Renault and Nissan: A Marriage of Reason – Case Solution

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Renault and Nissan: A Marriage of Reason Case Answers

Renault and Nissan: A Marriage of Reason Case Study

This case study discusses the acquisition by Renault of the 36.8% share of Nissan.

Renault

• Internationalization
  -exports reached 55% of sales in 1975
  -concept of series became the basis of Renault’s strategy in the 1970-80s.
• However, its financial results progressively deteriorated. In 1984, Renault announced record losses of FF12.5 billion (US$2 billion)
• Two priorities: quality and innovation.
• Louis Schweitzer, as CEO of Renault in 1992, was key to the turn-around of the firm.
• 1996, Renault was partially privatized, signifying the end of an era that lasted four decades.
• The same year, Carlos Goshn joined the company as deputy CEO.
• In 1998, Renault set the objective of becoming the most competitive European car manufacturer in terms of quality, cost, and time by the year 2000.
• To support this objective, Renault launched its first “cost killing” plan, a cost reduction plan of FF20 billion(US$3.05 billion) over three years.
• Renault had been continuously profitable between 1987 and 1998 (except for 1996).
• The group had no debt and had €1.9 billion of cash available.
• Its equity was worth €7.9 billion. The state-owned 44.2% of its shares and 55.8% were retained by private shareholders, among them 3.2% by Renaults employees.
• Renault was strong in Europe and also sold in Turkey, Argentina, Central, and Eastern Europe, North Africa, Brazil, and Russia.
• To ensure longterm sustainability formation of a larger group was required to leverage market power.
• For revived companies such as Renault, an alliance was essential for the longterm sustainable growth necessary to become one of the world’s top five players.
• Finding a partner in Asia was therefore critical for Renault >> this would also enable the company to increase its competencies in production technology.

Nissan

• Nissan had built a strong reputation based on its small-size Datsun passenger car that was exported to Australia.
• In 1936 the company began its first foreign production in the US.
• Sunny, one of Nissan’s greatest success stories, debuted in 1966
• energy crises of the 1970s
• fuel economy tests – Sunny 1st; Slogan – “Datsun saves.”
• Nissan began early on to develop overseas manufacturing operations.
  – Yulon Motor Co., Ltd. in Taiwan in 1959
  – Nissan Mexicana, S.A. de C.V. in 1961.
  – In the 1980s, Nissan established two strategic manufacturing bases overseas:
  – Nissan Motor Manufacturing Corp., USA in 1980
  – Nissan Motor Manufacturing (UK) Limited in 1984.
• Nissan operates manufacturing and assembly plants in 17 countries around the world.
• In addition to manufacturing, Nissan has also developed a program to localize both R&D operations (including vehicle design and engineering) and top-level business management functions.
• This globalization program has now advanced to the stage where decisionmaking has been localized through the establishment of regional headquarters in North America and Europe. Nissan North America Inc. and Nissan Europe NV oversee the entire scope of the company’s local operations.
• The company was distinguished by its technological competence and the quality of its cars.
• However, in the 1990s, the company had suffered from decreasing profitability, which had been worsened by sluggish vehicle sales both at home and abroad. Overcapacity, huge debt, and a lack of new models in the R&D pipeline were other issues that led Nissan management to search for potential partnerships.

Renault-Nissan

Analysis: Passenger/Standard Car Industry

Competitive Rivalry: Major Players

Supplier Power: Nissan relied on local SMSE’s >> low for them

Renault was better on Supply Chain Management than Nissan

Buyer Power: High options were available.

Competitive Pricing in the sector.

Globalization

Threat of New Entry: Relatively low, owing to the huge cap investment requirement

Threat of Substitution: Alternatives were bikes/public transport

Will not serve the desire completely.

1. What is the rationale for the alliance between Renault and Nissan?

The rationale for the alliance between Renault and Nissan are the following…