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* Views expressed in this report are those of the authors.

COMMGMT 3001
INTERNATIONAL MANAGEMENT III

NISSAN IN EUROPE

AUTHORS:
MATT WOOLLEY
SIANG (CHRISTINE) LOW
JOEL IRWIN
ROSLYN HAYNIE
Executive Summary

This report analysed Nissan's operations in Europe. The current vehicle industry in
Europe was analysed in detail along with potential cultural differences. The report
then looked into the internal and external environment which Nissan currently is in
within Europe. It was found that Nissan is performing relatively well. This is
particularly due to the strong Nissan-Renault alliance that is providing Nissan with
considerable competitive advantage. However, it was also found that Nissan was at
risk of cultural conflict which could threaten this alliance. Furthermore, it was found
that the Central and Eastern European markets pose a great opportunity for Nissan in
the region. However, Nissan lacks the diesel technology to compete in the European
market where diesel is strongly preferred over petrol. Thus, it was recommended that
Nissan increase its expenditure on diesel technology and seek to gain competency in
this area through Renault. Finally, it was recommended that Nissan obtain ISO 9001
accreditation to ensure that any quality issues with their vehicles are overcome.

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Contents
EXECUTIVE SUMMARY .................................................................................................................... I
CONTENTS ............................................................................................................................................1
INTRODUCTION ..................................................................................................................................2
RENAULT-NISSAN ................................................................................................................................2
CULTURAL DIFFERENCES...............................................................................................................3
COMPETITOR ANALYSIS .................................................................................................................6
INTERNAL AND EXTERNAL ANALYSIS .......................................................................................7
INTERNAL FACTORS .........................................................................................................................7
STRENGTHS .........................................................................................................................................7
Global Financial Position..............................................................................................................7
Manufacturing Processes ..............................................................................................................9
Local Management Development Programs .................................................................................9
Partnership with Renault.............................................................................................................10
WEAKNESSES ....................................................................................................................................11
Product Recalls ............................................................................................................................11
Lack of Diesel Technology...........................................................................................................11
EXTERNAL FACTORS......................................................................................................................13
OPPORTUNITIES ................................................................................................................................13
Eastern and Central Europe........................................................................................................13
Renault-Nissan Purchasing Organisation ..................................................................................13
Distribution Network....................................................................................................................13
THREATS ...........................................................................................................................................14
Market Saturation ........................................................................................................................14
Cross-Cultural Disharmony.........................................................................................................14
Commodity Prices ........................................................................................................................14
Competitive Rivalry ......................................................................................................................15
RECOMMENDATIONS .....................................................................................................................17
APPENDIX A – INTERNAL FACTOR ANALYSIS SUMMARY (IFAS) .....................................21
APPENDIX B – EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS) ...................................22
APPENDIX C - MEETING MINUTES AND COMMUNICATION SUMMARY ............. ERROR!
BOOKMARK NOT DEFINED.

1
Introduction

Nissan is a globally competitive automobile manufacturer, and through their alliance


with Renault, has become part of the fourth largest manufacturer worldwide. But
whilst Nissan is present in all continents of the world, their presence in Europe is
relatively small. It widely believed that Nissan Europe’s success will be determined
by their utilisation of their local based partner Renault and their ability to gain
competitive advantages in this saturated and mature market.

Nissan’s operations in Europe entail a degree of cross cultural interactions; in addition


to their interaction with their counterparts in Renault they will also have to interact
with representatives from nations throughout Europe. This report aims to find the
causes of these issues at Nissan Europe and make recommendations to improve
Nissan’s performance. The cultural differences, industry position and both internal
and external strategic factors at Nissan Europe will be analysed as a basis for these
recommendations.

Renault-Nissan
Nissan is currently involved in a long-term alliance with Renault – this is especially
important when considering Nissan’s European operations. The alliance, which began
in 1999, is an equity sharing venture between the two companies: Renault owns 44%
of Nissan and Nissan own 15% of Renault – however, to ensure the interests of each
company are protected this stock has no voting rights (Saint-Seine, 2004). Recently,
Renault and Nissan’s shareholders elected to share a CEO - Carlos Ghosn. This has
led to a convergence of their strategic direction and a tightening of the relationship
such that there is frequent transfer of staff between the organisations.

Many of the formal interactions are facilitated by Renault Nissan B.V. which is
equally owned by Renault and Nissan. Renault Nissan B.V. also operates two
subsidiary companies – the Renault-Nissan Purchasing Organisation (RNPO) and the
Renault-Nissan Information Systems (RNIS). These subsidiaries ensure that Renault
and Nissan have increased power over suppliers and freedom of information
respectively.

2
Cultural Differences

Europe is a culturally diverse region, with several countries each with their own
specific culture and subcultures. To analyse all of these cultures individually against
the native culture of Nissan (Japanese) would be beyond the scope of the report, thus
our analysis only compares Japanese culture with French (important due to the
alliance) and the European average, which despite cultural convergence in the
European Union is only a rough indicator of European values.

Hofstede’s cultural dimensions are highly regarded as tools to identify the primary
differences between cultures. Thus, Hofstede’s cultural dimensions were used to
compare French culture, the European cultural average and the Japanese culture.

