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Renault-Nissan Alliance Case Study

Jan 29, 2015

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Technology

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  • 1. (Sources: www.media.renault.com)

2. Global Strategy of the Renault-Nissan allianceSubject: Joint analysis on the Renault-Nissan alliance addressed to the CEOof Mitsubishi (group project) From: Group 22 Michael Sutherland Nicolas Murcia Saebong Cheon Yu Ri Na Jeong To: Professor Jan JrgensenDue date: November 22, 2006 3. To M. Takashi Nishioka, Chairman of the Board of Mitsubishi Motors, Nowadays, Renault-Nissan is the fourth worldwide automaker with sales of 6,129,254 units in2005, up 5.9% over 2004 (http://www.nissan-global.com/). Considering the traditional positionof Mitsubishi in the actual market, the analysis of the Renault-Nissan alliance case would provideyou with valuable elements on how to approach the growing and competitive auto manufacturingglobal market.As such, the success of Carlos Ghosn is correlated to his extensive vision of synergies betweenthe Renault and Nissan, thus, he believes that the transfer of knowledge between foreignengineering teams would only occur within a framework of equality. The reason he didnt mergeRenault and Nissan rely on the advantage of mutual challenge that push both firms to seek newcost reductions, economies of scale and scope opportunities. Consequently, Renault and Nissanboth managed to reach their goal by remaining profitable. 4. Table of Content:The advantages and disadvantages of the alliance between Nissan and Renault1Reasons for an alliance instead of a merger and the benefit from synergies...4Importance of Corporate Culture.6The possibility of GM entering the alliance8Evaluation of Nissan before and after the alliance..9Worldwide Domestic Conditions affecting Nissan-Renault..12The collapse of the Keiretsu helps Nissan to remain globally competitive...13 5. The advantages and disadvantages of the alliance between Nissan and RenaultThe Alliance between Renault and Nissan has made possible many joint projects suchas the gasoline tank, the steering-wheel stabilization system, and also led to the creation ofinstitutional entities for strategic command and operational coordination (Segrestin, 2003).Since Renault and Nissan have successfully become partners in a new equity joint venture bycombining their knowledge, they have reinforced their position as a worldwide leader automaker.For instance, common structures called Renault-Nissan Information Services (RNIS) andRenault-Nissan Purchasing Organization (RNPO) (www.renault.com) have finally changed theirmutual expectations, the scope of their partnership, and the meaning of their union. Researchdemonstrated that the development of a joint platform is a means of setting up commonorganizational routines and synchronization mechanisms that make possible the effective transferof knowledge (Segrestin, 2003). One of the most significant advantages was the joint platform. Nissan planned two smallcars with in depth studies and Renault three potential cars. However, their schedule wasnt asintense as that of the Nissan vehicles, but were rather stretched and targeted for a higher level ofperformance in comparison with their Japanese counterparts. According to the functional taskteam (FTT;www.renault.com), the wheel base which Nissan was building was not suitable toRenaults level of expectations, probably because of their approach of different markets. Yet,additional research and development costs would have increased risk of failure of the jointproject and weakened the alliance, so Renaults small and medium wheel base design wasadopted instead (Segrestin, 2003). Of course, project managers should allow both firms toinnovate and come to a common decision rather than relying on the authority of the main 6. shareholder, Renault. Nevertheless, the delay in the first phase might have been deadly to Nissan.Within the organization, work was to be coordinated among distant teams, who had their ownorganizational systems, their own methods, scheduling and course of action. Merging teams wasnot an alternative. Both manufacturers wanted to maintain their autonomy and the alliance wasstill too unstable to sustain a rapid process of integration. One of the projects that the common platform had to support was shared componentswithout any deficiencies in functional performance or delays that could affect either Renault orNissan. As a result, any shared component must meet the requirements of every platformsvehicles (Segrestin, 2003). This is one of the major challenges because from a design approach,the diverse vehicles were most likely to have conflicting requirements. For instance, the climatecontrol system is generally expected to work continuously in Japan, with a relative low rate of airflow, whereas, in Europe, the cooling system is expected to work intermittently, but silently andat a relatively higher rate of flow (Segrestin, 2003). Moreover, the amount of space in which