Nissan Renault Strategic Alliance - Case Study Example

Nissan Renault Strategic Alliance

I. Company Overview

• A. Nissan Motor Company

1. History of Nissan. Nissan Motor Company Limited is one of the largest automobile manufacturers of the world founded in the year 1933. Nissan is a Japanese based automobile company having it’s headquarter in Yokohama, Japan. The company is highly renowned for the manufacturing premium-segment luxury cars, commercial vehicles, outboard motor, and forklift trucks (Forbes, 2016). Moreover, the after sales service of the company has also been one of the contributing factors behind its successful operation for over 82 years globally. The company was established with the name of Jidosha-Seizo Kabushiki-Kaisha that changed its name to Nissan after one year (Das & Kumar, 2007). However, after the end of Second World War the company started to grow significantly. It started its global expansion and established itself successfully in North America, where it had positive review from the customers. The company began to known for its reliability, efficiency, and quality. During 1990’s Nissan began to be recognized itself for manufacturing good quality cars with innovative engineering and style that created a path for its future sustainability (Vuori, 2015).

2. Fortune 500 Global Organization Ranking. Nissan holds one of the topmost positions in the global automobile industry. The company is ranked one of the highest in the Fortune 500 list. In the year 2015, Nissan Motor Company Limited was ranked 61among 500 top companies of the world (Time Inc, 2016b). The company ranked 61 among the Fortune 500 companies in the year 2014 during which it sold 5.3 million cars worldwide. Generally, after the end of credit crisis in the US, the company experienced a rapid rise in sales (Susini, 2004). The SWOT analysis (figure 1) of Nissan conducted by the Fortune 500 represents that the major strength of the company is its strong brand recognition and after sales service. The major weakness of the company is the electric car of the company. Thus, Nissan Leaf failed to capture the global market. One of the major opportunities of Nissan is that despite failure of Nissan Leaf, the company possesses an effective infrastructure for performing better in the electronic vehicle market (Vuori, 2015). A major threat as described by Fortune 500 is the advent of new automobile manufacturer, Tesla that can capture the market of Nissan. The company has been in the list of Fortune 500 for 21 years (Forbes, 2016).

• Figure 1: SWOT Analysis

(Source: Time Inc, 2016b)

3. Success in the Automotive Industry. The establishment of Nissan Motor Company can be considered one of the greatest successes in the global automobile industry. Among the largest automobile manufacturers of Japan, Nissan has been one of the largest manufacturers of trucks and cars since the beginning of 19th century (Beaume & Midler, 2009). Today, Nissan is one of the leading automobile manufacturers of the world that holds the top third position in Japan and the top 6th position in the world. The manufacturing of excellent quality car with innovative engineering has allowed Nissan to hold the position of topmost car selling in Mexico, Russia, China, and the US. The company also sells car under the brand name of Nismo, Infinity, and Datsun all over the world (Gill, 2012). During the time of World War II, Nissan became the fourth largest company of Japan, holding 74 different firms of the country. The first car of Nissan was Datsun that was a big success in the global automobile industry (Nissan, 2016). Majority of the machineries of the company were supplied by the US based Graham Paige Company. The company moved towards manufacturing the cars such as Sunny, Bluebird, and Cedric that also depicts a huge success in Japan and other countries of the world. The latest launched car of Nissan is Terrano and has gained high popularity in the mid section SUV cars (Beaume & Midler, 2009).

4. Social Responsibility. In addition to the primary objective of Nissan to earn considerable amount of profit, the company also involves in different Corporate Social Responsibility (CSR) activities. The prime vision of Nissan is to enrich the life of people by promoting sustainable social development (Bensley, 2010). The company is highly committed towards the stakeholders and considers their benefit as the first priority. The business activities of the company create economic value along with ensuring that the society as well as environment is not harmed. Nissan’s approach to CSR activities is known by the name of ‘Blue Citizenship’ that is highly focused on sufficing the expectations of the stakeholders and society (Gill, 2012).

• B. Renault Motor Company

1. History of Renault. Groupe Renault is also one of the largest automobile manufacturers of the world that was established in the year 1898. It is a French automobile manufacturer having it’s headquarter in Boulogne-Billancourt, France (BBC, 2016) The company is highly renowned for manufacturing highly engineered automobiles, commercial vehicles, and luxury cars. Besides, the company is also involved in offering various financing activities. Previously, the company was involved in manufacturing tractors, tanks, railway coaches, buses, auto rail vehicles, and trucks during the First World War. Renault adopted the strategy of mass production in 1905 and the strategy of Taylorism during 1913 (1Renault, 2016). The company started to modernize its premises since 1929 and the company was nationalized in 1945. The first international success of Renault started with the manufacturing of 4CV, the first small car of Renault that was followed by Renault 4, Renault 5, Renault 16, Renault 25, and Renault Escape. Renault made strategic alliances with Volvo that was dropped down in the year 1993. The company was privatized in the year 1996 that allowed it to merge with Nissan Motors in the year 1999 that is considered a huge success (2Renault, 2016).

