RenaultNissan

TheMakingofaGlobalAlliance

CaseAnalysis

Teammembers:
DeepthiRaghunath24
GiaDCunha30
GuninMattack32
GurvirSinghSangha33
HariKumarMP34
ExecutiveSummary
ThefollowinganalysisofthecaseexplainshowtheNissanemergedfromasmallcarsandauto
partsmanufacturertoaglobalcompanyandfinallythealliancewithRenault.Inthe80smostof
themajorcarmanufacturershadincreasedtheirmanufacturingcapacitythustherewasanexcess
capacityinthewholeoftheindustry. Nissansdomesticsaleswentdownduringtheperiod.In
early90stheJapaneseeconomybubbleburstandwithitwentNissan.Nissansrevenuestatements
startedshowingnegativefigures.Oneofthewaystoovercomeitwastoestablishaglobalalliance
tosurvivethroughincreasedsales.NissanfoundajointventurewithRenault.SoonNissanfeltthat
it could learn about Renaults cost management and customer relations by alliance. Daimler

Chrysler also was in the runto go infor alliance with Nissan,given the size andprestige of
DaimlerChrysler,itcouldeasilypayoffallofNissansdebts,increasesalesinshortremoveall
ofNissansproblems.However,inagreeingtobeacquiredbyDaimlerChrysler,Nissanwouldlose
its independence. On the other hand the deal with Renault would allow Nissan to have an
independent existence and still have access to processes to address Nissans problems. Finally
NissansignedthedealwithRenault.

NissansPerspective
HistoryofNissan:
Nissanwasestablishedin1933byYoshisukeAikawatomanufactureandsellsmallDatsuncars
andautoparts.
In1935,thefirstcarwasrolledoutfromtheYokohamaplantandexportofvehiclestoAustralia
wasalsostartedthesameyear.In1936,asWorldWarIIapproached,theproductionofcarswascut
backandtheproductionofmilitarytrucksgivenmoreimportance.Thiswasachangeinproduct
portfoliotomatchtheshiftinneeds.
After the war, many of Nissans former auto dealers moved over to Toyota, leaving Nissan a
depletedcompany.
However,in1945and1947theproductionoftrucksandcarswerestartedrespectively.By1959,
theDatsun210producedbyNissanwastakingpartintheAustralianrallyandin1960itgotthe
Demingprizeforengineeringexcellence.

Inthe60sNissansmaincompetitorwasToyotaanditscarsweredesignedtodirectlycompete
withToyotasproducts.Thisisanaggressivemarketingmethodtomeettheopponentsoffensive
moves.
It was also during this period that it established Nissan Mexicana, S.A.de C.V, its overseas
manufacturingplant.Italsoopenedtwostateoftheartplants:theOppamain62andZamain65.
In66,NissanmergedwithPrinceMotorsunderthesuggestionoftheJapanesegovernmentwith
whichNissanhadcloseties.Thisshowsahighdegreeofgovernmentalcontrolthatgovernedthe
automobileindustryinJapan.
Inthe70stheOilcrisishittheworldasresultofwhichthedemandforsmaller&moreefficient
carswentup.
Inthe80sNissansetupmanufacturingoperationsintheUSAanditwasalsolookingtostarta
plantinEuropetheJapanesecompanytolookatdoingso. Nissanwentinfordecentralized
productiontocapitalizeonlocationaleconomies.
However,mostofthemajorcarmanufacturersduringthetimehadincreasedtheirmanufacturing
capacitythustherewasanexcesscapacityinthewholeoftheindustry.Nissansdomesticsales
alsowentdownduringtheperiod.
TheunionswereagitatedthatNissanwasestablishingplantsinforeigncountrieswhenthelocal
plantcapacityitselfwasinexcessthandemand.ThePresidentduringthetimeTakashiIshiharaalso
didnt help matters by having a unilateral approach to management this caused a severe
breakdownofrelationshipbetweenmanagementandunions.
In85,Mr.IshiharawasreplacedbyMr.YutakaKumeaspresidentofNissan.Mr.Kumelauncheda
programtoupgradetheimageofNissan.Manynewmodelsofcarswerereleased.Healsostarted
talkswiththeunionstomendtherupturedrelations.Mr.Kumesuccesscangaugedbythefactthat
alltheemployeesincludingworkerscametoaddresshimasKumesanratherthanasMr.President.
ThoughMr.Kumewasabletochangemanythings,hecouldnotdoanythingaboutNissansdealers
50%ofthedealerswereownedbyNissanandthushefearedthatNissanwaslosingtouchwith
thecustomerneedsofthecurrentgeneration.
Inearly90stheJapaneseeconomybubbleburstandwithitwentNissan.
Fromaprofitof101.3billionyenin1992Nissanwenttoalossof166billionyenin1995.Itwas
duringthistimethatMr.YoshifumiTsujibecamepresident.Hetriedtoimprovethedomesticsales
bymeetingregularlywithdomesticdealersbutthesalesshowednosignsofimproving.Itwasas
Mr.KumehadfearedtheconceptandstyleofNissanscarswerenotintunewiththecurrentmarket.
In93,Mr.Tsujiannouncedacostreductionprogramtocutcostsby200billionyenby1995,but
theprogramfailedtoachieveitstarget.
Itwasinthisclimatethatin1996,Mr.YoshikazuHanawabecamethepresidentofNissan.Atthe
time,Nissansmarketshareofthedomesticmarketwasjust15.9%.Mr.Hanawastartedplansto
increasethemarketshareaswellastochangethecultureoftheorganization.
Nissansculturewasthatofcomplacencyandtherewasalackofurgency.Therewasnocross
functionalandcrossregionalcommunication.Thedesignofthecarswasoutoftouchwiththe

