Executive summary
The international partnership agreement made between Renault and Nissan Companies in 1999 came due to numerous key decisions. The agreement committed the two companies to forging certain form of synergies while preserving their individual brand identities.
The companies agreed to give the Global Alliance Committee the mandate to direct their partnership through the leadership of the chief executive officers from the two companies. The Renault Company provided financial capital worth $5.4 billion (ÂĄ643 billion).
In return, the company purchased 36.8 per cent of the Nissan Motor’s shares 22.5 per cent of the Nissan Diesel. The total equity was worth ¥605 billion and to compensate for the remaining ¥38 billion, Nissan Motor agreed to transfer ownership of its European financial subsidiaries to Renault Company.
In addition, the agreement gave the Renault Company the freedom to increase its share in Nissan Motor and gave the Nissan Motor the freedom to buy equities from Renault. On management issues, the two companies agreed to give Renault Company the duty to manage three positions in Nissan Motor.
The companies made the decision to allocate one of the seats in Renault’s board of directors to a leader from Nissan Motor. The seat was given to Hanawa (Nissan Motor chief executive officer).
At the alliance level, the companies decided to come up with eleven cross-company teams to run the different fields of synergy as well as to coordinate sales and marketing efforts in the various markets dominated by the two companies. Some of the teams included the purchasing team, engineering team, and product-planning team, among others.
Introduction
In 2010, the Renault and Nissan formed one of the major global alliances in the automotive industry. In return, they gave rise to over 350,000 job opportunities and they had operations in 190 states. The alliance had done well for the past ten years to a level that many people considered it as the representation of a successful partnership.
When news of their intended alliance first became public, many auto executives perceived it as an impossible exploit (Tagliabue 41). They claimed that the two companies practiced different cultures. Besides, the executives claimed that their intention would face stiff opposition from the stakeholders.
During the negotiation process, Renault’s chief executive officer (CEO) had reached the verge of losing hope of striking a deal with Nissan Motor (Betts 18). Nevertheless, the deplorable condition of the auto industry and stiff competition from major automotive companies kept the CEOs from the two companies negotiating.
This paper looks at what the two CEOs did during the negotiation process to reach an agreement, the influences of cultural differences during the negotiation process, why the companies reached an agreement, and how the they benefited from the alliance.
How Renault negotiation team worked
Lax and Sebenius coined six critical steps to a successful negotiation. In a bid to strike a deal with Nissan Motor, the Renault negotiation team made sure that it did not overlook any of the six steps. According to Lax and Sebenius, negotiators ought to consider their interests as well as that of their counterparts (92-94). The team went past the apparent differences, investigated parties’ interests, and capacities for “fit”.
The majority of news reporters considered linguistic, cultural, and organizational differences as some of the factors that could have hindered the negotiations between the two companies (Donnelly, Morris, and Donnelly 435-437). Nevertheless, Renault’s negotiation team, through the assistance of Schweitzer, went to the extent of focusing on the long-term goals of the two companies to establish their negotiation strategies.
Besides, they considered the complimentary interests of the two companies as well as their respective capacities. Their stoutness on copious dimensions directed, motivated, and made sure that the negotiators continued with the negotiation process.
Not all the differences mattered equally between the organizations. Moreover, not all differences meant incompatibility. Indeed the Renault’s negotiation team used these differences to establish sustainable benefits for the two companies, which gave them an upper hand during the negotiation process.
The negotiation team ought to make broad preparations in cooperation, incessantly, and within (Lax and Sebenius 95). The team carried out systematic internal analysis and took time to work with staff from Nissan Motor long sending a letter to Nissan Motor expressing their intensions.
The joint preparation prior to official negotiations gave the team a chance to understand the interests of Nissan Motor and thus include them in their negotiation process (Woodruff 63). In addition, the negotiation team had enough time to avoid rushing during the negotiations.
The majority of negotiation processes fail for the negotiating teams do not have adequate time and they end up hastening during the process, thus not addressing most of the crucial issues. By preparing thoroughly, the Renault’s negotiation team had enough time to identify and address all the critical matters.
In a bid to facilitate in the negotiation, the team considered the possibility of adopting a novel form of alliance. The team came up with an alliance model that would allow the two companies to work together and at the same time preserve their individual brands.
Cross-shareholding and high-level coordination were common phenomena in both Japan and France (Woodruff 63). Nevertheless, they were not prevalent globally in the automotive industry. The Renault’s negotiation team came up with negotiation model that upheld the principle that the negotiating parties hold the power of establishing the design of their relationship.
