Diagrams of Power and Strategic Decision Making: the Case of Strategic Alliances in the Automotive Industry

  • Mrdjan M. Mladjan EBS Business School
  • Dusan Z. Markovic University of Belgrade, Faculty of Economics

Abstract

Research question: This paper, on the example of strategic alliances in the automotive industry, investigates how diagrams could be useful in studying complex power relationships. Motivation: The relative power of individuals and institutions is a crucial driving force of their interactions. It is however hard to evaluate because the interactions can take place simultaneously or sequentially in different markets or forums.  Diagrams of power, that this study introduces, help us abstract the relative power of agents. This enables us to use insights of decision and game theory, especially those from the literature, in strategic decision making under uncertainty (Courtney, Kirkland, & Viguerie, 1997), to arrive at successful and sustainable solutions. They enable us to view relationships between firms as security dilemmas (Posen, 1993), which can explain why emerging market multinationals (EMMs) treat the acquired companies as strategic partners (Kale, Singh, & Raman, 2009). Idea: Diagrams of power and security dilemma help us better understand strategic alliances in the automotive industry. Moreover, we believe that diagrams of power could both offer new insights to scholars and represent an intuitive tool for businessmen and policy makers less experienced with advanced mathematical methods. Data: To quantify the power of several automotive producers, we have used selected contemporary data items from their annual reports and the International Organization of Motor Vehicle Manufacturers. Tools: The tool we introduce to better understand power relationships between automotive producers are the diagrams of power. We then apply them to two cases from the industry to better understand the strategic interactions within alliances. Findings: We demonstrate that diagrams of power can help managers define the goals of strategic alliances, minimize the risks of their establishment and management, and recognize the problems and opportunities that arise in strategic partnerships due to security dilemmas, a concept that originated in the study of wars. Diagrams of power enrich the analytical toolkit of the existing literature, enabling faster understanding of the relationship between agents as well as decision making based on more complete information. Contribution: This paper introduces diagrams of power – a tool for study of strategic interactions – and applies the concept of security dilemma to the study of the automotive industry.

Author Biographies

Mrdjan M. Mladjan, EBS Business School

Mrdjan Mladjan received his PhD in Economics at the Universitat Pompeu Fabra. During his PhD studies he was a visiting scholar at the UCLA Anderson School of Management. He holds a BSc in Economics degree from the Massachusetts Institute of Technology. Mrdjan’s research is characterized by interdisciplinarity at the intersection of finance, economics, history, and management.

Dusan Z. Markovic, University of Belgrade, Faculty of Economics

Dušan Marković is Associate Professor at the Faculty of Economics, Belgrade University, where he also received his PhD in Business. He has published in the areas of Cross-border Acquisitions, Strategic Alliances, Emerging Market Multinationals and Business Strategies in the Auto Industry. Dušan has rich practical experience in capital and asset valuation, financial due diligence, business and financial restructuring, and has previously worked as financial advisor for Grant Thornton Serbia.

Published
2019-10-17
How to Cite
Mladjan, M., & Markovic, D. (2019). Diagrams of Power and Strategic Decision Making: the Case of Strategic Alliances in the Automotive Industry. Management:Journal Of Sustainable Business And Management Solutions In Emerging Economies, 24(3), 21-32. doi:10.7595/management.fon.2019.0015
Section
Articles