Renault – Nissan’s Strategic Alliance model
Leading to High Performance
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Agenda
Introduction of the company Industry dynamics The Alliance of Nissan and Renault – Objectives and Goals Current business model Turnaround strategy Leadership of Carlos Ghosn Current Performance of the company
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Introduction of the companies
Renault Nissan
Founded 1898 Cooperation with Volvo 1990 Alliance with Nissan 1999 Alliance with Renault 1999
Founded 1911
Financial distress 1990
By 1999, the environment of car manufacturers has become super competitive:
globalization driven by market internationalization need for Renault and Nissan to reach critical size saturation of certain geographic areas for production and distribution.
Opportunities for survival - 4 million vehicles; new areas (Asia, Latin America) Address market saturation in Europe Cope with Asian leader Toyota
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Industry dynamics
HHI - competitiveness in an industry - Automotive Vehicles 2754.0
Porter’s five forces Industry life cycle – Mature
Supplier power Medium
Threat of new entrants Low
Buyer power - High
Rivalry among competitors - High
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Threat of substitutes Medium
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Strategic Alliance
Definition
Agreement for cooperation among two or more independen firms to work together towards common objectives Companies in a strategic alliance do not form a new identity to reach their aims but cooperate while remaining apart and distinct
The alliance between Renault and Nissan was signed on 27th of March, 1999
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Nissan’s problems before the alliance
Nissans problems before the alliance company was falling apart $ 20 billion in debt
The reasons of the problems Recession in early 90’s in Japan There was complacency and a lack of urgency in the culture There was no cross-functional and cross-regional communication The design of the cars was out of touch with the market A high degree of bureaucracy There was an emphasis on engineering culture rather than managerial culture and promotions Sticking in the Keiretsu model
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Renault’s problems before the alliance
Main source of revenue - small to medium size cars in Europe 85 % of sales in Western Europe
-> go international
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Aim of the alliance
Two principles
Developing all potential synergies by combining the strengths of both companies through a constructive approach to deliver WinWin results Preserving each company’s autonomy and respecting their own corporate and brand identities
Three objectives
Quality and value of products and services in each region and market segment Key technologies in engines, electronics and the environment Operating profit
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The objectives of the alliance
Renault Respective objectives Improving quality Internationalize Common objectives Reduce Costs Reduce Debt Nissan
Economy of scale Technological Know-How Leader for the quality and attractiveness of products & services
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Key success factors of the alliance
Quality between the relationships among the managers and engineers of Renault and Nissan Business experience Technical skills Core values:
Balanced relations between the two companies and the development of strong identities for each of the brands
Other factors:
Alliance charter Capital contributions and equity participations Management structure and exchange of personnel
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Goals Achieved by the Alliance
Third largest global automaker (based on sales for the year 2008) Global market share of 9% (by volume) Significant presence in major world markets (United States, Europe, Japan, China, India, Russia)
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Corporate Structure of the Alliance
Renault-Nissan BV strategic management company
Raw materials Information resources Financial resources
Input
Transfo rmation Process
Output
Products and Services
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Renault Nissan Group – a Global Player
01/07/02 31/12/95 Renault
44,4%
Renault
20%
Nissan
92,7% Dacia Renault VI / Mack VI
100%
AB Volvo
Renault VI / Mack
70%
Samsung
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Current Business Model Post Merger Strategy
Common platform with Nissan for small cars Joint research projects and exchange of components (leading to standardization of these products) The decision to return to the Mexican market, using Nissan’s powerful industrial and commercial presence
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Current Business Model Post Merger Strategy Further expansion in Europe and growth in Asia To draw on the strengths of complementary expertise in sales and technology, and to reduce costs and enhance performance.
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Restructuring
The aim of this restructuring was to be profitable and competitive Sales & Marketing, Distribution, Human Resource were the key areas where restructuring initiatives have taken place.
The first important step taken by Renault was to broaden the notion of service to its customers. That led to the creation of two new entities: the Service department and the Distribution Project department.