The team ought not only conduct itself as a negotiator, but also as a potential partner (Lax and Sebenius). In most cases, negotiators work to achieve their interests at the expense of their counterparts. Nonetheless, Renault’s negotiators put into consideration the Nissan’s interests and they considered their future relationship after the alliance (Donnelly, Morris, and Donnelly 434).
They were conscious of the companies’ short history together, the chance that the negotiation provided them to prove their persona as a long-term partner, and the effect that their negotiation behavior would possibly have on the execution of an accord. These considerations earned the negotiators a reputation, thus winning the trust of the Nissan Motor leadership.
Lax and Sebenius (97-100) posit that negotiators need to work on making sure that they influence their counterparts and draw them away from their alternatives. Renault’s negotiators worked extra hard to control the influence of the Nissan’s alternative. For the Nissan’s CEO, he had a formidable alternative, and thus he did not take serious his possible alliance with Renault.
He was working towards enhancing his relationship with Chrysler. Therefore, to ensure that they won in the negotiations, the Renault team worked towards reducing the chances of Hanawa’s maneuvers in influencing the final decision. In addition, they stayed right to their dream of an alliance and tried to lure Nissan Motors through publications like the mock press release (Ghosn 37-39).
Besides, they made their commitment public and even requested Hanawa to sign freeze agreements. Eventually, they managed to draw Hanawa’s attention away from Chrysler and he ultimately agreed to collaborate with them.
In the attempt to strike a deal with Nissan Motor, the negotiation team assessed the possible outcomes of their alliance. In most cases, people appraise negotiations based on their instantaneous results.
Nevertheless, even though the alliance between Renault and Nissan received a lot of media attention, its outcomes could only be felt after several years (Donnelly, Morris, and Donnelly 440). The negotiation team knew that it was impossible to get immediate results, but the future looked promising.
How cultural differences influenced the negotiations
The cultural differences between the two companies played a significant role throughout the negotiation process. One of the cultural aspects that stood out as a barrier in the negotiation process was communication. The parties in the negotiation process could hardly communicate due to language barrier (Ghosn 39).
This aspect led to the delay of the negotiation process, as the Renault’s negotiation team had to enroll for Japanese classes to equip themselves with the basic skills in the Japanese language. Besides the language barrier, the two companies practiced different forms of leadership, which led to the two disagreeing on the form of relationship to embrace.
While the Renault team advocated for a joint venture or subsidiary, the Nissan’s team was strongly opposed to the same (Ghosn 39-41). The two companies had to compromise and settle for an informal relationship proposed by Ghosn. Moreover, Nissan Motor highly valued its brand name.
The company was not willing to lose the name in the process of the alliance. Hence, the two companies were forced to look for a way that would facilitate their alliance and at the same time allow the companies to continue using their brand names.
There were problems with decision-making processes in the two companies. In Nissan Motor, the management propagated a culture that promoted consensus decision-making system. This culture aimed at ensuring that all the staff worked in harmony and participated in making critical decisions on matters affecting the organization.
Every employee in the company was keen in all his or her actions to avoid chances of making mistakes, which could see him or her lose the job (Ghosn 42-43). These cultural norms were the major hurdles in the decision-making process in the company.
In addition, they contributed to the negotiation process as stakeholders from Nissan Motor sought to understand how decisions would be made in the event of the alliance.
Therefore, to ensure that all parties were satisfied, the two companies agreed to come up with a committee that would be responsible of making a decision on matters affecting the companies through the assistance of the two chief executive officers.
Why Nissan and Renault reached an agreement
Generally, the reason behind any alliance between two or more companies entails the possibility of future growth. Companies agree to collaborate whenever they sense that an alliance would help them to gain access to advanced technology and market development in the future. The same thinking informed the alliance between Renault and Nissan (Ghosn 45).
The alliance helped the companies to share their geographical coverage and improve on their weaknesses. Renault dominated both the Latin America and the European markets. On the other hand, Nissan dominated the Japanese, North America, and Asian markets. According to Renault, the alliance would help it to expand its market coverage beyond the Latin America and Europe.
Hence, Renault saw the alliance as the only way through which it could establish a lasting competitive survival. The alliance would help it to reduce its dependence on the European market and to be credible in an international context; Renault needed to establish itself in the Asian Pacific and North American markets (Korine, Asakawa, and Gomez 41-43).
Nevertheless, it could hardly achieve this goal without collaborating with another company because of the cost. Renault could not merge with an American company since most of the American motor companies were busy trying to consolidate their alliances with European motor companies. Therefore, Renault turned its attention to Japan where it found Nissan Motors, which was operating independently in the market.
General Motors was already controlling most of the Japanese motor firms like Isuzu and Subaru. Therefore, Nissan Motor was the only company that offered a chance to venture into new markets and Renault was not ready to lose the opportunity. On the other hand, Nissan Motor saw the alliance as a good chance to help it expand its market coverage across the globe (Korine, Asakawa, and Gomez 44-46).
