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The Automobile Industry in Japan and Germany
Strategic Challenges and New Perspectives in the Age of Globalization

                Symposium, Tokyo 12 October 2004




    Renault-Nissan and DaimlerChrysler
    What are the Lessons to be Learned?



                    Markus Pudelko
      University of Edinburgh Management School
Expectations and Outcome
           Expectations Outcome
Daimler        +            -
Chrysler
Renault         -           +
Nissan
Differences in Strategies I
 Strategy             DaimlerChrysler                       Renault-Nissan

Product      Daimler luxury producer,             Both mass market producers,
             Chrysler mass market producer;       competing in same segments;
             no overlap preventing                threat of cannibalization, but
             cannibalization, but limiting cost   allowing for common platforms
             reduction potential; aim:            (10 instead of 34), allowing for
             complementary engineering            huge economies of scale
             without sharing platforms
Geographic   Each strong where other is weak; Renault strong in Europe, Nissan
             Daimler in Europe, Chrysler in   strong in Asia and US; product
             America; both weak in Asia       overlap offset by geographic
                                              complement
Technical    Chrysler low-cost innovator with     Renault’s strengths in RD and flair
             fast product development cycle,      for design; Nissan’s known for
             but limited R&D capabilities;        bland but reliable models and
             Daimler strong R&D, but will         strong engineering skills
             benefit from higher volume
Sourcing     Chrysler is an effective             Nissan’s can reduce number of
             purchaser from which Daimler         suppliers by 50% to match
             can lean                             Renault’s cheaper streamlined
                                                  supply chain; purchasing to be
                                                  fully coordinated
Differences in Strategies II
  Strategy             DaimlerChrysler                      Renault-Nissan

Manu-          Both manufacture in completely     Each can produce where the other
facturing      different ways; Daimler            has plant and spare capacity,
               produces tailored vehicles on a    especially important for Nissan
               pull system, whereas Chrysler      which struggles with overcapacity
               pushes out mass produced cars
               on a lean low-cost basis; scope
               for mutual learning
Organi-        Daimler was a conglomerate;        Both purely automotive
zation         Chrysler was purely an             manufacturers
               automotive manufacturer
Corporate      Daimler very bureaucratic;         Both bureaucratic and highly
Culture        Chrysler freewheeling              hierarchical with an historic
                                                  lifelong employment system
Sales &        No intention of combining sales    Geographic fit allows for each to
Distribution   operations, but scope to benefit   benefit from the other’s
               from shared distribution           distribution network through
                                                  common hubs
Finance        Daimler’s limited scope for        Renault provided the cash for
               growth but big financial           Nissan to survive
               resources, Chrysler the opposite
Strategic Overlays?
Opportunities         DaimlerChrysler                    Renault-Nissan


People          Yes. Daimler can benefit from   Yes. Transfer of Carlos Ghosn was
                marketing expertise and         a major boost to Nissan. Nissan
                Chrysler can benefit from       can also benefit from design
                engineering and quality         expertise and Renault from
                management                      reliability expertise
Products        Yes. Daimler‘s growth was       No. The two companies were
                limited in maturing markets     generally involved in the same
                                                segments
Processes       Yes. R&D transfer very          Limited as both produce largely in
                important for Chrysler;         the same way
                Daimler can learn from quick
                product development and
                purchasing skills
Markets         Yes                             Yes

Customers       Yes. Customers have different No, as largely sold in the same
                demographics and              segments
                psychographics
Benefits
DaimlerChrysler emerged as primarily a
revenue-enhancing merger for long-term
growth.
Renault-Nissan’s core benefit is from
cost reduction through duplicated
activities.
Timing

The timing of the DaimlerChrysler
merger was poor, in that Daimler bought
Chrysler at the top of the market and paid
a 28% premium for the honour.
The Renault-Nissan timing was perfect,
with Nissan at the bottom of an eight-
year dip in profits.
Negotiations
Renault who intended to enter into a
long-term relationship, did not exploit its
short-term bargaining advantage.
With DaimlerChrysler both parties were
deceived. Daimler tricked Chrysler into a
takeover, but paid a premium that was not
deserved.
Deal Structure
The DaimlerChrysler deal had to come form a
friendly approach and resulted in a ‘merger of
equals’. As a result, expectations and the
potential for disappointment were high. Daimler
was not able to dominate the integration process
fully from the start as it would have liked. This
led to delays, uncertainty and confrontation in
initial integration.
Renault dominated in early stages as Nissan
needed money and managers to transform its
operations. This insured compliance.
Integration
DaimlerChrysler’s integration can be seen as a
two-stage process. The initial phase following
immediately the merger was operated with
precision and speed, but did little to integrate
the companies. The second phase emerged as
Chrysler was about to go under.

