Business Essay: Renault and Nissan

Renault - Nissan Alliance

1.1 Overview
This chapter briefly considers the competitive strength of Renault and Nissan as a joint company.

The purpose of this chapter is to address the reasons for the Renault Nissan Alliance (RNA) in terms of objectives and group goals, and to identify the activities and strategies that the group will be [has been] implementing in order to meet the terms and objectives of the alliance (joint venture).

This chapter will help the author to evaluate the impact of the alliance on the group's suppliers in the fifth chapter of this dissertation, as it provides useful background information on each of the companies involved; illustrating why Renault and Nissan decided that a joint venture would offer "profitable" synergies in terms of future achievements and industry challenges. However firstly, the author reviews individual company background for Renault and Nissan respectively.

1.2 Case Company Background: Renault Brief History
Renault was established in 1898 by Louis Renault. After designing and patenting the first small four-wheel vehicle and direct drive system respectively, the company achieved international renown through its success in motor sports. Renault was based in the Paris Suburb of Billancourt where the Societe Renault Freres (SRF) was established. In 1922, having expanded strongly in the passenger car and commercial vehicle markets, Renault became a limited company, and gradually emerged as the French market leader.

After the First World War, as a result of competitive pressures from North America (mostly Ford Motor Company), Renault was re-organised, and set up an all in one firm called Societe Anonyme des Usines Renault (SAUR). The SAUR focussed on the core business of making cars, with a varied range of production units and sites, buying in about 80% of the components. Renault acquired its own foundries and ironworks in order to reduce its dependency on other companies (the opposite of Renault today). After the Second World War the French government nationalised the company.

It wasn't until 1990 that Renault became a limited company again and in 1996 the first steps towards privatisation were put in place. More recently, the agreement signed with Volvo in 2000 came into effect, making Renault the main shareholder in the second largest truck manufacturing company. In 2001, Renault also increased its stake in Dacia to 80.1% and acquired Samsung motors of Korea. 1999 however marked the start of a new era for Renault, with the signing of an alliance with Nissan on March 27 in Tokyo.

It would seem that the main reason why Renault has been forming alliances is to spread brand awareness and to penetrate world markets where the Renault brand was unknown. According to Proutat and Quainon (1999), increased global pressures of which the French state could not afford to finance, drove the privatisation of Renault and led to the company finding alternative means to counter global competitive pressures. In other words by investing and acquiring other brands Renault has been able to fund its activities and invest in its future growth, reducing its dependency on the French state.

1.3 Case Company Background: Nissan Brief History
Nissan was previously known as Automobile Manufacturing Co, which was established 1933, and initially involved in the production of Datsuns, which according to Nissan (Nissan website company information) symbolised Japans rapid advances in modern industrialisation. In 1914a box type small car made its debut on the market in the name of Dat Car. Nissan was handicapped in the early post-war period when many leading dealerships, previously affiliated with the old Nissan network, switched to Toyota after the disbanding of Japans Motor Vehicle distribution network.

In a move to recover, in 1952 Nissan concluded a "tie up" with Austin Motor of the UK. During the 25 years that followed, a number of models revolutionalised the Nissan brand which is why the company is said to be responsible for the quickened the pace of motorisation of Japan (Nissan corporate website, 2003). Still it was the two energy crises in the 1970s that triggered rapid increase in exports across the world of small Japanese cars, which were known for their excellent quality and fuel economy. All of which essentially led to the Japanese infiltration of the US and European markets.

However in the years that followed the pressures of globalisation increased and Nissan struggled financially, particularly regarding the European market where Nissan only held a small percentage of the market share (Woodruf, 1999). Up until the agreement Nissan was an independent company, where inflexibility combined with a lack of market-concern and unwillingness to change are the key reasons identified for Nissan's debt (Autozine, 2002a). In order to resolve the financial difficulty Nissan entered into an alliance with Renault, who was also looking to expand its brand into other world markets, it was reported by Bursa (1996) that Renault would not survive as an independent car manufacturer and consequently the Renault Nissan Alliance (RNA) was formed.

1.4 The Renault Nissan Alliance (RNA)
As part of the original revival plan (NRP), Nissan has been working to address global environmental issues that have caused increasing concern over recent years; the next stage of the NRP is known as Nissan 180, which is a mid-term 3-year plan, designed to move Nissan from the stability created by the NRP to sustainable growth. Renault has been expanding its activities into other world markets by improving core competencies; it is argued that if Renault had not found a partner, it could have found survival difficult when faced with global competition (Autozine, 2002b).

The RNA is an agreement concerning a global alliance aimed at "achieving profitable growth for both companies". According to the 2001 Renault Annual report, the RNA has a number of objectives: " The globalisation of individual brands " To cut costs by combining product platforms, sharing of common components and the use of Powertrains " Joint use of alliance manufacturing facilities

Both companies have a reciprocal interest in one another as a result of cross shareholding. Renault's stake in Nissan is a stake in its performance, and vice versa, which immediately moves the alliance away from the likes of Rover-Honda, where no such arrangement existed.

1.5 The Command Structure of the RNA
From the beginning, the alliance has had its own informal co-ordination structure, the global alliance committee (GAC), with the aim of establishing a comprehensive strategic command structure. In May 2002 a governing body called the Alliance Board replaced the GAC. A single strategic management company (called Renault-Nissan bv) hosts the Board, which is responsible for both medium and long-term plans of the alliance, including the co-ordination and control of activities and of Cross Company Teams (CCT)and Functional Task Teams (FTT). In addition each company has its own Steering Committee, which works with the Alliance Co-ordination Bureau and co-ordinates the work of the CCT's and FTTs. The point is that one of the strengths of this alliance from the start is the existence of a decision-making unit responsible for defining a common strategy, which is one other thing the Rover-Honda alliance lacked. According to Renault's website, this structure has enabled the group to anticipate the future development needs of both members in the alliance, and has helped to achieve a better allocation of resources, of which has been applied to various projects (including RNPO and RNIS) aimed at enhancing the competitive nature of the RNA.

