You are on page 1of 21

Executive Summary

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 Nissan’s 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.

1
Introduction
Background:

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 Japan’s 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 Japan’s 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.1970’s 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 Japan’s bubble economy, Nissan’s 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, Nissan’s Corporate Planning Department presented
“Global Business Reform Plan” to Hanawa and the Board. In this presentation they highlighted
Nissan’s losses and put forth two options: 1) implement an independent survival plan by downsizing
or 2) formation of a Global Alliance.

2
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
the merger

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

Nissan’s capacity Utilization

2
• 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.
Ford’s 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
growth.

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 Nissan’s debts.

2
• 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 Nissan’s debts.


• It had a market share of 18% in USA in 1998 compared to Nissan’s 4%.
• The brand awareness of Daimler-Chrysler was high among global automakers. Renault had
poor brand identity in Japan.

Weakness of Chrysler

• Chrysler’s 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.

Opportunities

• The concept of Globalization was rampant during the late 1990’s 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.

Threats

• 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.

1
• 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
demand.

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 other’s 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 detail in the
analysis of the negotiation process mater in this report.

Challenges for the Alliance:

Operations:

• One of the proposed areas of synergy was through rationalization of platforms. This means
that any shared component must meet the requirements of every platform’s vehicles. This
would pose a big challenge in designing the vehicle because the vehicles which both the
companies manufactured were diverse in nature and would most likely have conflicting
requirements.
• Capacity utilization of the car manufacturing plants of Nissan was disastrously low. It was
operating below even the break-even point.
• Coping with the challenge of competition from Toyota in Japan and also its eroding market
share in U.S.
• Reducing the high manufacturing costs and re-structuring Nissan’s overly diverse product
range resulting from its attempts to compete with Toyota. Also, the design of cars was
unsuited to the current consumer tastes.
• Successful introduction of Renault Cars outside Europe leveraging on Nissan’s presence in
other countries.

1
Recommendations:

• Since the Nissan plants were running at precariously low levels of capacity utilization it was
inevitable that few plants would have to be shut down and the employees would have to be
either laid off or shifted to other plants with new wage contracts of lower wages in order to
bring the company back into profit.
• Nissan and Renault can now leverage its size to procure raw materials at cheaper rates and
can source it from places like Asian markets where they would be low-cost.
• Nissan have to restructure their R&D and design department in order to produce cars which
are in sync with the current generation.

Marketing Perspective

• Key issue: Lack of brand awareness of Renault in Japan.

Analysis: On performing joint studies (Renault and Nissan), it was found that though there was a
strategic link between the two companies and high scope for synergies in many areas. But awareness
of Renault as a brand among the people in Japan was very low. Due to this, some of the stakeholders
of Nissan felt that all the cars produced post JV should be branded as Nissan.

Recommendation: Marketing and design were some of the strong competencies Renault had over
Nissan. Since both the companies were producing cars targeting different target segments the alliance
will not affect Nissan’s current market. Post alliance however, if the cars produced are good in
design, being backed with Renault’s marketing activities and branded as Nissan-Renault or vice versa
there is a higher scope of awareness of the brand and acceptance amongst the people.

Apart from marketing and design, there were many more areas where each company had its own
competencies that were complementary to each other. Promotion based on these functional
competencies and emphasizing on what this new alliance stands for will further aid in brand
awareness.

• Key issue: No proper distribution structure.

Analysis: Nissan did not have a distribution network. It heavily relied on its competitor’s distribution
network.

Recommendation: Nissan had a broad product range for each category that it catered to. If the
products are not channeled through the right distributor it might not reach the customer on time. This

1
can be one of the potential factors that resulted in Nissan’s fluctuating sales (in terms of volume)
rather than achieving steady growth. For this, Nissan needs to identify strong distribution partners.
This cannot be achieved unless a series of issues like incentives and profit margin for distributors,
distributor involvement in business activities and overall relationship building are addressed.

The above chart represents the changes in sales volume year over year. The drop in sales was also
attributed to the fact that there were fundamental flaw in the concept and style of the product that was
produced.

• Key issue: Pricing strategy of Nissan.


Analysis: Nissan competencies did not include ‘cost reduction’ in all its activities. Due to this factor
along with declining sales, Nissan was forced to reduce prices in the domestic market. This resulted
in declined profit margins and with reduced sales, led to losses. They also reduced the production in
Japan and increased it in other countries which led to union problems.

