The Global Alliance of Renault-Nissan
Industry Background
In 1999, 55 million vehicles were sold worldwide, out of which 32 million were passenger cars. In the US and in Europe, sales increased by 8.7%, while in Asia the rate of growth was 5.1%. In 2001, the number of vehicles sold worldwide was almost the same as compared to 1999. The automobile market was slowly stagnating in mature markets of the US and the Western Europe. Both these markets were also affected by rising oil prices and interest rates in 2001.
Major changes, which took place in the automobile industry
Large scale mergers were happening in the world over that resulted in lot of repercussions in the automobile industry. An Asian slowdown that was mainly observed in the financial markets had unfavorable effects on the Japanese automotive industry. The stringent environmental and safety regulations increased R&D expenses per car. The strategic movement of auto majors was almost as important as the automobile industry.
Company Background: Renault
Renault, once owned by the French state, became a limited company in 1990 and was finally privatized in 1996. It earned a reputation for their innovativeness and the anticipating of market trends, which found their expression mainly in creative car designs. Renault had a complete product range, from small to large passenger cars, including minivans, as well as light duty commercial vehicles, trucks and buses. Overall the company sold 2.2 million vehicles worldwide in 1998 making it number ten among the car companies. The financial situation was quite sound in 1998 with a net income of EUR 1.3bn from revenues at about EUR 37.2bn, thereof 4.2% was invested in research and development maintaining the companies very dynamic product renewal policy.
Renaults Need for Global Strategic Alliance
Within the globalizing and consolidating automobile industry, one of the only ways to ensure long-term sustainability was to form a larger group. Renault had no presence in Asia. As financial and market power of its chief competitors was increasing, it would have been difficult for entering this continent on its own. Further, the Asian market was important for Renault in order to build up its presence globally.
How Nissan Was Shortlisted?
Nissan and Mitsubishi, being the likely candidates, were sent a letter and Nissan replied immediately for the same. This gave positive vibes to Renault. The letter sent by Mr. Louis Schweitzer, Chairman, Renault to Mr. Yoshikazu Hanawa, Chairman, Nissan reinforced this development. Renault was enthused of forming a strategic alliance with Nissan which evident from the quote of Mr. De Andria, VP, Strategic Planning We went hunting for Rabbits and we found a deer.
Company Background- Nissan
Nissan was established in 1933 by Yoshisuke Aikawa to manufacture and sell small Datsun cars and auto parts. During the 1960s, Nissans main competitor was Toyota and its cars were designed to directly compete with Toyotas products. In the 80s Nissan set up manufacturing base in the USA and it was also looking to start a plant in Europe. From a profit of 101.3 billion yen in 1992 Nissan went to a loss of 166 billion yen in 1995 due the burst of the Japans bubble economy. Nissan suffered a net loss of 14 billion yen in 1998 and it was clear that some initiatives had to be taken to rescue the company.
Nissans Need for a Global Alliance
Nissan had a greater need for a partner to pull it out of its financial instability. The other non-financial considerations for a global alliance were: Technology access: Need to increase efficiency by concentrating on production of smaller cars. Focus beyond quality: The aspects of cost reduction, Marketing, innovative style and appearance could be introduced to the company through an alliance. This was essential in steering the company towards market reality. Global Presence: Though Nissan had a presence outside Japan, the company was unable to leverage profitably from such a presence. A well-established player would assist in overcoming this shortcoming in Nissan.
The Alliance Process
Renault and Nissan had many common and complementary interests. Both CEOs were intent upon improving their companies competitiveness, rebuilding the organizations, and enhancing the companies reputations. There were no previous conflicts between the two companies or CEOs to impede a relationship.
Phase One: In June 1998, after the Schweitzer-Hanawa exchange of letters, a select group of Renault and Nissan representatives met secretly to explore their respective interests in strategic collaboration. Six weeks later, Schweitzer and Hanawa met for the first time in Tokyo. They established rapport quickly and put the wheels in motion for studies on potential benefits of collaboration.
Phase Two:
Working groups from both companies conducted preliminary analyses on purchasing, engines and gearboxes, car platforms, production, distribution, and international markets. Results were promising. Nissans capabilities in large cars, research and advanced technology, factory productivity, and quality control complemented Renaults talent in medium-sized cars, cost management, and global strategies for purchasing and product innovation.
Phase Three: Intercompany teams assembled from specialists on each side thoroughly examined the companies respective operations. The teams held meetings at nearly every one of the companies sites worldwide, visited plants, and exchanged cost and other proprietary information. Schweitzer and Hanawaand the negotiation teams continued their meetings at venues ranging from their headquarters to cities in Thailand, Singapore, and Mexico. The negotiations centered on a Renault investment in Nissan. For his part, Hanawa set four pre-conditions for a deal: retaining the Nissan name, protecting jobs, support for the organizational restructuring and selection of a CEO from Nissans ranks.
Phase Four:
On the Renault-Nissan agenda, Renaults cash contribution was a tough issue. Nissan sought $6 billion. Renault initially expressed interest in a 20% stake, and if Nissan were valued between $8.7 billion (market value) and $12 billion (a comparable companies valuation), a 20% stake would yield no more than $2.4 billion for Nissan. Nissan was not ready to move quickly from its position. The negotiating teams continued their discussions through meeting several times in Bangkok.
Phase Five:
At the beginning of final phase of the negotiations, Schweitzer obtained the internal approvals he needed from the Renault Board of Directors and Work Council. These decisions centered on a 35% stake in Nissan for $4.3 billion. Renault issued a press release about its intention to purchase 35% of Nissan. When an agreement was finally reached, Renaults investment had risen to $5.4 billion for 36.8% of Nissan Motor and stakes in other Nissan entities.
The Deal: The global partnership agreement signed by Schweitzer and Hanawa on March 27, 1999 committed Renault and Nissan to cooperate to achieve certain types of synergies while maintaining their respective brand identities. Financial terms included an investment of 643 billion ($5.4 billion) by Renault. For 605 billion of the total, Renault received 36.8% of the equity in Nissan Motor and 22.5% of Nissan Diesel. With the remaining 38 billion, Renault acquired Nissans financial subsidiaries in Europe. The agreement included options for Renault to raise its stake in Nissan Motor and for Nissan to purchase equity in Renault. With respect to management, Renault gained responsibility for three positions at Nissan (Chief Operating Officer, Vice-President of Product Planning, and Deputy Chief Financial Officer). One seat on Renaults board of directors was designated for Hanawa.
Model Categories of Nissan and Renault
. Entry Level Sub-Compact Compact Mid-Size Luxury Renault x x x x x x x x x Nissan
Minivan 4*4 Pick-up Utility
x x x
Alliance 2013 sales
Renault
Nissan Avtovaz Total
26,28,208
51,02,979 5,34,911 82,66,098
Conclusion
The alliance highlights the thoughtful and careful progress required for a global alliance between two culturally different companies. Renault and Nissan before leading towards formation of global strategic alliance, they went beyond ostensible differences; probe other parties interests and capabilities for fit. Schweitzer and his team focused on Renault and Nissans common long-term goals, complementary interests and respective capabilities. Further, both the entities prepared extensively, continuously, and jointly as well as internally.
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