(Sources: www.media.renault.


Global Strategy of the Renault-Nissan alliance

Subject: Joint analysis on the Renault-Nissan alliance addressed to the CEO of Mitsubishi (group project)

From: Group 22 Michael Sutherland Nicolas Murcia Saebong Cheon Yu Ri Na Jeong To: Professor Jan Jörgensen Due date: November 22, 2006

As such.9% over 2004 (http://www. The reason he didn’t merge Renault and Nissan rely on the advantage of mutual challenge that push both firms to seek new cost reductions. Consequently.254 units in 2005. economies of scale and scope opportunities. thus. up 5. the analysis of the Renault-Nissan alliance case would provide you with valuable elements on how to approach the growing and competitive auto manufacturing global market. Renault and Nissan both managed to reach their goal by remaining profitable. Takashi Nishioka.129. he believes that the transfer of knowledge between foreign engineering teams would only occur within a framework of equality.To M.com/). Nowadays. Chairman of the Board of Mitsubishi Motors. Renault-Nissan is the fourth worldwide automaker with sales of 6. .nissan-global. Considering the traditional position of Mitsubishi in the actual market. the success of Carlos Ghosn is correlated to his extensive vision of synergies between the Renault and Nissan.

6 The possibility of GM entering the alliance……………………………………………………8 Evaluation of Nissan before and after the alliance…………………………………………….Table of Content: The advantages and disadvantages of the alliance between Nissan and Renault………………1 Reasons for an alliance instead of a merger and the benefit from synergies…………………....13 ..4 Importance of Corporate Culture………………………………………………………………..12 The collapse of the Keiretsu helps Nissan to remain globally competitive………………….9 Worldwide Domestic Conditions affecting Nissan-Renault…………………………………..

the steering-wheel stabilization system.renault.www.com) have finally changed their mutual expectations. One of the most significant advantages was the joint platform.com). Yet.renault. the scope of their partnership. so Renault’s small and medium wheel base design was adopted instead (Segrestin. common structures called Renault-Nissan Information Services (RNIS) and Renault-Nissan Purchasing Organization (RNPO) (www. and also led to the creation of institutional entities for “strategic command and operational coordination” (Segrestin. and the meaning of their union. Of course. For instance. probably because of their approach of different markets. However. but were rather stretched and targeted for a higher level of performance in comparison with their Japanese counterparts. Since Renault and Nissan have successfully become partners in a new equity joint venture by combining their knowledge. 2003). 2003). they have reinforced their position as a worldwide leader automaker. According to the functional task team (FTT. 2003). their schedule wasn’t as intense as that of the Nissan vehicles. project managers should allow both firms to innovate and come to a common decision rather than relying on the authority of the main . Nissan planned two small cars with in depth studies and Renault three potential cars. the wheel base which Nissan was building was not suitable to Renault’s level of expectations. additional research and development costs would have increased risk of failure of the joint project and weakened the alliance.The advantages and disadvantages of the alliance between Nissan and Renault The “Alliance” between Renault and Nissan has made possible many joint projects such as the gasoline tank. Research demonstrated that the development of a joint platform is a means of setting up common organizational routines and synchronization mechanisms that make possible the effective transfer of knowledge (Segrestin.

This is one of the major challenges because from a design approach. Renault. scheduling and course of action. 2003). flow. One of the projects that the common platform had to support was shared components without any deficiencies in functional performance or delays that could affect either Renault or Nissan. For instance. Within the organization.) to comply with this list of constraints essential for an innovative architecture. Nevertheless. it is apparent that the constraints of the design program were the major barrier. who had their own organizational systems. Both manufacturers wanted to maintain their autonomy and the alliance was still too unstable to sustain a rapid process of integration. volume. Merging teams was not an alternative. As such. the amount of space in which to install the system varied from model to model. etc. in Europe. loudness. Cultural diversity. it would have to reach the highest ratings in an extensive range of performance requirements (costs. the diverse vehicles were most likely to have conflicting requirements. 2003). In these conditions. 2003). this obstacle led to three harmonization problems. Firstly. As a result. Moreover. complete and shared components must meet clear specifications to . Although these factors have signified a significant role in the alliance. In terms of delegation. work was to be coordinated among distant teams. linguistic obstacles and physical distance gap in collaborative projects often justify most issues. the climate control system is generally expected to work continuously in Japan. functional requirements were not clear. with a relative low rate of air flow. whereas.shareholder. the delay in the first phase might have been deadly to Nissan. their own methods. any shared component must meet the requirements of every platform’s vehicles (Segrestin. but silently and at a relatively higher rate of flow (Segrestin. Renault and Nissan adopted a collaboration model based on the concept of delegation (Segrestin. the cooling system is expected to work intermittently.

