Renault-Nissan: The Challenge of Sustaining Strategic Change - Essay Example

Renault-Nissan: The Challenge of Sustaining Strategic Change Renault and Nissan are both automobiles manufacturing and marketing companies. The two companies were facing different challenges and were performing unsatisfactorily at the time of alliance formation. Nissan was facing marketing and financial crisis while Renault lacked engineering and production knowhow. This paper attempts to answer the questions on the rationale for the alliance, the strategic value of the alliance to either side, the key steps involved in executing the alliance and the critical elements that made the alliance successful. The rationale for the alliance was mainly on the bases that the two companies, Renault and Nissan, were facing challenges and were likely to collapse since they could not support themselves. Each of the two companies had attempted to find other partners to form alliance with but the searches had been fruitless. The alliance between Renault and Nissan and was formed in 1999 in which Renault signed a deal to invest $5.4 billion in the alliance. At the moment, Nissan was at the verge of collapsing since it was facing serious marketing and financial crisis resulting from a vast debt, deteriorating global market prices, as well as indistinct future prospects (Ramaswamy Web). Renault lacked the relevant skills in production, which resulted in high production costs. In 1986, Renault had to terminate its operations in United States since the Car models it was manufacturing were becoming increasingly unpopular due to their small size. Additionally, American buyers felt that Renault cars were underpowered and below par. By 1999, Renault was at the verge of collapsing. On the other hand, Nissan had been undergoing financial crisis and a lot of competition from larger companies within Japan. Additionally Nissan’s management was poor, the decision making process was too bureaucratic and had previously demonstrated poor performance culture. The above factors made it hard for Nissan and Renault to get other companies to partner with since most of the other companies were unwilling and had large and widespread market. In 1998, Renault and Nissan were both performing poorly and they started exploring the possibility of possible partnership. They started cooperating in their operations and realized their collaboration was becoming fruitful. Nissan was then under the leadership of Yoshikazu Hanawa who had proved to be somehow competent than the previous CEOs (Ramaswamy Web). Renault had been quite profitable particularly in Europe but lacked engineering as well as production techniques which heightened the cost of production. Nissan had production knowhow but lacked market for its products. Formation of the alliance would benefit both parties since Renault would gain from Nissan on production knowhow while Nissan would be in a position to expand its market (Ramaswamy Web). The formation of the alliance entailed signing of an agreement to agree on the management style as well as way to carry out the operations. Some of the aspects incorporated in the agreement include a pact for joint purchasing which enabled the companies share most of their supplies. The two companies also established common platforms such as similar parts, common design requirements and mutual manufacturing processes. The Alliance also enabled Nissan and Renault pool their resources which enabled them pursue excellent technologies as well as manufacture fuel efficient engines that were preferred by most car dealers (Ramaswamy Web). The Alliance enabled the two companies to establish shared factories in region such as South Africa, Mexico, Brazil and Spain which enhanced capacity utilization. The Alliance aided Nissan to expand its market and operations in North America while Renault penetrated regions such as Australia, Indonesia and Taiwan (Ramaswamy Web). The alliance turned out to be successful and beneficial to both companies due to several reasons. One of the reasons why the alliance between Renault and Nissan was successful was due to exhaustive business plan and contract on the reasons for the formation of the alliance as well as the terms of operation and interaction, which was established right from the start. The two CEOs from both companies formed a group comprising of engineers as well as other specialist from the two sides to discuss the elements of operations prior to signing of the alliance agreement. Additionally, the formation of the group offered an opportunity for the teams from each side to understand aspects such as organization culture, management styles as well as build trust, which created a strong foundation for the formation and growth of the alliance (Ramaswamy Web). Significant understandings of managerial structure, guidelines as well as procedures, culture and customs of each of the partners enabled the two companies develop trust and proper communication, which are vital in alliance formation (Ramaswamy Web). Another factor that contributed to the success of the alliance was the managerial and structural changes that the alliance undertook immediately after the signing of the partnership. Carlos Ghosn who was quite ambitious and abled was appointed by Nissan’s CEO, Schweitzer, to oversee Nissan operations in Japan. Ghosn assembled a competent team that made dramatic changes in the operations of Nissan. Appointment of Renault executives, Pelata and Thierry, to work with Nissan helped strengthen the alliance. Another aspect that contributes to the success was nomination of Tsumoto Sawadas who had great technological knowhow, to be Schweitzer’s advisor, which aided in exchange of technological knowhow between the two companies (Ramaswamy Web). Initially, the partnership was faced by legal wrangles. However, Schweitzer, Renault’s CEO sought counsel and decided to get into an alliance other than a joint venture, a move that resolved the underlying legal differences between Renault and Nissan. The Schweitzer and Hanawa agreed to sign an alliance arrangement in which Renault bought 38.8 % of the Nissan at a price of $5.4 billion Nissan on the other hand acquired a 10% share of Renault. The alliance allowed both companies to retain their identities since the alliance was to be run by distinct managements. The two companies focused more on embracing their differences other than eliminating them. The teams from Nissan including the engineers as well as production team visited Renault from time to time and vice versa to as to exchange technological knowledge and expertise (Ramaswamy Web). Another factor that contributed to the success was the establishment of alliance managerial systems as well as structures which prevented emergence of management conflicts. Each of the company teams had an idea on how their counterpart operates as well as their management styles, even before signing the alliance agreement. Ghosn formed Cross-Company (CCTs) as well as Cross-Functional Teams (CFTs) that complemented each other’s operations. The CFTs aimed at reviving the operations of each company while the CCTs help in enhancement of operations that required collective collaboration of both Renault and Nissan. Ghosn ensured that promotions and rewards were given independently depending on one’s merits and performance (Ramaswamy Web). Another factor leading to success of Renault-Nissan Alliance was apposite communication. The two companies choose to use English for official communication purposes and offered English courses to employees from both companies. Ghosn created a dictionary to ensure that common terms used in communications were interpreted similarly by the Japanese and French speakers who comprised most of the employees (Ramaswamy Web). Works Cited Ramaswamy, Kannan. Renault Nissan: The Challenge of Sustaining Change. 5 Jan 2009. 10 July 2012 . Read More