Financial Challenges
 Renault

From 1983-1988 Renault suffered from net income losses, followed by positive net incomes from
1989-1996. Renault is a strong company that has made many changes in recent history that helped
them recover from debts of over 57billion francs (half their annual revenue) and annual losses of
12.5 billion in 1984. Renault remained profitable until it suffered its first loss since the late 80’s in
1996. Renault once again made changes and the results showed an increase in their earnings before
tax margin (EBT) from -3.6% in 1996, to 4.6% in 1998. They also managed to become profitable
again and increase sales from 184,078 million francs to 243,934 million francs. Thus it can be seen
that Renault in spite of facing several problems has come out ahead on multiple occasions. This
shows other companies that they have the products and knowledge to work through and be
successful in difficult times.

However Renault’s lack of a strong image in Japan, its low capital compared to Nissan and its history
as a public sector company with large financial deficits could serve as major drawbacks.

 Nissan

2
Nissans need for a strategic alliance is due to their increasing debts, declining market share, high
costs of production, and the Japanese recession. A strategic alliance with the right company could
help them reduce their debt, increase sales, lower cost of production, and expand their global market.

Nissan is a top car manufacturer in terms of sales however their inefficiencies resulted in a low
earning before tax of approximately 2% (Refer Appendix) .Their sales are strong but their costs
of production are just too high. Nissan can become profitable with changes made to reduce the
cost per vehicle. As well as having a low EBT, their debt to equity ratio has grown to an extremely
high 339% in 1998.

• However, in terms of profitability its performance was very poor. If we compare the EBT margin
of Honda with Nissan, we will find that Honda with the similar number of units sold has a much
healthier EBT margin.

Human Resources perspective on the Nissan- Renault alliance:

• Transparency and Trust: The whole process of alliance was carried on secretively. It was a
one on one affair. This was to make sure that there is no dishonesty on both the sides of the
negotiation and the confidentiality of the affairs is maintained. This also eliminated the
insider risk. There was a relationship of trust between the negotiators- Mr. Yoshikazu Havana
and Louis Schweitzer.
• There was an organizational fit seen: Renault was flexible in its approach and was
courageous to embrace Nissan’s culture which was quite opposite to that of Renault’s. Also
Renault looked at it as a business opportunity.

• Did not take advantage of the Daimler’s back out: Renault was beyond doubt professional
and did not change the deal conditions for Nissan because it was in a vulnerable position due

1
to Daimler’s withdrawal. This was another reason for the successful formulation of the
Renault-Nissan strategic alliance.
• Bureaucracy: As mentioned in the beginning of the case study that Nissan’s organization
culture was very bureaucratic. It was rigid due to which no changes were possible and the
company was suffering financial losses due to this. This was the main reason that the alliance
was designed. It would bring about the necessary changes in Nissan’s outlook towards
management and production processes. Nissan knew their weakness and wanted to work on
it.
• The Japanese Style of Corporate Governance: there was no decision maker and so Nissan
was managed collectively. Therefore there was lack of accountability.
Recommendation: There needs to be a structure where in there is some responsibility
attached to every place of duty which makes it easier to trace the problem in the system and
helps in value chain analysis.
• The Union Problem: The union felt that the domestic capacity was ignored while going for
foreign expansion.
Recommendation: It is important that there is proper communication between the
management and the union. The union and employees should understand the advantages of
the foreign expansion. This needs to be conveyed to them by the Human resource department
and the management so that there is no conflict in the future and the union supports very
move with respect to the foreign expansion and alliance.
• Product and Quality focus: Nissan was a follower of the Keiretsu system that laid emphasis
on Quality. Nissan had a diverse product range and no established system of suppliers
therefore their manufacturing costs were very high. Engineering culture took precedence
over management culture. Promotion was based on length of service.
Recommendation: There should be a system that analyses the processes or the value chain
based on cost. The processes have to be cost efficient and ensure quality standards.
Encourage employee to come up with low cost products or process without compromising on
quality. Link low cost to incentives. Also performance based pay needs to be introduced to
motivate employees to deliver better.