2. Fortune 500 Global Organization Ranking. Renault also holds one of the topmost positions among the Fortune 500 companies. The company ranks 191in the year 2015 among the 500 top companies of the world (Time Inc, 2016a). The company ranked 190 in the year 2014 during which it earned a revenue of $54460 million and a profit of $2507. As per the reports of Fortune 500, the overall assets of the company amounted to $98670 and the overall employees are 117395 (Time Inc, 2016a).

Key Financials (last fiscal year)

($ Millions)

Percentage change

Revenues

54460

0%

Profits

2507

222%

Assets

98670

Employees

117395

(Source: Time Inc, 2016a)

3. Successes in the Automotive Industry. Renault has been successful in establishing itself as a significant position in the global automobile industry. The company holds ninth position among the best automobile manufacturer of the world and it has an international presence to over 118 countries (BBC, 2016). The major reason behind this is considered the best after sales service and quality engineering. Since 1899, Renault started to design and produce automobiles. The company used to follow tailoring and scientific manufacturing techniques in its production process during the year 1913 (1Renault, 2016). Before the outbreak of the First World War, the company involved itself in manufacturing commercial vehicles and buses. During 1930, the company began to face obstacles due to labor disputes and strikes that negatively impacted on the overall French automobile industry from where Renault was able to manage itself through the manufacturing of weaponry, railroad, and tractor (BBC, 2016). Situations gradually began to revive and thus Renault began to focus on the core automobile manufacturing. Renault began to expand its automobile business towards manufacturing luxury cars, commercial vehicles, and SUV’s. The company began to adopt modern techniques and innovative engineering in the manufacturing of automobiles (1Renault, 2016).

4. Social Responsibility. The company also involves itself in different socially responsible activities that highly focus on the development of the society as well as eth environment. The prime CSR activities of the company include reducing the environmental footprint and efficient utilization of natural resources. Moreover, the company also aims at ensuring health and safety of people in roads, employees of the company and the community members (BBC, 2016).

• II. Strategic Alliance
• 1. Definition of Strategic Alliance, Goals, Benefits and Risks

Strategic alliance generally refer to an agreement among two or more than two companies that have come up to a decision of sharing resources mutually in order to achieve a particular objective that is beneficial for the two companies (Grant & Baden‐Fuller, 2004). One of the significant features of strategic alliances is that it is less permanent and less involved as compared to joint venture, in which both the companies operates as a single business entity but sharing their resources with each other. The goal of strategic alliance is to allow achieving the individual organizational objectives and ensure increased opportunity for their future growth (Cullen, Johnson & Sakano, 2000). There are various benefits of strategic alliance that include access to supplementary secrecies, opportunity to reach new markets, sharing the financial risk, gaining capabilities, achieving competitive advantage, increasing the brand awareness, and increasing access to new customer base (Grant & Baden‐Fuller, 2004). Even though strategic alliances are beneficial, there are also certain risks of strategic alliances. One of the major risks is that there is a high chance of alliance failure. Additionally, two forms of risks involved in strategic alliance that include relational risk and performance risk. Relational risk refers to the probability of not having a suitable cooperation for the other party (Cullen et al., 2000). On the other hand, performance risk refers to the consequences and probability of not achieving the desired objectives (Richard Ivey School of Business Foundation, 2015).

• A. Well Known Alliances

(1) Successful Strategic Alliances. Strategic alliances are considered highly successful for the business establishments, as it contributes to achieve the organizational goals and objectives being formulated. There are various examples of successful strategic alliances that include Starbucks-United Airlines and Apple-Clearwell alliance (Eröcal, 2005). The Starbucks-United Airlines has resulted in serving the coffee of Starbucks in flights of United Airlines with Starbucks logo in the cup. The strategy has contributed to successful promotion of both the companies together with improvement in business. Similarly, the Apple-Clearwell alliance also allowed Apple to implement the E-discovery platform of Clearwell in the I-pad (Richard Ivey School of Business Foundation, 2015).

