Industry Background

In 1999, 55 million vehicles were sold worldwide, out of which 32 million were passenger cars. 90% of the demand came from the ―triad‖ of the USA (26%), Europe (40%) and Asia (24%). In the US and in Europe, sales increased by 8.7%, while in Asia the rate of growth was 5.1%. In 2001, the number of vehicles sold worldwide was almost the same as compared to 1999. The automobile market was slowly stagnating in mature markets of the US and the Western Europe. Both these markets were also affected by rising oil prices and interest rates in 2001. The shrinking of these main markets was not sufficiently compensated by growth in other markets.

Major changes, which took place in the automobile industry:
    Large scale mergers were happening in the in lot of repercussions in the automobile industry An Asian slowdown that was mainly observed in the financial markets had unfavorable effects on the Japanese automotive industry. Globalization was leading to an irreversible change in the world auto industry. A presence of over-capacity in the global auto market was observed. The demand the world over was only 52 million vehicles, while the existing capacity was 70million vehicles. This led to a greater importance for firms to seek size through consolidation.   The stringent environmental and safety regulations increased R&D expenses per car. The strategic movement of auto majors was almost as important as the automobile industry. world over that resulted

Company Background: Renault
Renault, once owned by the French state, became a limited company in 1990 and was finally privatized in 1996. It earned a reputation for their innovativeness and the anticipating of market trends, which found their expression mainly in creative car designs and in new forms of power trains. Renault had a complete product range, from small to large passenger cars, including minivans, as well as light duty commercial vehicles, trucks and buses. Overall the company sold 2.2 million vehicles worldwide in 1998 making it number ten among the car companies. Though Renault was mainly present in Europe (responsible for over 90% of the revenues in 1998), especially in France with 57% of the revenues generated there. It had several manufacturing sites in Latin America, but had nearly no presence in North America and in AsiaPacific. The financial situation was quite sound in 1998 with a net income of EUR 1.3bn from revenues at about EUR 37.2bn, thereof 4.2% was invested in research and development maintaining the companies very dynamic product renewal policy.

Renault’s Need for Global Strategic Alliance
Within the globalizing and consolidating automobile industry, one of the only ways to ensure long-term sustainability was to form a larger group in order to leverage market power. The signal for the same was evident from the merger of Daimler Chrysler. Renault too had decided to move on the same direction i.e. increasing the influence in the market by forming strategic alliances. Renault had thus tried to form an alliance with a European Automobile Manufacturer- Volvo. However, the presence of French state as a prominent stakeholder, lack of diplomacy from Renault discouraged Volvo to nod yes. Thus, Renault had failed in its first attempt. Renault had no presence in Asia. As financial and market power of its chief competitors was increasing, it would have been difficult for entering this continent on its own. Further, the Asian

this association was terminated once the Renault. Previous Attempts of Renault in Asia Renault had made many efforts to form partnerships with several Asian companies.Volvo merger was called off. to Japan. . it had conducted talks with Korean companies like Samsung and Daewoo. as this would give them an easy way to enter European market. How Nissan Was Shortlisted? Renault decided to send a delegation. to find the right strategic partner. was strategically important for Renault in order to build up its presence globally. EVP. these attempts gave an idea that finding a strategic partner in Asia would be not an easy task. were sent a letter and Nissan replied immediately for the same. Nissan and Mitsubishi. This gave positive vibes to Renault delegates and thus seeds got planted for formation of a global alliance. Georges Douin. Renault's proactiveness in this regards helped. However. It tried for a research programme on diesel engines with Honda. Even they were very keen to form a partnership with Renault. In addition. these attempts too did not end fruitfully. Also. these attempts helped Renault to get apprised with Asian market. as it could be a step ahead of the other hungry competitors. Mr. This gave them a glimpse of Japanese business culture. Renault had succeeded to form a relationship with Mitsubishi. suggested an international strategy that recommended finding a right strategic partner in the Asian market. Thus. being the likely candidates. which did not work. Though all the above attempts came to a dead end. as the latter was a partner of Volvo.