2

• Equality status and participate in management: Renault did not try to dominate Nissan in
spite of its position as an acquirer. Also Renault believed in participating in the management
and sent three of its representatives to Nissan’s Board of Directors to make sure that the
alliance was strategic.
• Exchange of Know how:
The exchange of know how was the main aim of Nissan Renault Alliance. They wanted the
knowhow based on which they could create a sustainable business instead of thriving on the
financial crutches provided by the partner. This was facilitated by Renault more than
Daimler-Chrysler. Thus, it was a smart move by Nissan to go for Renault.
Recommendation: Nissan has to be a bit more co-operative with its partner. As seen in the
case it was easy for Nissan to access the knowhow or any information related to Renault but
the vice versa was not true. Nissan has to enhance its communication system.

1
The Alliance Process:

Various significant factors need to be considered which went into shaping the negotiation between
Renault and Nissan. These can be categorized into External factors (which affected both the
companies) and Internal factors (which pertain the individual company).

External Factors:

1. As seen from the Exhibit 13 in the Appendix in the case study, in 1998 the world demand had
been flat for 3 years and the industry was being characterized by consolidation of players to
achieve cost reduction and efficient capacity utilization.

Internal Factors:

Renault:

• Failure from previous negotiations with Volvo was still fresh in the minds of Renault’s
management. This put additional pressure on the company to succeed with its negotiations
with Nissan to save their credibility and avoid financial losses due to the long negotiation
process.
• The French State had a 46% stake in Renault and it was pressurizing Louis Schweitzer,
Chairman and CEO, to complete a successful negotiation.
• Renault was looked upon by big industry players as a firm “ripe for takeover”. So this could
be the last attempt to retain its independent identity.
• About 80% of Renault’s sales were coming from European markets and they wanted to
broaden coverage, gain scale and solidify its market position.

Nissan:

• It was making losses for the 5th time in 6 years, hence an urgent need for cash inflow.
• It was losing its competitiveness to Toyota in its home market and its market share was being
eroded in the U.S. too.

2
• It also had the pressing need to retain its independent identity and avoid a hostile takeover
from the bigger U.S. companies with deep pockets.

The Negotiations:

The negotiations lasted from June 1998 to March 1999. This 9 month period can be divided into five
phases:

I. Exploring interest in Collaboration.


II. Identification of Synergies.
III. Evaluation of possible Synergies.
IV. Striking the Deal.
V. Finalizing Details.

Phase I: Exploring interest in Collaboration

It started with Louis Schweitzer and Yoshikazu Hanawa exchanging letters and a select group of
Renault and Nissan representatives met to explore their respective interests in strategic collaboration.
Later, Schweitzer and Hanawa met in Tokyo and set the wheels in motion for studies on potential
benefits of collaboration.

Phase II: Identification of Synergies

In this phase working groups in and from both companies conducted preliminary analyses on
purchasing, engines and gearboxes, car platforms, production, distribution, and international markets.
Results were found promising as Nissan’s capabilities in large cars, research and advanced
technology, factory productivity, and quality control complemented Renault’s talent in medium-sized
cars, cost management, and global strategies for purchasing and product innovation.
Due to the trust which Schweitzer and Hanawa had initially established, they went ahead and
strengthened their relationship by holding each other’s shares. The two CEOs met in Paris and signed
a memorandum of understanding committing their companies to evaluate synergies more extensively
in an exclusive arrangement for the next 3½ months.

Phase III: Evaluation of possible Synergies (‘Operation Pacific’ as named by Renault)

From September to December 1998, 21 intercompany Joint Study Teams assembled from specialists
on each side thoroughly examined the companies’ respective operations. The teams held meetings at

1
nearly every one of the companies’ sites worldwide, visited plants, and exchanged cost and other
proprietary information. For the first time, the operational level became involved in joint studies.
Top management facilitated collaboration within the study teams as needed and a coordinating
committee reviewed progress monthly. (Communication between study teams was prohibited by
Hanawa; teams reported directly to the chief negotiators.) The main objective of the study was to find
areas of potential synergies.
In mid-November, Schweitzer, Douin and Ghosn presented ‘The Big Picture’ i.e. their vision of the
alliance. The presentation was so well-received that the Renault team deemed it a turning point in the
negotiations.
Later in the month, Hanawa paid a courtesy call to DaimlerChrysler co-CEO Schrempp in Stuttgart.
Schrempp proposed to go beyond his interest in Nissan Diesel and make an investment in Nissan
Motor itself. Hanawa then flew to Paris to inform Schweitzer personally of his intention to follow up
on Schrempp’s offer.
Nissan informed Renault that alliance would include both Nissan Motors and Nissan Diesel. Through
the results of the Joint Study team both the companies agreed that possibilities of integrating were in
the processes side and not brand integration as such.