marketandahighdegreeofbureaucracyhassetin.Therewasanemphasisonengineeringculture
ratherthanmanagerialcultureandpromotionswerebasednotonabilityofindividualsbutlengthof
service.

IndustryAnalysis:
Majorchangeswhichtookplaceintheautomobileindustry:

Therewasaroundoflargescalemergerstheworldoverthatcreatedastorm
intheautomobileteacup.

AnAsianslowdownprimarilyinthefinancialmarketshadanadverseeffect
ontheJapaneseautomajorsinparticular.

Anirreversibleshifttowardsglobalizationwassweepingtheautoindustry
andwaschangingthewaytheplayersintheindustryoperated.

Economic and political policies in Europe were changing. Major scale

synergywasencouragedbytheindustrialpolicyprevalentinEuropeinthe1990s.Thiswas
importantforRenaultsinceitwasownedbytheFrenchstate.

Overcapacity:Therewasalotofovercapacityintheglobalautomarket.
Thedemandtheworldoverwasonly52millionvehicles,whiletheexistingcapacitywas
70millionvehicles.Thisledtoagreaterimportanceforfirmstoseeksizethroughmergers.

TherewerestricterenvironmentalandsafetyregulationsthatincreasedR&D
costspercar.
Thestrategicmovementofautomajorswasalmostasimportantastheautomobileitself.Themajor
moversintheindustryexpectedtoseeagiantintheformofanalliancebetweenDaimlerChrysler
andNissan.

GlobalBusinessReformPlan:
InMay1998,theCentralPlanningDepartmentcameupwithaGlobalBusinessReformPlan,
whichwaspresentedtoMr.Hanawawhichcontainedproposalstoincreasetheprofitstosalesratio
to5%in2001and6%in2003.
The plan gave two alternate methods of achieving the objectives: The first method was to
implement a survival plan that included downsizing, reducing development cost, integrating
platforms,streamliningsales,anddivestingnoncorebusinessassets.Thesecondalternativewasto
establishaglobalalliancetosurvivethroughincreasedsales.

ItwasinthisclimatethattheletterfromMr.LewisSchweitzer,ChairmanandCEOofRenault
outliningtermsofapossiblealliancewasreceivedbyMr.Hanawa.Theletterwasclearinthatit
proposedanalliancewouldonlywithNissanMotors.
Mr.HanawaimmediatelycontactedMr.YutakaSuzuki,DirectorandGMatCorporatePlanning
DepartmentandMr.ToshiyukiShiga,Sr.ManageratCorporatePlanningDepartmenttolookinto
theproposal.
Mr.Shigahadin1997workedwithMr.AndreDouin,HeadofRenaultsPlanningDivisiontotalk
aboutpossibilityofRenaultproducingpickuptrucksunderNissanslicense.Thereforehealready
hadaconsiderableknowledgeaboutRenault.
Onthebasisoftheresearchcarriedout,NissanfoundthatajointventurewithRenaulthadthree
mainareasofbenefit:One,Boththecompanieshadmarketstrengthindifferentareasoftheworld.
Second,RenaultwasgoodatproducingsmallcarswhileNissanwasgoodatproducinglargecars.
Therewasapossibilitytointegrateplatformsandforcostreduction.Third,bothcompanieshad
similarmarketcapitalizationandthusthethreatoftakeoverfromeithersidewasless.
In July 98, after extensive consultations between the two companies, 21 joint projects were
finalized.InSeptember98,Nissanstartedoperationallevelstudiesuntilthemoment,onlythe
managementwasinvolved.
TheCentralPlanningDepartmentwasnottoldwhythejointstudieswerebeingconducted.The
sameappliedtoJointStudyTeamswhowerenottoldtherealpurposeofthestudyandalsothe
teamswerenotawareofeachothersexistence.Mr.Suzuki,Mr.ShigaandMr.TaijiSuginoa
manageratCentralPlanningDepartmentwereresponsibleansweringallquestionsraisedbythe
jointprojectteamsfromtheNissanside.
InNovember98,asthejointprojectteamswereworking,RenaultstopmanagementteamofLouis
Schweitzer, Georges Douin and Carlos Ghosn made a presentation to the Nissan Management
Committee.ThepresentationvisiblyshookuptheNissanteambothattheRenaultteamsboldness
aswellaswhattheyoutlined(theproblemsofNissan)
InDecember98,allthe21jointteamsgavethefinalreportsthereweresomewinloseprojects
butmostoftheprojectswerewinwin.
Throughoutthisperiod,fromthetimethefirstletteraboutapotentialalliancefromMr.Schweitzer
wasreceivedinJune,Mr.HanawaandMr.Schweitzerwereinclosecontactwitheachother.
ItisimportanttonotethatinthebeginningMr.Hanawaneverthoughtofforminganalliancebut
was looking at Renault with intent of forming joint cooperation. It was only after repeated
interactionswithMr.SchweitzerthatMr.Hanawacametothinkoftheglobalalliance.
ForNissan,theglobalalliancewasnotanobjectivebutaprocessthroughwhichitcouldlearnabout
Renaultscostmanagementandcustomerrelations.Completingthenegotiationsforthealliance
wasjustastepasfarasNissanwasconcerned.
ItwasinDecemberthatDaimlerChryslerwhohadbeennegotiatingwithNissantobuyNissan
DieselmadeanoffertoacquireallofNissansoperation.

