“Renault-Nissan Alliance” Case Report
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1.What are the strategic reasons for the Renault-Nissan alliance?
Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services (Rothaermal 244). The most common reasons firms enter into strategic alliances are – * To strengthen competitive position * To enter new markets * To hedge against uncertainty * To access critical complementary assets * To learn new capabilities (Rothaermal 245).
The Renault-Nissan alliance was not an exception to the aforementioned reasons. In the late 1990s, Nissan was falling apart, with consistent drop in its auto sales and poor returns. It had been losing market share for 27 years in the Japanese market and by 1999 it had about $20 billion in debts. Analysts attributed Nissan’s bland styling, infrequent model changes, high manufacturing and parts costs, and bureaucratic decision-making to its poor performance. At the time when Nissan was looking for somebody to bail them out of their financials crisis and put the on the profits, Renault came to their rescue. Renault was a maker of small- to medium-size cars with consistent, but slim profit margins. It sold 85% of its automobiles in Western Europe with third of them in France. Renault had marginal international presence and also marginal presence in the premium cars and trucks segment. Renault was both looking to expand in the international market and in the premium cars and trucks segment. Renault thought Nissan, with its strong presence in North America and good engineering capabilities would be potential partner for them to fill those gaps. While, each of the companies had its own objectives to enter into the alliance, there were some common objectives both companies were trying to accomplish through the alliance. Both companies were planning to reduce their costs by creating economies of scale. Companies were also planning to cut down costs by merging and sharing some of their operations such as Research and Development, manufacturing and purchasing. To generate the desired synergies, Nissan and Renault signed a strategic alliance and Equity Participation agreement in March 1999. Renault took a 36.8% stake in Nissan for $5.4 billion. In addition, Renault obtained warrants to purchase 540 million shares to be newly issued by Nissan at 400 yen per share, granting Renault the right to increase its stake up to 39.9% of Nissan at any time and up to 44.4% from May 29, 2003, through May 28, 2004. Nissan was given the right to purchase Renault shares under terms to be decided later (Yoshino, Fagan 3). 2.Why has the alliance between these two companies been so successful? What were some of the risks 
involved? How did the companies manage to overcome them? The alliance between Renault-Nissan was a very successful, benefitting both the partners and much of the credit goes to Carlos Ghosn. Ghosn was like the spine of the alliance. Putting it in Schweitzer’s words “If I didn’t have Mr. Ghosn, I would not have done the deal with Nissan,” (Yoshino, Fagan 2). Nissan was able to improve its financial position drastically and reemerged as the leading automaker in the industry in just two years of the alliance, while Renault was able to expand its global market. In the fiscal year 2001, Nissan’s profit accounted for 47% of Renault’s profit. In the same year the two companies sold a combined five million automobiles increasing their combined market share to 9.2% and positioning the alliance in the world’s top five automakers list. Most of the alliances in general fail because of the intricacies involved in the process. Companies forming an alliance in general would have different corporate cultures, management styles and strategic vision, striking a balance between both the cultures, management styles and vision would be a daunting task for both the companies. Also, in an alliance the usually stronger partner tends to impose things on its counterpart. Some of the reasons for the success of the Nissan and Renault alliance were each company respected culture and identity of the other partner. Nissan and Renault were operationally independent of each other, even while they were working together to create the desired synergies. Nissan and Renault possessed complimentary skills and each were eager to learn from the other partner. Nissan wanted to Renault to teach them how to make profits, while Renault wanted Nissan to help them streamline and improve their manufacturing and engineering process. After forming the alliance, the companies created three groups at different levels what they called them - CCT’s, Alliance Coordination Bureau (CB) and the Alliance Board(CB). Each Cross Cultural Team (CCT) consisted of about 10 members who were middle managers or people with line management experience. The CCT main role was to identify the synergies that existed across major functional areas such as—in products, platforms, technology and markets. CCT’s thought that their teams did not have enough people to cover all areas, so they internally formed sub teams to cover all the issues in depth. The sub-teams in particular focused on issues facing the broader team. For example, the manufacturing team had four sub-teams, which reviewed capacity, productivity, fixed