Renault to Mr.The letter sent by Mr. Daimler was initially interested in the tuck division of Nissan. on the other hand. Chairman. Daimler had the capacity to help Nissan in industrial restructuring which would have been a long and difficult process in Japan. accepted the condition that the deal has to include the truck division. the leaders of both the organization shared a good rapport. Renault. Now we examine the pros and cons of Nissan‘s potential alliance with Daimler and Renault: Daimler Chrysler Pros Daimler was twice the size of Renault and had the financial capacity to absorb all the accumulated loss of Nissan. Yoshikazu Hanawa.‖ Competition for an Alliance French automaker Renault faced stiff competition from the German-American automaker Daimler-Chrysler for the alliance with the Japanese automaker Nissan. Further. the companies decided to go further check the synergic opportunities available. Thus. but since the car and truck division were intertwined in a complex manner. Louis Schweitzer. Due to its financial strength. Chairman. Renault was enthused of forming a strategic alliance with Nissan which evident from the quote of Mr. . it decided to bid for the entire company. De Andria. Strategic Planning – ―We went hunting for Rabbits and we found a deer. Nissan reinforced this development. VP.

Both Nissan and Daimler were strong in large cars segment. At that time Renault worked on only 8 platforms for its cars. At that time Nissan had 26 platforms for vehicles. could have been difficult to handle. Daimler was struggling to make its previous merger with Chrysler a success. Nissan would have been able to maintain its individual identity. Thus the cost of manufacture was very high. Major issue for Nissan was cost management and rationalisation of its product portfolio. During that period. . so a second merger with an Asian company. Renault was known for its low cost structure and global strategy for platforms and purchasing. So Nissan would have lost face in front of Japanese as well as internationally. not a partnership of equals.Cons Most important issue in the Nissan-Daimler was that it was an acquisition deal. Thus Nissan could have benefitted more by having an alliance with Renault compared to Daimler. The synergy in this deal would have been less. Daimler was known more for its luxury cars and low cost manufacturing was not its forte. Renault Pros This was a partnership of equals. so diverse in culture.

Their product portfolio complemented each-others‘. Cons Since financially Renault was not very strong. . The geographic regions where both were strong were different. This helped the deal go through in Renault‘s favor. Financial analysis showed that potential synergy would yield. Asia. without appearing arrogant in any way. Renault‘s previous attempt to form a partnership alliance with Volvo had failed. The Outcome Throughout the negotiation process Renault Executives maintained honesty and built an environment of trust.5 billion in 2002. But Renault Executives acted very honestly and did not take any undue advantage of Nissan‘s weak position. at least on paper. there was no other option for Nissan but to accept Renault‘s offer.The synergy between Renault and Nissan was very high. Japan and Africa. a deal with Nissan could have pulled Renault into red. a saving of 1. Thus we see that the pros outweigh cons in favour of Renault. Renault was a major player in Western Europe and South America while Nissan was strong in North and Central America. Once Daimler pulled out of the deal.

By 1936. It was also during this period that it established Nissan Mexicana. In the 80‘s Nissan set up manufacturing base in the USA and it was also looking to start a plant in Europe. Nissan initiated rapid overseas expansion but the domestic sales were beginning to fall.A. Nissan merged with Prince Motors as per the advice of the Japanese Government since Nissan maintains close link with the government.V. In 1935. S. . Nissan employees protested against the idea of increasing production capacity overseas when their domestic plants were underutilised. Kume success can gauged by the fact that all the employees including workers came to address him as Kume-san rather than as Mr. leaving Nissan with a depleted sales force. After the war. The twin oil crisis in the 70s resulted in greater demand for smaller and more efficient cars which led to surge in exports. by 1945 and 1947. many of Nissan‘s former auto dealers moved over to Toyota. Takashi Ishihara‘s unilateral approach did not go down well with the union and this badly affected Nissan‘s image. Many new models of cars were released. During the 1960s. as World War II appeared imminent. Nissan‘s main competitor was Toyota and its cars were designed to directly compete with Toyota‘s products. the production shifted from cars to military trucks. falling sales and price cuts in the domestic market while at the same time expanding in the overseas market. This led to conflicts with the Japanese unions and the management. the production of trucks and cars resumed respectively.Company Background. And by 1960 Nissan got the Deming prize for engineering excellence. the first car was rolled out from the Yokohama plant and export of vehicles to Australia was also started the same year. The then President of Nissan. its first overseas manufacturing plant.Nissan Nissan was established in 1933 by Yoshisuke Aikawa to manufacture and sell small Datsun cars and auto C. Kume launched a program to upgrade the image of Nissan. However. He also started talks with the unions to mend the ruptured relations. Nissan entered into a vicious cycle of over-capacity. Mr. In 1966. The succeeding President Mr.

