Reasons for Renault and Nissan Seeking a Strategic Partners - Case Study Example

Reasons for Renault seeking a strategic partner The company sought a strategic partner due to the need to expand into the wider international automotive market with emphasis in the Asian market. The company had been a major player within the European automotive market and only had 5% of the global market. As such, the company wanted to become a major market player within the international automotive market. It was therefore seeking a strategic partner that would enable it to acquire a 10% of the global motor vehicle market as well as be able to extend its product range (Krcmar & Klein, 2006). Several major changes were taking within the global automotive market characterized by large-scale mergers between some of the major automotive companies in the world. In addition, the economic slowdown being experienced in the Asian region was also affecting the industry, with many of the Asian automotive manufacturers experiencing financial problems. Conversely, the earlier attempted merger between the company and the Swedish carmaker Volvo in 1993 was unsuccessful and had left a negative effect on the company. This merger had been a well-planned initiative that was based on shared synergies between Renault and Volvo and comprised a significant part of the European industrial policy (Krcmar & Klein, 2006). The merger negotiations had lasted for three years and had involved various key authorities, including the French industrial minister, as the French government was a major stakeholder in the company. It was therefore important for the company to be able to undertake a successful merger undertaking in order to go past the effects of the previous failed merger. Renault’s strengths and weaknesses A major strength involved the company’s privatization 1996 due to the various changes in the country that resulted in the separation of economic and political factors and influences. This privatization process resulted in the French government owning only 46% of the company’s shareholding (Krcmar & Klein, 2006). As such, the management was quite sure that the company’s shareholders would approve the company’s need to expand as well as provide the management with a conducive environment to implement the company’s strategy. Another major strength of the company was its experience and market share, as the company was a major automotive producer within the western European and South America automotive markets and had a 5% of the total global automotive market. The company had excelled in the field of mid-range cars and light commercial vehicles. It was also ahead in cost reduction, efficient purchasing and innovative car designs. The company’s major weakness involved the earlier failed attempt to form a merger with the Swedish Volvo automotive company. Though this merger had been based on shared synergies between the two companies, the shareholders at Volvo were against the strong control that the French government had in the company, as it was the biggest shareholder at Renault at the time (Krcmar & Klein, 2006). This failed merger had resulted into negative effects on the company that served as major hindrances to future mergers. Reasons for Nissan seeking a strategic partner The major reason for Nissan to seek a strategic partner was to acquire a partner that would be able to enable the company come out of its financial problems that were facing the company. The company had experienced continued losses over the previous years, wanted to find a partner that would enable it to recover from these problems and start earning profits and secure its future, and continued survival (Krcmar & Klein, 2006). The company was also experiencing several internal problems within the organization including its organizational culture, employee relations, and the brand image of the company that had been negatively affected by some of the challenges that were facing the company and therefore resulting in more financial losses and loss of market share. Nissan’s strengths and weaknesses Nissan’s major strength was its wider market presence and share in Asia, Japan, Africa, North America and Central America regions and its vast experience in the wider international automotive market. It was ahead in mid-range vehicles and four-wheel-drive pickups and vehicles. It was also strong in its quality control, research, development programs, and technology. Its weaknesses involved financial and managerial issues and concerns (Krcmar & Klein, 2006). The company was experiencing financial problems as it had an accumulated debt to sales ratio of 62%, had experienced continued losses since 1992 as well as the poor economic condition in Asia at the time, which could have resulted in bankruptcy. It was also facing restructuring problems within its production system, its purchasing policy and within its Keiretsu. Keiretsu refers to Japanese culture entailing business partnerships between businesses involving long-term supply and purchasing relationships, the numerous exchange of technology and personnel, and intense collaboration in various business related aspects. The company also placed a lot of emphasis on engineering culture rather than on managerial culture. In addition, the company lacked external decision makers outside the company due to its collective responsibility corporate governance style (Krcmar & Klein, 2006). The success of the alliance since inception This alliance has been able to prosper and succeed, with both companies benefiting from this alliance. At present, the alliance accounts for one car sale in every ten worldwide and is the fourth largest automotive manufacturer based on sales equaling 8,266,098 units in 2013 as well as revenues totaling $170 billion in 2012. A major aspect responsible for this success is the fact that Renault and Nissan entered into an alliance characterized by a cross-shareholding agreement that allowed each company to continue operating its individual brands and maintain its corporate culture while at the same time taking consideration of each other’s financial interests (Richter & Pahl, 2009). Under the cross-shareholding agreement between these companies, Renault acquired 36.8% of Nissan’s shareholding while Nissan undertook to purchase a stake in Renault once it was financially stable. Following financial recovery in Nissan, the company bought 15% shareholding in Renault while Renault increased its shareholding in Nissan from 36.85 to 44.4%. Both companies have benefited from the shared synergies that were the basis of this alliance. For instance, both companies undertake collaborative international purchasing and logistics ensuring a reduction in costs in both companies and jointly develop various automotive parts such as engines and other important parts. They also undertake collaborative projects such as the development of new manufacturing plants for both companies in new and emerging markets (Korine, Kazuhiro, & Pierre-Yves, 2002). The alliance has undertaken a major collaborative project to build electric vehicles as well as electric batteries with the aim of achieving leadership in Zero emissions within the transportation