2. Global Strategy of the Renault-Nissan alliance
Subject: Joint analysis on the Renault-Nissan alliance addressed to the CEO
of Mitsubishi (group project)
From: Group 22
Yu Ri Na Jeong
To: Professor Jan Jörgensen
Due date: November 22, 2006
3. To M. Takashi Nishioka, Chairman of the Board of Mitsubishi Motors,
Nowadays, Renault-Nissan is the fourth worldwide automaker with sales of 6,129,254 units in
2005, up 5.9% over 2004 (http://www.nissan-global.com/). Considering the traditional position
of Mitsubishi in the actual market, the analysis of the Renault-Nissan alliance case would provide
you with valuable elements on how to approach the growing and competitive auto manufacturing
As such, the success of Carlos Ghosn is correlated to his extensive vision of synergies between
the Renault and Nissan, thus, he believes that the transfer of knowledge between foreign
engineering teams would only occur within a framework of equality. The reason he didn’t merge
Renault and Nissan rely on the advantage of mutual challenge that push both firms to seek new
cost reductions, economies of scale and scope opportunities. Consequently, Renault and Nissan
both managed to reach their goal by remaining profitable.
4. Table of Content:
The advantages and disadvantages of the alliance between Nissan and Renault………………1
Reasons for an alliance instead of a merger and the benefit from synergies…………………...4
Importance of Corporate Culture……………………………………………………………….6
The possibility of GM entering the alliance……………………………………………………8
Evaluation of Nissan before and after the alliance……………………………………………..9
Worldwide Domestic Conditions affecting Nissan-Renault…………………………………..12
The collapse of the Keiretsu helps Nissan to remain globally competitive…………………...13
5. The advantages and disadvantages of the alliance between Nissan and Renault
The “Alliance” between Renault and Nissan has made possible many joint projects such
as the gasoline tank, the steering-wheel stabilization system, and also led to the creation of
institutional entities for “strategic command and operational coordination” (Segrestin, 2003).
Since Renault and Nissan have successfully become partners in a new equity joint venture by
combining their knowledge, they have reinforced their position as a worldwide leader automaker.
For instance, common structures called Renault-Nissan Information Services (RNIS) and
Renault-Nissan Purchasing Organization (RNPO) (www.renault.com) have finally changed their
mutual expectations, the scope of their partnership, and the meaning of their union. Research
demonstrated that the development of a joint platform is a means of setting up common
organizational routines and synchronization mechanisms that make possible the effective transfer
of knowledge (Segrestin, 2003).
One of the most significant advantages was the joint platform. Nissan planned two small
cars with in depth studies and Renault three potential cars. However, their schedule wasn’t as
intense as that of the Nissan vehicles, but were rather stretched and targeted for a higher level of
performance in comparison with their Japanese counterparts. According to the functional task
team (FTT;www.renault.com), the wheel base which Nissan was building was not suitable to
Renault’s level of expectations, probably because of their approach of different markets. Yet,
additional research and development costs would have increased risk of failure of the joint
project and weakened the alliance, so Renault’s small and medium wheel base design was
adopted instead (Segrestin, 2003). Of course, project managers should allow both firms to
innovate and come to a common decision rather than relying on the authority of the main
6. shareholder, Renault. Nevertheless, the delay in the first phase might have been deadly to Nissan.
Within the organization, work was to be coordinated among distant teams, who had their own
organizational systems, their own methods, scheduling and course of action. Merging teams was
not an alternative. Both manufacturers wanted to maintain their autonomy and the alliance was
still too unstable to sustain a rapid process of integration.
One of the projects that the common platform had to support was shared components
without any deficiencies in functional performance or delays that could affect either Renault or
Nissan. As a result, any shared component must meet the requirements of every platform’s
vehicles (Segrestin, 2003). This is one of the major challenges because from a design approach,
the diverse vehicles were most likely to have conflicting requirements. For instance, the climate
control system is generally expected to work continuously in Japan, with a relative low rate of air
flow, whereas, in Europe, the cooling system is expected to work intermittently, but silently and
at a relatively higher rate of flow (Segrestin, 2003). Moreover, the amount of space in which to
install the system varied from model to model. In these conditions, it would have to reach the
highest ratings in an extensive range of performance requirements (costs, volume, loudness, flow,
etc.) to comply with this list of constraints essential for an innovative architecture.