There was no crossfunctional and cross. Mr. Mr. 50% of whom were company owned.3 billion yen in 1992 Nissan went to a loss of 166 billion yen in 1995.9%. From a profit of 101. Yoshifumi Tsuji became president. It was during this time that Mr. The Corporate Planning Department presented ‗Global Business Reform Plan‘ to Hanawa and the board. He tried to improve the domestic sales by meeting regularly with domestic dealers – but the sales showed no signs of improving. but the program failed to achieve its target. With the burst of Japan‘s bubble economy. Hanawa started plans to increase the market share as well as to change the culture of the organization. It was in this climate that in 1996. Tsuji announced a cost reduction program to cut costs by 200 billion yen by 1995. The design of the cars was out of touch with the market. Nissan‘s profits plummeted. His initial plans focused on new car development. did not have the autonomy in selecting car models. One was to undertake a drastic down-sizing and the second option to form a global alliance and to survive through increased scale. with the aim of recovering domestic market share. It proposed to achieve profit to sales ratio of 5% by 2001 and 6% by 2003. . Hanawa wanted to integrate Nissan towards one vector in order to show better results. In 1993. Yoshikazu Hanawa became the President of Nissan.regional communication. . Mr. Nissan suffered a net loss of 14 billion yen in 1998 and it was clear that some initiatives had to be taken to rescue the company. There was a bureaucratic culture rooted into the organization which made implementation of change very difficult. Nissan was losing touch with the customer needs of the current generation since the dealers. Two options were presented that would help the company achieve this target. Nissan‘s culture was that of complacency and there was a lack of urgency. Hanawa‘s main concern was to change the culture of the organisation. At that time.President. Nissan‘s share of the domestic market was just 15.

. Nissan’s Urgency for a Revival Mr. innovative style and appearance could be introduced to the company through an alliance. A local partner or a wellestablished player would assist in overcoming this shortcoming in Nissan. the company was unable to leverage profitably from such a presence. Global Presence: Though Nissan had a presence outside Japan. He foresaw March 30. This was essential in steering the company towards market reality. That was the period for the short-term credit lines to be renegotiated. trim its product range and make quality available at an affordable cost. The aspects of cost reduction. While Renault‘s reason for a global alliance was more towards strengthening its current global position. Marketing. 1999 as a symbolic deadline for reviving the company‘s financial health. the Asian slowdown called the Japanese companies‘ potential into question. Also. The other non-financial considerations for a global alliance were: Technology access: Need to increase efficiency by concentrating on production of smaller cars. Nissan‘s 14th president was heading the global alliance with Renault. The declining global market share (4. Focus beyond quality: Nissan‘s obsession with quality had driven the company away from market reality such as customer orientation and importance of product designing.Nissan’s Need for a Global Alliance Nissan had a greater need for a partner to pull it out of its financial instability. for Nissan it was a matter of survival.9% in 1998) also reiterated the need for a global partner. A partner was needed to keep Nissan‘s high manufacturing cost.Yoshikazu Hanawa.

Second. after extensive consultations between the two companies. Mr. which was presented to Mr. Hanawa immediately contacted Mr. Nissan found that a joint venture with Renault had three main areas of benefit: One. In July 98. Therefore he already had a considerable knowledge about Renault. Director and GM at Corporate Planning Department and Mr. Chairman and CEO of Renault outlining terms of a possible alliance was received by Mr.Global Business Reform Plan: In May 1998. streamlining sales. Andre Douin. Sr. both companies had similar market capitalization and thus the threat of takeover from either side was less. Lewis Schweitzer. the Central Planning Department came up with a ―Global Business Reform Plan‖. 21 joint projects were finalized. On the basis of the research carried out.  The second alternative was to establish a global alliance to survive through increased sales. reducing development cost. In . The plan gave two alternate methods of achieving the objectives:  The first method was to implement a survival plan that included downsizing. Renault was good at producing small cars while Nissan was good at producing large cars. Hanawa which contained proposals to increase the profits to sales ratio to 5% in 2001 and 6% in 2003. Toshiyuki Shiga. The letter was clear in that it proposed an alliance would only with Nissan Motors. Both the companies had market strength in different areas of the world. Mr. It was in this climate that the letter from Mr. Head of Renault‘s Planning Division to talk about possibility of Renault producing pickup trucks under Nissans license. Hanawa. Yutaka Suzuki. Third. Shiga had in 1997 worked with Mr. and divesting non-core business assets. There was a possibility to integrate platforms and for cost reduction. integrating platforms. Manager at Corporate Planning Department to look into the proposal.

