Q1. What is the rationale for this alliance? Ans.

The automobile industry was going through a period of consolidation and in order to ensure long-term sustainability, an alliance was necessary to leverage market power. There was a spate of alliances that had happened in the industry prior to the merger between Nissan and Renault. For Renault to achieve the longterm sustainable growth it desired, it was becoming necessary to form an alliance with another automaker. This would ensure the sustainable growth that the company desired. Nissans sales had been sluggish in the nineties and its high value of debt, which was around 2.5 times the equity value made it essential for the company to form an alliance with a major automaker. The varied geographical spread of the two brands was another rationale for the merger. This was expected to create synergies for the two firms. Renaults acquisition of the Romanian carmaker, Dacia will be a crucial aid to the development of a low cost car for the Asian market once Nissan and Renault ratify the merger. Also, synergies could be realized by combining Renaults prowess in R&D and Nissans engineering capabilities. According to exhibit 2, much of the new registration of passenger cars is expected to come from emerging economies such as Brazil, China and India. For Renault to gain a foothold in these markets, an alliance with a leading Asian car manufacturer is imperative. Also, considering Nissans poor financial state, Renault will be able to gain ownership at a very low price. Nissan has a fairly large chunk of its brand portfolio in vans, pick-ups and other utility vehicles. This will be a good complement to Renaults firm standing in the passenger car segment. Nissans stated business development goals include reduced focus on cost cutting and more attention to be paid to developing new product offerings. A tie up with Renault, which has extensive R&D capabilities, will help achieve this. Q2. What is the strategic value for Renault and for Nissan? Ans. Strategic value for Renault

The deal will ensure the long-term sustainability of Renaults growth and will shield the company from the pitfalls that can accrue in an industry where consolidation and aggregation has become the norm. The deal will also help the company in the area of production technology. The merger will also help Renault enter the lucrative Asia-Pacific market by capitalizing on Nissans vast distribution network in Japan and other countries in the region. Renault can leverage Nissans engineering prowess to develop a low cost passenger car for the region. Renault will also be able to leverage Nissans capabilities in developing non-passenger vehicles such as pick up trucks and vans. Cost saving could also accrue to the company as it can close manufacturing facilities in places where Nissan also possesses them. Also, the debt problems currently plaguing Nissan will result in a discount price for Renault.

Strategic value for Nissan For Nissan, finding a strategic partner has become an existential problem due to the high debt issues facing the company. By injecting funds into the company, Renault will ensure that this problem is alleviated to a certain extent. Nissan will gain access to the lucrative European as well as Latin American markets through Renaults distribution channels. Gaining access to new markets is crucial in a maturing industry such as the automobile sector. Nissan will also have access to Renaults vast R&D resources and this will be crucial if the company wishes to transform itself into a product focused entity rather than a mere cost saver. Renaults prowess in R&D will also help Nissan in designing passenger cars more designed to specific user groups. Renaults handling of supply chain networks will also Nissan streamline its own intricate supply chain network.