For example. It is logical to expect many minor issues in cooperative design processes that partners will inevitably deal with when planning design methods. This is why they applied a double validation process to decide whether Nissan and Renault should continue their efforts toward a joint solution or end their collaboration on particular tasks. It is important to notice the ability of partners to come across a feasible solution when issues arise (Segrestin. with shared components and where companies lead engine design in their area of expertise. the specifications were complicated to convey because they were ambiguous. Renault builds cars in Nissan’s Mexico plants and Nissan uses Renault’s Brazil plant and distribution networks. even if the Renault engineering team reaches a consensus on the efficient specifications with the Nissan engineering team. The alliance has provided advantages to both companies. They can progress into foreign markets faster and with lower costs because they don’t have to build new plants. . Nissan and Renault are collaborating on building universal platforms. Furthermore. the cooperative process is mainly focused on the evaluation of resources and understanding of concrete solutions. Secondly. they will have divergence on the method implementation should be accomplished. The sales network of both companies is harmonizing itself and each manufacturer benefits from the technical expertise and organizational know-how of its partner (Segrestin. Consequently. But when it becomes a severe issue. 2003). both parties were disadvantaged. 2004). the alliance has boosted profitability. how would you translate the necessity to safely attach a fuel tank? Consequently. market capitalization and sales in 192 for both partners (Nancy DuVergne Smith. Renault specializes in diesel as well as in innovation and Nissan focuses on gasoline and the manufacturing process. They’ve increased their purchasing power because they buy supplies for twice as much cars (6 millions).be certified by numerous protocols. 2003). For example.

prototyping. Carlos Ghosn. Furthermore. This strategy has been frequently adopted by automakers such as Daimler-Chrysler in the United States or Volkswagen and Skoda in Eastern Europe.Reasons for an alliance instead of merger and the benefit from synergies The making of the alliance was motivated by the enthusiasm of Ghosn to develop potential synergies. 2003). 2003). but worked independently from one another in the first years of the alliance in order to reduce management costs and avoid permanent commitments (Segrestin. It can be noticed that the engineering teams weren’t merged. 2003). and validation protocols). and thus. they will not get motivated and you will not get a strong corporate performance”(web. The foundation of the alliance focuses on the need for the negotiation of a formal equity joint venture because Renault and Nissan must evaluate their partners’ equities. . even in case of integrating conflict. Indeed. the alliance between Renault and Nissan can be perceived as a mean of integrating two companies in order to improve coordination and achieve cost reductions (Segrestin. capabilities and willingness to cooperate before selecting the right hierarchy (Segrestin. 2003). stimulating competition between Renault and Nissan. 2003). industrial equipment and purchasing (Segrestin. has always been focused in preserving the identity of the two companies as he strongly formulated: “If you don’t respect people’s identity.edu). where both firms maintain their operational freedom.mit. which would generate significant economies in development costs (design studies. former Renault CEO before the alliance. they would both reduce their costs by benefiting from economies of scale. increasing their bargaining power towards suppliers (Susini. as a means of bringing the engineering teams together and of sharing and developing knowledge. Renault was willing to implement a common platform. From an economic point of view.

