In quest of a strategic alliance

Manouchehr Manteghi

As Peugeot sets to return to Iran Khodro, it is essential to think about forming a brand-new strategic alliance in the new chapter of their cooperation. The bond is something that should have happened long before during the 25-year-long cooperation history and therefore, it is high time to put it on top of the agenda in the new round. Peugeot is the very incarnation of the Iranian auto industry as huge investments have been made in the long course of mutual collaboration and it will not be wise to let it be buried in the history.
Finding a new business partner requires time and money, two expensive requirements that do not serve the interests of Iran Khodro at this stage. Therefore, instead, it would be better for Iran Khodro to review the terms of new cooperation with the French automaker. This time in return for the generous market provided to it, Iran Khodro should require Peugeot to transfer knowledge and expertise to the Iranian counterpart and in the meantime increase the production capacity. In addition, Peugeot can be obliged to partner in joint ventures with Iran Khodro. This is the point where the expected strategic alliance is formed making Peugeot committed and loyal to its lifelong Iranian partner.
To increase Iran Khodro's bargaining power against the French partner and to secure the future, it is vital to designate a shadow rival for Peugeot so that in case of their sudden withdrawal, a fresh and immediate alternative can fill the seat.

Auto Industry and Economic Growth
But what is the contribution of auto industry to the Iranian economy that requires the alliance to be studied so meticulously?
Last year Dr. Nili, the economic advisor of President Rouhani called on the economists and industrialists to assist the government to select an industry that can push up the economic growth in the short run. The answer to such a call is not something bizarre, far from the mind. What is usually overlooked by the economists is the technological competency lying in a certain sector. A good example is the oil industry where it is always thought that the main mandate is to extract and sell the oil and reach temporary growth. It is obvious that by mere focusing on oil products, the expected economic growth by Dr. Nili will not be achieved as such undertaking requires a foreign partner and time; in the meantime, the added value is not very high as the national resources are extracted, provided to the foreign partner at low price to be processed and finally later sold by them at a higher price to international markets.
To achieve economic growth in the short run, it would be wiser to forget oil and instead focus on auto industry as the investments already made in this sector can be used as a driving force for the country's economic growth. Technological potentials should be invested on and competitiveness encouraged. In this respect, using CKD in auto industry should be highly avoided as the finished costs are much higher than that of CBU. To prosper the industry, the solution is to produce some parts internally in order to generate added value in terms of technology. This can be done, of course, by help of a partner. In conclusion, yes, the auto industry can play a significant role in boosting the economic growth provided that higher added value is generated and assembling using CKD method is avoided.