Strategy Management - Renault-Nissan - Assignment Example

Renault-Nissan case study analysis Renault-Nissan case study analysis Question one: why Renault entered in to alliance and if it is a long-term strategy Gulati (1998) defines strategic alliance as a voluntary arrangement between firms that aims at sharing resources, co-development of products and enhancing technological innovations. The alliance extends beyond the normal market transactions, but the firms retain their unique identity while pursuing common goals (Lasserre, 2008). Renault-Nissan alliance was formed in 1999 in order to enable joint development, cross holding, and joint production. The two companies share plants, powertrains, components and best practices in car manufacture. Renault invested 5 billion Euros in 1999 for about 36.8 percent stake in Nissan, which was experiencing cash flow problems. Currently, Nissan holds 15 percent stake in Renault and Renault controls 43.5 percent stake in Nissan and the two companies have managed to double their annual car sales from the alliance over the years (Lasserre, 2008). The alliance contributes to 10 percent of all global car sales and comprises of eights brands that include Renault, Infiniti, Venucia, Dacia, Datsun, Nissan, Renault Samsung, Datsun and Lada. The alliance synergies such as cost reductions, revenues increases and cost avoidance stood at 2.8 billion Euros in 2013 and the partners aim at attaining at least 4.3 billion Euros in synergies due to converge of the supply chain management activities, converge of engineering and manufacturing. Warner (2010) asserts that strategic alliances have enabled motor manufacturing firms to cope with innovation challenges in the competitive global market. Accordingly, the alliance partners have been able to attain competitive edge through shared core competencies and joint development of their value chains (Lasserre, 2008). The alliance has enabled the two companies to attain efficiency in development of engines, batteries and other critical motor vehicle components. Nissan has benefited from the alliance through increased global footprint and high economies of scale in European market through using the joint development of engines its cars that are sold in Europe market (Lasserre, 2008). Accordingly, Renault has been able to confront completion through expanding to East Asia and South American markets due to the strategic alliance. Instead of defending the saturated European market, the alliance has enabled Renault to establish distribution networks and access several global markets in order to compete effectively with other established multinational companies in the industry (Culpan, 2002). Renault was also motivated by the need to diversify risks and undertake research and development programs that will improve motoring technology and lead to more fuel efficient cars (Wheelen & Hunger, 2012).Renault aimed at bridging the gap in its resources and capabilities such as the need to access superior engineering knowledge and skills that are offered by Nissan. The alliance has enabled Renault and Nissan to cooperate and share resources in order to accelerate the new product development, improve access to markets and foster innovation across the companies (Rakowski & Patz, 2009). The alliance has offered the two companies an opportunity to access new geographical markets and complement their core competencies in serving different needs of the customers. The combined vehicles sales after the formation of the alliance has increased from about 4.9 million units in 1999 to about 8.3 million units in 2013. Accordingly, the alliance has enabled the companies to attain significant market presence in leading motor vehicle markets such as United States, Japan, Europe, India and Russia. The Renault-Nissan alliance can be a long-term strategy since the companies have maintained the alliance for more than 15 years. According to industry experts, Renault-Nissan alliance is the longest-lasting in the auto industry and most productive cross-cultural partnership. PESTLE analysis of the car industry Political, economic, social, technological, legal and ecological analysis is ideal in analyzing the attractiveness of the motor industry in France and Japan. The political environment encompasses the government policies towards motor industry. Political environment The political government encourages consumers to use public transport system in order to reduce traffic on roads and minimise carbon emissions. The national governments have implemented policies that aim at safeguarding the welfare of consumers and reducing anti-trust practices in the car industry (Wheelen & Hunger, 2012). Accordingly, the imports of vehicles are subjected to numerous taxes that ultimately increase the car prices such as the social responsibility levy, value added tax, custom import duty and road and infrastructure development levy. Economic environment The economic environment in Europe and East Asia is characterized by increase in disposable consumer incomes. However, the constant fluctuations in global oil prices will reduce the demand for