ForNissanthiswasofferthatitcouldnotresist.GiventhesizeandprestigeofDaimlerChrysler,it
couldeasilypayoffallofNissansdebts,increasesalesinshortremoveallofNissansproblems.
However,inagreeingtobeacquiredbyDaimlerChrysler,Nissanwouldloseitsindependence.

Nissan/Renault
Goalsforthemerger:
Steeralliancestrategyandsupervisecommonactivitiesonagloballevel,whilerespectingthe
identityandcultureofeachcompanyandnotinterferinginoperations
Cooperatesuccessfullywithoutlosingtheiruniqueness
Reason for Nissan:
Company was falling apart
$ 20 billion in debt
Reason for Renault:
Small to medium size cars in Europe
85 % of sales in Western Europe

NationalContextCulture
Japan
High similarities less differences
High Context culture
Medium power distance
Long term oriented
High uncertainty avoidance
Low individualism
Very high masculinity
France
High similarities less differences
Medium/high context culture
Medium power distance
Long term oriented
High uncertainty avoidance
High individualism
Low masculinity
OrganizationsContextCulture
Nissan
Assumption for success: technology and reliability
Detail oriented
Standardization
Basic instruction, simple, to the point
Renault
Assumption for success: management, cost efficiency, design
Like macro, general idea, abstract concepts
Want to feel free

 Show respect for employee through complex work scheme

KeySuccesspoints

Respectuniquenessofeachpartner

Cultureandorganizationalculturecomplementeachother

Crosscompaniesteams

Findgoodpracticetokeepandotherstogetridof

QualityFocus

DownsizinginNissan

Languagetraining

FrenchexecutivestransferredtoJapanand

JapaneseConsultantsentinFrance

Counterside:
Thereweresomepeople,howeveratNissan,whowishedthattherewereafewkeypersonswithin
thecompanywhowereinvolvedduringthediscussionwithRenault.

Outcomes
Mutualrespectandlevelofimplication.
Growingmarketshares
Nissan:
Increased cost efficiencies
Gain market share
Renault:
Innovation and Japanese standardization
Gain market share
Conclusion

Goodanalysisbeforechange

Resistancetochange

Incaseofamergeroralliance:Organizationalcultureshouldbeclose(more
importantthannationalculture)

Clearstrategyfromthebeginning

HRstrategyalignedwithbusinessstrategy

Financialanalysis:
AlookatthefollowingfiguresrevealsthatDaimlerChryslerhadbiggerfinancialmusclesthan
Renault.

Daimler Chrysler
Renault
Annual revenue($ Millions)
147745000
41349000
Net income
5404000
1500000
World market share
8.4%
4.3%
However,RenaultwasthebiggerintheEuropeanmarketthanDaimlerChryslerwith10.7%market
sharecomparedto5%ofthelatter.
IntheUSmarket,Daimlerhada15.6%shareofthetotalmarket.
SomeaspectsofRenaultarementionedasfollows:

ThedebtequityratioatRenaultisveryconservative.Theyrelymostlyon
internallygeneratedfundstofinancetheiroperations.

Renault stresses on reduction of costs with the aim of achieving greater

efficiencyandeffectiveutilisationofcapital.
ExcesscapacityatNissan:
Nissan was suffering from excessive production capabilities in different regions where it had
productioncapabilities.InJapanalone,ithadanexcesscapacityof20%.