(2) Unsuccessful Strategic Alliances. In majority of the circumstances, it is found that strategic alliances are not always successful. In this context, some of the major unsuccessful strategic alliances include Volkswagen-Suzuki Alliance and the Cisco-Motorola alliance (Heimeriks, Bingham & Laamanen, 2015). Volkswagen’s alliance with Suzuki is a great failure, as Suzuki violated the agreement by acquiring diesel engines from Fiat instead of procuring from Volkswagen. Similarly, in the Cisco-Motorola alliance failed, as the competition between the two companies after the alliance went too high (Richard Ivey School of Business Foundation, 2015).

(3) Elements Necessary for Successful Strategic Alliance. For the success of strategic alliances, there are certain elements that are necessary and these include the selection of proper partners, sharing the goals effectively among the two companies, sharing appropriate information, negotiating a deal including risk and benefit analysis. In addition, both the parties are required to come up to a realistic agreement and formulate a mutual commitment regarding the changes to be made and measures to be taken to achieve the common business goals (Richard Ivey School of Business Foundation, 2015).

• 2. The Nissan/Renault Strategic Alliance

A. History of the Nissan/Renault Strategic Alliance. Before the alliance, both Renault and Nissan were two different automobile manufacturers of the word that were operating their business activities independently. The Renault-Nissan alliance was made on 27th March in the year 1999 during which the global automobile industry was undergoing rapid consolidation (Hearst Communications, 2016). One of the most remarkable consolidations during the era was the acquisition of Chrysler by Daimler’s in the year 1998. In the Nissan-Renault alliance, nearly Renault brought approximately 36.8 percent of the outstanding stock of Nissan. Nissan guaranteed to buy into Renault at the time when it was financially capable. In the year 2001, after Nissan was recovering from bankruptcy, it purchased 15 percent of the stake of Renault that was further increased to 44.4 percent in the stake of Nissan (Nissan, 2016). In the year 2002, a strategic management company in the name of Renault-Nissan BV was created by the alliance for purpose of overseeing the corporate governance between Nissan and Renault. The alliance further allowed the creation of partnerships with Dongfeng Motor of China, Daimler of Germany, and AvtoVAZ of Russia. Thus, it is evident that the strategic alliance between China and Germany was a great success, as the average sales of automobiles by the allied company increased largely that served profitable for both the countries (Hearst Communications, 2016). By the year 2013, they further became the largest automobile manufacturer of the world, as one in every ten car all over the world were sold by the Renault–Nissan. In the particular year Renault sold 2,628,208 units, Nissan sold 5,102,979 units, and Avtovaz sold 534,911 units of cars that together amounted to the overall sale of 8,266,098 cars (Nissan, 2016).

B. Political Issues. One of the major challenges that the Renault-Nissan alliance has been encountering is with the interference of the French government against the alliance that may negatively affect both the countries. The French government increased the stake of Nissan in Renault to about 19.7 percent and at the same time implemented law and regulations that doubled the authority of long-term investors in Renault (BBC, 2016). The main reason behind this is to allow Paris to control more than 30 percent of the overall voting rights in Renault with the objective of making it the largest shareholder and simultaneously providing the power of directing the strategy of the company. However, this strategy will help in generating more number of jobs in France, which will further contribute towards economic development of the country (Forbes, 2015).

C. Successes of the Nissan/ Renault Strategic Alliance. The Nissan-Renault alliance is a great success in the history of strategic alliances that ultimately resulted in increased sales of both the companies. The alliance resulted in the sale of one in every ten cars globally and was able to sell 8,266,098 units of cars in the year 2013 (1Renault, 2016). One of the major successes of the alliance was the introduction of zero emission vehicles that was developed based on promotion of sustainable environment. The car operates through battery for which there is no fuel emission and thus protects the environment. Since the year 2010, the alliance sold more than 300000 electric vehicles. The alliances also lead to establish its strategic cooperation with Daimler in the year 2010 because of which Renault and Daimler began to work together for manufacturing small cars. In addition, the alliance also allowed both the companies to expand their business in different countries of the world and increase the number of customer base that has been serving profitable for both the companies. The innovative techniques and engineering of both the companies are shared with each other in manufacturing the cars that highly ensures quality and reliability of Renault-Nissan cars (2Renault, 2016).

• Conclusions

From the overall discussion, it is evident that the strategic alliance between Renault and Nissan was a great success that allowed both the companies to establish themselves and gain significant position in the global automobile industry. The alliance highly served beneficial in increasing the global sales volume of Renault-Nisan cars by capturing new markets and satisfying the existing customers with the help of excellent after sales service. Furthermore, the alliance of the companies led to the manufacturing of electric zero-fuel emission vehicles that also had a positive response from the global market.