traditional cars and spur the growth in sales volumes of hybrid cars. Social environment The social environment supports the strategic objectives of Renault since the increase in global population living in the cities will translate to higher sales and high demand for luxury and fuel efficient cars. The high mobility among people across all markets will lead to higher car usage and demand for fuel-efficient models (Ungson & Wong, 2008). Technological environment The technological environment will enhance the ability of Renault to attain its objectives due to advances in motoring industry and significant investments in research and development activities (Tallman, 2009. New technologies have led to modern and safe cars that are lighter and fuel efficient. Accordingly, new technology will lead to differentiated designs and electric controls of all car components thus increasing the reliability and safety of the future car models (Tallman, 2009. Accordingly, cleaner conventional fuel sources and hybrid electric cars will reduce emissions thus leading to higher engine performance and environmental sustainability. Legal environment The are numerous laws on consumer protection, emission standards, employment law and manufacturing process regulations that firms in the industry must comply with in order to continue with their operations (Tallman, 2009. Renault must implement superior manufacturing technologies that minimise emissions and comply with consumer protection guidelines. In this case, Renault risks costly lawsuits for non-compliance and product recalls that will hurt the corporate reputation. Ecological environment The ecological environment includes the need to ensure sustainable manufacturing practices that conserve the natural environment. The company must ensure efficient use of natural resources and recycle some of the waste products. In addition, the company must ensure improve on its manufacturing technology in order to ensure fuel efficiency in its models and minimise air pollution from the emissions (Tallman, 2009. Question two: success of Renault’s strategic alliances Renault strategic alliances have been generally successful due to the mutual cooperation, trust and commitment of the two companies. The alliance is based on shared plants, technologies and platforms thus both companies have gained market access and profitability from the alliance. Accordingly, the success of the alliance can be attributed to the multi-cultural nature of the two firms thus each company easily gained market acceptance in their partner’s domestic market due to the alliance. The alliance partners have established close working relationships due to the open-mindedness and mutual respect among the joint development teams. According to Carlos Ghosn, Renault chairman, the company exceeded its strategic objective of 2011-2013 and delivered more than 2.5 million cumulative free cash flow due to the strategic benefits offered by the alliance.The two firms contribute towards strategic areas such as technology development and product development. According to Harrison (2013) the alliance between Renault and Nissan has enriched their value chains through shared marketing and distribution of the products. Renault entered in to the alliance in order to attain competitive advantages such as global motor engineering technology standards (Gawer, 2009). The two companies have a coordinated purchasing policy that ensures savings in purchase of powertrains and raw materials due to the greater bargaining power of the alliance. The companies have utilized the B platform in vehicle engineering led by Nissan engineers thus increasing the volumes of production by more than 280,000 units yearly. In this case, Renault has maintained its unique identity and benefited from the joint research and development that has led to hybrid cars, weight reduction and X-by-wire systems. In powertrains, Renault has benefited from 320,000 units of mainstream powertrains and development of new small diesel engine. Accordingly, the company is able to use Nissan’s V6 engine and four-wheel drive units from Nissan in the transmission. The alliance has enabled Renault to minimize structural costs in Europe distribution networks. The new Renault model line-up (New Clio) has attained market leadership in France and Captur brand is leading in sales across Europe. The company has been capable of developing new markets such as Brazil and Russia and has increased sales from non-European markets from 38 percent to about 50 percent in 2013. Duster brand is the most sold brand in Brazil and Russia and the company is committed to launch of Twingo and Traffic van that will enhance its market position in non-European markets (Lasserre, 2008). The alliance will enable Renault to enjoy economies of scale and attain improved competitiveness due to sharing of modules (CMF) and platforms on which substantial majority of future vehicles will be based. Other alliance synergies that Renault will enjoy include cost containment due to shared research and development activities. The alliance integrated manufacturing system allows for