have been able to gain some access to Fiat's European distribution in the long run. If the partners, however, are for whatever reason unable to deliver the local market benefits that were part of the underlying logic for the partnership in the first place, then that becomes an anchor partner.

The second criterion for an anchor partner stability. The partner needs to have stability in things like finances and leadership in order to be able to deliver on its obligations in the long run. A company should, therefore, have a set of stability criteria that it uses to evaluate partners and potential partners. A company should look at partners as if they were an equity investor or a creditor, because ultimately there is a financial dimension to the partnership. For Fiat, Tata is a fairly stable partner, though arguably Fiat has much lower stability as a partner for Tata. Tata cannot even rely on the fact that GM took a stake in Fiat, because GM was not stable at the time, either. Thus, a partner whose stability is not certain has the potential to become an anchor partner.

The third criterion for determining an anchor partner is poor results. Plain and simple, partnerships are about results. While stability and synergy, the first two criteria, are about measuring inputs, the third criterion is about the outputs of the partnership. Even if the partner is stable, and fulfilling its obligations under the memorandum of understanding, this does not mean that the partnership is going to be successful. When a company puts effort and capital into a partnership, it needs to get returns, and those returns should be superior to other mutually exclusive options that are available. As such, if the partnership is not yielding results, it may not be that the partner is an "anchor" so much that the partnership simply is not working out as desired, and it may be best to explore other options.

Fiat and Tata are good partners for a couple of reasons. They are both relatively small players in the global automobile business, looking to grow their shares, and focused on finding growth in emerging markets, with smaller cars. Further, they have different areas of strength geographically -- if Tata helps Fiat in India, Fiat can help Tata in Europe, for example. Thus, there is potential for the partnership to grow at a later date, should the two companies work well together. Thus, there is a high level of business congruence, and neither company overtly looks like it would be an anchor partner.