Phase IV: Striking the Deal


The fourth phase was punctuated by developments in the competing Nissan-DaimlerChrysler
negotiations. DaimlerChrysler was an equal if not a more attractive partner for Nissan management.
DaimlerChrysler had deep pockets to absorb Nissan’s deficits and take charge of an industrial
restructuring which seemed an arduous task.
Renault maintained the stand for their proposal of 36% stake in the group and 22.5% share in Nissan
Diesel. Renault also reinforced the commitment of their involvement in re-structuring Nissan’s
management and their experience in that area. According to the industry experts DaimlerChrysler was
a more suitable partner for Nissan which reinforced Schweitzer’s fears that Nissan might choose
DaimlerChrysler as their favoured partner.
On March 10, Renault’s position completely changed when Schrempp formally withdrew his bid for
Nissan Motor. The DaimlerChrysler Board of Directors, leery of Nissan’s financial condition and
understated debt at Nissan Diesel, had pulled him back.
Schweitzer restated the terms of his standing offer. The rationale for not reducing it, even with
DaimlerChrysler gone, was consistency of intent. Schweitzer was trying to develop a cooperative
relationship, and he did not want Hanawa to feel Renault would later exploit Nissan.

2
These conditions left Hanawa with the option of an internally led restructuring based on the Nissan
Corporate Planning Department’s Global Business Reform Plan and short-term assistance from
fellow members of Nissan’s industrial group which looked a rather weak option given the scale and
scope of Nissan’s needs, this was a rather weak option or move ahead and form an alliance with
Renault which had the potential of generating huge synergies.
The Renault/Nissan alliance agreement was officially signed on 27 March 1999 giving birth to the
fourth largest automobile manufacturer with 9.4% of the international market. The agreement aimed
at strengthening Nissan’s financial position and achieving profitable growth for both the companies.

Phase V: Finalizing Details


The global partnership agreement‖ signed by Schweitzer and Hanawa on March 27, 1999 committed
Renault and Nissan to cooperate to achieve certain types of synergies while maintaining their
respective brand identities. The strategic direction of the partnership would be set by a Global
Alliance Committee co-chaired by the Renault and Nissan CEOs and filled out with five more
members from each company. Financial terms included an investment of ¥643 billion by Renault.
Renault received 36.8% of the equity in Nissan Motor and 22.5% of Nissan Diesel. With respect to
management, Renault gained responsibility for three positions at Nissan (Chief Operating Officer,
(Carlos Ghosn), Strategy (Patrick Pelata) and Finance (Thierry Moulonguet). One seat on Renault’s
board of directors was designated for Hanawa. At the alliance level, plans called for the formation of
11 cross-company teams to work on key areas of synergy (e.g., vehicle engineering, purchasing,
product planning) and to coordinate marketing and sales efforts in major geographic markets. In the
autumn of 1999, Carlos Ghosn submitted the Nissan Revival Plan (NRP).

1
Lessons1
The Renault-Nissan negotiation stands out in many ways. Automobile Industry experts did not expect
it to lead to an agreement let alone an alliance of exemplary standards.
The Renault-Nissan negotiation offers four distinctive lessons:
(1) Go beyond superficial differences; probe parties’ interests and capabilities for “fit.” Schweitzer
and his team focused on Renault and Nissan’s common long-term goals, complementary interests and
respective capabilities. Their fit on multiple dimensions motivated, directed and sustained the
negotiators. Some differences matter less than others and not all differences imply incompatibility; in
fact, they may offer substantial benefit.

(2) Prepare extensively, continuously, and jointly as well as internally.


Renault took a broad view of preparation for negotiation. The company’s executives and staff carried
out thorough internal analyses but also spent months working with Nissan personnel even before a
letter of intent was signed. The joint preparation before formal negotiations was more comprehensive

1 www.weissnegotiation.com

2
and intensive in this case than in many others. The negotiations were far from the quick, superficial
courtship. It was not just a handshake between the top managers.

(3) Consider conceiving a new (unusual) form of relationship.


Ideas based on a conventional acquisition, merger, joint venture or subsidiaries were all set aside.
Renault executives went ―outside the box and conceived a structure by which the two companies
could be together but distinct.

(4) Behave not only as a negotiator but also as a prospective partner.


