Renault-Nissan Alliance - Case Study Example

RENAULT NISSAN ALLIANCE Analysis Renault and Nissan are vehicle and automotive manufacturers. They have activities allover the globe mostly in East and Central Europe. The alliance was made which involved French and a Japanese company. They were linked by cross shareholdings. Vehicle sales have increased because of the alliance1. The main reason for the formation of the alliance was to form an automotive group, which is powerful while the corporate culture. It was necessary to maintain a clear identity of each brand. Incorporation of key technologies in engines and other electronics at the same time making profits. Satisfaction to clients, by production of quality products and services in different markets in the region. Problems Dacca is demanding a lot of attention and investment between now and 2008. There is a challenge to achieving ambitious cost targets established for Dacca’s five thousand Euro cars. Overcoming Dacca’s pitiable quality image, in order to expand external of Romania and develop into the group’s emerging market problem. Establishing an assembly plant in Russia is also a key issue. External environments They have activities in both Central and East Europe. Vehicle manufacturing is mostly in Central Europe with automotives mostly in East Europe. There is a positive outlook despite challenges with Daewoo in Turkey although productions face upwards over the next seven years. Polish car production is predicted to grow to two times over to approximately two million units by two thousand and six. In turkey, production of small cars is likely to increase from a decline in 2001 to double the manufacture by 2008.Growth will likely to have doubled in Romania through Renault-Nissan investment plans in Dacca. East Europe is still an attractive production site despite the currency appreciations in Poland and Czech Republic. In addition, Central Europe is gaining high competition from Romania and the Baltic States as VMs and suppliers are searching for low –cost sourcing. The leading countries in the external markets include; Romania due to the investment made in Dacca by Renault-Nissan’s investment. This was a strategy to use Dacca as their brand markets all over the world. Polish production has been affected by Daewoo’s performance in 2000. Growth is also expected from both fiat and Volkswagen. Also, a number of VM’s are making progress in turkey production. Ford and Toyota are the current leaders with Honda and Hyundai all contributing. There is a future for expansion in these markets. Steep Analysis This tool is used to cut down strategic surprises and reveal opportunities. Futurists use it, which helps us consider a variety of various trends outside the industry. The trends include political trends, which involves legislation, political unions, and oppression versus liberal democracy. Social trends also have its influence, which include urbanization, hypertension, kidney failure, mixed families, aging populations and increased prevalence of diabetes. Ecological trends also play their roles in areas like state of the soil, climate change, and biodiversity and wetlands integrity. Economic trends have a tremendous impact on the industry with influences. Areas of influence include availability of raw materials, government influence in the market, corporate debt, sovereign debt, household credit, corporate merger and acquisition activity. In this case, there also emerging markets like Brazil and Argentina where vehicle production is expected to grow to over one million units by 2008. Thailand and Malaysia are emerging markets with the fastest vehicle production in East Asia. India vehicle production will nearly double to than 1.3 million vehicles by 2008. Poland and Russia will is expected to lead East European vehicle production growth .External markets in Hungary, Romania and turkey, is promising a fast growth forecast. With this information, the alliance can venture into these markets. Porter’s Five Forces It is one of the most significant models for evaluating the temperament of competition in an industry. It helps to understand why more industries are more profitable than others are. Porter illustrates the five forces that decide an industry attractiveness and long-term profitability. They are termed as “competitive forces” and they include bargaining influence of buyers, the threat of substitutes, and the threat of new entrants into the market, bargaining influence of lastly the rivalry between existing competitors. Threat of new entrants; the presence of alternative products lowers the industry attractiveness and profit making as it minimizes the price levels. Threat of alternative products is dependent on a number of factors. They include if the buyer is willing to find an alternative, the relative cost and implementation of the alternatives, and the costs of switching to the substitutes. Bargaining influence of suppliers is brought about, as they are the ones who supply materials and other products in the industry. The items bought from suppliers have a significant influence on a company’s profitability. If suppliers have a high influencing power over an industry. The company’s industries are less appealing. The suppliers will have a high influencing power when there are many buyers and suppliers are few, the products are few, and they are highly valued, when buyers integrate forward, for example, they can threaten to open their own retail outlets. Bargaining influence of buyers: buyers are the people who create the demand in the industry. They have influence when; there are few buyers are dominating the market and there many sellers in the industry, when all products are standardized, when they threaten to integrate backward to the industry, no threats from suppliers to integrate forward to the buyer’s industry and when the industry is not a key supplying a faction of buyers. Intensity of existing competitors depends on a number of existing competitors. They include barriers when trying to leave an industry, which is unusually high, for example, the cost of shutting down an industry. In addition, when competitors are pursuing aggressive growth strategy, they tend to bring intense rivalry. When an industry has a clear market leader, it makes the industry have less rivalry that in turn influences the structure of competition. In addition, where the products of industries are commodities, the degree of differentiation is high increasing the rate of rivalry. Emerging markets are experiencing a population increase, translating to higher driving age population. This is however, not the case in East Europe, which is facing a decline in its population. The questions, which the two vehicle manufacturers are asking themselves is, whether will this affect long-term investment plans or will this make its inhabitants more well off. In addition, East Europe has a population, which is termed as the middle class, which is likely to offer a better market for light cars manufacturing2. It also has a well-developed infrastructure that favors automotive manufacture. Brazil vehicle production will reach an all time high of 1.6 million in 2000 to nearly 2.5 million vehicles in 2008. There is expected decline in light vehicle production, in South Korean, Thai and china. Growth of light vehicle production in East European production is expected to rise by more than 1.8 million vehicles by 20083. These are to be led by