Cultural diversity, linguistic obstacles and physical distance gap in collaborative projects
often justify most issues. Although these factors have signified a significant role in the alliance, it
is apparent that the constraints of the design program were the major barrier. As such, this
obstacle led to three harmonization problems. Firstly, Renault and Nissan adopted a collaboration
model based on the concept of delegation (Segrestin, 2003). In terms of delegation, functional
requirements were not clear, complete and shared components must meet clear specifications to
7. be certified by numerous protocols. Secondly, the specifications were complicated to convey
because they were ambiguous. For example, how would you translate the necessity to safely
attach a fuel tank? Consequently, the cooperative process is mainly focused on the evaluation of
resources and understanding of concrete solutions. Furthermore, even if the Renault engineering
team reaches a consensus on the efficient specifications with the Nissan engineering team, they
will have divergence on the method implementation should be accomplished. It is logical to
expect many minor issues in cooperative design processes that partners will inevitably deal with
when planning design methods. But when it becomes a severe issue, both parties were
disadvantaged. This is why they applied a double validation process to decide whether Nissan
and Renault should continue their efforts toward a joint solution or end their collaboration on
particular tasks. It is important to notice the ability of partners to come across a feasible solution
when issues arise (Segrestin, 2003).
The alliance has provided advantages to both companies. They can progress into foreign
markets faster and with lower costs because they don’t have to build new plants. Renault builds
cars in Nissan’s Mexico plants and Nissan uses Renault’s Brazil plant and distribution networks.
The sales network of both companies is harmonizing itself and each manufacturer benefits from
the technical expertise and organizational know-how of its partner (Segrestin, 2003). Nissan and
Renault are collaborating on building universal platforms, with shared components and where
companies lead engine design in their area of expertise. For example, Renault specializes in
diesel as well as in innovation and Nissan focuses on gasoline and the manufacturing process.
They’ve increased their purchasing power because they buy supplies for twice as much cars (6
millions). Consequently, the alliance has boosted profitability, market capitalization and sales in
192 for both partners (Nancy DuVergne Smith, 2004).
8. Reasons for an alliance instead of merger and the benefit from synergies
The making of the alliance was motivated by the enthusiasm of Ghosn to develop
potential synergies, where both firms maintain their operational freedom. The foundation of the
alliance focuses on the need for the negotiation of a formal equity joint venture because Renault
and Nissan must evaluate their partners’ equities, capabilities and willingness to cooperate before
selecting the right hierarchy (Segrestin, 2003). Indeed, Carlos Ghosn, former Renault CEO before
the alliance, has always been focused in preserving the identity of the two companies as he
strongly formulated: “If you don’t respect people’s identity, they will not get motivated and you
will not get a strong corporate performance”(web.mit.edu). Renault was willing to implement a
common platform, which would generate significant economies in development costs (design
studies, prototyping, and validation protocols), industrial equipment and purchasing (Segrestin,
2003). This strategy has been frequently adopted by automakers such as Daimler-Chrysler in the
United States or Volkswagen and Skoda in Eastern Europe, as a means of bringing the
engineering teams together and of sharing and developing knowledge. From an economic point
of view, the alliance between Renault and Nissan can be perceived as a mean of integrating two
companies in order to improve coordination and achieve cost reductions (Segrestin, 2003).
Furthermore, even in case of integrating conflict, stimulating competition between Renault and
Nissan, they would both reduce their costs by benefiting from economies of scale, and thus,
increasing their bargaining power towards suppliers (Susini, 2003). It can be noticed that the
engineering teams weren’t merged, but worked independently from one another in the first years
of the alliance in order to reduce management costs and avoid permanent commitments
9. The teamwork is open-ended to preserve a sense of equality between the partners and
encourage both sides to contribute in their own fashion. As a matter of fact, both Renault and
Nissan were free to withdraw from the alliance at any moment should an irreconcilable
divergence of interests arise. As a result, the removal of shared components from the span of the
platform could be necessary when its development appeared too difficult or too hazardous
because it isn’t worth producing and developing a common component if expenses exceed
projected benefits. Besides, since October 30, 2001, Renault owns 44% of Nissan, which owns
15% of the French firm similar to keiretsu cross-sharing operation. This strategy secures
operational independence to both firms in the long run, allowing them to forecast cooperation
strategy in the fields of expertise and resources required for successful co-development project
(Segrestin, 2003). In an interview, Carlos Ghosn outlines the future approach for the alliance
Renault-Nissan in the following direct talk: “We will never merge the two companies. Why?
Because my job is to create value and a merger would destroy value”. (xtra.emeraldinsight.com)
By conserving its autonomy and the Japanese-based corporate culture, Nissan successfully
implemented a management decision-making process elaborated by Renault.