2003). allowing them to forecast cooperation strategy in the fields of expertise and resources required for successful co-development project (Segrestin. As a matter of fact. As a result. (xtra. Because you are doing this. Pursue your own interests. Carlos Ghosn gives a lesson of liberalism to explain his vision where two foreign firms build mutual respect and trust to pursue a common goal: “We ask every single team not to do anything for the sake of the other teams. which owns 15% of the French firm similar to keiretsu cross-sharing operation. growth and profitability. He maintained that there will be more mass purchasing efforts and vehicle platforms as well as growing exchange of technologies. the removal of shared components from the span of the platform could be necessary when its development appeared too difficult or too hazardous because it isn’t worth producing and developing a common component if expenses exceed projected benefits. Carlos Ghosn outlines the future approach for the alliance Renault-Nissan in the following direct talk: “We will never merge the two companies. Why? Because my job is to create value and a merger would destroy value”. This strategy secures operational independence to both firms in the long run. In an interview. you will seek synergies”.emeraldinsight. both Renault and Nissan were free to withdraw from the alliance at any moment should an irreconcilable divergence of interests arise. since October 30. Renault owns 44% of Nissan.com) This is the reason why Renault decided to build an alliance not a merger. (xtra. Besides. . Nissan successfully implemented a management decision-making process elaborated by Renault.The teamwork is open-ended to preserve a sense of equality between the partners and encourage both sides to contribute in their own fashion. but he is convinced that the global market strategies of the two companies will remain disconnected and independent. 2001.emeraldinsight.com) By conserving its autonomy and the Japanese-based corporate culture.

2005). In order for the combined share of ideas and strategic management to be effective. As is. This explains why when a French worker happens to interact with a Japanese co-worker. After mentioning the French and Japanese cultures. 1999). procedures that . it’s important to thoroughly understand their differences in order to view how Ghosn will go about them. Then Ghosn arrives and right away cuts 21. the employees of both companies must respect the identities of their fellow colleagues as well as their values. Nissan was previously working and abusing the concept of groupthink. an organization is bound to self-destruct in a short time of period. closes down five factories and terminates most of the relationships with the suppliers within the keiretsu (Harney. This outcome results from Ghosn excessively investing in cross-cultural training programs. for example when Carlos Ghosn is communicating with a Japanese executive at Nissan.Importance of Corporate Culture An important issue in the Nissan-Renault alliance relies in the management of two different cultures. having over 1500 employees from Renault learn about the Japanese business culture and 400 Nissan employees study the French culture (Pooley. one does understand the cultural background of the other. To achieve this. If this critical first step isn’t met and members in a particular team act disrespectfully and selfishly towards their teammates. and the contrary can be affirmed about French societies relying heavily on individualistic efforts from employees.000 jobs. This is a positive first step in order to create a successful alliance of two different cultures. it would be considered relevant to demonstrate how certain of “Hofstede’s Cultural Theories” (Clerc. where the decision process evolved around people who thought alike. 2000) can apply to the case of Nissan and Renault. Firstly. Japanese societies are known to be more collectivist.

merely a consideration of both cultures working together in the English language (Clerc. Moreover. in the Japanese culture. . many ex-employees of Nissan would argue that the company was in desperate need of re-structuring their apparently homogenous culture. many said “It is not necessary to change for now” or “It is only an imitation of the American way”. As a result. we had nothing but to let someone having a different culture to take up an important post.’ If the company was in trouble.almost caused a major cultural crisis in Japan thus possibly resulting in the failure of the alliance. In order to rescue Nissan. 2005). As such. Finally. it’s someone else. Consequently. this caused much confusion and frustration among the Japanese workers from Nissan and Ghosn was indirectly forced to implement a new “system of double hierarchy”. when Ghosn arrived in the company and began restructuring the management process. his new system of promotion was based strictly on performance. 2000). Even though a leader tried to conduct reforms. Ghosn himself stated once that “Nissan had gradually developed a culture in which the standard response to problems was ‘It’s not me.000 jobs mainly because of job redundancy causing one department to blame the other department for a problem that should be shared and analyzed by the company as a whole. I asked Renault to let Mr. Therefore. (Nakae. A monoculture turns into disaster when reforms are needed. Nissan had been operated by people who had had a similar idea and a fellow feeling. it became to be too late to change. 2005) Also. no matter what the age of the employee. Ghosn to come to Nissan. it was always the fault of other people […] The root of the problem was that the areas of executive responsibility were vague” (Nakae. This statement would help in explaining why he delayered the structure of the company by cutting 21. a young employee is prohibited from managing a colleague who is older in terms of age as well as seniority. An example is given when ex-CEO of Nissan Hanawa Yoshikazu stated: There was an atmosphere in Nissan that it is difficult for managers and employees to feel environmental changes.

