The Renault-Nissan Alliance

In Fulfillment of the Final Requirement in

Strategic Management

3:00-4:00 P.M. (MWF)

Submitted to:

Mariel D. Destacamento, MBA

Instructor

Submitted by:

Cena, Novelyn S.

10 DECEMBER 2021

Date Submitted
 Table of Contents

Pages

I. FACTS OF THE CASE................................................................. 1-4

II. PROBLEM.................................................................................... 5

III. ALTERNATIVE COURSES OF ACTION..................................... 6

IV. BEST ALTERNATIVE COURSE OF ACTION............................. 7

V. RECOMMENDATIONS................................................................ 8-10
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I. FACTS OF THE CASE

Renault and Nissan signed a comprehensive partnership agreement in

March 1999, forming a multinational automobile group. This agreement marked the

beginning of a win-win partnership because it provided Nissan with much needed

cash infusions on one hand, while also allowing Nissan to focus on the US market

and enjoy the synergies with Renault in Europe, as well as bringing them expertise in

marketing, design, and platform strategy. At the time of the strategic partnership,

Renault owns 36% of Nissan, and Louis Schweitzer has been appointed as the

company’s new COO. Carlos Ghosn was chosen to oversee the alliance’s

operational implementation. He choose some experts with the instruction to integrate

the new work fields as best as possible and assist the company in finding a solution

to its own survival. The top management was primarily made up of experts in the

areas where Nissan was lacking. Nissan, on the other hand, dispatched specialists

to Renault to work on the French company’s flaws. Furthermore, Nissan benefited

from Renault’s superior knowledge of small passenger cars. On the other hand, the

alliance provided Renault with global scope to remain competitive, allowing them

access to the Asia-Pacific market and allowing them to return to Latin-America. The

alliance also assisted in the diversification of Renault’s product portfolio, particularly

with Nissan’s light commercial vehicles and large passenger cars. Furthermore,

Renault could benefit from Nissan’s manufacturing expertise. To summarize, the

alliance demonstrated an extraordinary match based on the parties’ complementary

strengths, forming the fourth largest automotive corporation in the world in 1999, with

4.9 million vehicles produced and a 9.1% global market share.

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Three main principles have guided the alliance from the start: To share

resources to achieve economies of scale, leveraging complementary strengths in

terms of products, markets, and know-how to improve efficiency, and finally,

preserving separate brand identities to maintain a strong brand image and appeal to

a broader customer base. These concepts enabled two firms with comparable seize

but different corporate cultures to follow a successful growth strategy. The Renault-

Nissan alliance has enabled a number of joint developments, including the gasoline

tank and steering-wheel stabilization system, as well as the establishment of

administrative organizations for "strategic command and operational coordination"

(Segrestin, 2003). Renault and Nissan have strengthened their position as a global

leader automobile by successfully forming a new equity joint venture by merging

their skills. Common institutions such as Renault-Nissan Information Services (RNIS)

and Renault-Nissan Purchasing Organization (RNPO), for example, have finally

altered mutual expectations, partnership scope, and union meaning. According to

research, creating a joint platform is a way of establishing similar organizational

routines and mechanisms that allow for effective information transfer (Segrestin,

2003). Indeed, Carlos Ghosn, former Renault CEO prior to the alliance, has always

been concerned with preserving the two companies' identities, as he stated

emphatically: "If you don't respect people's identities, they won't get motivated, and

you won't get a strong corporate performance.” The Renault-Nissan Alliance is

uncommon in the industry because most companies join forces through mergers and

acquisitions, and what happens in a merger/acquisition scenario is completely

different. Is that there is always one dominating corporation that wants to impose its

methods and culture on the other company with which it is cooperating.

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The majority of specialists feel that when two or more things are combined,

there will always be a loser. If you have a loser, he lacks personality and character.

The big advantage of that partnership is that Renault has its own identity and will

maintain it, and Nissan will do the same. It's a win-win situation. Each partner

contributes to the creation of value and reaps a portion of it; the cars complimented

each other, and the technologies complimented each other. Synergism is the term

we'd use to describe what we're talking about. The Renault-Nissan Alliance has

demonstrated a high level of synergy. When you consider that purchasing accounts

for roughly 80% of a vehicle's production cost and that the majority of this purchasing

can be pooled, you can see all of the savings that can be realized, even if only at the

value chain level. When you jointly develop a vehicle, engine, or part of a vehicle,

you obviously achieve significant economies of scale. The alliance was processed in

two phases, according to the details. Nissan took a 36.8% equity investment in

Renault in the first phase in 1999, with Renault increasing its participation to 44.4

percent at a later date. At the same time, three Renault directors joined Nissan's

board of directors, including Carlos Ghosn, who was named chief operating officer.

