Friday, January 14, 2011

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Cooperate to Dominate - Renault Nissan Alliance

During one of my recent case studies, I came across an example of Renault and Nissan alliance for being one of a well thought of strategic moves in the automobile industry.
The cooperation between these two mainstream auto-makers was intriguing enough for me to write a few observations on the agreement.

By 1999, the automobile manufacturing had become very competitive was witnessing globalization driven by market internationalization. Every player felt the need to attain a critical size for its survival because there was saturation in various geographical areas and hence growth required looking towards new geographies. Toyota was itself proving to be a challenge for European Companies. All this led to serious discussions within automakers to look for new opportunities. Every player wanted to gain greater market domination and searched for new partnerships. Companies needed to look for strategic associations which may involve mergers or alliances. The case deals with one such occurrence in case of Renault and Nissan. In 1999, Renault and Nissan entered into an alliance that has proved to be a tremendous asset to both firms. The success enjoyed by Renault and Nissan cannot be taken as a rule but has been result of strong will power of both managements.

Nissan’s 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 Nissan reduce their debt, increase sales, lower cost of production, and expand their global market. Renault had the required financial position to help Nissan come out of the crisis. However the investment that Renault made into Nissan was not one-sided. Both the companies were going to receive benefits from the alliance.

Looking at the weaknesses and strengths of Renault and Nissan in the context of the consolidation process of the automotive industry as well as the opportunities brought by the apparent potential synergies among these two companies, the formation of a larger group seemed the only means to ensure long term sustainability for both firms. For revived companies such as Renault, an alliance was essential for a long term sustainable growth necessary to become one of the world top players. From the market point of view, Renault could certainly take advantage of the geographical synergies of the new group by expanding its presence in Asia-Pacific and returning to the Mexican Market, while offering in exchange to its potential partner, support in Europe. Moreover, there were many areas in field of operations and production in which Renault could learn from Nissan. Nissan’s Japanese production processes were highly standardized and efficient and could be adopted by Renault to improve its internal processes.

The Renault-Nissan alliance was based on three distinct goals. First, it was aimed to combine and utilize resources to achieve economies of scale. Secondly, it was to use complementary strengths to improve the efficiency in technologies, production process, and market share. Lastly, it was to preserve a strong brand image for each type of automobile both firms produced.

Learning from the study of the alliance
Different strategies could be used by companies to expand internationally. Two main pressures faced by such companies are to reduce costs and local adaptation. These strategies determine whether the company is an international, multinational, global or a transnational company. The Renault-Nissan alliance seemed to fit the characteristics of a transnational company. A transnational company combines the benefits of global scale efficiency with benefits of local responsiveness. The Renault-Nissan alliance was able to combine their decision making strategy, share resources and technologies within both the production operating areas within the company through cross cultural teams. These implementations allowed Renault-Nissan to incorporate both the cost efficiency and local adaptations in their product lines. The Renault-Nissan alliance initially had two headquarters but they finally formed the Renault-Nissan B.V. In addition the other entities within the alliance, combined with the cross cultural teams and through shared resources, they could produce a differentiated product to satisfy local needs. Thus it can be said that for an automobile company to succeed internationally, it's organizational structure needs to be in the form of a transnational company with well integrated cross cultural teams.

However, the top management of both the firms (Renault and Nissan) need to understand is the complexity in the alliance. There are various strategic issues that could act as conflict between the two. Each one is gradually entering others’ territories and once they gain a sizable market, problems ought to come up. Both companies should cautiously determine their course of action to ensure a bright future for alliance. Their policies should reflect respect for each other’s individuality. Working symbiotically they can take their alliance to compete strongly in the market.

1 comment:

  1. Carlos Ghosn is the man behind this game.

    https://www.linkedin.com/pulse/20141105133121-29092-the-monk-ceo-how-carlos-ghosn-manages-3-companies-140b-in-sales-and-still-stays-human

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