efficiency and flexibility in assembly line while Renault production system has increased the production by more than 15 percent. Renault benefits from sharing parts such as Nissan V6 diesel engine, 3.5 liter gasoline and sharing of platforms. Renault has attained superior performance in emerging markets such as Brazil, Russia and France and has accelerated the rate of new product development as evidenced by launch of Kangoo Z.E, Twizy, Zoe and Fluence models in 2011. According to Renault strategic objectives, the plan will lead to 50 billion Euros in consolidated group turnover through sales of components and sale of vehicles and associated services with the alliance partners. The company also aims at ensuring operating profit margin of not less than 5 percent of the group turnover and year-to-year positive free cash flow. Question three: Renault should not revise its joint ventures strategy Porter’s industry rivalry model Michael Porter five forces model is useful in understanding the attractiveness of the car industry. The model comprises of five forces that include the threat of new entrants, bargaining power of suppliers, threats of substitutes, bargaining power of suppliers and competitive rivalry between the firms in the industry (Tallman, 2009). The forces will determine the industry profitability and ability of a firm to attain higher market share and competitiveness. Threat of new entrants The threat of new entrants in the car industry is low due to the high amount of capital required to establish operations and large economies of scale that are enjoyed by the established firms. There are numerous regulatory requirements that hinder entry of other firms in the industry. Cunningham & Harney (2012) assert that the industry is machine-intensive and new firms will require heavy investments in manufacturing plants, equipments and research facilities in order to start production. In this case, Renault-Nissan alliance has lowered the threat of new entrants thus making the industry attractive for the company. Accordingly, the alliance allows Renault to attain benefits from sharing manufacturing facilities, research facilities and distribution networks with Nissan thus facilitating higher market access and reducing production costs (Ungson & Wong, 2008). Bargaining power of consumers The car buyers have the greatest bargaining power due to the high number of manufacturing firms offering similar models that have similar product attributes such as fuel efficiency and safety to consumers (Cunningham & Harney, 2012). The modern car consumers are highly educated and knowledgeable of each model attributes. The buyers’ purchasing power has increased due to changes in consumer tastes and preferences and the recent global recall of cars by several multinational companies (Ungson & Wong, 2008). In this case, buyers seek more information from numerous sources in order to make the purchase decision thus increasing their bargaining power. Accordingly, the switching costs are low and buyers easily shift to other car models offered by competitors. Renault must control the high purchasing power of buyers through offering differentiated features such as accurate navigation systems, new luxury designs and safety features (Cunningham & Harney, 2012). Bargaining power of suppliers The suppliers in the car industry have a higher bargaining power due to high demand of quality components such as the navigation systems, braking system sand engine cooling system. Tallman (2009) is of the idea that the car industry has experienced high concentration of the suppliers of critical components thus increasing their bargaining power in the supply chain activities. There is possible forward integration of the suppliers car components. Renault must control the bargaining power of suppliers through entering in to long-term partnerships with trusted suppliers and using multiple suppliers for the sale car component (Cunningham & Harney, 2012). Threat of substitutes The threat of substitutes to Renault car models is high since Ford and Mercedes Benz have similar sedan cars that offer high luxury and safety to the consumers. The consumers can change their transportation habits and use motorcycles or public transport system which are more cheaper and fuel efficient (Lasserre, 2008). The consumers can easily shift to hybrid electric cars that are eco-friendly. Renault can control the threat of substitutes through research and development activities that will differentiate its models on performance, flexibility, fuel efficiency and safety thus enhancing the customer loyalty to the brands (Loska, 2011). Degree of rivalry in the industry The degree of rivalry in the industry is high since the firms are of relatively equal size and have similar products. Leading firms such as BMW, Ford, Honda, Mazda, General Motors, Toyota, Nissan, Renault, and Chrysler have high economies of scale and wide global operations thus increasing the intensity of rivalry in the market. All the companies have invested heavily in research and development activities in order provide differentiated car models with enhanced