It is the second phase which can be likened to
Renault-Nissan’s integration under the Nissan
Revival Plan. Chrysler, like Nissan had become
the weaker partner and had no choice but to
comply.
Skill transfer
Daimler and Chrysler had no commonalities in
their value chains (‘marriage of opposites’).
Skill transfer was difficult and proved only
possible once one party clearly dominated.
Skill transfer in the Renault-Nissan alliance has
been easier as their value chains operate along
similar lines as their products are alike.
Sharing activities
DaimlerChrysler’s determination to keep their
brands separate has a substantial impact on
integration. Potential for cost savings has
constantly to be weighted against the risk to
delude Mercedes’ image.
The similarity of value chains in the Renault-
Nissan combination allows cost savings and
revenue benefits to occur relatively quickly.
Value chains
          DAIMLER-BENZ                              CHRYSLER
          Firm Infrastructure                    Firm Infrastructure
Hierarchical                              Freewheeling
                  HRM                                    HRM
Not much pay differences                  Huge differences in pay
               Technology                            Technology
Engineering oriented, slow product        Design oriented, quick product
development for luxury cars               development for mass market
               Procurement                          Procurement
Engineers design every ‘nut and bolt’,    Efficient, sources most components
preserving the uniquenesss of the brand   from outside
               Production                            Production
Pull system for tailored vehicles         Lean, low-cost mass production
               Distribution                          Distribution
Worldwide (incl. the US)                  Mainly US, exports elsewhere
               Marketing                             Marketing
‘Sober gentlemen’                         Funky streetwise
Value chains
                RENAULT                                   NISSAN
          Firm Infrastructure                      Firm Infrastructure
Bureaucratic                               Bureaucratic
                   HRM                                     HRM
Individuality                              Group
                Technology                             Technology
Known for good design for the mass         Known for reliability, but lacking
market                                     good design for the mass market
                Procurement                           Procurement
Recently reorganised supply chain to cut   Need to reorganise supply chain to
costs                                      cut costs
                Production                             Production
Mass production                            Mass production
                Distribution                          Distribution
Good system in Europe, less so elsewhere Good system in Asia and the US
                Marketing                             Marketing
Performance, value for money               Quality, value for money
Value chain DaimlerChrysler
                            Firm Infrastructure
Finance and PR first departments to be fully integrated, but clash in PR
                                    HRM
Concerted efforts to harmonize very different pay systems; global HRM
strategy implemented in 2001
                                 Technology
Daimler engineers initially accused to refuse to share technology, has
changed; Daimler has adopted Chrysler’s product development technology
                                Procurement
Initial problems in deciding how to share components without damaging
Daimler’s brand image start to get resolved
                                 Production
Now starting to develop common processes and best practices
                                 Distribution
Some integration
                                 Marketing
Chrysler’s international sales operations were melded into Daimler’s
Value chain Renault-Nissan
                            Firm Infrastructure
Integration of back office and administrative functions around the world
                                     HRM
Effect on HRM changes has been more marked with Nissan; executive
exchanges across the board
                                 Technology
Developing common platforms is key to the progress in economies of scale
and faster product development; move towards joint product development
                                Procurement
One third of cost savings coming from coordinated procurement and
improvement of Nissan’s costly supply chain
                                 Production
Decrease of number of platforms in order to generate substantial cost savings
                                Distribution
Use of common hubs
                                 Marketing
Separate brands will be maintained
Leadership
Chrysler suffered after the merger from a
dramatic loss of leadership.
Nissan benefited from the immediate
leadership of Carlos Ghosn, who has
become a national icon in Japan.
Corporate and National Culture
Germany and the USA have comparatively
less distinct cultures, but this effect seems
to have been superseded by different
corporate cultures of Daimler and
Chrysler.
France and Japan are culturally rather
distinct, but similarities in the corporate
cultures between Renault and Nissan seem
to have helped the integration process.
Circumstances
At DaimlerChrysler, the merger of equals
notion was instrumental in the clash to
come.
Nissan’s desperation played an important
part for a successful integration process.
Outlook
DaimlerChrysler clearly fits the
‘symbiosis’ approach to integration. This
approach is considered to have the best
long-run rewards, albeit with the greatest
short-term complexity.
Renault-Nissan appears to be moving
towards absorption in the long run, but
the result of the integration process is still
unclear.