It was only after repeated interactions with Mr.Chrysler. . Hanawa came to think of the global alliance.Chrysler who had been negotiating with Nissan to buy Nissan Diesel made an offer to acquire all of Nissans operation. For Nissan this was offer that it could not resist. increase sales – in short remove all of Nissan‘s problems. Nissan started operational level studies – until the moment. Schweitzer that Mr. In November 98. It is important to note that in the beginning Mr. Nissan would lose its independence. Renaults top management team of Louis Schweitzer. Georges Douin and Carlos Ghosn made a presentation to the Nissan Management Committee. in agreeing to be acquired by Daimler. Hanawa never thought of forming an alliance but was looking at Renault with intent of forming joint cooperation. it could easily pay off all of Nissan‘s debts. as the joint project teams were working. For Nissan. the global alliance was not an objective but a process through which it could learn about Renault‘s cost management and customer relations. all the 21 joint teams gave the final reports – there were some ―win-lose‖ projects but most of the projects were ―win-win‖. Completing the negotiations for the alliance was just a step as far as Nissan was concerned.September 98. Given the size and prestige of Daimler-Chrysler. It was in December that Daimler. only the management was involved. However. The presentation visibly shook up the Nissan team – both at the Renault teams boldness as well as what they outlined (the problems of Nissan) In December 98.

and companies‘ reputations. the company‘s financial history and government supervision necessitated that Schweitzer proceed prudently. Hanawa and his team would be protective of the company and determined to ensure that Nissan Motor had a future. there was no strong foundation on which to build.The Alliance Process Schweitzer‘s inner circle for the tightly guarded ―Pacific Project included Executive Vice. . Whatever the basic relationship. their respective contributions. and an organizational structure. It did not take long for the group to look beyond a one-country relationship with Nissan. Douin. At the same time. conducted the early studies of potential Asian partners. Renault and Nissan complementary interests. management control and equity valuations were bound to be Renault-Nissan sensitive issues. Given Nissan‘s history and prominence in Japan‘s industrial sector. rebuilding the had intent many common and upon improving their enhancing the organizations.Presidents (EVP) Georges Douin and Carlos Ghosn. Specific agenda items included the scope of their collaboration. Both CEOs were companies‘ competitiveness. Issues The meta-issue for the companies to negotiate was the basic nature of a relationship. who oversaw product and strategic planning and international operations. Conversely. Ghosn was a cost-cutting expert who masterminded Renault‘s post-1996 restructuring. There were no previous conflicts between the two companies or CEOs to impede a relationship. while Renault had $2 billion in cash to spend.

they wanted to broaden the coverage.September 1998) i) Nissan‘s corporate planning department which had people from all the fieldsstartedoff their investigations on the European car company and did a thorough internal study of Renault and came out with findings mentioned below:  The main reasons for optimism was found based on research – Two company showing strength in different regions. gain scale and solidify market position.December. . while Renault in small cars and manufacturing the vehicles.The Negotiations The 9-month period may be divided into five phases: 1 – Preliminary Study (July . 1998) 3 – Reporting (December 1998) 4 – Alliance Formation Process (January-March 13. Nissan‘s strength in large cars.September 1998) 2 – Joint Study Teams (September . also the common platform integration for ii) With 80% of Renault‘s sales are coming from Europe. 1999) 5 – Employee Involvement The following sections describe the various actors and each phase of the negotiation process.  Size of the two companies in terms of market capitalization were looking similar and hence there is lessening threats of future dominance or possible take over from either side. Preliminary Study (July . I.