He maintained that there will be more mass purchasing efforts and vehicle platforms as
well as growing exchange of technologies, but he is convinced that the global market strategies of
the two companies will remain disconnected and independent. Carlos Ghosn gives a lesson of
liberalism to explain his vision where two foreign firms build mutual respect and trust to pursue a
common goal: “We ask every single team not to do anything for the sake of the other teams.
Pursue your own interests, growth and profitability. Because you are doing this, you will seek
synergies”. (xtra.emeraldinsight.com) This is the reason why Renault decided to build an alliance
not a merger.
10. Importance of Corporate Culture
An important issue in the Nissan-Renault alliance relies in the management of two
different cultures. In order for the combined share of ideas and strategic management to be
effective, the employees of both companies must respect the identities of their fellow colleagues
as well as their values. If this critical first step isn’t met and members in a particular team act
disrespectfully and selfishly towards their teammates, an organization is bound to self-destruct in
a short time of period. This explains why when a French worker happens to interact with a
Japanese co-worker, for example when Carlos Ghosn is communicating with a Japanese
executive at Nissan, one does understand the cultural background of the other. This outcome
results from Ghosn excessively investing in cross-cultural training programs, having over 1500
employees from Renault learn about the Japanese business culture and 400 Nissan employees
study the French culture (Pooley, 2005). This is a positive first step in order to create a successful
alliance of two different cultures.
After mentioning the French and Japanese cultures, it’s important to thoroughly
understand their differences in order to view how Ghosn will go about them. To achieve this, it
would be considered relevant to demonstrate how certain of “Hofstede’s Cultural Theories”
(Clerc, 2000) can apply to the case of Nissan and Renault. Firstly, Japanese societies are known
to be more collectivist, and the contrary can be affirmed about French societies relying heavily on
individualistic efforts from employees. As is, Nissan was previously working and abusing the
concept of groupthink, where the decision process evolved around people who thought alike.
Then Ghosn arrives and right away cuts 21,000 jobs, closes down five factories and terminates
most of the relationships with the suppliers within the keiretsu (Harney, 1999), procedures that
11. almost caused a major cultural crisis in Japan thus possibly resulting in the failure of the alliance.
Moreover, in the Japanese culture, a young employee is prohibited from managing a colleague
who is older in terms of age as well as seniority. As such, when Ghosn arrived in the company
and began restructuring the management process, his new system of promotion was based strictly
on performance, no matter what the age of the employee. Consequently, this caused much
confusion and frustration among the Japanese workers from Nissan and Ghosn was indirectly
forced to implement a new “system of double hierarchy”, merely a consideration of both cultures
working together in the English language (Clerc, 2000). Finally, many ex-employees of Nissan
would argue that the company was in desperate need of re-structuring their apparently
homogenous culture. An example is given when ex-CEO of Nissan Hanawa Yoshikazu stated:
There was an atmosphere in Nissan that it is difficult for managers and employees
to feel environmental changes. Nissan had been operated by people who had had
a similar idea and a fellow feeling. Even though a leader tried to conduct reforms,
many said “It is not necessary to change for now” or “It is only an imitation of
the American way”. As a result, it became to be too late to change. A mono-
culture turns into disaster when reforms are needed. In order to rescue Nissan, we
had nothing but to let someone having a different culture to take up an important
post. Therefore, I asked Renault to let Mr. Ghosn to come to Nissan.
Also, Ghosn himself stated once that “Nissan had gradually developed a culture in which the
standard response to problems was ‘It’s not me, it’s someone else.’ If the company was in
trouble, it was always the fault of other people […] The root of the problem was that the areas of
executive responsibility were vague” (Nakae, 2005). This statement would help in explaining
why he delayered the structure of the company by cutting 21,000 jobs mainly because of job
redundancy causing one department to blame the other department for a problem that should be
shared and analyzed by the company as a whole.
12. The possibility of GM entering the alliance
To this moment, the alliance between Nissan and Renault has resulted in relative success
thanks to the efforts and strategies of Carlos Ghosn. This success story raised significant interest
on behalf of billionaire investor Kerk Kerkorian, who possesses 9.9% of GM’s shares. Ever since
late June of 2006, Kerkorian has been insisting GM’s CEO Rick Wagoner to begin negotiations
with Renault’s top guy, Carlo Ghosn, to possibly create a three-way alliance with Nissan-
Renault. This alliance would allow the companies as a whole to sell approximately 14.3 million
cars and trucks annually, representing total revenues adding to $327 billion, which would
definitely surpass the performance of archrival Toyota (Welch, 2006). Thus, the trio would be
able to work more efficiently and realize cost savings and value creation reaching $10 billion
(Dolbeck, 2006). On the same aspect, the GM alliance would allow for huge economies of scale,
including an increase in bargaining power over their suppliers because of their magnitude.