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Pudelko dij041012

  • 1. The Automobile Industry in Japan and Germany Strategic Challenges and New Perspectives in the Age of Globalization Symposium, Tokyo 12 October 2004 Renault-Nissan and DaimlerChrysler What are the Lessons to be Learned? Markus Pudelko University of Edinburgh Management School
  • 2. Expectations and Outcome Expectations Outcome Daimler + - Chrysler Renault - + Nissan
  • 3. Differences in Strategies I Strategy DaimlerChrysler Renault-Nissan Product Daimler luxury producer, Both mass market producers, Chrysler mass market producer; competing in same segments; no overlap preventing threat of cannibalization, but cannibalization, but limiting cost allowing for common platforms reduction potential; aim: (10 instead of 34), allowing for complementary engineering huge economies of scale without sharing platforms Geographic Each strong where other is weak; Renault strong in Europe, Nissan Daimler in Europe, Chrysler in strong in Asia and US; product America; both weak in Asia overlap offset by geographic complement Technical Chrysler low-cost innovator with Renault’s strengths in RD and flair fast product development cycle, for design; Nissan’s known for but limited R&D capabilities; bland but reliable models and Daimler strong R&D, but will strong engineering skills benefit from higher volume Sourcing Chrysler is an effective Nissan’s can reduce number of purchaser from which Daimler suppliers by 50% to match can lean Renault’s cheaper streamlined supply chain; purchasing to be fully coordinated
  • 4. Differences in Strategies II Strategy DaimlerChrysler Renault-Nissan Manu- Both manufacture in completely Each can produce where the other facturing different ways; Daimler has plant and spare capacity, produces tailored vehicles on a especially important for Nissan pull system, whereas Chrysler which struggles with overcapacity pushes out mass produced cars on a lean low-cost basis; scope for mutual learning Organi- Daimler was a conglomerate; Both purely automotive zation Chrysler was purely an manufacturers automotive manufacturer Corporate Daimler very bureaucratic; Both bureaucratic and highly Culture Chrysler freewheeling hierarchical with an historic lifelong employment system Sales & No intention of combining sales Geographic fit allows for each to Distribution operations, but scope to benefit benefit from the other’s from shared distribution distribution network through common hubs Finance Daimler’s limited scope for Renault provided the cash for growth but big financial Nissan to survive resources, Chrysler the opposite
  • 5. Strategic Overlays? Opportunities DaimlerChrysler Renault-Nissan People Yes. Daimler can benefit from Yes. Transfer of Carlos Ghosn was marketing expertise and a major boost to Nissan. Nissan Chrysler can benefit from can also benefit from design engineering and quality expertise and Renault from management reliability expertise Products Yes. Daimler‘s growth was No. The two companies were limited in maturing markets generally involved in the same segments Processes Yes. R&D transfer very Limited as both produce largely in important for Chrysler; the same way Daimler can learn from quick product development and purchasing skills Markets Yes Yes Customers Yes. Customers have different No, as largely sold in the same demographics and segments psychographics
  • 6. Benefits DaimlerChrysler emerged as primarily a revenue-enhancing merger for long-term growth. Renault-Nissan’s core benefit is from cost reduction through duplicated activities.
  • 7. Timing The timing of the DaimlerChrysler merger was poor, in that Daimler bought Chrysler at the top of the market and paid a 28% premium for the honour. The Renault-Nissan timing was perfect, with Nissan at the bottom of an eight- year dip in profits.
  • 8. Negotiations Renault who intended to enter into a long-term relationship, did not exploit its short-term bargaining advantage. With DaimlerChrysler both parties were deceived. Daimler tricked Chrysler into a takeover, but paid a premium that was not deserved.
  • 9. Deal Structure The DaimlerChrysler deal had to come form a friendly approach and resulted in a ‘merger of equals’. As a result, expectations and the potential for disappointment were high. Daimler was not able to dominate the integration process fully from the start as it would have liked. This led to delays, uncertainty and confrontation in initial integration. Renault dominated in early stages as Nissan needed money and managers to transform its operations. This insured compliance.
