Renault Nissan - The Making Of A Global Alliance

Renault/Nissan:

The Making of a Global Alliance

Prepared By: Jason Park & Isaac Hattem

Why is Renault seeking a strategic partner? What are Renault’s strengths and weaknesses in seeking a partner?

The most successful strategic alliances are between companies with complementary strengths and weaknesses. Renault has been building cars since it was started under the name Société Renault Frères. Louis Renault, his brothers Marcel and Fernand, and his friends Thomas Evert and Julian Wyer founded it in 1899. Since the beginning they have been an industry leader in small car designs, combining functionality with style. In 1998 Renault was the world‟s ninth-largest car manufacturer with 4.3% of the market. During the 90‟s globalization was occurring in all industries including the automobile industry. Major manufactures were seeking strategic alliances and mergers as ways to increase market share, reduce costs, and improve productivity. Renault has been an established French automaker since it started producing cars in 1897.

Like many other companies Renault has been looking to expand into the Asia for its large potential market. They felt that the best way to do this was through a strategic alliance. Renault has been looking for another automobile manufacturer to peruse a possible alliance with since the early 90‟s. From February 1990 to December 1993 Renault attempted a merger with Swedish car manufacturer, Volvo. It was expected that the merger would go through, than in December of 1993 Volvo shareholders voted against the agreement. This was a big loss for Renault, not only had they lost the opportunity to merge but they wasted time and money in the pursuit. Renault felt that it was now five years behind in the race to gain international stature.

Renault‟s main objective in finding a strategic alliance partner was to increase their market share by selling cars in new markets in Asia and North America. As you can see on Appendix 2, in 1998 Renault did not sell cars to ASEAN or Association of Southeast Asian Nations, and North America. At the time according US Census Bureau, the United States had an adult population of 175,400,000 people. That is a large market in itself, Nissan at that time had a 4% market share in North America selling 656,704 vehicles in 1998. Renault was also looking for a partner that could help expand their product line. Renault has always been a leader in compact car sales, but does not even produce a pick-up or 4x4 vehicle. Both of these vehicle segments are attractive for their high potential and larger profit margins.

From 1983-1988 Renault suffered from net income losses, followed by positive net incomes from 1989-1996. Renault is a strong company that has made many changes in recent history that helped them recover from debts of over 57billion francs (appx. half their annual revenue) and annual losses of 12.5 billion in 1984. Renault knew that in order to grow they would need to spend a second stage of recapitalization, 10 billion francs in 1985 combined with factory closings and layoffs resulting in Renault becoming profitable again in 1987. Renault remained profitable until it suffered its first loss since the late 80‟s in 1996. Renault once again made changes and the results showed an increase in their earnings before tax margin (EBT) from 3.6% in 1996, to 4.6% in 1998. They also managed to become profitable again and increase sales from 184,078 million

French francs to 243,934 million francs. As you can see. Renault has been able to face problems and come out ahead on multiple occasions. This shows other companies that they have the products and knowledge to work through and be successful in difficult times.

As well as being profitable and showing signs of growth Renault has other qualities that make them a good potential strategic alliance partner. Renault is ahead of its competition in its mid-range and light commercial vehicles. Their smaller vehicles are functional, reliable, and stylish. The cost at which these vehicles were produced was also impressive, Renault has long been known for this excellent cost control. They are able to keep their costs low by offering a limited number of platforms and engine and transmission platforms. What makes this attractive to perspective partners is that the strategies that have made Renault successful can be applied and used by others hopefully with the same results.

The biggest and most attractive part about Renault is their command and dominance of Western Europe. Renault has made a very strong name for itself. In 1998 Renault owned 11% or the market share in Western Europe. Along with having a strong share of the market they also have 18 full-fledged production facilities across Europe. One of the reasons Renault has been so successful in Western Europe is that small and mid-size cars are very popular there. This is a theme that has become more popular across the globe; places like China and Japan have an increasing demand in smaller more efficient vehicles. Overall the expected demand for automobiles is expected to grow in places like Germany, France, Japan, China, Korea, and Latin America. Renault is very good at what it does; it builds smart, efficient, stylish vehicles and markets them well to all of Western Europe. Some might say Renault has a problem because they produce no 4x4s or Pick-ups, we believe the opposite. Prior to this period they didn‟t need to produce these vehicles. However because they want to continue to grow if they expanded their product line they could increase sales. If they expand their product line, their strong brand name will help with the introduction of the new vehicles and help increase sales. These strengths are the reason any potential perspective strategic alliance partner should consider doing business with Renault.

Even though Renault has many strengths that make it a good company for a strategic alliance it does have some weaknesses. Renault sells small efficient vehicles across Western Europe, almost 1.8 million in 1998 but that is about it. The amount of vehicles sold to the rest of the world during that same year was just under 330,000 units. This is one of the bigger weaknesses Renault has. They are dominant and well known in Western Europe but just a small fish in a big pond surrounded by sharks. This would make forming an alliance with a company from Asia difficult because they are relatively unknown. Renault was so unknown that if a company such as Nissan told its stockholders of a potential merger they might take that as a bad sign and sell their shares. As discussed earlier Renault has had a difficult time over the past thirty years staying in the green, as a result they don‟t have a huge amount of cash reserves especially when

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