Friday, September 27, 2013

When do Firms Need Each Other? Vestas – Mitsubishi Wind Energy

Wall Street Journal has a notice on the previously dominant offshore wind energy firm Vestas, which now is forming a joint venture with Mitsubishi Heavy Industries. The collaboration would have seemed strange earlier, as it involves a Danish entrepreneurial firm with a strong and focused position in its market with a giant established Japanese firm with a very broad product line. Not exactly a collaboration of similar firms, but in fact one that has been negotiated for a while.

The explanation is simple, but it has a couple of different parts. One is that Vestas is no longer dominant: it has some very strong competitors including Siemens. It has been losing bids and money, and is beginning to look less secure. But the deal is not just about inserting money; that could have been done by any firm including those without any industrial activity. Vestas also looks stronger now because of the engineering strength of Mitsubishi Heavy Industries, which can start and successfully complete building projects that are much larger than anything Vestas has done. So, it is the combination of different but complementary capabilities in these firms that gives hope for the joint venture.

So is everything fine then? Well, they still need to take on the new market leader Siemens in order to succeed. And, they need to be able to work together effectively. Mitsubishi seems to have decided to avoid disturbing Vestas too much; the headquarter will remain in Denmark and the CEO of the joint venture comes from Vestas.  That would be typical things to do for a large firm that is not sure about how compatible it is with a collaboration partner, and wants to manage carefully first. The joint venture of these two firms looks like something that has been designed to address the need for complementary capabilities and compatible firms. The greater success of alliances with complementarity and compatibility is something that Hitoshi Mitsuhashi and I found in research published in Academy of Management Journal, so I can see good reasons for what Vestas and Mitsubishi are doing.

Will the joint venture move work? Unless we are business clairvoyants, we need to look again later to see if the joint venture succeeds. But it shows an attention to collaboration that many other firms are missing. Indeed, Andrew Shipilov has noted that the Blackberry downfall could be related to a lack of alliances by its maker. Of course, trying does not always work either, but it is better than ignoring a problem completely.

Bomsdorf, C. and D. Chopping. 2013. Vestas, Mitsubishi Form Offshore Wind Joint Venture. Wall Street Journal, September 27, 2013.