On the same aspect. This success story raised significant interest on behalf of billionaire investor Kerk Kerkorian. Carlo Ghosn.3 million cars and trucks annually. representing total revenues adding to $327 billion. the GM alliance would allow for huge economies of scale. he would need anywhere from 34% to over 50% of control in order to fix GM (Rowley. 2006). who possesses 9. some analysts estimate that the alliance would cost $3 billion in order for Nissan-Renault to have a 20% equity stake in GM. Finally.The possibility of GM entering the alliance To this moment. Kerkorian has been insisting GM’s CEO Rick Wagoner to begin negotiations with Renault’s top guy. 2006). Fiat and Subaru’s maker Fuji Heavy Industries (Treece. This alliance would allow the companies as a whole to sell approximately 14. on top of the reported $10. the alliance between Nissan and Renault has resulted in relative success thanks to the efforts and strategies of Carlos Ghosn. Moreover. 2006). Unfortunately for Nissan-Renault. an important consideration for Ghosn is what to do with labor unions considered popular in the United-States with the United Auto Workers.9% of GM’s shares. Thus. a large sum of money that could be invested in other production plants or could have been redistributed to their rightful shareholders (Rowley. which would definitely surpass the performance of archrival Toyota (Welch. This. Ghosn would find it particularly challenging to lay- .6 billion loss last year doesn’t inspire Ghosn. including an increase in bargaining power over their suppliers because of their magnitude. 2006). on top of being extremely time-consuming for Ghosn to operate a third carmaker. Ever since late June of 2006. GM has a long history of failed alliances with automakers such as Isuzu. 2006). to possibly create a three-way alliance with NissanRenault. According to Ghosn. the trio would be able to work more efficiently and realize cost savings and value creation reaching $10 billion (Dolbeck.

although its products were too old to compete with others. and it prevented Nissan from making necessary investments in its aging product line (www. Japanese believed maintaining equity stakes in partner companies would promote loyalty and cooperation between the customer and . 2002). this outdated product was competing for 25% of the Japanese market and for the similar portion of European market (Ghosn.off 21. Nissan went through various changes to regain its profitability and competitiveness.2 billion. The debt had amounted to $ 11. and had similar problems. and these types of actions would cause much more than a cultural crisis! In the end.nissan-global. For example. The alliance’s success depended on Nissan turning into a profitable company again. The rest of the car lines weren’t much different from March.com). Nissan needed Renault’s cash to reduce its debt and Renault wanted to learn from Nissan’s success in North America which is essential for Renault to expand in its market. The American culture is quite different from the Japanese. following the alliance. the competitors’ new products came out every five years. it was in significant debt problem in 1999. ‘March’ (or ‘Micra’ in Europe) was nine years old. Nissan had cut back on investments in order to save money. GM ceased negotiations with the possible alliance because the company feared inferior profits compared to what Nissan-Renault would profit from the alliance and because this arrangement would prevent GM from pursuing other partnerships. Though ‘March’ had had a few updates.000 unionized workers and closing plants down if restructuring was needed. However. One of the reasons for its financial difficulty was its keiretsu partnerships. Evaluation of Nissan before and after the alliance In 1999. Before Nissan agreed to the alliance.

They show Nissan’s success in making use of its assets and success in alliance (www. nearly 14. and operating margin had increased from 1. . but now many other Japanese companies are following Nissan’s lead. Renault paid off Nissan’s huge debt in return of 36. breaking up with keiretsu seemed radical. 2002). Nissan’s sell-off had increased the profitability of suppliers to whom they delivered price reductions (Ghosn.4 billion. Nissan had retrieved itself from the keiretsu.75%. People thought that the cross sharing of equities of both partners would harm the relationships between Nissan and their suppliers. following the alliance. Nissan even invested in its competitors such as Fuji Heavy Industries. but the relationships became even stronger. 2002) . It had to go through massive changes in its system. The overall changes were very successful. Nissan now evaluates employees based on their performance in the company. First.the suppliers. They had clear distinction between customer and shareholder. As previously mentioned. and Nissan also invested in hundreds of different companies (Ghosn. in some cases. 2002). Moreover.4% to 4.com).000 employees were unemployed. Suppliers didn’t care what the company does with their shares as long as it was their customer. At the time. Moreover. The personal management also had changed. In fact. not on how long they worked for the company. However.8 million to $2. This large amount of money was locked up and could not be utilized for Nissan’s own good (Ghosn. The operating profit had increased from $6. The company had more than $4 billion invested in different companies on which the company did not have any managerial leverage.nissan-global. that didn’t mean Nissan had regained its profitability.6% equity stake in the Japanese company. This change contributed to maximizing the utilization of personnel.