costs, and investments. All together, some 500 people from the two companies worked in the CCTs and sub-teams, supported by each company’s line organization, including various functional task teams. The CCT reported their progress every month to the Alliance coordination Bureau (CB) whose main responsibility was to compare the original forecasts to the progress made by the CCTs, try to understand the variances, and promote additional ideas in order to compensate (Yoshino, Fagan 5). The CB reported their progress to the Alliance Board(AB) monthly. The AB consisted of corporate executives such as CEO’s Vice President of both the companies. After the CB’s meeting with the AB, the CCT’s met again with the CB’s. The idea behind the meeting was to cascade the management decisions to the CCT’s and maintain transparency across the company about the management’s decisions. The creation of CCT’s, CB and the AB helped the companies create a structured process where they set the objectives for the alliance, worked towards achieving those specific objectives. They tracked their progress regularly and sought advices from each other eliminating any roadblocks. The entire process was transparent which gave everyone across both the companies a sense of security. After the CCT’s identified the synergies in major areas such as - purchasing, R&D, manufacturing, distribution, information systems, and platform sharing, projects were underway to realize those synergies. Both companies were able to achieve significant cost savings by merging these operations and they were learning a lot from each other in the process. Renault-Nissan Purchasing Organization (RNPO), a joint venture that was set up for joint-purchasing operations helped Renault to adopt Nissan’s quality management system and Nissan was following Renault’s use of modules in vehicle design. RNPO accounted 30% of the total parts sale by 2002 and both companies hoped increase it to 70% eventually. Already both the companies were starting to see mutual benefits of the joint venture. The executives from Nissan felt that their quality of products improved under RNPO and Nissan felt that they learned the supplier selection process from Renault. RNPO gave both the companies bigger bargaining power over the suppliers. As any other alliance or acquisition one of the ubiquitous challenge the Nissan-Renault alliance was facing was the cultural difference. The employees at Nissan were very detail oriented while employees of Renault liked general idea and abstract concepts (Yoshini,Fagan 10). According to Schweitzer the success of the alliance depends on the transfer of management technologies and best practices between the two companies, and not the merging of cultures. Schweitzer believes that two cultures were so different that they cannot be merged. “Traditional mergers . . . run the risk of looking inward more than outward. When it is [a partnership] 13,000 kilometers away, with different languages, and where people look different and behave differently, you are always reminded that you are different. You have to accept this as a fact and not try to ignore it. We sent a management team to Nissan. We said to the people we were sending that you aren’t representing Renault. You are sent by Renault to work for Nissan”. (Yoshini, Fagan 14). Being located in a different geographic location from each other, both the companies faced the language barrier. Nissan representatives had to speak through an interpreter while teaching the Renault employees about their Engineering practices. The companies adopted English as their common language for communication. Only few employees at Nissan knew English. All the employees of Nissan received intensive training for the language. The employees were also encouraged to adopt English for email communication. Some of the other challenges the alliance faced was in joint purchasing and manufacturing. In the RNPO purchasing teams had a difficult time reaching consensus on which parts should be common and purchased jointly. This arose because each company was serving a different geographical region where the market requirements were completely different. Nissan mostly served the North American region while Renault served the European market. In the manufacturing Nissan employees introduced new standards and process. The management at Renault was worried about the how receptive Renault’s employees would be to the new manufacturing process introduced by Nissan. Also, the other challenge Nissan management saw was, because the benefits of the alliance in manufacturing have been perceived to be one way, from Nissan to Renault. Nissan’s management had a difficult time persuading very busy people at Nissan to contribute to the alliance. 