Ghosn soon revealed the so-called "Nissan Revival Plan," which sought to restore

Nissan's profitability and half its net debts within three years. At the same time,

eleven cross-company teams began identifying possible synergies to be realized,

which had begun to be evaluated eight months prior to the agreement. The

synergies are expected to save USD 3.4 billion between 2000 and 2002 alone. The

second phase began three years later, when Nissan stated in October 2001 that it

would take a 15% investment in Renault without voting rights and that Renault would

exercise its option to increase its shareholding.

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The French government's share in Renault would drop to 25.9% as a result of

these agreements. Because of Nissan's faster-than-expected development, the

phase began one year ahead of plan, and the net debt was reduced from JPY 1, 349

billion in 1999 to only JPY 432 billion in 2001. The goal of this phase was to improve

the performance of both companies by forming a community of interests, which was

bolstered by the stringer cross shareholding. This community manifested itself in the

Renault-Nissan b.v., a joint venture between Renault and Nissan that functions

under Dutch law. Renault-Nissan b.v. is a joint venture between Renault and Nissan.

manages all of the alliance's common strategic choices, from strategic planning to

financial policies to common subsidiary administration. Nonetheless, the two

organizations' managerial autonomy, brand identities, workers, and performance

results remain intact. Though the second phase is expected to strengthen the equal

partnership, Renault remains the senior partner. For example, while Nissan has two

directors on the Renault board of directors, Renault now has three out of seven

directors on the Nissan board, including Carlos Ghosn, who was appointed President

and CEO in June 2000. The areas of cooperation handled by Renault-Nissan b.v.

are wide high objectives. Common platforms and powertrains are one key to share

parts in order to generate economies of scale. Until end of 2002 there are already

two common platforms and powertrain in use and by 2010 there should be ten

platforms and eight engine families. This includes, in addition to merged

manufacturing processes, joint purchasing, for which the alliance established its first

equally joint company, the Renault-Nissan Purchasing Organization, in April 2001. In

the long run, the organization will handle 70% of both groups' purchases, up from

43% at the end of 2002. The main reason was that this alliance was founded on

trust, mutual recognition, honesty, and respect.

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II. PROBLEM

Operation Management

One of the proposed areas of synergy in operations was platform

rationalization. This means that any shared component must meet the vehicle

requirements of each platform. This would present a significant challenge in vehicle

design because the vehicles manufactured by both companies were diverse in

nature and would most likely have conflicting requirements.Nissan's capacity

utilization at its car manufacturing plants was disastrously low. It was operating at or

below its break-even point. Reducing Nissan's high manufacturing costs and

reorganizing its overly diverse product line as a result of its attempts to compete with

Toyota. Furthermore, car design was unsuitable for today's consumer tastes.

Marketing Perspective - Lacking of brand awareness

In the marketing perspective, there is a lack of brand awareness of Renault in

Japan. After conducting joint studies of Renault and Nissan, it was discovered that,

while there was a strategic link between the two companies and significant potential

for synergies in many areas. However, public awareness of Renault as a brand in

Japan was extremely low. As a result, some Nissan stakeholders believed that all

cars produced after the JV should be branded as Nissan.

No proper distribution structure

Nissan lacked a distribution network. It was heavily reliant on the distribution

network of its competitor.

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III. ALTERNATIVE COURSES OF ACTION

The Alternative courses of action in each problem.

Operation Management

Since the Nissan's operations were operating at dangerously low levels of capacity

utilization. Capacity utilization is most important in industries that manufacture

physical goods rather than services. Buying raw materials in a low prices from

source of low-cost markets.

Market Perspective – Lack of brand awareness

Renault's competitive advantage over Nissan included marketing and design. Brand

recognition can make the sales go higher because the customers can be able to

recognize the brand of the company.