Their basic policy was to distinguish the brand identities from each other and to integrate the processes that were far away from customers.Both the company developed a shopping list of more than 100 projects and out of which 21 projects were prioritized first after numerous negotiations with both the company representatives. teams reported directly to the chief negotiators. II. and exchanged cost and other proprietary information. The teams held meetings at nearly every one of the companies‘ sites worldwide. Top management facilitated collaboration within the study teams and a coordinating committee reviewed progress monthly. Reporting (December 1998): After the submission of reports the two companies decided to form a common strategy in order to achieve the profitable growth for both the companies. Communication between study teams was prohibited. Engineers were asked to control to have an in depth study on projects and there was a greater amount of secrecy between two companies. 1998): From September to December 1998. companies were opening up for better synergies and most of the projects resulted in ‗win-win‘ situation.December. . visited plants. 21 intercompany teams assembled from specialists on each side thoroughly examined the companies‘ respective operations. But as discussions progressed. Joint Study Teams (September . III.

finance and legal affairs.IV. 1999): The negotiation became aggressive focusing on the restructuring. Alliance formation (January-March 13.  For Nissan. Employee involvement:  Renault laid its emphasis on communication comparatively more than negotiation. Hanawa was always at the center of control and he communicated mostly to his three lieutenants alone which made some key people to think why they were not involved in the processes at all directly. For Nissan apart from finalizing the agreement. This would have allowed the HR to plan for future and to get ready to face issues after post alliance integration. V. But Renault was not ready to reveal until the alliances were formed. which made Nissan employees easy to understand Renault. . their main objective was how to examine the sharing of best practices with Renault.

. car platforms. cost management. Results were promising. working groups in and from both companies conducted preliminary analyses on purchasing. factory productivity. distribution. the two CEOs met in Paris and signed a memorandum of understanding committing their companies to evaluate synergies more extensively in an exclusive arrangement for the next 3½ months. and international markets. Highlighting the trust he felt they had established. after the Schweitzer-Hanawa exchange of letters. production. By the middle of the month. research and advanced technology. Schweitzer proposed to Hanawa that they strengthen their relationship by holding each other‘s shares. Nissan‘s capabilities in large cars. engines and gearboxes. and global strategies for purchasing and product innovation. Six weeks later. and quality control complemented Renault‘s talent in medium-sized cars.Hanawa and Schweitzer Phase One In June 1998. They established rapport quickly and put the wheels in motion for studies on potential benefits of collaboration. a select group of Renault and Nissan representatives met secretly to explore their respective interests in strategic collaboration. Schweitzer said they could talk about the subject again in the future though he also underscored how critical their collaboration was to Renault‘s future. On September 10. Hanawa replied that Nissan had no money to spend on buying Renault stock. Schweitzer and Hanawa met for the first time in Tokyo. they were preparing for their CEOs to meet. Phase Two During the 7 weeks from August 1-September 10.

Top management facilitated collaboration within the study teams as needed and a coordinating committee reviewed progress monthly. In mid-November. paying particular attention to financial and cultural dimensions. Schweitzer and Hanawa—and the negotiation teams—continued their meetings at venues ranging from their headquarters to cities in Thailand. Nissan‘s board of directors took the extraordinary step of inviting Schweitzer. The teams held meetings at nearly every one of the companies‘ sites worldwide. The executives‘ main concern during this period was development of a business strategy. Within Renault. support for the organizational restructuring already underway at Nissan with Nissan management leading the effort. and exchanged cost and other proprietary information. protecting jobs. specific financial issues were left for the final rounds. the negotiations centered on a Renault investment in Nissan. They drew on their experience with Volvo and examined the Ford-Mazda partnership as a model. The presentation was so well-received that the Renault team deemed it a turning point in the negotiations. information exchange of this kind was remarkable in an industry where companies jealously guard their manufacturing secrets. Singapore. 1999a) later observed. 21 intercompany teams assembled from specialists on each side thoroughly examined the companies‘ respective operations. and selection of a CEO from Nissan‘s ranks. .Phase Three From September to December 1998. For his part. By October. and Mexico. As one reporter (Lauer. Hanawa set four pre-conditions for a deal: retaining the Nissan name. Schweitzer and his executives concentrated on refining their concept of an alliance. Douin and Ghosn to Tokyo to present their vision of the alliance. visited plants.