Through the alliance, Nissan could venture into the untapped European markets. In return, the company could now make use of its half-idle manufacturing plants. The new markets would increase the demand for Nissan cars, and thus increase the amount of work in all the manufacturing platforms.
The two companies possessed different technologies and expertise. Renault had expertise in research and development as well as concept design and marketing. On the other hand, Nissan Motor had expertise in engineering. By combining their expertise, the two companies would stand a chance of countering competition in the market as well as in the products.
Relatively, Renault would use the Nissan’s engineering and technological skills to revive its Safrance (Korine, Asakawa, and Gomez 47). Moreover, Nissan would help Renault to complement its products through its reputation in off-road and pickups vehicles as well as quality models. On the other hand, Nissan would take advantage of marketing experience of Renault to increase its sales volume.
Apart from forming an alliance, the two companies had the option of operating independently. For instance, Renault had enough money to assist in venturing into the North American market. Besides, it had the opportunity to liaise with smaller automakers in the United States to address its operational challenges.
Nevertheless, this alternative would not have helped Renault to improve its market coverage across the United States (Korine, Asakawa, and Gomez 47-49). In addition, Renault did not have adequate engineering and technological expertise to manufacture quality and modern vehicles.
Consequently, failure to collaborate with Nissan would have rendered the company uncompetitive and thus lose most of its market shares to other superior companies. The partnership did away with competition between the two companies. Failure to form an alliance would have led to Renault suffering from stiff competition from Nissan’s quality products.
In spite of the Nissan Motors having the technological and engineering skills, the company would have also suffered if it did not form an alliance with Renault. In a bid to pursue its interests, Nissan Motor had the opportunity to raise capital through borrowing from commercial banks. Besides, the company could have raised capital through equity.
Nevertheless, the company’s shares had significantly depreciated and spinning off some of its subsidiaries would have negatively affected its market dominance (Korine, Asakawa, and Gomez 50). The alliance proved as the only alternative that could be of mutual benefit to the two companies.
It not only helped to counter competition between the two companies, but also helped to improve the market share and profit margin of the two companies through sharing their distinct expertise.
Failure of Daimler-Chrysler and success of Chrysler-Fiat merger
Numerous factors contributed to the failure of the merger between Daimler and Chrysler. Some of the factors included cultural differences, lack of due diligence, mismanagement, and Asian challenge. One of the challenges that affect cross-boarder mergers is cultural differences.
Cultural differences affect the work attitude as well as the management system. Daimler and Chrysler hailed from two different cultural backgrounds. The two companies were different with respect to working style, organization, and compensation (Das and Rajesh 686). Daimler considered itself as superior in terms of innovation in the motor industry.
On the other hand, Chrysler was popular for flexibility, efficiency, and vehicle design. In spite of their merger having a lot of potential to improve the companies, the differing cultures made it hard for the companies to operate amicably. Daimler felt superior and thus tried to use its management style to manage Chrysler’s operations in the United States.
Daimler advocated for methodical decision-making while Chrysler advocated for equal representation and employee empowerment (Das and Rajesh 698). The attempt by Daimler to apply a hierarchical system of leadership in Chrysler led to conflicts between the two companies.
At the beginning, the management teams from the two companies claimed that the companies had equal powers over the merger. However, Daimler purchased Chrysler and took absolute power over its management. This dominance led to the mismanagement of Chrysler Company eventually leading to the collapse of the merger (Das and Rajesh 700).
Most of the managers that had contributed to the success of Chrysler Company ended up moving to other companies that had a promising future like the General Motors. According to Das and Rajesh, “the American vigor faded under restrained German influence; however, the Germans were unable to enforce their own managers” (699).
The success of Chrysler and Fiat merger is credited to proper management, and observation and respect of cultural diversity of the two companies. While Daimler overlooked the culture practiced by Chrysler, Fiat embraced the diversity in cultural practices and endeavored to preserve it (Harvey 132-136).
In an interview, Marchionne posited that the merger between the companies would not lead to the erasure of their distinct heritages. Instead, the two companies would work on modalities to preserve their heritages while at the same time to improve on their performance, and thus aspect underscores where the Daimler’s leadership went wrong.
Rather than respecting the cultural diversity between the companies, the management sought to stamp out the Chrysler’s culture and replace it with its culture (Harvey 138-142).
This move not only led to challenges in the company’s management system, but also left most of the managers that saw the company grow with limited influence over the company’s management. Eventually, the managers felt betrayed and opted to look for other companies where their contribution would be of value and appreciated.
