Background
Renault and Nissan Company fall under automotive industry. It is an international company targeting both local and international customers. In 1999, Nissan experienced several challenges such as debt burden, declined market share, less future prospects, and bloated structure of supply chain. Renault, on the other hand, wished to fight intense rivalry that had emerged at that time, globally. The company’s product line was also ageing and its profitability had also gone down. Mergers and acquisitions appeared to be the only solution following declined returns and competition (Ramaswamy 1).
North America and Europe provided the largest market for the automotive industry. Following the state of the economy, US gave incentives to customers who wished to purchase cars. This was referred to as ‘pay to sell’, by economists. This facilitated deterioration of the economy. Increased prices made customers reluctant to purchase cars. They also demanded that more features be added to the cars following the extra money they were paying. By the year 1999, the two partners, Renault and Nissan, made remarkable profits and were able to launch new product line. They introduced Megane and Scenic minivan, both of which increased the company’s profits (Ramaswamy 1).
The main competitors at that time included GM, Ford, and Toyota. These companies provided the existing rivalry at that time. Nissan Company, which was almost collapsing sealed a deal with Renault where they agreed to work together, under different management, but with shared skills. New marketing strategies were also acquired after realizing that Nissan’s products were unpopular. Another discovery was that the term Nissan had different meanings when used in various countries. Organizational change was also required whereby employees needed to be appreciated by rewarding and motivating them, for example, through promotions on basis of performance. This strategy helped the two companies a great deal, especially Nissan Company.
Statement of the problem
Renault had a product line with limited appeal outside Europe. In the United States of America, customers resisted the product openly arguing that the cars sold by Renault were small, badly appointed, and underpowered. The brand was, therefore, not embraced by American buyers. The products were also of low quality, with poor styling. This made it hard for the company to operate in America. In 1986, the company sold its holdings to American Motor Company and returned back to Europe (Ramaswamy 2). Renault has previously attempted to make deals with other car companies, but the deals end up not materializing. For example, the company attempted to make a deal with Volvo, but the deal did not materialize due to cultural differences. Volvo was from Sweden, yet Renault had spread globally. Renault also emphasized on small cars; hence no confidence to enter the global market. The increased need for globalization gave the company an uncertain future.
Nissan, on the other hand, was on the verge of collapsing. It relied heavily on bank loans. It reached a point when the banks started pressurizing the company to partner with another company. The total debt by the company stood at $38 billion (Ramaswamy 4). The company’s misfortunes came as a result of bureaucracy and poor performance culture due to the long process of decision making. Out of forty three models, only four appeared to be profitable. Again, the company had predicted demand for cars to increase, which did not happen making the company incur huge loses. The company’s management attempted to reduce costs, close certain plants, and rationalize supply chains, but this program failed
Recommendation
Nissan needed to identify a company that would be willing to partner with her so as to avoid collapse. As a result, Nissan came into a deal with Renault Company. The two companies could be ranked at the same level of performance, but Renault was doing much better. The deal needed to be negotiated well for a period ranging from six to eight months (Ramaswamy 6). Cooperation was also a requirement with top leaders being involved, as well as the middle managers. The deals benefits had to be greater than losses. The main functions included legal, planning and finance functions. Several specialists were also required.
Engineers were also important before sealing the deal. There was the need to form joint teams to determine operations of the two companies. The teams would help in understanding the cultural practices of the companies in order to determine organizational priorities. Trust would also be created before signing the deal. Having sealed the deal, the companies would retain their identity, and would be managed by different management teams. However, several activities such as production, engineering, among others would be done jointly.
The CEO had to travel to Japan to oversee Nissan Company turning around. Ghosn was sent because he had shown certain credentials. SWOT analysis reveals that he had earlier succeeded when he was sent to act while closing down a plant. He showed skills of cutting down costs, maintaining morale in employees, and restructuring operations. Another added advantage was the fact that he would speak different languages such as Portuguese, English, Arabic, and French. This would remove a cultural barrier, similar to the one experience earlier when the Volvo deal failed to materialize. He also had the necessary managerial skills, which he acquired in Brazil. It was also under his management that Renault Company became quite profitable.
Before flying to Japan, Ghosn had to tackle certain organizational issues because the work required that close coordination be in place between Japan and Renault headquarters. He was given approval by the top management to make important decisions without moving back to Paris. He was also free to select his desired team. As the team leader, Ghosn, advised his team accordingly. Although most of them did not understand the Japanese language, they needed to fly to Tokyo to fix Nissan problem, and not to interfere with the country’s customs. In order to implement the deal, the team needed to have a scientific mind where they would start from zero. They had to understand exactly what ailed the Company and this information would be got from the employees, through the help of translators (Ramaswamy 7).
The main focus was on product design, new offerings, and market place impediment. Both respect and trust had to be there so as to establish relationships internationally. To revive the company, Ghosn formed eleven Cross Company Teams in areas such as IT, purchasing, production, and manufacturing. Each team had ten members with middle level management skills. Such appointments were based on merit. Experts supported the teams. Potential candidates from Japan and across the world were sent to Renault headquarters to be chosen on merit basis. The teams had three months to prepare the plan of action to revive the company. The problem of language diversity had to be solved through choosing one language. In this case, English was chosen.
Implementation
The revival plan said that there would be closure of plants following excess manufacturing capacity. This closure would mean that at least 21,000 employees would cease working with Nissan. However, this issue would be looked at because Ghosn did not intend to retrench people. His plan was, therefore, to relocate, use attrition, or ask for early retirement within a period of three years. Certain Nissans’ shareholdings would be liquidated so as to pay the company’s debt and to fund the plan of transformation. It was also necessary to follow very tight schedules so as to meet the deadlines.
Employees committed 95% and 5% of their time on implementing and planning, respectively (Ramaswamy 8). Renault’s and Nissan’s culture was required to receive new ideas positively and to be creative so as to make use of any emerging opportunities. Teams of engineers from both companies would visit each other so as to exchange ideas. Those employees who had come from Renault Company to work for Nissan Company were requested to believe that they belonged to Nissan, and vice versa. They learned to respect and trust each other for better success. Someone was needed to oversee marketing functions. This was a market expert who discovered that the term Nissan gave different meaning depending with the country; hence confusing the message.
A global marketing would coordinate activities of Nissan Company across the world. Marketing strategies need to change completely, and this would help in marketing the company’s products. In an effort to bring change, the mindsets had to change. Ghosn recommended that employees be motivated and rewarded, stop the blame culture, and encourage career growth. Promotions would be based on a person’s performance record rather than on basis of seniority. After a period of one year, Nissan’s debts had shrunk by 50% and the sales had grown by $50 billion. This marked the path for Nissan’s prosperity.
Work Cited
Ramaswami, Kannan. Renault-Nissan: The challenge of Sustaining Strategic Change. Thunderbird School of Global Management. 2009: 1-12. Print.
