Case Study: Renault-Nissan
1. Key reasons behind Nissan’s performance during the 1999-2006 period were as follows:
a. Boundary-spanning leadership – Carlos Ghosn, CEO of Nissan, formed a carefully selected new leadership team consisting of 200 people that helped majorly in the success of the alliance.
b. Company-wide building blocks – Ghosn adopted English as the common language for all Nissan employees. Further, Ghosn encouraged certain traits in employees who were to be future leaders such as “doing what they said.”
c. Nissan Revival Plan (NRP) – The NRP was introduced in July 1999 with clear objectives. Some goals of the NRP were a 50% decrease in net debt from $12.6 billion to $6.3 billion, reduction in purchasing cost by 20%, and reduction in jobs by 21,000 by March 2003. Nissan successfully achieved and even exceeded many of the goals of the NRP. According to the plan, Nissan would launch 22 new models over the next three years. To achieve this, famous designer, Shiro Nakamura was recruited and all Nissan design teams scattered worldwide were united under him. R&D investment saw an increase from 3.7% of net sales to 5%. A new US$930 million assembly plant was set up in Mississippi in 1999 and in the next
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d. Open communication – Ghosn instilled a culture of open, factual, and accurate communication with employees and with media. He was easily accessible to all his employees and the managers were also instructed to follow an open communication approach.
e. Cross-boundary rotations – Key executives were rotated to international locations that enabled facilitation of cross-functional knowledge interactions. The old Nissan policies were based on seniority rather than performance as the criterion for promotion. Ghosn adopted a strict performance-based promotion policy. All these factors helped Nissan’s successful performance from 1999 to 2006
2. Renault and Nissan’s decision to form a strategic alliance made sense because:
a. Profitable Renault, bankrupt Nissan – In 1999, Renault had made a stunning comeback from losses of US$680 million in 1996 to combined profits of US$1.65 billion in 1998 and 1999. However, Nissan was almost on the verge of bankruptcy in 1999. It had been losing money since 1991 and its car production had dropped by 600,000 units. Nissan factories were running at 53% capacity utilization. It had a debt of $USD20 billion. If the two companies formed a strategic alliance, then Nissan would benefit from the large cash inflow Renault could provide it with and Renault would benefit by utilizing Nissan’s manufacturing facilities and platforms which were underutilized.
b. Complementing strengths – The two companies made up for each other’s shortcomings. Renault’s forte lay in marketing and design, whereas Nissan was a leader in engineering. Thus, both companies would benefit each other.
c. Worldwide operations – Renault held a sizeable portion of the market sales in Europe and Latin America whereas Nissan held a good market share in Japan, North America, and Asia. The strategic alliance would help them obtain entry into all worldwide markets.