Two Cheers For Corporate CollaborationPeter Coy
Are America's big corporate rivals making peace? It seems that way. Fifteen U. S. and European pharmaceutical companies said on Apr. 20 that they plan to share information to help fight AIDS. Separately, American business is backing a bill that would make it easier for rivals to own factories jointly and share the output. And the Big Three auto makers are considering whether to team up on a pollution-free electric vehicle.
The idea of sharing costs and risks on big projects has enormous appeal. Maybe that's why executives sound reborn when they talk about their new technology-sharing alliances. "We hadn't talked to these people at other companies for a long time," says one member of an auto-industry partnership. "Now, we feel that they're part of the team."
But all may not be well. Cooperation among rivals is growing so swiftly that it threatens to sweep aside good sense. One risk is that rivals may be tempted to collude in boosting profits by restraining production, raising prices, and squelching threatening new technologies. There's also the danger that even companies with the best of intentions may find that too much rapprochement robs their inventiveness and zeal to win. Free-for-all competition may seem like wasteful duplication, but there's no better way to generate new ideas.
STRANGLING. Although a wide variety of industries now collaborate on technology, the Big Three provide the clearest guide to the perils that await. General Motors, Ford Motor, and Chrysler have set up 10 consortiums to research everything from less-polluting paint to more humanlike crash dummies. Several are doing good work. A consortium that includes oil companies tested nearly 100 exotic blends of gasoline on cars of all vintages. For the first time, it proved that reducing sulfur in gasoline is the easiest way to cut the pollution that the fuel causes. Says consortium Co-Chairman Joseph M. Colucci, a GM executive: "It's the most exciting thing I've ever worked on."
Still, the red tape can be strangling. Take, for example, the U. S. Advanced Battery Consortium. Since its founding in 1991, the consortium has disbursed just $81 million of the $264 million in government and industry money that is supposed to be spent on creating a battery for an electric vehicle. "The bureaucratic grist mill is almost unimaginable," says one battery company executive. Chairman Robert L. Davis responds that the consortium has had to be a pioneer in government-industry partnership. "We're not happy with how long it's taking," he adds, "but there are a lot of people to satisfy."
Past cooperation by the Big Three has hardly produced a cornucopia of invention. In 1969, the Justice Dept. sued the auto companies and American Motors Corp. over their joint work on pollution controls, charging that they "collectively did all in their power to delay such research, development, manufacturing, and installation." The civil antitrust suit was settled when the auto manufacturers, without admitting wrongdoing, agreed to stop working together for 18 years--a prohibition that didn't expire until 1987.The next frontier--joint manufacturing--will open new opportunities for abuse or bungling. All of the Big Three have deals with foreign auto makers, and they want to do more with one another. Soon they probably will: Congress is likely to pass a bill this session to lower antitrust barriers to such ventures. It would reduce penalties on owners of joint ventures that are found guilty of antitrust behavior and make it easier for them to defend themselves. President Clinton has endorsed the bill, as has the National Association of Manufacturers.
WORLD-BEATERS. Is anyone skeptical? At least one senator is: Howard M. Metzenbaum (D-Ohio) was the lone dissenter when the Senate voted 96-1 last year for a similar measure. He says that antitrust laws already allow joint ventures that promote, not restrain, competition. He cites Michael E. Porter of Harvard business school, who says that companies become world-beaters by first competing vigorously at home.
Don't buy the argument that cooperation is necessary to meet the Japanese head-to-head, either. Japanese companies don't collaborate nearly as much as most Americans believe. Nissan Motor Co. and Toyota Motor Corp. didn't even discuss making an electric car jointly until they learned that the Big Three were considering it. Even now, says one executive, a Japanese deal is unlikely. "We would never expose our strengths and weaknesses at this stage," he says.
Collaboration between rivals does have a role in an era when research and manufacturing have become hugely expensive. But as companies get cozy, the government has to police against antitrust abuses. And the companies must ensure that cooperation makes their ability to compete in world markets stronger, not weaker.