Unfortunately for Nissan-Renault, GM has a long history of failed alliances with
automakers such as Isuzu, Fiat and Subaru’s maker Fuji Heavy Industries (Treece, 2006). This,
on top of the reported $10.6 billion loss last year doesn’t inspire Ghosn. Moreover, some analysts
estimate that the alliance would cost $3 billion in order for Nissan-Renault to have a 20% equity
stake in GM, a large sum of money that could be invested in other production plants or could
have been redistributed to their rightful shareholders (Rowley, 2006). According to Ghosn, he
would need anywhere from 34% to over 50% of control in order to fix GM (Rowley, 2006).
Finally, on top of being extremely time-consuming for Ghosn to operate a third carmaker, an
important consideration for Ghosn is what to do with labor unions considered popular in the
United-States with the United Auto Workers. Ghosn would find it particularly challenging to lay-
13. off 21,000 unionized workers and closing plants down if restructuring was needed. The American
culture is quite different from the Japanese, and these types of actions would cause much more
than a cultural crisis! In the end, GM ceased negotiations with the possible alliance because the
company feared inferior profits compared to what Nissan-Renault would profit from the alliance
and because this arrangement would prevent GM from pursuing other partnerships.
Evaluation of Nissan before and after the alliance
In 1999, following the alliance, Nissan needed Renault’s cash to reduce its debt and
Renault wanted to learn from Nissan’s success in North America which is essential for Renault to
expand in its market. The alliance’s success depended on Nissan turning into a profitable
company again. Nissan went through various changes to regain its profitability and
Before Nissan agreed to the alliance, it was in significant debt problem in 1999. The debt
had amounted to $ 11.2 billion, and it prevented Nissan from making necessary investments in its
aging product line (www.nissan-global.com). Nissan had cut back on investments in order to save
money, although its products were too old to compete with others. For example, ‘March’ (or
‘Micra’ in Europe) was nine years old. However, the competitors’ new products came out every
five years. Though ‘March’ had had a few updates, this outdated product was competing for 25%
of the Japanese market and for the similar portion of European market (Ghosn, 2002). The rest of
the car lines weren’t much different from March, and had similar problems. One of the reasons
for its financial difficulty was its keiretsu partnerships. Japanese believed maintaining equity
stakes in partner companies would promote loyalty and cooperation between the customer and
14. the suppliers, and Nissan also invested in hundreds of different companies (Ghosn, 2002) . The
company had more than $4 billion invested in different companies on which the company did not
have any managerial leverage. Moreover, in some cases, Nissan even invested in its competitors
such as Fuji Heavy Industries. This large amount of money was locked up and could not be
utilized for Nissan’s own good (Ghosn, 2002).
Renault paid off Nissan’s huge debt in return of 36.6% equity stake in the Japanese
company. However, that didn’t mean Nissan had regained its profitability. It had to go through
massive changes in its system. First, Nissan had retrieved itself from the keiretsu. People thought
that the cross sharing of equities of both partners would harm the relationships between Nissan
and their suppliers, but the relationships became even stronger. Suppliers didn’t care what the
company does with their shares as long as it was their customer.
They had clear distinction between customer and shareholder. In fact, Nissan’s sell-off
had increased the profitability of suppliers to whom they delivered price reductions (Ghosn,
2002). At the time, breaking up with keiretsu seemed radical, but now many other Japanese
companies are following Nissan’s lead. The personal management also had changed. As
previously mentioned, Nissan now evaluates employees based on their performance in the
company, not on how long they worked for the company. Moreover, following the alliance,
nearly 14,000 employees were unemployed. This change contributed to maximizing the
utilization of personnel. The overall changes were very successful. The operating profit had
increased from $6.8 million to $2.4 billion, and operating margin had increased from 1.4% to
4.75%. They show Nissan’s success in making use of its assets and success in alliance
15. Worldwide Domestic Conditions affecting Nissan-Renault
As entering a new market or trying to fit in the existing market, which strategy the firm
should follow always varies with the host country’s condition at that point. Nissan-Renault has
been affected by conditions such as voluntary export restraints, tariffs of Europe, need of new
light commercial vehicles in India, and European Commission’s new rules. When Japanese
automobile companies first entered the American market back in the 1970s, many of the
American automobile companies were threatened by those Japanese low price and high quality
cars. Therefore, the American government introduced voluntary export restraints to limit the
number of cars coming into the United-States. The restraint increased 14% of the price of
Japanese automobile (Benjamin, 1999). Hence, this led consumers to switch to American
automobiles. As a solution, instead of trying to be recognized as low priced small cars, Japanese
automobile companies, including Nissan, started to introduce luxury cars and trucks to the market
and to build their plants on American soil. Therefore, voluntary export restraints eventually
served to boost the demand for Japanese automobiles as well as to create new markets for the
Japanese automobile companies: trucks and luxury vehicles.