safety and fuel efficiency capabilities. Renault is currently experiencing a fall in sales in European market, but should not revise its strategy of entering in to joint ventures. International strategic alliances are prompted by several motives such as the need to gain core competencies and access new markets. Accordingly, companies are capable of accessing non-tangible assets such as managerial skills and knowledge of the foreign markets through formation of the strategic alliances (Loska, 2011). The need to attain competitive capabilities is the main driver in international alliances as multinational companies will engage in cross-border alliances in order to streamline costs and access new cultural markets (Ungson & Wong, 2008). Just like Renault alliance, considerable alliances aim at accessing tangible assets in foreign countries such as distribution networks and production facilities. The decline in production capacity in Renault’s domestic market will enhance the need to collaborate and diversify risks (Loska, 2011). Technology will be another driving force in Renault alliance since the advances in motor engineering technology will require joint research and development activities. Accordingly, new telecommunication infrastructure such as the internet and electronic mail has made cross-border alliances easy to monitor and manage due to the ability to form virtual teams (Loska, 2011). Information technologies will allow Renault to share information resources in different locations more easily and facilitate close working relationships with Nissan. In this case, Renault is capable of benefiting from mechanical expertise, lighter car components and advanced car navigation systems offered by Nissan (Loska, 2011). Question four: current situation of Renault and how it should proceed Renault products include sedan cars, hatchback and SUVs and some of the leading brands are Renault Keleos, Renault latitude, Renault Logan, Renault Scenic, Renault Wind and Renault Megan. The company targets families, young executives and business men and has positioned itself as the provider of wide range of companies that include super mini cars to MPVs. Renault is capable of using its core competencies to exploit opportunities offered by the joint venture. Renault mission is to sustain the company as the most profitable and competitive car company in European market (Harrison, 2013). SWOT (strengths, weaknesses, opportunities and threats) analysis Strengths Renault has core competencies that it can use to exploit opportunities in the external market. One of the strengths of Renault is the strategic alliance with Nissan that has enabled the company to access superior car manufacture technology and reduce costs in new product development (Harrison, 2013). In addition, the company has a global operations focus. Renault has a wide customer base that is loyal to its brands in European market and has actively created brand awareness through sponsoring and participating in several global motoring sports events. The company has a market presence in more than 100 countries across the globe and has strong strategic alliances with other companies like Mahindra (Loska, 2011). Accordingly, Renault is currently enjoying significant market penetration in emerging economies such as Brazil and Russia with the recently launched models such as Kangoo and Zoe. The brand has a strong brand portfolio that consists of SUVs and mini-sedans that are common among the middle class consumers in its domestic market (Loska, 2011). Weaknesses However, Renault has several weaknesses that may hinder its ability to attain competitive edge in the global car industry. The company is currently experiencing a decline of sales volumes in its domestic European market due to entry of other global players in the market. Renault has witnessed several cases of car recalls that has negatively affected its reputation as the premier provider of high quality and safe cars in the market (Ungson & Wong, 2008). Opportunities The high demand of hybrid electric cars in European market will enable Renault to increase its sales volumes and attain high profitability margins. The consumer attitude shift towards eco-friendly cars presents a good opportunity that Renault can exploit in order to attain high market share and profitability (Ungson & Wong, 2008). The increase in fuel costs will force consumers to demand smaller cars just like Renault sedans. Accordingly, Renault has the opportunity of making several acquisitions like suppliers of the core components in order to ensure reliability and consistency in its product quality (Loska, 2011). Threats Some of the threats that Renault is facing include the high fuel prices and need to ensure zero-emissions in the manufacturing process in order to combat climate change. The new emission standards imposed by the European Union will affect the cash flow of the company since it has to invest in cleaner technologies that minimise the emissions (Lasserre, 2008). The costs of car manufacturing raw materials such as steel and other car components such as the braking and cooling systems