1.6 Activities of the RNA The Renault-Nissan Purchasing Organisation (RNPO) is probably the most significant. It was sep up to handle 30% of purchases for the group, but has since been raised to 70%. It is believed that cost savings of 5% can be generated from joint projects (i.e. sharing platforms and engine families), in all of the worlds regions, across the organisations value chain . The Technocentre is another project, whilst not directly related to the RNA, its main function is to bring vehicle designers, suppliers and development specialists together in a single location, and has come about as a result of an increased requirement to reduce vehicle development times and costs, and therefore will most likely play an important part in the Renault-Nissan relationship in terms of learning from one another and cutting costs. The Renault-Nissan Information Services organisation (RNIS), is a second joint company responsible for standardising both groups' information systems on a worldwide scale. Set up in 2001 on the back of the RNPO, with the objective of putting in place common processes and operations to make both the information systems and information technology operations more cost efficient and user friendly. Renault and Nissan have a 5% stake in Covisint in order to facilitate strategies involving cost reduction, delivery times and inventories.

E-commerce is also an important part of the alliance's agenda, and the RNA is developing an online site for products and services, where users who are connected to the site can access a variety of services ranging from new vehicle configuration to arranging finance and warranties. A joint distribution organisation was also deployed across Europe in 2002, which according to the Renault corporate website, gave a competitive edge to the RNA as a result of the arrival of new players in the distribution sector.

So far the RNA has put into practice several objectives and plans in order to achieve "profitable growth" for both companies on a global scale, in line with the changing environmental conditions and demands of lean production. The above combined with the on-going activities of the alliance including the use of powertrains, platform sharing, joint vehicle components, double badging and cross badging, as well as joint use of alliance manufacturing facilities across the globe; illustrate the relationship between Renault and Nissan and extent to which cost saving is an integral part of the agreement.

1.7 Co-ordinated Purchasing [Suppliers]
The RNA to date has proven to be extremely complementary in terms of markets, products and know-how. The writer adds that it has the potential to present in all the major motor markets, and do so at lower costs by drawing support from the others manufacturing facilities and distribution networks, and it is possible to note two elements within the agreement.

Cost cutting is the most significant, in order to respond to the intensifying competitive and regulatory environment, where prices are trending downwards, and pollution and safety standards are becoming more stringent. It is argued that savings will be made in purchasing, via tighter partnerships with alliance suppliers, participation with Covisint, and development of Business-to-Business (B2B) activity (Renault 2001 Annual Report). It is also believed that restructuring the network and making the existing system more efficient will also reduce costs. As a result the alliance is also working towards enhancing individual network competitiveness, (new distribution project), which focuses on dealerships and new channels of distribution such as e-commerce.

Secondly the author notes that cutting development times whilst improving quality and accelerating innovation is of key importance to the RNA. Shorter development times will enable the alliance to respond more quickly to shifts in demand, and promote product variation, improving the group's product variety. Renault is relying on Nissans' recognised expertise in this area and in the technocentre, which would suggest that one of the benefits of this alliance is the ability to learn from each party - as described by Graves (1993) in the literature review chapter of this dissertation.

To forge closer links with its suppliers, the alliance opened an industrial supplier park in 1999 on the grounds of its Sandouville plant for five of its main parts suppliers - a similar facility for suppliers was also installed at the Curitiba production site in Brazil. Having suppliers located as close as possible to assembly lines offers advantages in terms of logistics as well as permitting sequenced JIT delivery, which has added benefits for the groups platform sharing initiative. The issue of learning is bought to light here, as Renaults improved competitiveness in terms of costs and delivery times has been accompanied by steady progress on the quality front. For instance Renault can derive important benefits from its alliance with Nissan, who is recognised in matters of quality, therefore the writer proposes that shared progress on product and service quality is also an integral aspect of the synergies expected from this alliance.

1.8 Review
The author has been briefly trying to highlight that many of the activities of the RNA are for cost cutting purposes. From sharing components to the platform sharing initiative, it illustrates the full extent of the ongoing collaboration, and for Renault and Nissan it's quite clear that to operate globally cost savings are vital. However, in order to achieve global success it will also require the alliance to enhance the capacity for partnerships with suppliers. According to the 2001 Annual Report, that was the main reason for the alliances 5% investment in Covisint alongside Ford, GM and DaimlerChrysler. The author argues that this international online platform has a part to play in bringing more efficient relations for the RNA in terms of its component makers and suppliers.
Therefore, the success of this alliance will depend upon the group's ability to work with one another effectively. Many of the organisations that have been established in light of this agreement (e.g. RNPO) are to enable the group to operate more effectively as one company. Whether or not Renault will be strong enough to cope with Nissans debt in the long term remains to be seen (Woodruf, 1999). From this it is also unclear as to the extent of the effects on the organisations suppliers and customers, but the competitive strength of the group makes the RNA the world's 5th largest car manufacture in terms of production volume (Renault, 2002) in an industry where according to Anonymous (2003), smaller manufacturers are absorbed by larger more competitive ones, but where success "comes not from size and scale but from developing competitive advantages in operations and from marketing them internationally" (Anonymous 2003).

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