need of new light commercial vehicles in India. The restraint increased 14% of the price of Japanese automobile (Benjamin. many of the American automobile companies were threatened by those Japanese low price and high quality cars. Nissan decided to also build their plants on European soil (www. which strategy the firm should follow always varies with the host country’s condition at that point. it has been one of the most productive plants in Europe. Hence.000 cars per year (www. Because of the high export tariffs and the delivery costs to its European consumers. Japanese automobile companies. As a solution. The plant was completed in 1986 and since then. Nissan-Renault has been affected by conditions such as voluntary export restraints. Therefore.wikipedia. tariffs of Europe. started to introduce luxury cars and trucks to the market and to build their plants on American soil. instead of trying to be recognized as low priced small cars.com). Moreover. voluntary export restraints eventually served to boost the demand for Japanese automobiles as well as to create new markets for the Japanese automobile companies: trucks and luxury vehicles. the American government introduced voluntary export restraints to limit the number of cars coming into the United-States. And it is predicted that by year 2007.com).wikipedia. similar events happened when Nissan entered the European market. Therefore. including Nissan. . and European Commission’s new rules. 1999). When Japanese automobile companies first entered the American market back in the 1970s.Worldwide Domestic Conditions affecting Nissan-Renault As entering a new market or trying to fit in the existing market. this led consumers to switch to American automobiles. Nissan’s European soil is going to be producing about 400.

Of course Telco wanted to stop them by also entering the light commercial vehicles market. Also. the Indian government has permitted Nissan to sell vehicles in their market (Arun. The domestic conditions that have been affecting the Nissan-Renault not only helped them grow but also caused them difficulties to operate. as a next step. 2005). . it was very easy and simple for Nissan to operate in India. because the Indian government restricted Telco to produce automobiles heavier than 6 tons gross weight. However. 2002). consequently making it harder for them to be recognized and sell greater quantities of cars. Therefore.When entering the Indian Market. once Nissan established their quality and built their dealer networks in India. Therefore. because it was permitted and supported by the government itself. Nissan-Renault has benefited from the instant elimination of competition. The law has also made it easier for the car companies that have smaller market shares in Europe. Telco cannot do anything except wait until Nissan becomes bigger and compete with them (Arun. they could move forward and compete with Telco in the Medium truck market. 2005). The European Commission’s new rule on car sales has encouraged car dealers to sell various names of companies to reduce the “dominance of national champions” (Guerrera. larger companies such as Nissan-Renault now have more competition. Because of the need for new light commercial vehicles in India.

Nissan prevailed. Although many people in Japan disagreed with this idea of ending so many long-term business relationships. As a result. Also the collapse of the keiretsu led to increased competition among suppliers. should be decreased to no more that 600 companies (Ikeda. . & Nakagawa. 2000) The CEO actually dropped all of the keiretsu suppliers. Most of the Japanese automakers depend on the keiretsu and it is very unusual for a Japanese firm to not be part of it. Ghosn claimed that the keiretsu system resulted in higher costs when purchasing automobile parts. 2005). when Carlos Ghosn arrived as CEO of Nissan. In his Revival Plan. which totals 1145. and the number of suppliers. M. he didn’t want to follow these Japanese traditional rules. Nissan has been supplied by keiretsu which is longterm purchasing relationship. 2005). Y. intense collaboration and the frequent exchange of personnel and technology between companies and select suppliers (Okamura. which represent 60% of the total cost. he states that purchase costs. keeping only four of them. Nissan has been able to select better quality supplies at more affordable prices (Okamura. However. should be reduced by 20% in a three year period.The collapse of the Keiretsu helps Nissan to remain globally competitive As the other Japanese companies. it is difficult for keiretsu suppliers to have the most advanced technology developed independently which decreases the competitiveness of Nissan in the global market. Also.