but the period was punctuated by developments in the competing Nissan-DaimlerChrysler. a clause ―freezing Hanawa‘s contact with other potential partners until the completion or end of talks with Renault. On the 23rd. Schweitzer and Hanawa negotiated over. among other things. who showed no interest. with the approaching expiration of the September memorandum. DaimlerChrysler was not simply a foil for Hanawa to leverage in the Renault negotiations. Nissan‘s fiscal year-end. 1999. the CEOs signed a letter of intent. EVP Ghosn. Renault had suggested a subsidiary or joint venture. Hanawa then flew to Paris to inform Schweitzer personally of his intention to follow up on Schrempp‘s offer. Hanawa demurred from locking in just yet. it had real pull of its own with Nissan management. This was not Hanawa‘s first contact with alternative partners. They admired Daimler . as the Renault and Nissan negotiating teams discussed the legal form of a relationship. Hanawa paid a courtesy call to DaimlerChrysler co-CEO Schrempp in Stuttgart. proposed an informal alternative that both sides accepted. He had also sounded out Ford CEO Nassar (Ghosn & Riès. they hit an impasse. for Renault to make an offer on Nissan Motor by March 31.Later in the month. who did not regularly participate in the negotiations. Nissan rejected both concepts. 2003:176). At the end of December. Phase Four The fourth phase of the negotiations began with Renault‘s first public. In December. minus a freeze clause. Schrempp proposed to go beyond his interest in Nissan Diesel and make an investment in Nissan Motor itself. acknowledgement of its talks with ―potential partners … including Nissan. Hanawa asked Schweitzer to include Nissan Diesel in the offer. albeit guarded.

Schweitzer realized Hanawa‘s choice was now ―Renault or nothing. Fluctuating share prices and exchange rates further complicated matters. Two weeks later. at the beginning of the 2-week final phase of the negotiations. The DaimlerChrysler Board of Directors. Nissan sought $6 billion. had pulled him back (Barre. 1999). In late February.4 billion for Nissan. Nonetheless. These decisions centered on a 35% stake in Nissan for $4. The negotiating teams continued their discussions through the winter. a 20% stake would yield no more than $2. This amount exceeded the 33. This may have reinforced Schweitzer‘s fears that DaimlerChrysler was the favored partner. Renault‘s cash contribution was a tough issue.3 billion. ¥85 billion loan ($740 million) from the state-owned Japan Development Bank. Renault‘s position completely changed when Schrempp formally withdrew his bid for Nissan Motor. and if Nissan were valued between $8. On the Renault-Nissan agenda. meeting several times in Bangkok. a Nissan spokesman denied that a Renault deal was imminent and asserted that talks with DaimlerChrysler were ―continuing. In contrast. It had DaimlerChrysler in the wings and breathing space afforded by a long term.7 billion (market value) and $12 billion (a comparable companies valuation).4% threshold for an investor to gain veto power on a board in Japan and remained below the 40% level at which French accounting standards would require Renault to . but without success. Schweitzer obtained the internal approvals he needed from the Renault Board of Directors and Work Council (Renault Communication. Hanawa probed Ford‘s CEO yet again about a linkage. they saw Renault as ―no better off than Nissan in terms of future viability and survival. Phase Five On March 16. 1999b). Renault initially expressed interest in a 20% stake.(Mercedes) and knew DaimlerChrysler had deep pockets. Nissan was not ready to move quickly from its position. on March 10. leery of Nissan‘s financial condition and understated debt at Nissan Diesel.