  • 10. Integration DaimlerChrysler’s integration can be seen as a two-stage process. The initial phase following immediately the merger was operated with precision and speed, but did little to integrate the companies. The second phase emerged as Chrysler was about to go under. It is the second phase which can be likened to Renault-Nissan’s integration under the Nissan Revival Plan. Chrysler, like Nissan had become the weaker partner and had no choice but to comply.
  • 11. Skill transfer Daimler and Chrysler had no commonalities in their value chains (‘marriage of opposites’). Skill transfer was difficult and proved only possible once one party clearly dominated. Skill transfer in the Renault-Nissan alliance has been easier as their value chains operate along similar lines as their products are alike.
  • 12. Sharing activities DaimlerChrysler’s determination to keep their brands separate has a substantial impact on integration. Potential for cost savings has constantly to be weighted against the risk to delude Mercedes’ image. The similarity of value chains in the Renault- Nissan combination allows cost savings and revenue benefits to occur relatively quickly.
  • 13. Value chains DAIMLER-BENZ CHRYSLER Firm Infrastructure Firm Infrastructure Hierarchical Freewheeling HRM HRM Not much pay differences Huge differences in pay Technology Technology Engineering oriented, slow product Design oriented, quick product development for luxury cars development for mass market Procurement Procurement Engineers design every ‘nut and bolt’, Efficient, sources most components preserving the uniquenesss of the brand from outside Production Production Pull system for tailored vehicles Lean, low-cost mass production Distribution Distribution Worldwide (incl. the US) Mainly US, exports elsewhere Marketing Marketing ‘Sober gentlemen’ Funky streetwise
  • 14. Value chains RENAULT NISSAN Firm Infrastructure Firm Infrastructure Bureaucratic Bureaucratic HRM HRM Individuality Group Technology Technology Known for good design for the mass Known for reliability, but lacking market good design for the mass market Procurement Procurement Recently reorganised supply chain to cut Need to reorganise supply chain to costs cut costs Production Production Mass production Mass production Distribution Distribution Good system in Europe, less so elsewhere Good system in Asia and the US Marketing Marketing Performance, value for money Quality, value for money
  • 15. Value chain DaimlerChrysler Firm Infrastructure Finance and PR first departments to be fully integrated, but clash in PR HRM Concerted efforts to harmonize very different pay systems; global HRM strategy implemented in 2001 Technology Daimler engineers initially accused to refuse to share technology, has changed; Daimler has adopted Chrysler’s product development technology Procurement Initial problems in deciding how to share components without damaging Daimler’s brand image start to get resolved Production Now starting to develop common processes and best practices Distribution Some integration Marketing Chrysler’s international sales operations were melded into Daimler’s
  • 16. Value chain Renault-Nissan Firm Infrastructure Integration of back office and administrative functions around the world HRM Effect on HRM changes has been more marked with Nissan; executive exchanges across the board Technology Developing common platforms is key to the progress in economies of scale and faster product development; move towards joint product development Procurement One third of cost savings coming from coordinated procurement and improvement of Nissan’s costly supply chain Production Decrease of number of platforms in order to generate substantial cost savings Distribution Use of common hubs Marketing Separate brands will be maintained
  • 17. Leadership Chrysler suffered after the merger from a dramatic loss of leadership. Nissan benefited from the immediate leadership of Carlos Ghosn, who has become a national icon in Japan.
  • 18. Corporate and National Culture Germany and the USA have comparatively less distinct cultures, but this effect seems to have been superseded by different corporate cultures of Daimler and Chrysler. France and Japan are culturally rather distinct, but similarities in the corporate cultures between Renault and Nissan seem to have helped the integration process.
  • 19. Circumstances At DaimlerChrysler, the merger of equals notion was instrumental in the clash to come. Nissan’s desperation played an important part for a successful integration process.
  • 20. Outlook DaimlerChrysler clearly fits the ‘symbiosis’ approach to integration. This approach is considered to have the best long-run rewards, albeit with the greatest short-term complexity. Renault-Nissan appears to be moving towards absorption in the long run, but the result of the integration process is still unclear.