Negotiators typically pursue their own interests and take their counterparts’ into account as needed to
reach an agreement, whereas Renault negotiators paid extra attention to Nissan’s concerns and to life
after an agreement. They were keenly aware of the companies’ limited history together, the
opportunity that the negotiation offered them to demonstrate their qualities as a long-term partner, and
the impact that their negotiation conduct would likely have on the implementation of an agreement.

Synergy Analysis (1+1>2)

Rationale for an alliance

Renault Nissan

Respective objectives

Improving quality Reduce Costs

Internationalize Reduce Debt

Technology Global Platform

Common objectives

2
Economies of scale

Technological know-how

Leader for the quality and attractiveness of products & services

The making of the alliance was motivated towards developing potential synergies, where both firms
would maintain their operational freedom. The foundation of the alliance focused on the need for the
negotiation of a formal equity joint venture because Renault and Nissan must evaluate their partners’
equities, capabilities and willingness to cooperate before selecting the right hierarchy. The focus was
on preserving the identity of the two companies because if you don’t respect people’s identity, they
will not get motivated and you will not get a strong corporate performance.

Renault was willing to implement a common platform, which would generate significant
economies in development costs, industrial equipment and purchasing. This strategy has been
frequently adopted by automakers such as Daimler-Chrysler in the United States or Volkswagen
and Skoda in Eastern Europe, as a means of bringing the engineering teams together and of
sharing and developing knowledge. From an economic point of view, the alliance can be perceived as
a means of integrating two companies in order to improve coordination and achieve cost reductions.
Furthermore, even in the case of integrating conflict, stimulating competition between Renault and
Nissan would ensure that they both reduce their costs by benefiting from economies of scale,
and thus, increasing their bargaining power towards suppliers. There would be more mass
purchasing efforts and vehicle platforms as well as growing exchange of technologies, but the global
market strategies of the two companies would remain disconnected and independent (their respective
brands would be retained). Nissan was part of the Keiretsu in Japan in which diseconomies were
creeping in. Hence there was the need for complete management restructuring for Nissan.

• Principles that have accompanied the alliance

Three overwhelming principles have accompanied the alliance:

➢ To share resources in order to realize economics of scale,

2
➢ To leverage the complementary strengths in terms of products, markets and know-how in order
to improve efficiency and
➢ To preserve the separate brand identities in order to maintain a strong brand image and appeal
to a broader customer base.

These principles will allow the two companies with similar size, but contrasting corporate cultures to
pursue a common strategy of profitable growth.

• Geographical Distribution of their respective markets:

Renault Nissan

Western Europe 11% 3.10%

North America 4%

South America 5.10%

Japan 15.30%

ASEAN 10.80%

Middle East 7.90% 9.10%

Since the two companies showed strength in different regions of the world their collaboration would
ensure increased geographical coverage. Renault would now be able to foray into North America,
Japan & ASEAN countries whereas Nissan can increase its presence in Europe and South America.

• Complementarities of their product lines and the possibility of sharing common platforms

Model Category Renault Nissan

Entry level ✔

4*4 ✔

Pick-up ✔

Renault was better at making smaller cars while Nissan was better at making larger cars. Despite the
fact that both the companies were not in direct competition with each other there was a strong
potential for platform integration thus indicating a possibility of reduced costs and increased
efficiency.

Renault Nissan Alliance

1
Number of Platforms 8 26 10

Volume per platform (000 units) 280 105 500

• Strategic Alliance

The size of the two companies in terms of market capitalization, vehicle production and number of
units produced was very similar as of 1998 thus lessening threats of future dominance or possible take
over from either side.

Renault Nissan

World market share 4.90% 4.30%

Vehicle production (in millions) 2.6 2.1

1
APPENDIX

Nissan Financial Performance (Billion Yen)

1992 1993 1994 1995 1996 1997 1998

Sales 6417 6197 5800 5834 6039 6658 6564

Operating profit 154 -54 -142 -102 43 199 84

Net income 101 -55 -86 -166 -88 77 -14

Sales ( 000 units) 2813 2691 2700 2671 2710 2568

Total long term debt 2045 2331 2680 2209 3728 3839 4342

Total Shareholder's 1580 1429 1429 1356 1356 1282


Equity

Operating profit margin 2% -1% -2% -2% 1% 3% 1%

Net profit margin 2% -1% -1% -3% -1% 1% 0%

Debt / Equity Ratio 148% 188% 155% 275% 283% 339%

Debt / Sales Ratio 32% 38% 46% 38% 62% 58% 66%