Moreover, similar events happened when Nissan entered the European market. Because of
the high export tariffs and the delivery costs to its European consumers, Nissan decided to also
build their plants on European soil (www.wikipedia.com). The plant was completed in 1986 and
since then, it has been one of the most productive plants in Europe. And it is predicted that by
year 2007, Nissan’s European soil is going to be producing about 400,000 cars per year
16. When entering the Indian Market, Nissan-Renault has benefited from the instant
elimination of competition. Because of the need for new light commercial vehicles in India, the
Indian government has permitted Nissan to sell vehicles in their market (Arun, 2005). Therefore,
because it was permitted and supported by the government itself, it was very easy and simple for
Nissan to operate in India. Also, once Nissan established their quality and built their dealer
networks in India, as a next step, they could move forward and compete with Telco in the
Medium truck market. Of course Telco wanted to stop them by also entering the light commercial
vehicles market. However, because the Indian government restricted Telco to produce
automobiles heavier than 6 tons gross weight, Telco cannot do anything except wait until Nissan
becomes bigger and compete with them (Arun, 2005).
The domestic conditions that have been affecting the Nissan-Renault not only helped
them grow but also caused them difficulties to operate. The European Commission’s new rule on
car sales has encouraged car dealers to sell various names of companies to reduce the “dominance
of national champions” (Guerrera, 2002). The law has also made it easier for the car companies
that have smaller market shares in Europe. Therefore, larger companies such as Nissan-Renault
now have more competition, consequently making it harder for them to be recognized and sell
greater quantities of cars.
17. The collapse of the Keiretsu helps Nissan to remain globally competitive
As the other Japanese companies, Nissan has been supplied by keiretsu which is long-
term purchasing relationship, intense collaboration and the frequent exchange of personnel and
technology between companies and select suppliers (Okamura, 2005). Most of the Japanese
automakers depend on the keiretsu and it is very unusual for a Japanese firm to not be part of it.
However, when Carlos Ghosn arrived as CEO of Nissan, he didn’t want to follow these Japanese
traditional rules. In his Revival Plan, he states that purchase costs, which represent 60% of the
total cost, should be reduced by 20% in a three year period, and the number of suppliers, which
totals 1145, should be decreased to no more that 600 companies (Ikeda, M. & Nakagawa, Y.
2000) The CEO actually dropped all of the keiretsu suppliers, keeping only four of them.
Although many people in Japan disagreed with this idea of ending so many long-term business
relationships, Nissan prevailed. Ghosn claimed that the keiretsu system resulted in higher costs
when purchasing automobile parts. Also, it is difficult for keiretsu suppliers to have the most
advanced technology developed independently which decreases the competitiveness of Nissan in
the global market. Also the collapse of the keiretsu led to increased competition among suppliers.
As a result, Nissan has been able to select better quality supplies at more affordable prices
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Exhibit I: Sales according to the number of vehicles sold
2005 2004 Change 2005/2004
2,531,506 2,490,337 +1.7%
2,248,756 2,308,972 -2.6%
- Renault Samsung
119,027 85,046 +40%
164,406 96,319 +70.7%
Nissan Group 3,597,748 3,295,830 +9.2%
- Nissan 3,448,637 3,157,002 9.2%
- Infiniti 149,111 138,828 7.4%
Renault-Nissan Alliance 6,129,254 5,786,167 +5.9%
Sales in Japan
2005 2004 Change 2005/2004
Renault 3,520 3,253 +8.2%
Nissan 866,157 826,822 +4.8%
Renault-Nissan Alliance 869,677 830,075 +4.8%
21. Exhibit II : Important graphics revealing positive performance
Consolidated Operating Profit Margins for Nissan since alliance
Global Sales Volume