Strategic Alliance• Definition – Agreement for cooperation among two or more independen firms to work together towards common objectives – Companies in a strategic alliance do not form a new identity to reach their aims but cooperate while remaining apart and distinct.
Rationale-Nissan• Japan’s economy was under recession.• Nissan net debts amounted to 2.1 trillion(Yen) in 1997.• Nissan was facing acute liquidity crunch.• Nissan couldn’t raise money by floating bonds as it was classified to junk status.• Hence seeking alliance with foreign carmaker was the only option left.• Talks failed with Ford and Daimler Chrysler
Rationale-Renault• Renault’s total global market share was around 4%.• Renault was confined to European market.• In order to gain access to global market, Renault started looking out for strategic tie ups.• Talks failed with AMC and Volvo. Finally Renault zeroed onto Nissan
Nissan-Renault• Nissan could provide Renault access to Asian• & U.S market.• Renault would push Nissan out from the point of bankruptcy.• Neither Nissan nor Renault where top global players, but in combination would become a top world player.
SWOT ANALYSIS-Renault NissanStrengths-Nissan Weakness-Nissan•Access to Asian and U.S market •2.1 trillion yen in Debts• High Technological Acumen •Japan’s economy in recession •No shared common vision on Nissan’s future • No cross functional & cross regional communication •Cars were out of trend •Less emphasis on managerial culture •Money locked up in keiretsu partnershipStrengths-Renault Weakness-Renault•Strong Management Practices and •Too small to compete in world stageStrategic long term vision •Access only to European Market.•Cost control-debt reduction • No access to world market•Resource optimization•Good supplier relation•Innovation & creativity
Cross-Share Holding Agreement• Renault would acquire 36.8% stake in Nissan(& could increase it to 44.4%), while Nissan could take a stake of 15% in Renault by subscribing to newly issued shares for 150 billion Yen. Renaults would exercise its options in warrants worth 216 billion Yen. In effect there will be a cash flow of 70 billion yen to Nissan. Nissans stake in Renault was not given any voting right. Also the agreement gave 82 plus billion yen worth profit to Renault.
Strategic Value for Renault1.Acceleration of international deployment2.Economies of scale (purchasing, common engines & platforms, co-development)3.Sharing of best practices (quality, industrial & engineering)4.Optimization of capacity utilization5.Contribution to net result & dividend flow6.Cooperation on leading technologies
Strategic value for Nissan1.Initial financial input from Renault2.New performance orientated culture3.Cost and vehicle project management4.Re-invention of a « product policy »5.Turn-around in Europe6.Development of captive finance business