3. Using the Dyer, Kale and Singh framework how would analyze this strategic alliance? Many of the acquisitions, mergers and alliances either fail, or make headlines for wrong reasons. This is due to the company’s lack of due diligence prior to acquiring or forming an alliance. Most companies don’t compare the two strategies before picking one. Consequently, they take over firms they should have collaborated with and ally with those they should have bought, making a mess of both acquisitions and alliances (Dyer, Singh, Kale 3). Dyer, Singh and Kale have developed a framework that will help companies systematically decide whether they should ally with or acquire potential partners. Below is analysis of the Renault-Nissan alliance using the Dyer, Singh and Kale framework- Synergies: Nissan and Renault were generating reciprocal synergies by working closely together through their CCT’s, RNPV and joint Research and Development. Also, Nissan was sharing their expertise in manufacturing with Renault, while Renault was teaching Nissan how to save costs and make profits, which required employees from both the companies to work closely with each other to share the knowledge. For firms creating reciprocal synergies the Dyer, Singh and Kale framework recommends an acquisition over and alliance. Nature of Resources: To generate reciprocal synergies Nissan and Renault was using both hard and soft resources. The hard resources that were used are manufacturing plants in South-America, distribution centers etc. The ratio of soft to hard resources between Nissan and Renault is medium. Given that there were more soft resources involved in the alliance than the hard resources. Soft resources included, technology form R&D, Human capital and Information systems. When the ratio of soft to hard is medium Dyer, Singh and Kale framework recommends an equity alliance. Resource Redundancy: There were redundancies of resources between Nissan and Renault, but the skills of the resources were complimentary. Both, the companies followed different manufacturing processes, which meant they did same work in different ways. The over all redundancies in resources were medium. When redundancy in resources is medium Dyer, Singh and Kale framework recommends and Equity alliance. Degree of Market Uncertainty: The degree of market uncertainty associated with Nissan is high. Its talks with DaimlerChrysler to form an alliance failed, DaimlerChrysler backed off after realizing the risks associated with the future pay-offs. Also, there was not a substantial difference in the quality of the automobiles produced by both the Renault and Nissan. For a situation like this where associated market uncertainty is high, the Dyer, Singh and Kale framework recommends an equity alliance. Forces of Competition: Renault was not facing a great competition from its rivals to acquire Nissan given its financial condition. Nissan was on the verge of going bankrupt and many rivals felt acquiring Nissan was not a wise decision. So, forces of competition were between low and medium. When forces of competition is medium Dyer, Singh and Kale framework recommends and Equity alliance. The table below summarizes the analysis of Nissan-Renault alliance using the Dyer, Singh and Kale framework. Factor | Nissan/Renault | Recommended Strategy | Types of Synergies | Reciprocal | Acquisition | Nature of Resources | Medium | Equity alliance | Extent of Redundant Resources | Medium | Equity alliance | Degree of Market Uncertainty | High | Equity alliance | Level of Competition | Medium | Equity alliance | 4. What should the company do, going forward, in terms of its corporate strategies? In two years of their alliance both companies were able to achieve tremendous cost reductions by merging and sharing some of their operations. Going forward two companies should continue to do so and look to create additional synergies wherever possible. The future goal of Renault is to increase its profitability and market share, while for Nissan its ‘Nissan 180’ plan. Nissan 180’s targets included: 1) a global sales increase of one million units by 2004, 2) a consolidated operating margin of 8%; and 3) the complete elimination of net automotive interest-bearing debt by 2004(Yoshini,Fagan 17). One of Renault’s initial goals for forming the alliance was to penetrate into the North American market where Nissan has a strong presence. Renault should break into the North American market by employing a similar strategy as did in entering Mexico. Renault should leverage Nissan’s presence in North America by sharing its Manufacturing plants for production and use its distribution and marketing channels for sales of automobiles. This strategy would help Renault to enter the North American market with minimal capital requirements. Renault also should leverage on the capabilities of Research and Development department and engineering department of Nissan to enter into the premium cars segment where it has a marginal presence. The above strategies would help Renault increase its market share and profits, which aligns with its future goal. Nissan, on the other hand should look to penetrate into the neighboring markets like India and China where economy is growing and, so is the demand for economical automobiles. Nissan doesn’t need huge capital to enter into the neighboring markets as they don’t have to set up manufacturing plants in these countries and can just export it from Japan at a marginal cost, because of the geographical proximity. This move would help Nissan increase their market share and its revenues.
Works Cited:
Rothaermal, F. 2013. Strategic Management: Concepts. McGraw-Hill Irwin.
Yoshino, Fagan. The Renault-Nissan Alliance.
Dyer, Kale, Singh. When to Ally and When to Acquire.