Wil-Mor Technologies: Is There a Crisis?

Published: 2021-08-06 16:10:07
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Is There a Crisis? As of February 1997, there are significant problems in the relationship between Wilson and Morota, the respective American and Japanese auto-manufacturing suppliers that have created the Joint Venture Wil-Mor. There is a major concern that this JV is still unprofitable (since its launch in 1994), despite its relative successes in gaining market share and sharing knowledge and expertise across the two companies. The two parent companies are at odds over how big of an issue this is, which has created the most recent conflict.
There have been problems since the beginning of this JV, including a conflict between American and Japanese management and a serious lack of communication throughout the company. Many of these issues, however, were resolved when Wilson and Morota replaced the President and General Manager of Wil-Mor in 1995. The new management team has worked well together since that time, but the lack of profits is an issue that continues to plague company leadership.
The biggest problem concerning the financial performance of the JV is that the two invested parties have had different financial expectations for the project. While one company expected the JV to be profitable within several years, the other holds a more long-term view and dismisses early financial losses as symptoms of growing its market share. Specifically, Wilson has the biggest issue with the lack of profitability. Wilson went into this JV with expectations of almost immediate returns on investment, and has not planned for this many years of losses.
They don’t see themselves as being able to continue losing money on this venture, and there is heavy pressure from Wilson headquarters on Wil-Mor leadership to produce profits sometime soon. As a company overall, according to Steve Easton (new Wil-Mor general manager), Wilson is generally “skeptical of making long-term investments,” which explains their focus on short-term profits in this scenario. Morota, on the other hand, is a Japanese company that views the world much more like the Japanese culture at large: over the long run.
Morota’s expectations going into this JV were not about immediate profits; rather, they were about building North American market share and reputation in the United States, using customer service to build supplier relationships in a new market, and attempting to export their focus on product improvement and quality standards to a new labor force. With these original expectations, it’s clear that Morota sees itself as able to continue losing money on this Joint Venture because it’s part of their long-term North American entrance strategy.
Their larger goal is to be ready to service Toyota’s (anticipated) increase in North American production volumes. In order to be in that position, they know they have to minimize their cost structure, build industry relationships and be able to work with American labor; their JV-specific goals (from above) will help them to eventually attain such status in the long-term. These crucial differences between the JV’s parent companies in terms of expectations and priorities have created a very difficult situation for Ron Berks, president of Wilson’s North American Automotive Division.
He is facing mounting pressure from other management at Wilson to explain the JV’s unprofitable record and to fix the problem going forward. At this point, he cannot definitively tell his superiors when the JV will start earning a more satisfactory return on investment. He must take some sort of action quickly, and has only several options. The first option for Berks would be to cut Wilson’s losses and withdraw from the JV altogether. By giving up their equity stake or dissolving the JV, they would help Wilson’s returns in the short run by ending the losses that the JV has produced for them.
If this were to happen, it would prevent any long term learning form Morota from taking place at Wilson. The JV plant is far more efficient than other Wilson facilities and boasts a much smaller cost structure. Although Easton has invited other Wilson managers to visit the facility, they have all declined and the opinion of the JV throughout the company is very low. If the project ends now, any of the potential rewards that may have come with more efficient company-wide operations are lost. Furthermore, Morota’s reaction to this option would create serious conflict and future problems for Wilson.
They would undoubtedly look for other JV partners in the U. S. (those with a more long-term worldview than Wilson, perhaps), but first and foremost they would exchange a number of lawsuits and accusations regarding the dissolution of Wil-Mor. They would likely retain all equipment and any technical expertise gained during this time (due to their control over those activities within the JV), and upon arbitration Wilson may be left with absolutely nothing to show for their investment. Another option for Berks is to try and lower Wilson’s equity stake in the JV to 20%, from its current 50% ownership.
Even though this would lower the losses, they would still be losses and would not satisfy leadership at Wilson HQ. It would also strain the relationship with Morota, who would be confused as to why Wilson no longer wants to invest their fair share in the project. Additionally, down the road when Wil-Mor has significant contracts with Toyota and is quite profitable, Berks and Wilson leadership will miss out on the 30% of equity they gave up (equal to 60% of their current claim to company profits).
The final, and perhaps most difficult, option for Berks to choose is to continue with the JV in its current structure. This would require getting buy-in from key executives at Wilson and redefining the company’s expectations around Wil-Mor. If a more long-term strategy can be agreed upon with those key individuals, then I (as Steve Easton) would recommend that Berks choose this option. If the company can be somewhat patient for a few years, there are potentially huge profits to be earned working alongside Morota in servicing Toyota’s North American manufacturing operations.
Even though the profit margins of these contracts are lower than those with GM or other Big 3 automakers, Japanese companies like Toyota place a larger emphasis on supplier relationships and loyalty, and may provide more consistent business for the JV for decades to come. Morota, it is clear, is intent on making profits in North America over the long run, and is willing to do it alongside Wilson. Also, Wilson as a company can learn from the company’s lean operations and cost structure, benefitting all Wilson stakeholders.

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