Colin Farley The Renault/Nissan Alliance: A Successful Model for the future The Renault/Nissan Alliance has so far

been a stunning success in an industry that has been traditionally hostile to similar business strategies. In the decade since Renault and Nissan joined forces they have both seen an increase in growth and profitability in their companies, worldwide sales, and market capitalization (Harvard 35). The reasons for the Alliance's success stem from the competitive advantages that each company harnesses to compliment the other, the willingness of the companies to venture into new markets around the world and explore new options, and the leadership of top management at the companies. However ,there have been many technical, economic, bureaucratic, and cultural challenges that could have derailed the Alliance, as had happened with the infamous DaimlerChrysler Mitsubishi merger and others (Harvard 24). The Renault/Nissan alliance can therefore be used as a powerful lesson to other companies on how to orchestrate a successful merger or alliance. The Renault/Nissan Alliance began in 1999 and was originally referred to as a marriage of desperation for both parties. At the time Nissan was over $20 billion in debt and wanted to avoid bankruptcy, and Renault, although established in Europe and experiencing steady growth there was looking to expand its influence into other markets (Harvard 3). Renault had basically saved Nissan from bankruptcy and became a leading shareholder in the company. Renault could have imposed its strategy, values, and management style onto Nissan due to its status, but it did not. Instead, it entered into an Alliance with Nissan that was designed to help both of the companies grow with the help of one another by employing rather unconventional methods (Harvard 4). The alliance was originally formed in large part because Renault saw the strategic advantages to a cooperative relationship with Nissan. There were clear strengths and weaknesses that each company had in the production of their automobiles, and the Renault/Nissan Alliance found innovative ways for each company to compliment the other in areas where it had previously lacked. The word they used for this is

synergy of efforts was Monozukuri, which is the concept of tightly integrating purchasing, development, and manufacturing (Harvard 10). Renault was known for having more innovative designs and modern styling than Nissan, and thus helped Nissan to improve its image. Nissan in return offered Renault the ability to improve its engineering, as it was better at making engines and other mechanical components (Harvard 5). Engineers from both companies would trade ideas, and it was later decided that even visible areas such as the door lock system, navigation system heating/ventilation/air conditioning, and axles could be shared between the two brands (Harvard 10). Nissan and Renault would constantly compete with one another over improvements and innovation, where Renault created the Renault Excellence Plan, Nissan would soon create the Nissan Excellence Plan to compete. Renault found that Nissan's Global OneVoice was an effective means to share company and industry news, and adopted this feature into their company The Alliance clearly offered a strategic, competitive advantage to one company where the other lacked, and vice versa (Harvard 13). One of the main obstacles to an alliance as far as engineering and manufacturing is concerned was maintaining separate brand images. If Renault and Nissan began to use too many of the same parts or designs, they may lose their autonomy as two distinct companies and thus lose their competitive advantages against each other and their ability to innovate as a result. For this reason, although some of their engineers routinely would 'trade companies' for up to a month, they maintained separate research and development functions, among others (Harvard 9). The alliance could also become a constraint to the future ventures of an entity, particularly if they were expensive and risky. For instance, Renault wanted to invest in the development of a V6 diesel engine, but Nissan thought it was a bad idea as it did not seem viable in the U.S (Harvard 22). Similarly, the vehicles often shared common powertrains, which could be seen as diluting brand distinctiveness (Harvard 10). The companies adapted by finding innovative ways to compromise Renault was allowed to venture on its own V6 engine at a large initial loss, but Nissan eventually gained interest and invested as well (Harvard 23). Each brand has its distinct 'style' of powertrain, as they were allowed to calibrate and tune it to their liking (Harvard 10).