ThefollowinginformationprovidessomeimportantpointsabouttheoperationsofNissanbefore
themergerwithRenault.

1995
1996
1997
1998
Sales
5834123
6039107
6658875
6564637
Net income(loss)
(166054)
(88418)
77743
(14007)

ItcanbeseenthatthesalesatNissanhadbeenfairlyconstantovertheyears.
However,itcanbeseenthatthecompanysufferedlossesinalltheaboveyearsleadingto
themergerexceptin1997.

Thisreducednetincomecanbeattributedtotheincreasedinefficiencyin
operationsofNissan.
IncreaseddebtofNissan:
ThedebttoequityanalysisofNissanshowsthefollowingfacts:

1993
1994
1995
1996

1997
1998
debt/equity ratio %
148
188
155
275
283
339
debt/sales ratio%
38
46
38
62
58
66

The debt in the company has been increasing drastically over the years.
According to the case, Nissan had debts amounting to 23 billion Euros which it found
increasinglydifficulttoservice.

BecauseofsuchhighleverageNissanwasheadingtowardsbankruptcyand
unabletorespectitsdebtobligations.
Nissanactuallysufferedfromlackofglobaldemandforcars.InJapan,therewasareductionof
12.58%from1996t01997.Thesamecanbesaidofdemandforcarsindifferentpartsoftheworld.
AsaresultNissanwashitwithovercapacityandlackofdemand.
ThefollowingpointsarealsonoteworthyofNissan:

Nissan was one of the largest Japanese manufacturers in terms of the

numbersofunitssold.

However, in terms of profitability its performance was very poor. If we

comparetheEBTmarginofHondawithNissan,wewillfindthatHondawiththesimilar
numberofunitssoldhasamuchhealthierEBTmargin.

MarketingPerspective:

Marketexpansion:RenaultandNissanhadlargemarketsharesindifferent
parts of the globe. This presented tremendous opportunities for market expansion and
improvementofmarketshareinexistingmarkets.

Complementary Product lines: Renault and Nissan were represented in

differentproductsegmentsthatwerecomplementarytoeachother.Renaultwasaheadinthe
fieldofmidrangecarsandlightcommercialvehicles.Nissanspecializedinmidrangeand
fourwheeldrivevehiclestypicaloftheAmericanlightcommercialvehicles.

Processes: RenaultandNissanarealsocomplementaryintheirprocesses.
Thereisscopeforgloballearningbetweenthepartners.Renaulthasexcellentcostcontrols
methods andglobalstrategies forpurchasingandplatforms.Nissanstoodoutinquality
control,R&Dandtechnology.Sothismergercouldcreateawinwinsituationintermsof
globallearning.

Pricingstrategy: Nissanwasalwaysoftheopinionthathighqualitycars
wouldsellatahighprice.Howeverthislogicwasnotaveryworkableone.Therehadtobe
moredesignorientationandfocusonthecustomerneeds.Hencetheoldpricingstrategy
neededamajorrevamp.TheRenaultcostreductionstrategywasapartoftheRenaultBig
PicturePresentationtotheNissanexecutives.

Brandingstrategy: Thestrategicalliancedidnotinvolvebringingthetwo
brandstogether.Thebasicpolicyofthealliancewouldbetohaveaclearseparationbetween
the brand identity and any kind of synergy. The alliance focused on manufacturing
integrationbutnotbrandintegration.
ThealliancewouldcontinuetopromoteRenaultandNissanastwoseparatebrandsandtake
advantageoftheirrespectivepositionsinthemindsoftheconsumers.

Focusstrategy: Nissanhadaveryextensiveproductlinethattheypriced
veryhigh,asaresulttheylostoutonmarketshareandsawaslumpintheirmarketshare
from6.4%in1990to4.9%in1998.RenaultcouldhelpNissanstreamlineitsproductlineto
followafocusedstrategyintermsofproductsandpricing.
Mr.Levy,EVP,Renault,saidRenaultsexpertiseincostreduction,purchasing,production
sitesRenaultcouldrallyhelpNissantofindthewayoutofitsdifficulties.Renaultwasmore
likelytoteachthem(theJapanese)theartoffishing

Conclusion:
ThedealwithRenaultwouldallowNissantohaveanindependentexistenceandstillhaveaccessto
processestoaddressNissansproblems.
TheotherwaytoputitisthatthoughDaimlerChryslerhadthefinances,Renaulthadthetoolsthat
wererequiredforNissan.

NissanchoosetheoptionofgoingwithDaimlerChrysler,butthetalksfailed.Nissansignedthe
dealwithRenaulton27March1999.
Renaultbought36.8%stakeinNissanMotorsand22.5%stakeinNissanDieselinvestingatotalof
643billionyenintoNissan.