4 billion) by Renault. and Deputy Chief Financial Officer). Renault issued a press release about its intention to purchase 35% of Nissan. plans called for the formation of 11 cross-company teams to work on key areas of synergy (e. The strategic direction of the partnership would be set by a Global Alliance Committee co-chaired by the Renault and Nissan CEOs and filled out with five more members from each company. One seat on Renault‘s board of directors was designated for Hanawa. product planning) and to coordinate marketing and sales efforts in major geographic markets. vehicle engineering.8% of the equity in Nissan Motor and 22.. Renault gained responsibility for three positions at Nissan (Chief Operating Officer. The agreement included options for Renault to raise its stake in Nissan Motor and for Nissan to purchase equity in Renault. Nissan executives withheld their approval of an alliance for several days (Lauer. With the approvals in place. With respect to management.4 billion for 36. Vice-President of Product Planning. Schweitzer offered to start exclusive negotiations with Nissan without delay. 1999b). When an agreement was finally reached. . Financial terms included an investment of ¥643 billion ($5. The negotiations intensified. Renault received 36. For ¥605 billion of the total. The Deal The global partnership agreement signed by Schweitzer and Hanawa on March 27. At the alliance level. Renault‘s investment had risen to $5. With the remaining ¥38 billion. 1999 committed Renault and Nissan to cooperate to achieve certain types of synergies while maintaining their respective brand identities. purchasing.8% of Nissan Motor and stakes in other Nissan entities. At this time.5% of Nissan Diesel.g. Renault acquired Nissan‘s financial subsidiaries in Europe.consolidate Nissan‘s debt.

.Model Categories of Nissan and Renault Model Category Entry Level Sub-Compact Compact Mid-Size Luxury Minivan 4*4 Pick-up Utility Renault x x x x x x Nissan x x x x x x x x x From the above table it can be inferred that in model categories too.4% in 1990 to 4.9% in 1998. Nissan Motors was under major financial problems. Production costs were high. the company has been showing losses. Thus each can market their different models in others strong markets. Nissan‘s global market share slumped from 6. Nissan and Renault shared a medium commonalty. This again can result in excellent synergies. Financial Position of Nissan V/S Renault By 1998. The company did not have a rational purchasing policy nor did it have sound relations with suppliers. This left the company with total debts of 23 billion Euros and a list of annual repayments that was getting difficult to service. Quest for performance and quality at Nissan came at a high cost. From 1992.

Key FinancialInsights The debt to sales ratio at Renault is very conservative. The same can be said of demand for cars in different parts of the world. However. They rely mostly on internally generated funds to finance their operations. Nissan was one of the largest Japanese manufacturers in terms of the numbers of units sold. we will find that Honda with the . Nissan had debts amounting to 23 billion Euros which it found increasingly difficult to service. no debt and a net worth of €7. there was a reduction of 12. the company could not achieve global status and reported productivity issues that resulted in slim margins. Because of such high leverage Nissan was heading towards bankruptcy and unable to respect its debt obligations. Despite this situation. until 1984 when the company started to falter by experiencing record losses of $2B. While at the same time the debt in Nissan has been increasing drastically over the years. maintaining this record up until 1998. Operated as a public enterprise. in terms of profitability its performance was very poor. In Japan. Throughout this period however. W ith such financial health and accumulated international experience. quality and innovation. According to the case. If we compare the EBT margin of Honda with Nissan. it started the internationalization process during the 1970‘s and through the mid 1980‘s enjoyed a strong market position. Based on the setting of two clear priorities.This reduced net income can be attributed to the increased inefficiency in operations of Nissan. Renault was in a good position to address possible mergers and/or acquisitions to increase its global market share. Nissan has been reporting consistent Net Loss from 1993. the company was able to regain profitability as early as 1987.9B. As a result Nissan was hit with overcapacity and lack of demand.58% from 1996 t0 1997. Nissan actually suffered from lack of global demand for cars. the company showed an enviable cash position.The Renault group is the oldest French automaker.

 Toyota Production system of bottom up approach.     The ten common integration platforms should be properly utilized for producing the vehicles for obtaining the cost efficiency in manufacturing. effective communication and employee effectiveness should be adapted in both the companies to realize the productivity improvements. Renault should learn the Quality techniques and productivity improvements from Nissan in order to reduce the cost of the products and increase in efficiency.   The difference in approaching the supplier relationship should be worked out properly. It would not be easy for Renault to develop a car in two years like Nissan.similar number of units sold has a much healthier EBT margin of more than 8% while that of Nissan was less than 2%. Nissan should quickly adapt the product innovation and design concepts from Renault in order to revive their car segment to suit for younger generation. Operations Perspective  Engineering design cannot be harmonised soon since Japanese people work twice as much as Renault engineering persons. . On the other hand they can agree on the validation markers which can effectively be co-ordinated. Renault believes in complete freedom to its supplier after design but Nissan treats its suppliers as partners and always has a control over it right from design to delivery. Effective cost cutting techniques should be implemented in Nissan with the help of Carlos Ghosn immediately to realize the benefits and in order to overcome financial crisis for long term. Mutual understanding should be achieved in dealing the suppliers since company‘s profit is reliable on effective global purchasing.