P.financiarisation : les spécificités de l'industrie automobile.emeraldinsight. pp. Vol. CTPID Communications Director. Article retrieved from http://72. Saving the Business Without Losing the Company. Ministère de la Recherche Paris. Harvard Business Review.1/32114/1/63201635. (2004).lib. (2005). 33.233-262.edu/bitstream/1721. MW. J. The Renault-Nissan Alliance. . (2006.edu/newsoffice/2004/ghosn.2.209. Article found from http://eprints. Harney. Ghosn.html Nancy DuVergne Smith (2004) Nissan-Renault alliance faces down a few challenges. J.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTex tArticle/Articles/040170503. (2002). & Heyder. London. The determinants of Alliance performance: Case study of Renault & Nissan Alliance. Göteborg University.univrennes1. Econ. & Pustay. B. (1999. Article found from http://web.edu/~dstanford/ibnotes/39cases04/casequestions.pdf Nakae. Bradford Vol 13. C.fr/site_francais/actualites/textes_actu_exterieures/ Other articles: Griffin. Clerc. Restructuring gives Japan’s workers culture shock: […].Bibliography: Key articles: Susini. pp29. A. 2006. France. Treece. Financial Times. (2005) The Model Alliance of Renault and Nissan. the merger of Nissan/Renault and Mazda/Ford in comparison. https://dspace. Pearson-Prentice Hall.ac.jp/dspace/bitstream/2115/5398/3/EJHU_v33_p232-262.104/search?q=cache:huFYIKQDCwJ:crem. T. Cultural change: a comparative study of the change efforts of Douglas MacArthur and Carlos Ghosn in Japan.hokudai. International Business. RW.14. Vol 11.pdf Segrestin. (2003) After the loss of Japanese autonomy. of Hokkaido University. pp 14. Ghosn to GM : Automotive News Europe. (2003). from http://facweb. Human Resource Management International. R. (2003). November 2nd). Iss 20. TREIZIEME RENCONTRE INTERNATIONALE DU GERPISA.relation salariale . October 2nd).mit. H. Article retrieved on November 11th. Organisation productive . K. J.mit. Iss. Pooley. 4th Edition.html http://xtra.furman. Sloan School of Management. (2000) Managing the Cultural Issue of Merger and Acquisition: The Renault-Nissan Case.html Bungsche.P. (2005).

ft.com/articles/article_print1. Vol 17. from http://www.Information for Nissan retrieved November 8th. D. 400-430. Beyond the Keiretsu. Driving from Japan. (1999). Publications Pvt.nissan-global. A. J. New Rules On Cars Set to Hit Big Names. pp. Retrieved November 4th. 2006. Okamura. from http://www.com Wanda. Perc reports. Remaking India (p): One Country. (2005. Benjamin. Article retrieved on November 2nd. 2006. January 6th).com/searchArticle?page=2&queryText=renault+domestic+law&javascriptEnabled =true&id=020110008676 Arun. (2005). 2006. from http://search. Voluntary Export Restraints on Automobiles.cfm . (2005). Japanese Cars in America. M. One Destiny Difference. number 4.utofieldguide. McFarland & Company. Ltd.

319 3.2% +4.9% (Source: http://www.Nissan .111 6.Dacia Nissan Group .Renault Samsung Motors .253 826.448.637 149.046 96.972 85.nissan-global.8% +4.html) .Renaul .786.com/EN/NEWS/2006/_STORY/060130-02-e.Infiniti Renault-Nissan Alliance Sales in Japan 2005 Renault Nissan Renault-Nissan Alliance 3.075 Change 2005/2004 +8.406 3.828 5.7% -2.2% 9.822 830.002 138.531.6% +40% +70.254 2004 2.337 2.2% 7.597.748 3.756 119.157.167 Change 2005/2004 +1.129.308.248.677 2004 3.8% 2.506 2.295.7% +9.Appendices: Exhibit I: Sales according to the number of vehicles sold Worldwide Sales 2005 Renault Group .490.520 866.4% +5.027 164.830 3.157 869.

com) .Exhibit II : Important graphics revealing positive performance Consolidated Operating Profit Margins for Nissan since alliance Global Sales Volume (Source: www.nissan-global.

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