Click here to load reader
Click here to load reader
Apr 16, 2017
This report is an endeavor to analyze the case, Renault/ Nissan: The Making of a Global Alliance
from Human resource, Marketing, Operations and Finance point of view.
We have first given an introduction that gives us a sneak peek through Nissans timeline. We get an
idea of how the idea of the Global Alliance was conceptualized and what were the challenges faced.
Later we have examined the Industry analysis and comparison between Chrysler and Renault on the
basis of Strengths, Weakness, Threats and Opportunities.
In the later part we have discussed the Operations, Marketing, Finance and HR perspective on the
alliance, and the alliance process.
At the end we have stated the lessons learnt from the case.
To enable better understanding of the report, especially the financial analysis we have attached an
Appendix at the end of the document.
Nissan Motor Co. Ltd was established in 1933 by Yoshisuke Aikawal to manufacture and sell small
Datsun passenger cars and auto parts.
The first small sized Datsun passenger car was rolled out in April 1935 at Yokohama Plant. It was a
symbol of Japans rapid industrialization. In 1936, the signs of war grew stronger and the focus
shifted from passenger cars to military trucks. Post war Nissan suffered losses because many auto
dealers switched to Toyota after the dissolution of Japans Motor Vehicle Distribution Co. Limited.
Nissan resumed the production of Nissan trucks in 1945 Datsun passenger cars in 1947. In 1958
Bluebird and the 1960 Cedric captivated the imagination of Japanese car buyers and quickened the
pace of motorization in Japan. The Sunny was introduced in 1960. All these cars were to deal with
the competitor Toyota. In 1961 Nissan began overseas expansion.1970s energy crisis increased the
demand for Japanese small cars.
The attempt by Takashi Ishihara to stem declining sales of Nissan by expanding abroad was not very
well received by the Japanese unions and this affected the Brand image of Nissan. Yutaka Kume the
next president of Nissan tried to handle the situation by improving the work environment and
introducing the first name culture. He started the bottom up approach while developing a new model
of cars but this lead in the loss of direction in the overall policy for model development. With the
burst of Japans bubble economy, Nissans sales plummeted.
Yoshikazu Hanawa became the 14th President of Nissan and he was very concerned about the
complacent nature of Nissan in spite of the poor markets and financial performance. He wanted to
change the organization culture and make it more flexible so that employees work closer to the
customers and not just focus on their own line of business.
After the end of the 1998 Japanese fiscal year, Nissans Corporate Planning Department presented
Global Business Reform Plan to Hanawa and the Board. In this presentation they highlighted
Nissans losses and put forth two options: 1) implement an independent survival plan by downsizing
or 2) formation of a Global Alliance.
In a Global Alliance, Nissan had to find a partner who would share its knowhow with Nissan and not
dominate Also they had to come out of their financial crisis. Therefore they were considering
different options and finally they collaborated with Renault. The case deals with the entire process of
Industry Analysis (Change Drivers)
Major changes which took place in the automobile industry:
There was a round of large scale mergers the world over that created a storm in the automobile teacup.
An Asian slowdown primarily in the financial markets had an adverse effect on the Japanese auto majors in particular.
An irreversible shift towards globalization was sweeping the auto industry and was changing the
way the players in the industry operated.
Economic and political policies in Europe were changing. Major scale synergy was encouraged by the industrial policy prevalent in Europe in the 1990s. This was important for Renault since it was
owned by the French state.
Over-capacity: There was a lot of over-capacity in the global auto market. The demand the world over was only 52 million vehicles, while the existing capacity was 70million vehicles.
Region Capacity Production Utilization
Japan 2000000 1600000 80
Rest of Asia 260000 106000 41
N. America 720000 500000 69
Europe 430000 280000 65
Total 3410000 2486000 73
Nissans capacity Utilization
There were stricter environmental and safety regulations that increased R&D costs per car.
Global over-capacity within automotive industry and rising costs per vehicle made it
increasing important for industry players to seek size through strategic partnerships or mergers.
Fords acquisition of Volvo in 1998, Volkswagen AG deal and the merger of Daimler and Chrysler
sent signal to the industry that served to accelerate the trend. To cope with this industry transitions,
the companies were looking to form strategic alliances which would help to achieve profitable
Comparison between Chrysler and Renault:
At that time, Chrysler and Renault were the potential partners for the alliance. The analysis below
helps us to determine the firm best suited for alliance.
Strengths of Renault
Renault is ahead of its competition in its mid-range and light commercial vehicles. Their
smaller vehicles are functional, reliable, and stylish.
The cost at which the vehicles were produced was also impressive. Renault has long been
known for this excellent cost control. They were able to keep their costs low by offering a
limited number of platforms and engine and transmission platforms.
Superiority in design, style and innovation. This resulted in high customer satisfaction.
Renault had a strong presence in Western Europe and South America. In 1998 Renault owned
11% or the market share in Western Europe. The small and midsized cars produced there
were widely accepted.
Renault was running successfully post turnaround under the leadership of Carlos Ghosn.
Globalised strategy for platforms and purchasing.
There were 21 identified areas of synergy between Nissan and Renault.
Weaknesses of Renault
The brand awareness of Renault in Japan was very low.
Renault did not build cash reserves over the years; therefore it would be difficult for them to
pay off Nissans debts.
Low capital compared to Nissan.
History as a public-sector company with large financial deficits.
The organizational structure of Renault was different from that of Nissan for ex: there was no
concept of COO in Japan.
Strengths of Chrysler
It had the financial power to pay off Nissans debts.
It had a market share of 18% in USA in 1998 compared to Nissans 4%.
The brand awareness of Daimler-Chrysler was high among global automakers. Renault had
poor brand identity in Japan.
Weakness of Chrysler
Chryslers main aim was to take over Nissan Diesel to build trucks. It had no view of
leveraging on the synergies that existed between the two companies.
In addition to the strengths mentioned above, the added advantages of an alliance with Renault were
agreed terms of equal position, retained individual brand identity and management Expertise (Carlos
Ghosn) which made Renault the ideal partner for the alliance.
The concept of Globalization was rampant during the late 1990s and it provided
opportunities for companies to achieve economies of scale, geographic expansion, cost
reduction, increased profit margin and increased global presence etc.
Japanese auto industry as such had the opportunity to learn from European companies in
terms of operation, design, marketing etc which were the strengths of Renault. Renault also
had scope to learn lot of intricacies of the Japanese auto industry.
DaimlerChrysler acquiring Nissan will lead to industrial restructuring in Japan.
Japanese culture in terms of running a business and understanding the people is different
from European culture.
Strict environmental and safety regulations that will result in increased R&D costs.
Global overcapacity in the automotive industry. The supply of vehicles was more than
Structure of the new entity:The various options available for both the firms were Joint Venture, merger, Acquisition, raising
capital through private equity etc. Raising Capital through private equity would only have solved their
problems in short term. The crucial factor for both the companies was to retain their individual
identity. They respected each others interests in this regard and hence the option of a merger or an
acquisition was never considered which led to increase in mutual trust between the two firms. For any
strategic alliance to be successful, the distribution of power is of utmost importance which decides the
control of the firm over the alliance. This issue was resolved amicably by giving appropriate
representation of both the companies in the new structure. This has been mentioned in