No proper distribution structure

Renault-Nissan will need to find strong distribution partners for this. This cannot be

accomplished unless a number of issues, such as distributor incentives and profit

margins, distributor involvement in business activities, and overall relationship

building, are addressed.

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IV. BEST ALTERNATIVE COURSE OF ACTION

Best alternative course of action in each problem in Renault-Nissan Alliance

Buying raw materials in a lower price

Nissan and Renault can now use their size to obtain raw materials at lower

price. A supplier of raw materials, which can range from steel coils or blanks to

aluminum ingots or polymer pellets. The presence and competitive structure of the

specific marker varies, with steel and polymers being mostly a regional business and

aluminum or magnesium being a global business. Some raw material suppliers are

also becoming component specialists in order to add value to their products.

Brand recognition

If the cars produced are good in design, backed by Renault's marketing

activities, and branded as Nissan-Renault or vice versa, there is a greater scope of

brand awareness and acceptance amongst the people. Consumers' ability to

recognize an identifying characteristic of one company versus a competitor or brand

recognition. When consumers recognize a company based solely on visual or

auditory cues, even without hearing the company's name, the company is said to

have successful brand recognition. The marketing department of a company will

develop the cues that are then marketed to customers.

Strong distribution partners

Nissan will need to find strong distribution partners. Direct distribution allows

the manufacturer or service provider to deal with its end customer directly. A direct

distribution channel would be used by a Renault-Nissan company that manufactures

automobiles and sells them directly to customers via multi channel distribution. Cars

are sold and serviced at the same time, independently owned franchised dealer,

which dominates automotive distribution.

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V. RECOMMENDATIONS

Recommendation: Operation Management problem

It was unavoidable that a few plants would have to close, and employees

would have to be laid off or transferred to other plants with new wage contracts that

paid less in order for the firm to turn a profit. Nissan and Renault can now use their

size to obtain raw materials at lower prices and source them from low-cost markets

such as Asia. The operational management lessons learned from this alliance case

provide valuable insights into how two companies in the same situation, such as

Renault and Nissan, with strengths in different competences and regions of the world

(Nissan had a strong presence in Asia and the United States, while Renault had a

presence in Europe), can approach the growing and competitive global auto

manufacturing market. The success of this alliance is also linked to the synergy

between the two companies, and the framework of equality facilitates knowledge

transfer between foreign engineering teams.

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Recommendation: Marketing Perspective - Lack of Brand awareness

Both companies were producing cars for different market segments, the

alliance will have no effect on Nissan's current market position. After the alliance, if

the cars produced are good in design, backed by Renault's marketing activities, and

branded as Nissan-Renault or vice versa, there is a greater scope of brand

awareness and acceptance amongst the people. Promotion based on these

functional competencies and emphasizing what this new alliance stands for will help

raise brand awareness even further. Brand recognition is critical because it is the

first stage in the marketing funnel and lays the groundwork for acquiring customers.

People's capacity to recall and recognize your company is referred to as brand

awareness. Generic or complex brand names, as well as those that do not link to a

product benefit, on the other hand, are rapidly forgotten. If your firm suffers from low

customer awareness due to a weak brand name, rebranding with an abbreviated

version of the name can help consumers remember it.

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Recommendation: No proper distribution structure

Renault-Nissan offered a diverse product line in each category to which it

catered. If the products are not routed through the proper distributor, they may not

reach the customer on time. Renault-Nissan will need to locate reliable distributors.

You might not think of distribution channels as a company area that requires much

development or control. When there are so many other things to worry about, such

as product design and social media engagement, strategizing distribution channels

may seem like the last thing on anyone's mind. Improving distribution channel

performance, on the other hand, can significantly boost earnings and encourage

corporate growth. Even for seasoned industry professionals, managing distribution

channels may be challenging. However, no matter how big, small, established, or

new a company is, there are a few key techniques that can help increase distribution

efficiency. They are:

 Identifying the benefits and drawbacks of your distribution methods.

 Getting the product(s) to the end client as quickly as possible.

 Keeping expenses under control and saving time along the distribution chain.

The transportation of tangible things from one location to another is only one aspect

of distribution systems. They're the highways that lead to your brand's success, and

they need to be well-kept and improved in order to be effective. Your business

cannot prosper no matter how good your product is or how effective your marketing

is until the product you offer is delivered. As a result, businesses should always

strive to improve their distribution channel strategies.