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New Orientation Partnership
Trust, addition of value to both sides, high commitment
Equity, fair dealing, both profit
Electronic linkages to share key information, problem feedback and discussion Mechanisms for close coordination, people on-site Involvement in partner’s product design and production, shared resources Long-term contracts Business assistance beyond the contract
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Transnational Model of RENAULT-NISSAN
Assets and resources are dispersed worldwide into highly specialized operations that are linked together through interdependent relationships. Structures are flexible and ever-changing.
Subsidiary managers initiate strategies and innovations that become strategy for the corporation as a whole.
Unification and coordination are achieved primarily through corporate culture, shared visions and values, and management style rather than through formal structures and systems
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Contingency Factors Affecting Organization Design
RENAULT-NISSAN Organizational Structure and Design
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Who is Carlos Ghosn?
Born on 9th March, 1954, in Porto Bello, Brazil Moved to Lebanon with his parents in 1960 for primary education in a Jesuit School Throughout his life he lived and worked all over the world and gained wide cultural awareness Spent 18 years with Michelin in Brazil and North America Joined Renault in 1996 as Executive Vice President of Advanced R&D, Manufacturing and Purchasing Appointed as COO of Renault in 1998. Joined Nissan Motor as Chief Operating Officer in June 1999 and was named Chief Executive Officer in June 2001.
President of Renault since May 2005
Remains President and CEO of Nissan Carlos Ghosn is also a director of Alcoa and AvtoVAZ. He is appointed President and CEO of Renault on May 6, 2009.
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Fiedler`s Contingency Theory
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Fiedler`s Contingency Theory
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Turnaround strategy
Lewin’s model
Unfreeze
• Admit change was needed • Establishing new company teams • Closing plants • Cutting jobs • Reducing purchasing costs
Change
• Introducing new models • Establish common pool for resources • Inter-cultural and management trainings • Common marketing and sales approach • New HR policy
Refreeze
• Ensure acceptance • Promote freedom of operations • Establish close reporting system • Common value creation • Involvement in design and production
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SWOT – External Analysis
Automakers face legislation increasingly restrictively on the fuel consumption Market has become hyper-competitive Heavy investment in R&D Strategy of cost becomes the major issue
The opportunities in Asia :
Country
China
Malaysia
Singapore
Hong Kong
Japan
Qualification of workplace
Cost of labor PIB per person Politic Stability Taxes Unemployment
Very Favorable
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Favorable
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unfavorable
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SWOT External Analysis Cont’d
To stay competitive Renault must diversify geographically by integrating a company that already has strong position in Asia, particularly in the regions identified - Nissan meets these criteria geography. However, the settlements are a necessary but not sufficient in the choice of partner
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SWOT - Internal Analysis
Strengths Renault Cost Control Debt Innovation, creativity, imagination Overall management and strategic platforms production and supply Privileged relationship with suppliers Capacity Management Strengths Nissan Quality Products of poor quality 37% of the total distribution in the U.S. and 28% Japan 18.5% of cars with engines up to range on all of their production Weakness Nissan Recurring Losses Lack of creativity and renewal of its Products Poor management capacity Supplier relationships (vertical Keiretsu) in mismatch with a globalization strategy Management & slow conformist Weakness Renault Timeliness of Filing Delay in production time Lack of notoriety in Japan & USA (0% of the distribution) Opportunities insufficient to justify the development and production of top-end engines (4.5%)
The majority of the weaknesses are strength for Nissan Renault and vice versa: we can say that they are complementary in many respects. Moreover, we note that Nissan weaknesses are only due to a bad optimization from their resources and skills.
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The benefits of alliance with respect to other strategies
In the market for car manufacturers, the only appropriate strategy is that allows the rapid acquisition of new skills. Strategy of horizontal diversification.
Merger Acquisition Alliance economies of scale, geographically diversification, the reputation, the bargaining power
Complementarities between the strengths and weaknesses of both companies Distinctive resources and competencies Learning: major challenge - little degree of synergy would cause a high cost of restructuring Advantages of the alliance before merger and acquisition