Convergence is one possible solution for securing a company’s existence on the market and opening up new markets at the same time. It is made possible by merging companies from different sectors of the economy. Current examples can be found in the merger of the automotive and IT industries, which we at magility announced years ago.
The automotive industry is currently seeing the most activity
According to a study by Deloitte, safety and communication systems are among the central areas for convergence technologies. Electric mobility is the main focus here. The interaction of the Chinese IT-company Baidu and the Chinese Daimler partner Geely, for example, paid off right at the beginning of the year with a remarkable increase in the share price of +20%.
Chinese government promotes electromobility
Supported and promoted by the Chinese government, the electromobility sector within the Chinese automotive industry can no longer complain about a lack of courtship. On the contrary: as described in the Automobil Industrie newsletter, companies like Baidu are flirting with starting their own e-vehicle production or see themselves as contract manufacturers.
Convergences create jobs
The South Korean technology group LG is entering into a similar liaison with the Canadian-Austrian automotive supplier Magna. Around 1000 jobs are to be created in a joint venture called LG Magna e-Powertrain, which will in future manufacture main components for electric cars such as chargers or electric-powered motors.
OEMs must look for partners
This should give the original equipment manufacturers (OEMs) pause for thought, since it seems that only those who join forces with partners from outside their industry in good time will be able to secure their market position in the future. For LG Electronics, at least, the calculation has worked out so far. The South Korean technology giant holds 51% of the shares in the new joint venture, which is said to be worth about one billion US dollars. According to a report in the Handelsblatt, LG shares shot up to a record high on the day of the announcement.
Apple as icing on the cake for partners from the car industry
The South Korean car manufacturer Hyundai also experienced a stock market high when it announced a possible partnership with Apple. The news hit like a bomb, but was withdrawn shortly afterwards. With its alleged plans for its own car and its interest in developing autonomous driving, Apple definitely represents a coveted cherry on the cake for a cross-industry tête-à-tête with the automotive industry.
Other giants are also at the start
However, search engine giant Google is also at the starting line with its sister company Waymo. The latter is developing technologies for autonomous vehicles and is way ahead in the race with Tesla, while ride service provider Uber only recently pulled out of the development of autonomous vehicles and sold its shares to the US start-up Aurora. This company specialises in the production of systems for autonomous driving and will gain access to the Uber platform in the future, as the ride service provider is investing around 400 million euros in Aurora as a strategic partner. The founders of Aurora, Chris Urmson, former head of Google’s robot car programme, Sterling Anderson, formerly responsible for the Autopilot system at Tesla, and AI expert Drew Bagnell are enjoying great popularity. Their start-up’s second round of funding included none other than retail and cloud services giant Amazon.
Business is booming
Amazon, by the way, also bought the Californian specialist in the field of autonomous driving, Zoox, with an investment worth billions. Daimler, on the other hand, secured the US chip manufacturer nVidia with its subsidiary Mercedes-Benz. The partnership is to produce software for autonomous driving controlled by artificial intelligence. BMW has teamed up with Intel and its camera software specialist Mobileye for this reason. And IBM wants to create synergies in the market with the takeover of Red Hat. But struggling companies also see advantages in mergers. According to the motto “Together we are strong”, PSA and Fiat-Chrysler are trying to regain a foothold in the markets by merging. The name of the new joint venture is Stellantis.
The fun has its price
As promising as industry convergences may be, they also have disadvantages. For example, cross-industry mergers are considered time-consuming and cost-intensive. The Deloitte study estimates that it takes at least five years until the companies involved in a merger have jointly developed the convergence technologies they are aiming for. And the investments are usually in the billions. VW, for example, invested 2.6 billion US dollars in the start-up Argo Al, in which Ford holds a majority stake.
Innovation through convergence
However, the convergence of technologies, products and services from different industries, which continues to increase due to the Internet of Things and digital networking, can only work successfully with a well-functioning network of partner companies.
Digital networking enables and forces companies to bring ever more comprehensive service offerings and more complex products to the market.
Classic product strategies are moving into the background. Mergers become the driver for innovations. Know-how is networked and brought together where it is needed. New possibilities for business models are emerging and industry boundaries are blurring. Start-ups are becoming increasingly important in this context.
Convergence requires more security
Of course, with the convergence of industries, the importance of security against cyber attacks is growing in equal measure. Magility has already reported several times on the vulnerabilities in connected vehicles as well as in smart and cognitive buildings. The largest known successful hacker attack to date on software from the US company Solarwinds confirms the urgency empheasized by Magility Managing Director Dr Michael Müller to consider and implement appropriate security concepts in good time.
We at magility would be happy to show you the way to the secure further development of your company’s business models.