The Renault/Nissan Alliance also offered many opportunities for the companies to explore new technologies and expand into new markets. Renault was primarily a European car manufacturer, and Nissan was more focused in Japan and North America. Initially they pursued a divide and conquer approach to the global market, where each had its own region of influence. Later on, they pursued a combined assault on many emerging markets that included partnerships with many localized companies including the Indian Bajaj Auto and the Russian AvtoVAZ to gain knowledge and specialization in those regions (Harvard 19). Together, they expanded into markets as diverse as China, India, the Middle East, Brazil, and Russia (Harvard 15). Renault and Nissan made impressive progress on their joint ventures. In 1999 Nissan was 10th in the world in market capitalization and Renault was 11th, and in 2006 Nissan was 4th in 4th place and Renault in seventh (Harvard 44). Expanding into new ventures and developing new technologies has not been an easy task for maintaining the Alliance between Renault and Nissan. In Russia there was a limited number of good suppliers, which forced Nissan and Renault to work closely together to ensure each of them had access to quality parts (Harvard 21). As Renault and Nissan expanded and gained more small partners, it became increasingly difficult to motivate all of the partners to work together. Developing common goals and incentives to remain competitive helped the companies overcome these obstacles. Perhaps most challenging was the fact that Nissan and Renault were now competing against each other in some of the same markets. In order to ensure that they did not cut too much into the others' sales, the companies used the concept of brand distinctiveness and target certain models toward different types of consumers (Harvard 23). Carlos Ghosn is the CEO of both Renault and Nissan, and is the only acting CEO of two major companies at once. Along with other top management at Renault and Nissan, he is one of the the principle figures in the company's success. He began with the Nissan Revival Plan in 1999 and imposed a series of other goals for the company, and all of his major initiatives were a success (Harvard 4). The Renault-Nissan Purchasing Organization is a huge factor in the successful ways that management has

given the two companies economies of scale and cost reductions. It is responsible for 90% of the companies' total purchases, and is a single voice for suppliers that greatly increases the buying power of the two companies, and thus their leverage in the global market. Perhaps the most crucial element to the Renault/Nissan Alliance is the Win-Win Principle that Ghosn has kept in place. The principle behind the strategy is that one company can not go ahead with anything that will be a loss to the other, even if the gain for one is great and the loss for the other is small. Any move that one company makes must have a gain involved for the other, or the deal cannot go through (Harvard 21). Despite these impressive managerial successes in a short period of time, executives agree that they still have not exploited the alliance fully (Harvard 9). There were many cultural setbacks that stood in Nissan and Renault's way. Japanese culture was especially sensitive to the job losses and plant and office closures that were sure to occur in the re-organization of Nissan. Even promotions were somewhat complicated: Gohn had made it a point at both companies that innovation and success were valued highly and would be rewarded. This resulted in promotions of younger managers in Nissan above those of some of their elders, which was a taboo of sorts (Harvard 4). The rising costs of commodities, new environmental and emissions regulations, and market recession and uncertainty still remain threats to the Renault/Nissan Alliance in the future (Harvard 20). Perhaps the most threatening possibility to the alliance, however, is what happens when the CEO of both Renault and Nissan, Carlos Ghosn leaves, as there are no immediate replacements ready to take his place (Harvard 22). Overall, the Alliance between Nissan and Renault has shown that a successful alliance is possible in the auto industry if the right factors are present. These factors include having a strategic and competitive advantage between both companies, expanding and developing economies of scale, having cooperative and competent management, and having a strong leader(s) who watch out equally for the well-being of both companies. As of 2007, Renault and Nissan together are about about the 3rd largest automaker on earth, about the size of Ford Motor Company with a 9% global market share (Harvard 42).

References Gaviser, Sarah Leslie. The Renault-Nissan Alliance in 2008: Exploiting the Potential of a Novel Organizational Form. Stanford Graduate School of Business, p. 1-43 via Harvard Business Publishing. Online. <http://hbsp.harvard.edu>. Kinicki, Angelo, and Brian K. Williams. Management: a Practical Introduction. New York: McGrawHill Irwin, 2011. Print.