Reference no: EM132058668

When using different types of cooperative strategies, firms commit to sharing some of their unique resources in order to reach an objective that is important to all participants. A key rea- son cooperative strategies are used is that individual firms sometimes identify opportunities they can’t pursue because they lack the type and/or quantity of resources needed to do so. Some partnerships are formed between similar firms who desire to develop scale econ- omies to enhance their competitiveness. For years, automobile manufacturers have formed large numbers of partnerships for this reason. In other instances, firms competing in different industries uniquely combine their unique resources to pursue what they believe is a value- creating shared objective. This reason describes the rationale driving the partnership Google, Intel and TAG Heuer have formed to design and produce a smartwatch. A number of observers of the partnership among these three firms viewed it positively given their conclusion that TAG Heuer lacked the technology skills to build a competitive smartwatch while the Silicon Valley firms lacked the design skills to do so successfully. In part, the decision Google, Intel and TAG Heuer made to collabo- rate is a strategic action taken in response to Apple’s introduction of the iWatch. A common opinion among those leading Swiss watch manufacturing com- panies is that the worst decision that could be made would be for the companies to fail to respond to the iWatch. Google, Intel and TAG Heuer believe they are uniquely qualified to respond to the iWatch given the technology used to produce it and in light of Apple’s decision to offer “upscale” luxury versions of the product, priced initially between $10,000 and $17,000. Recognizing the threat of smartwatches, other Swiss watchmakers, in addition to TAG Heuer, are taking action. “Swatch, Breitling, Montblanc, and Frederique Constant are among those that have entered the fray, with products ranging from a messaging device that clips to a watch strap to a gold- plated watch containing a fitness tracker.” Supporting the decision among all of these firms to be involved with smartwatches is the size of the market for this product. In 2014, 4.6 million smartwatches were sold globally. Analysts thought the market for this product might jump to as many as 30 million units in 2015. In contrast, the number of Swiss watches sold in 2015 was expected to decline by 6.3 percent from the number sold a year earlier. TAG Heuer CEO Jean-Claude Biver describes the nature of the alliance his firm has formed with Google and Intel as follows: “Swiss watchmaking and Silicon Valley is a marriage of technological innovation with watchmaking credibility. Our collaboration provides a rich host of synergies, forming a win-win partnership, and the potential for our three companies is enormous.” In essence then, he believes that Google and Intel bring unique technological innovation to the partnership while his firm brings its reputation and skills as a successful manufacturer of luxury Swiss watches. Part of the reason TAG Heuer’s watches are thought of as a luxury good is that the firm is a unit of French luxury giant LVMH Moet Hennessy Louis Vuitton SA. Influencing the formation of this alliance is Google’s desire to demonstrate that its software can effectively power wearables, Intel’s desire to show how its chips can be used in wearables, and TAG Heuer’s desire to design and produce more technologically sophisticated watches that meet the needs of today’s tech-savvy consumers. To expand their footprint in luxury goods, both Google and Intel have established additional alliances. Intel is collaborat- ing with Luxottica Group SpA to produce smart eyewear and Google is partnering with the same firm to create new designs of Google Glass. As is the case with all strategies, alliances such as the one among Google, Intel and TAG Heuer are not risk free. The degree to which the cultures of technology firms that are strongly oriented to producing innovation after innovation with the precision-oriented culture of a luxury Swiss watchmaker can be successfully integrated is an important concern. Another risk is that the significant amount of coordination that will be required to integrate the firms’ operations that are based in different countries along with all of the companies that are involved with the international electronics supply chain may not be achieved efficiently. In spite of these potential risks, the opportunity to innovate in a rapidly expanding global market seems to be more than sufficient to support the decision among Google, Intel and TAG Heuer to collaboratively design and produce a novel smartwatch.

Question:

What could be the reason or purpose of Smartwatch collaborative alliance?