industry. The alliance is currently the biggest producer of electric cars globally with sales totaling 134,383 in 2013 consisting of 96,847 electric Nissan cars and 37,536 electric Renault cars. In addition, the alliance entered into a strategic cooperation with Daimler AG based on a cross-shareholding agreement involving a 3.1% stake in each other and the joint development of various brands and parts under the new alliance. Strategies undertaken by Renault and Nissan to pursue their objectives There were various differences between the two companies, especially regarding the corporate culture adopted in both companies. The culture at Nissan was collective, with special emphasis on Keiretsu while that at Renault was based on individuality, with emphasis on individual performance. Nissan’s cultures was also based on the Japanese respect for seniority and authority, hence junior employees could not lead or manage older and senior employees. Due to these differences, Carlos Ghosn, the CEO and chairperson of the alliance, implemented various cross-cultural training events and programs in both companies that allowed French employees from Renault to learn the Japanese culture while Japanese employees learned the French culture (Stahl, & Mendenhall, 2005). In addition, a double hierarchy system was established in order to benefit from both systems used in the two companies (Cellich, 2012). In addition, the two companies established Renault-Nissan BV in 2002, a 50/50 joint strategic management company tasked with overseeing various issues affecting both companies, especially corporate governance issues, as well as assist in maximizing the shared synergies. How these companies have coped with the global economic downturn since 2008 The major steps undertaken by these companies involved cost reduction in the major areas the companies shared joint synergies, especially in the collaborative international purchasing and supply logistics in both companies and jointly develop various automotive parts such as engines and other important parts. In addition, the turn towards green technology and the production of electric cars enabled the companies to achieve increasing sales as consumer preferred these cars over the fuel dependent cars as fuel process were high (Wad, 2010). Renault/Nissan alliance vs. Daimler/Chrysler merger The Renault/Nissan alliance is characterized by a cross-shareholding agreement that allowed each company to continue operating its individual brands and maintain its corporate culture while at the same time taking consideration of each other’s financial interests. Under the cross-shareholding agreement between these companies, Renault acquired 36.8% of Nissan’s shareholding while Nissan undertook to purchase a stake in Renault once it was financially stable. Following financial recovery in Nissan, the company bought 15% shareholding in Renault while Renault increased its shareholding in Nissan from 36.85 to 44.4%. Conversely, the Daimler/Chrysler merger constituted an acquisition where Daimler acquired Chrysler for $36.8 billion and was one of the biggest ever undertaken mergers within the automotive industry. This merger was not successful and lasted for only 9 years when Daimler to Cerberus Capital Management eventually dissolved it following the sale of Chrysler for $7.4 Billion, constituting a loss of $28.4 billion. Factors contributing to the failure of the Daimler/Chrysler merger The Daimler/Chrysler merger was one of the biggest ever undertaken mergers within the automotive industry and one that lasted for only 9 years. This merger was not successful and was eventually dissolved following the sale of Chrysler by Daimler to Cerberus Capital Management for $7.4 Billion, constituting a loss of $28.4 billion. The major factor contributing to the failure of this merger was the differences in the organizational cultures adopted in these two companies (Krcmar & Klein, 2006). There was a very big difference in the organizational and corporate cultures practiced in these two companies. Daimler is one of the leading German automotive companies with a huge market presence across Europe and globally. The company adopted a conservative corporate culture that was characterized by high levels of efficiency and placed great importance on organizational safety (Hollmann, Moura Carpes, & Beuron, 2010). Conversely, Chrysler is an American automaker with a major three automotive manufacturers in the United States alongside General Motors and Ford, and has a considerable market share in the American automotive market. The company was characterized by a daring and creative culture that had helped the company to bounce back several times from various difficulties it had experienced over the years (Stahl, & Mendenhall, 2005). As such, these two companies followed different organizational cultures and approaches to management that were very incompatible. For instance, due to the conservative nature of culture at Daimler, it adhered to a very hierarchical organizational structure characterized by the respect for authority and a concise chain of command (Lasserre, 2008). Conversely, Chrysler was inclined to a more egalitarian management approach that favored creativity and teamwork. The experiences of these companies and empirical literature on factors responsible for the success and failure of cross-border strategic alliances The factors that have contributed to the success of the Renault/Nissan alliance and the failure of the Daimler/Chrysler merger and failure support the empirical literature on factors responsible for the success and failure of cross-border strategic alliances (Weber & Camerer, 2003). In cases, the understanding and lack of understanding the corporate and organizational culture was a major factor that consequently affected success and failure in these two cross-border alliances. References Bartlett, C., & Beamish, P. (2013). Transnational Management: Text, Cases, and Readings In Cross-Border Management. London: McGraw-Hill Education. Cellich, C. (2012). Practical Solutions to Global Business Negotiations. London: Business Expert Press. Hollmann J., Moura Carpes A., & Beuron T. (2010). The Daimlerchrysler Merger – A Cultural Mismatch? UFSM, v. 3, n. 3, p. 431-440. Korine, H., Kazuhiro, A., & Pierre-Yves, G. (2002). Partnering with the Unfamiliar: Lessons from the Case of Renault and Nissan. Business Strategy Review, Volume 13 Issue 2, pp 41-50. Krcmar H., & Klein, A. (2006). DCXNET: e-transformation at DaimlerChrysler. Journal of Information Technology 21, 52–65. Lasserre, P. (2008). Global strategic management. New York: Palgrave Macmillan. Richter, A., & Pahl, N. (2009). International Strategic Alliances and Cross-Border Mergers & Acquisitions. New York: BoD. Stahl, G., Mendenhall, M. (Eds) (2005). Mergers and acquisitions: Managing culture and human resources. Stanford, CA: Stanford University Press. Wad, P. (2010). Impact of the Global Economic and Financial Crisis over the Automotive Industry in Developing Countries. Vienna: UNIDO. Weber, R.A., & Camerer, C.F. (2003). Cultural Conflict and Merger Failure: An Experimental Approach. Management Science, Vol. 49, No. 4, April 2003, pp. 400–415. Read More