Rahul Pathak, Student number F5540595Q Q1: What is the rationale for the alliance?

What strategic value does this bring to either side? While generally speaking the rationality of every merger entails both parties drawing economies of scope and scale, the Renault-Nissan alliance on the outset at least appeared that of an alliance of the weak. A closer look at some of the inherent synergies arising from the alliance however, suggests otherwise. From an over-arching potential of scale with respect to both Renault and Nissans faltering productivity, complex supply chain and inefficient cost and quality control, the alliance also provided the potential for complementary geographic scope and the opportunity to leverage off each others skills and variety in technology. The foundation of the alliance though was built on shaky grounds, giving credibility to the critics who questioned the rationale behind this tie-up. Renault had just turned losses of USD 680 million in 1996 into combined profits of USD 1.6 billion in 1998-99. Their Europe focused strategy had begun to show signs of tiredness. Their exit from the US market exposed their failure to expand organically in other markets, and their abortive bid for Volvo meant that they lost an opportunity to consolidate their position in Europe. With the U.S. car manufacturers being just too big for a sustainable alliance and the global consolidation race amongst the automakers well underway, the only available option for Renault was to look to an Asian player, who could in addition, help them grow their relatively tiny footprint in Asia. Nissan on the other hand had been financially in the red for years. It desperately needed a partner willing to bail it out to ease the burden of a bulging debt. Nissan had hoped to partner with DaimlerChrysler

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Rahul Pathak, Student number F5540595Q but the latter judged the necessary investment in Nissan too risky. Renault was the lesser option but the only available one in desperate times. Yet, within what seemed like a marriage of desperation, there were opportunities waiting to be exploited. Renault had a flair for marketing and design, and was strong in Europe and Latin America. Nissan was an engineering powerhouse, with strong market presence in Japan, North America and Asia.

Q2: Comment on the nature of the fit between the two firms. Please be sure to examine multiple dimensions. Renault and Nissans combined technological strengths and expertise meant that distinctive skills and assets brought by both parties into the alliance would undeniably reduce the potentialities of direct competition in the end products and markets. A combined global market presence from a Nissan perspective would help penetrate the untapped European market and allow Nissan to utilize their half-idle assembly lines. For Renault, the product range would be enhanced by the complementation of Nissans pick-ups and off-road vehicles, as well as their top-of-the range models. Nissan would be able to take advantage of Renaults marketing expertise to boost its stale sales growth, while Renault would benefit from Nissans agility in product design and development. With joint purchasing, both could realize cost savings and a rationalization of their supplier and distribution network. Above all, the value created by the alliance came from within. The richness of the individual organizations, their culture and workforce, were in many respects complementary in bringing this value across to the other side1.

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Rahul Pathak, Student number F5540595Q Q3: What were the key steps involved in executing the Nissan Revival Plan? What were the crucial elements that made execution successful? Carlos Ghosn came to lead the Nissan turnaround having guided cross-border corporate cultures in the U.S. at Michelin and Uniroyal Goodrich. His successful engagements with cross-functional teams in the U.S, and later at Renault in France made him the perfect candidate for this assignment. Ghosn hit the ground running and in assembling his team of Renault executives who would join him in Japan, was innately clear that the mission was to be the catalyst of change in an otherwise stodgy, hierarchy based on seniority model of Japanese corporations. Early into his new role, Ghosn advised his team that all he wanted them to do was focus exclusively on Nissan without getting mired in prevailing business customs or in debates on social change. Ghosn did not come to Japan with any pre-fabricated restructuring plan. Instead, he stuck to the notion that, knowledge as a tool, and observation of facts, will bring a solution. He walked-the-talk and implored his management team to be transparent in thought, word and action. In setting clear boundaries, motivating his team to act objectively, and in acting strategically himself, Ghosn made the case for change. In communicating that central to the transformation would be a rekindling of the spirit of innovation and product excellence, paying down of debts, and refunding in design and engineering prowess, through a massive cut in cost and production capacity, Ghosn ensured there would be no dilution of Nissans corporate values inspite of their rather precarious financial position. In adding that despite the plant closures everyone would have a role and that there would be no forced layoffs, he not only allayed the fears of Nissans workforce but also set the grounds for effective redeployment and reallocation

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Rahul Pathak, Student number F5540595Q of human resources. With this Ghosn set about dismantling the Japanese culture of seniority based career growth, in turn engaging in the relatively western phenomenon of performance and merit based rewards and promotion system. As this culture required a clear delineation of responsibilities and expectations at all levels, English was chosen as the official language of communication, in order that everybody understood and was clear on what was expected of them. A common language set the platform from which Ghosn could then implement his past successes with a governance structure based on cross-company and cross-functional teams. These were made up of executives from both Renault and Nissan, from different functions and varying nationalities, who worked together in driving challenging business objectives such as, launch 22 new car models in the next three years, improve manufacturing capacity utilization in Japan from 53% in 1999 to 82% in 2002. A more implicit objective that Ghosn placed on these teams was to turn the high context, high power distance communication culture 2 of the Japanese into one that fostered open spirit and cross boundary communication. The exchange of ideas across companies was further expanded through mechanisms other than the cross-company teams, with some top executives moving to major markets such as the U.S. as opposed to remaining in Japan. Here too, it presented Ghosn and Nissan the opportunity to further dismantle the traditional Japanese communication style and corporate culture. From the outset, and with his belief in walking-the-talk, Ghosn instilled a culture of extremely transparent, open, precise and factual communication. To this end, and the day after unveiling the Nissan Revival Plan, Nissans suppliers and dealers were told that they would need to submit bids for new contracts and that maintaining keiretsu3 was not amongst the companys objectives.

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Rahul Pathak, Student number F5540595Q This communication mantra, over time also resulted in the younger generation of Japanese managers becoming more open, approachable and displaying a superior ability to communicate.

Q4: Identify some of the key lessons about cross-border deals that can be drawn from the experience of these firms. Broadly speaking, the distinctness of culture be it nationalistic or corporate defines the paradigm of cross-border deals. How companies in a merger or alliance deal with culture ultimately determines its success, failure or the time it takes to create value from the synergies that were identified as reasons to align. The responsibility that the leader of the merged entity displays in accepting cross-border cultural differences, motivating change in behavior, but in also establishing new structures of governance decide whether or not the two merging organizations get steered in the right direction. Therefore the task of a leader in providing vision, motivating others to think and act, communicating precisely and factually is extremely important. What is equally important is that in announcing and assigning responsibility, he appears balanced and unbiased towards one. Forging a common culture is not necessarily the end-game. Crucially as Renault-Nissan did, they nurtured a strong common glue between themselves. This was not an alliance of equals, yet they nevertheless created an environment of loyalty, trust and reciprocity. Much of the credit for this very surprisingly, successful alliance of the French and the Japanese, two culturally different yet proud nations, goes to Carlos Ghosn the leader of this change revolution.

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Rahul Pathak, Student number F5540595Q

References:
Renault-Nissan The Paradoxical Alliance European School of Management and Technology Case Study

end-notes and definitions:

1

Nissans floor supervisors controlling operations and engineering processes at Renault plants. Renaults marketing flair helping Nissan re-address its brand identity. 2 High context culture: Japanese tend to have hidden meanings in what they say. High power-distance culture: Japanese tendency to communicate only between same hierarchy levels. 3 Keiretsu: Even though a companys network of suppliers and dealers had over-grown costs and low productivity compared to their competitors, they were kept in place due to long-dated shareholding ties.

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