The success of Renault-Nissan alliance
Ten years after the alliance between Renault and Nissan, the companies were still enjoying the fruits of their alliance. Based on the reasons for the alliance, one may claim that Renault Company benefited from the alliance more than the Nissan Company.
Through the assistance from Ghosn, Nissan managed to cut down on the number of its plants in Japan, a move that helped the company reduce its operational costs (Donnelly, Morris, and Donnelly 428).
By 2000, Nissan Motor had already started enjoying profit and it maintained that until 2008 when all the motor firms suffered from the economic crisis. The company’s operating margin improved thus ranking it among the best four motor companies in the industry. By 2004, Nissan had paid off all its debts and it increased its sales volume by over 78 per cent by 2007.
The alliance had immense benefits to Renault. The company managed to recover the money it invested in Nissan. By December 2009, the value of its shares in Nissan was worth more than its total market value (Donnelly, Morris, and Donnelly 429-432). In addition, Renault managed to work on its defective parts ratio through the skills it acquired from Nissan Motor.
Renault’s productivity went up because of adopting Nissan’s production mechanisms. In 2005, Ghosn assumed the leadership of the two companies. He set high targets for Renault as a way to improve its operating margin (Betts 18). Nevertheless, he did not achieve the targets.
Renault continued with its effort to internationalize its operations by acquiring majority of shares from Samsung Motors in South Korea (Donnelly, Morris, and Donnelly 435-438). Additionally, the company went on and purchased 25 per cent of the shares from AvtoVAZ in Russia and collaborated with automotive firms from India and China.
Since Renault was yet to establish itself in the United States market, the alliance approached some of the smaller companies in the United States to see if they could help them in this venture. Finally, the alliance agreed to work with Daimler, which led to Renault gaining access to the United States market (Donnelly, Morris, and Donnelly 440).
The Renault-Nissan alliance has grown since 1999. Besides welcoming other partners into the alliance and sharing a common chief executive officer, the two companies have significantly augmented their cross-shareholding and inflated their organizational linkages (Das and Rajesh 699). Nevertheless, Renault has benefitted more from the alliance relative to Nissan Motor.
Conclusion
Automotive firms have negotiated for global alliance for many years and they will continue negotiating in future due to the high levels of competition in the motor industry. Nevertheless, the alliance between Renault and Nissan Motor is of its own kind.
Most observers believed that the alliance would not last for long due to cultural differences between the companies, but to their surprise, the alliance turned out to be very successful to the extent that it became a representation for industrial alliances.
Numerous factors contributed to this success. One of the factors was the decision by the two companies to accommodate their cultural differences and run their operations separately. This move avoided cases of the two companies disagreeing on various issues during their daily operations. Culture contributes to organizational success.
The reason why the merger between Daimler and Chrysler failed was that Daimler undermined Chrysler’s culture and tried to substitute it with its culture. The move altered the management system in Chrysler leading to a majority of the company’s managers leaving the company. Besides embracing their cultural differences, the Nissan and Renault were in need of alliance to help them enhance their competitiveness in the motor industry.
While Nissan had all the requisite engineering and technological skills, the company lacked the marketing skills. On the other hand, Renault had the marketing skills, but lacked the requisite technological and engineering capabilities. Hence, the alliance gave them a chance to share their capabilities, which gave them an opportunity to enhance their competitiveness.
Works Cited
Betts, Paul. “Carlos Ghosn gets second chance to rev up Renault.” Financial Times 29 April 2010: 18. Print.
Das, Titiksava, and Rajesh Kumar. “Learning dynamics in the alliance development process.” Management Decision 45.4 (2007): 684-707. Print.
Donnelly, Tom, David Morris, and Tim Donnelly. “Renault-Nissan: A marriage of necessity?” European Business Review 17.5 (2005): 428-440. Print.
Ghosn, Carlos. “Saving the business without losing the company.” Harvard Business Review 24.7 (2002): 37-45. Print.
Harvey, Francis. “National cultural differences in theory and practice.” Information Technology and People 10.2 (1997): 132-146. Print.
Korine, Harry, Kazuhiro Asakawa, and Pierre-Yves Gomez. “Partnering with the unfamiliar: lessons from the case of Renault and Nissan.” Business Strategy Review 13.2 (2002): 41-50. Print.
Lax, David, and James Sebenius. “Deal Making 2.0: A Guide to Complex Negotiations.” Harvard Business Review 90.11 (2012): 92–100. Print.
Tagliabue, John. “Renault pins its survival on a global gamble.” The New York Times 02 July 2000: 41. Print.
Woodruff, Chris. “Renault bets Ghosn can drive Nissan.” Wall Street Journal 31 March 1999: 63. Print.