New Company. New Hr Strategies Human Resource Department played a key role at Renault in managing and motivating people. Human Resource. This ensures that human resource policies pertaining to optimization of individual careers in terms of mobility assignments and training are properly implemented throughout the organization. The overall restructuring of Renault‘s HR system was initiated in 1998 and resulted in the current form of HR Department.charge of summarizing assessments and judgments made by different managers. This is also evident from the fact that the top-most Renault management team includes the Corporate Secretary General. This is evident from the involvement of HR in matters of social relations and negotiations with the Unions. The management committee of all major Group divisions and departments have a Human Resources Advisor (HRA). . Renault Group. Customer voice should be heard before designing the product through dealers and also effective network of independent dealership network should be built instead of Nissan‘s complete control over them. HRAs are centrally co-ordained on a regular basis. who is responsible for assessing and monitoring all the executives under his/her purview. They are in.

. Within the framework of organizational restructuring the primary role of HR was to improve the productivity of the group. Renault was pursuing its long-standing policy of regularly scaling down the workforce through hiring freeze. which had worsened due to sluggish vehicle sales both at home and abroad. To improve productivity. the company had suffered from decreasing productivity since the 1990s.Improve the Group’s Productivity The priorities of the HR department were three fold: (a) development of HR managers who could play a strategic role in the organizational restructuring program (a) building an international organization and (c) to be more people oriented by addressing the needs of professionals working within the group. Although Renault was among the large global automobile companies in terms of annual vehicle production.

however. Mr. Key lessons from this study are:  Display of power and force may not be favourable to a global alliance.Hanawa‘s decision to not involve the larger portion of the management during the realization of this alliance gave him the autonomy to make or change decisions without wasting a lot of time.  Change in management system to reflect the need of the hour is crucial for a global alliance. Knowledge transfer should be made effective between the two partner‘s in order to depict trust.  Japanese management system mostly displays a management of consensus. Trust has always been an integral part of the Japanese culture. honesty and mutual consideration and understanding. Secretive functioning may hamper the relationship building efforts. Schweitzer‘s emphasis and practice of ‗equal status and participation in management‘ assisted in gaining the trust of his Japanese counterpart. Dominance destroys motivation.Conclusion The alliance highlights the thoughtful and careful progress required for a global alliance between two culturally different companies.  Exchange of knowledge during this process may be viewed as parting with company sensitive information. may challenge the single-minded thought process and conviction required at times of crisis. Mr. The team involved in this study should encompass personnel across all functions in order to assess even the soft elements such as operational fit at engineering level. Also. This.Hanawa also highlights the need for change in the implementation of Japanese Keiretsu culture. There must be a clear ‗win-win ‗cause for the alliance. .  Dedication of resources to study the pro and cons of a global alliance must be promoted by both the parties. Mr.

 For smooth functioning. However. they effectively assessed the quality of an outcome by its effects as well as its content. each partner in the alliance should not be threatened by a future dominance or a takeover by the other side. The complementary factors between two companies in question would help to resolve this fear. Schweitzer and his team focused on Renault and Nissan‘s common long-term goals. Thus. The alliance would have to effectively exploit the synergies of both and thus propel their growth. continuously. . both the parties behaved not only as a negotiator but also as a prospective partner. Thus. they went beyond ostensible differences. Further. This led to a conception of a new form of relationship as it was a not common internationally in the auto industry where one-way holdings prevailed. Renault and Nissan before leading towards formation of global strategic alliance. both the entities prepared extensively. probe other parties‘ interests and capabilities for fit. and jointly as well as internally. Further. complementary interests and respective capabilities. just the formation of alliance would not have solved the dilemma faced by both the organisation.

alliance-renault-nissan.Bibliography ( .