toinstall the system varied from model to model. In these conditions, it would have to reach thehighest ratings in an extensive range of performance requirements (costs, volume, loudness, flow,etc.) to comply with this list of constraints essential for an innovative architecture. Cultural diversity, linguistic obstacles and physical distance gap in collaborative projectsoften justify most issues. Although these factors have signified a significant role in the alliance, itis apparent that the constraints of the design program were the major barrier. As such, thisobstacle led to three harmonization problems. Firstly, Renault and Nissan adopted a collaborationmodel based on the concept of delegation (Segrestin, 2003). In terms of delegation, functionalrequirements were not clear, complete and shared components must meet clear specifications to 7. be certified by numerous protocols. Secondly, the specifications were complicated to conveybecause they were ambiguous. For example, how would you translate the necessity to safelyattach a fuel tank? Consequently, the cooperative process is mainly focused on the evaluation ofresources and understanding of concrete solutions. Furthermore, even if the Renault engineeringteam reaches a consensus on the efficient specifications with the Nissan engineering team, theywill have divergence on the method implementation should be accomplished. It is logical toexpect many minor issues in cooperative design processes that partners will inevitably deal withwhen planning design methods. But when it becomes a severe issue, both parties weredisadvantaged. This is why they applied a double validation process to decide whether Nissanand Renault should continue their efforts toward a joint solution or end their collaboration onparticular tasks. It is important to notice the ability of partners to come across a feasible solutionwhen issues arise (Segrestin, 2003). The alliance has provided advantages to both companies. They can progress into foreignmarkets faster and with lower costs because they dont have to build new plants. Renault buildscars in Nissans Mexico plants and Nissan uses Renaults Brazil plant and distribution networks.The sales network of both companies is harmonizing itself and each manufacturer benefits fromthe technical expertise and organizational know-how of its partner (Segrestin, 2003). Nissan andRenault are collaborating on building universal platforms, with shared components and wherecompanies lead engine design in their area of expertise. For example, Renault specializes indiesel as well as in innovation and Nissan focuses on gasoline and the manufacturing process.Theyve increased their purchasing power because they buy supplies for twice as much cars (6millions). Consequently, the alliance has boosted profitability, market capitalization and sales in192 for both partners (Nancy DuVergne Smith, 2004). 8. 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 developpotential synergies, where both firms maintain their operational freedom. The foundation of thealliance focuses on the need for the negotiation of a formal equity joint venture because Renaultand Nissan must evaluate their partners equities, capabilities and willingness to cooperate beforeselecting the right hierarchy (Segrestin, 2003). Indeed, Carlos Ghosn, former Renault CEO beforethe alliance, has always been focused in preserving the identity of the two companies as hestrongly formulated: If you dont respect peoples identity, they will not get motivated and youwill not get a strong corporate performance(web.mit.edu). Renault was willing to implement acommon platform, which would generate significant economies in development costs (designstudies, prototyping, and validation protocols), industrial equipment and purchasing (Segrestin,2003). This strategy has been frequently adopted by automakers such as Daimler-Chrysler in theUnited States or Volkswagen and Skoda in Eastern Europe, as a means of bringing theengineering teams together and of sharing and developing knowledge. From an economic pointof view, the alliance between Renault and Nissan can be perceived as a mean of integrating twocompanies in order to improve coordination and achieve cost reductions (Segrestin, 2003).Furthermore, even in case of integrating conflict, stimulating competition between Renault andNissan, they would both reduce their costs by benefiting from economies of scale, and thus,increasing their bargaining power towards suppliers (Susini, 2003). It can be noticed that theengineering teams werent merged, but worked independently from one another in the first yearsof the alliance in order to reduce management costs and avoid permanent commitments(Segrestin, 2003). 9. The teamwork is open-ended to preserve a sense of equality between the partners andencourage both sides to contribute in their own fashion. As a matter of fact, both Renault andNissan were free to withdraw from the alliance at any moment should an irreconcilabledivergence of interes

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