Turkey and Poland. This would be more than twice the growth of West Europe combined over the same period. SWOT (Threats and Opportunity) They are a sequence of questions used to determine small businesses weakness and strengths. In looking at the opportunities of the Renault and Nissan alliance and determine the threats that are there and come up with a plan to avoid future uncertainties. There also emerging opportunities in Central European countries with the expected economic growth in all the five united countries4. New car sales should emerge in Poland and continue to grow steadily in all other markets of Central Europe. Light vehicle production will surpass 2.1 million by 2005. In other markets, production will continue to grow or remain the same in nearly all manufacturing, in all the plants in Central Europe between now and 2008. Renault-Nissan will triple production at Dacca by 2006.Dacca is expected to become Renault-Nissan’s basic brand in emerging markets. Renault acquired 52% in 1998 and gradually increased to 90%. The investment was close to 300 million for a period of five years. The Target was over 250,000 units in 2008, but there were challenges like modest level of exports and financial difficulties that made this target impossible. Value Chain These are interlinked value-adding activities that convert inputs to outputs, which help industries, have a viable advantage. It was created by and consists of a series of activities, which help to build value. A normal chain consist of: an inbound distribution where goods are received from a company’s merchant, manufacturing operations where manufactured goods are assembled, firm infrastructure ,which involves strategic planning, technology development which is an indispensable resource of competitive advantage, human resource which manages employees, procurement department which is responsible for purchasing of goods, materials and other services5. Outbound logistics are also a part of the chain whose key responsibility is to send the finished good along the supply chain. Romania has low cost manufacturing base, which is an attractive future for expansion. In addition, there are more global investors being attracted to this country. This is logistically placed for East Europe exports. In 2000, financial crisis was set back for new car sales but helped to save domestic producers in the end. Joint ventures are expected to bear fruit as Renault-Nissan, BMW, GM all increases their production in their plants. Activity Map These events are to be done in a certain period. Renault and Nissan alliance have various activities to be carried out throughout the markets between now and 2008. The aim is to help in expansion of the alliance and production of innovative products at the same time. Each field is structured to offer a tactical intermediation and operation retail value. The alliance is looking for areas to cooperate on planned fields of research and sophisticated engineering. They have a common expertise plan based on four universal pillars: dynamic performance, atmosphere, safety and life -on -board safety. The alliance has presented an opportunity to use one another’s technologies hence increasing the manufacturing capacity. An example is Nissan plants are manufacturing Renault in Korea, whereas Renault’s plants in South Africa are producing Nissans. Co-company This is a subsidiary of other small companies from the alliance. The alliance has made strategic co-operations with other companies. They include BMW and FORD which has helped boost the sale of vehicles units in all the markets especially in East and West Europe. Current Strategy There are several strategies that have been set to be achieved by 2008. To develops Dacca as a brand of unsurpassed emerging market value with western standards. In addition, to expand Dacca assembly plant in counties likes Russia, South Africa and Colombia6. Turkey is the key strategy for East Europe, which is continuing to benefit from EU customs union with Turkey for global sourcing of models. There is a plan to enter a Russia through Avtoframos joint venture. There is also an ambitious for Dacca to extend production beyond Romania. Renault, which is the sole sourcing in Turkey Clio symbol and Megane SW, is planning on expansion of their plant. There is also a plan to make a long life presence in Slovenia7. Identification of Options These are options, which would help preserve the Renault –Nissan Alliance. Option 2: There were options, which were made where they could help suite both parties from now until 2008. There areas that Nissan would go against the Japanese community, which had to be adjusted. The Japanese gave their options, which led to the formation of the alliance. Option one: Changing the management processes in order to show the importance of personal responsibilities to all employees. This will help determine the future of the alliance and its scalability. In addition, there is the need to survey the markets in Brazil and China that will determine the success of the alliance. Strategy Recommendations Recommendation 1: there is the need to have a strategic goal for example, that every home in East and South Europe should have a Nissan or a Renault outside their packing lot. Also, set a target to manufacture light cars that can be afforded by the middle class in the society. Recommendation 2: production of motor vehicles in Russia should be scaled by 2008. The alliance can make an investment as the one made in Dacca. This will help in expansion of the company as Russia has a large potential market, which is likely to triple by 2008. This is possible by establishing assembly plants with an output of one million units in a year. Summary The alliance will be a magnificent achievement and will help transform the automobile industry. There a lot of areas which have opened up because of this union. Challenges are bound to come up, but with proper planning and dependable decision-making, will see the alliance grow with each year. Critics had thought it was impossible to join the two manufacturing companies, but they will take their words back by 2008. In addition, solutions to the decline of the markets in West and South America should be found. Markets in South America especially in countries like Brazil should be explored as they may help to evaluate the success of the Alliance. Works Cited Cellich, Claude and Subhash C Jain. Practical Solution to Global business negotiations. New York, NY] (222 East 46th Street, New York, NY 10017: Business Experts Press, 2006 Internet Resource. Gaughan, Patrick A. Mergers, Acquisitions and corporate Restructurings. Hoboken, NJ: Wiley, 2008. Print. Ian, Hernderson. Business Process Mapping Training, Management Training Interim 2005. Inkpen, Andrew C. and Kannan Ramaswamy. Global strategy: Creating and sustaining Advantage across Borders. New York: Oxford University Press. 2006. Print. Management Dynamics and strategic Alliances. Greenwich: Information Age Pub, 2008. Print. Peng, Mike W. Global Strategy. Mason. Ohio: South-Western/Cengage Learning, 2007. Print. Rakowski, Nina, and Martin Patz. An Overview and Analysis of Strategic Analysis on the Example of the Car Manufacturer Renault: A story of success and failure. Munchen: GRIN Verlag GmBH, 2008. Internet Resource. Stahl, Gunter K and Mark E Mendhall. Mergers and Acquisitions: managing Culture and Human Resources. Stanford Business Books, 2005. Internet resources. Read More