have increased thus it may not be possible for the company to reduce its prices (Harrison, 2013). Accordingly, the global fluctuations of oil prices have negatively impacted on the strategic planning since any future decline in the prices will make hybrid and electric cars less attractive. The current increase in fuel costs have forced consumers to demand smaller and fuel efficient cars. Another threat affecting Renault is the intensity of competition in the industry since other established firms like Toyota, Honda and Ford motors have established similar alliances and joint ventures in order to accelerate research and development activities and offer differentiated car models to the highly knowledgeable consumers (Ungson & Wong, 2008). Ansoff’s growth strategies Ansoff’s opportunity matrix model provides important insights on the growth strategies that Renault should implement in order to attain higher market share and competitiveness in the industry. The model comprises of four growth strategies that include market penetration, market development, product development and diversification (Ungson & Wong, 2008). Market penetration growth strategy entails attaining growth with the existing products in their current market segments thus increasing the market share. This is a less risky strategy, but is not ideal for Renault since the domestic European market is saturated and other firms offer similar products in the market (Harrison, 2013). Market development growth strategy entails targeting the current products in new market segments. Renault is capable of attaining profitability and higher market share in emerging markets such as Brazil and Russia through use of market development growth strategy (Lasserre, 2008). The company has wide distribution networks and should use the alliance to focus on new geographic markets such as South America and Asian markets (Ungson & Wong, 2008). Product development strategy entails developing innovative products that are targeted to the existing customers. In this case, the growth strategy is idea since the alliance has enabled the company to access superior manufacturing technology that will lead to improved model attributes and differentiated cars (Lasserre, 2008). In this case, the company should focus in developing hybrid and electric cars for the European market in order to benefit from the increased demand for eco-friendly cars (Harrison, 2013). Diversification strategy entails enhancing profitability through new products and new markets. This strategy requires additional core competencies such as new technologies and new facilities. Renault and Nissan have plans of establishing joint manufacturing facilities in new markets such as Russia, India and China. In this case, the alliance will include joint procurement, joint manufacturing and joint supply chain management thus Renault can implement the diversification strategy in the new markets after acquiring the new competencies (Ungson & Wong, 2008). Conclusion Renault-Nissan alliance is multi-cultural and has enabled the two companies to reduce production costs and participate in joint research activities that reduce the life-cycle of new brand development. The companies have enjoyed economies of scale and new market access. Nissan attained its revival plan objectives of returning to profitability by 200 and reducing the debt to below 700 billion Yen by 2002. Renault must deal with the competitive pressure in European market and enhance the customer expectations on quality and costs in order to survive in the European market. The company must add value to its products and comply with environmental legislation on carbon emissions, energy usage and raw materials usage. Accordingly, the company must consider the consumer expectations on product safety and fuel efficiency in its future product development. Renault must stay committed to the long-term alliance in order to attain profitability, enhance product quality and gain advanced technology. The alliance has been a success due to mutual commitment and trust of the two companies. Renault must combine several growth strategies in order to improve profitability. Market development strategy is ideal for the emerging non-European markets like Brazil while new product development strategy is best suited for traditional European market due to changes in consumer car needs. Bibliography: Culpan, R. 2002. Global business alliances: theory and practice. Westport, CT: Quorum books. Cunningham, J & Harney, B. 2012. Strategy & strategists. Oxford: Oxford University Press. Gawer, A. 2009. Platforms, markets and innovation. Cheltenham: Edward Elgar. Grant, R.M. 2010. Contemporary strategy analysis and cases: text & cases. New Jersey: John Wiley & Sons. Harrison, A.L. 2013. Business environment in a global context. Oxford: Oxford University Press. Lasserre, P. 2008. Global strategic management. New York: Palgrave Macmillan. Loska, T. 2011. Strategic alliances: the Renault & Nissan alliance: celebrating 10 years of synergies. Muchen: GRIN Verlag. Rakowski, N & Patz, M. 2009. 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