Hofstede's Cultural Dimensions

100
95
86 92
90
80
80
68 71 67 65
70
54
60
Rating

50
46 47
41 43
40
31
30

20
10

0
Power Individualism Masculinity Uncertainty Long-Term
Distance Avoidance Orientation

France European Average Japan

Figure 1: Hofstede Cultural Dimensions Comparison (Hofstede, 1983)

3
According to Hofstede’s analysis, there are three cultural dimensions that are
significantly different between French and Japanese culture – power distance,
individualism and masculinity (Hofstede, 1983).

A country’s ‘Masculinity’ represents the degree to which society reinforces “the


traditional masculine role model of male achievement, control and power” (Hofstede,
1983). Due to the difference in masculinity scores, it would be expected that Japanese
employees have a different conception of gender compared to their European and
French counterparts. Potentially this could lead to relational stress between female
European employees and Nissan’s staff. Japanese gender differentiation could also
create legal problems, due to the anti-discrimination legislation in Europe.

A high ‘Power Distance’ score is closely correlated with an autocratic management


style. The difference between Japan and France would indicate that French managers
have a more centralised, less consultative approach than their Japanese colleagues. It
should be noted that the European average power distance is far below that of both
Japan and France, suggesting that the autocratic style of management in these
countries would be unusual throughout Europe.

Whilst both countries have high power distance scores, the source of these strong
hierarchies is different. The Japanese place high importance on the age of the
employee; Deller and Flunkert (1996) state that "even capable junior staff will not be
given preference over older colleagues". So Japanese employees understand that
progression upwards in their organization is a matter of persistence and commitment
to the group achievements. The importance of seniority is also associated with the
Japanese ideal of life-long tenure, with most employees committing to one firm which
they work for their whole life.

In contrast, the French system of hierarchy is based on the educational background of


the individual. The French education system is highly structured, with the most
talented pupils being accepted to exclusive schools, the ‘grands écoles’. Acceptance
to these schools is a status symbol that will prevail through the life of the individual,
with the French concept of success being judged by a person’s ‘educational level,
family background, and financial status rather than by direct accomplishment’

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(Newson-Ballé & Gottschalk, 1996). This may cause conflict if Japanese do not
respect their younger French counterparts and the French do not respect their
(possibly) uneducated Nissan colleagues.

A country’s ‘Individualism’ represents the degree to which society reinforces


individual over collective achievement. Employees with a high level of individualism
typically work better individually than those with low scores. Fitting closely to the
European average, France has an individualism score of 71 compared with Japan’s 46.
Thus, in its European operations, Nissan must provide the ability for individuals to
‘prove’ themselves and achieve personal success. If implemented, this will lead to
increased motivation and performance in Nissan’s European operations.

The ‘Long-Term Orientation’ represents the degree to which the members of a society
focus on long-term goals over short-term. French data for this criterion is unavailable
but the European average indicates a much shorter time focus than in Japan. It is
important that Nissan’s managers reach a balanced compromise when designing
strategies particularly when working with Renault.

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Competitor Analysis

With the exception of Eastern Europe, the European automobile industry is mature
and saturated. Thus, Nissan will be competing against both European firms that are
well established in the area and international car markers that bring their own
expertise and competitive advantages into the region. Two local manufacturers (VW
and PSA), three international manufacturers (General Motors, Ford and
DaimlerChrysler) and two Japanese manufacturers (Mitsubishi and Toyota) were
deemed to be the primary competitors of Nissan Europe. Table 1 highlights key
aspects of these competitors in relation to Nissan.

Table 1: Competitor Analysis Summary


Competitor Key Aspects
General Motors - Largest manufacturer in the world
- Excellent portfolio of brands
DaimlerChrysler - Divided by cultural tension
Ford - Large losses from European operations
- May withdraw from Europe
Toyota - Excellent manufacturing technology
- Known for reliability
Mitsubishi - Strong European Sales Growth
VW - Highly successful
- Well established in European market
- Strong market knowledge and experience
PSA - Core market in Europe
- Fashionable in Europe

6
Internal and External Analysis

When analysing an international company, it is important that both internal and


external factors are considered. Along with the cultural and environmental situation,
strengths and weaknesses (internal factors) and opportunities and threats (external
factors) are key determinants of appropriate company strategy and structure. External
Factor Analysis Summary (EFAS) and Internal Factor Analysis Summary (IFAS)
were conducted to determine the most important factors for Nissan Europe. The most
important factors are discussed below.

Internal Factors
Please see Appendix A for the complete Internal Factor Analysis Summary. Overall
Nissan Europe was deemed to be performing slightly below average (2.95/5)
internally. This indicates that new strategies and possibly a new company structure
are required in order to ensure that performance is improved in the mid-long term.

Strengths
Global Financial Position

One of Nissan Europe’s key strengths is its global financial position. Although,
Nissan’s European operations (including France) are presently unprofitable (Nissan
Motor Company, 2004), Nissan globally has a strong enough position to withstand
these difficulties until Nissan can establish itself in Europe.

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Table 2: Five Year Financial Summary from 2004 Annual Report1

From this table we are able to analyse Nissan’s financial position in 3 key areas –
profitability, solvency and liquidity. Return on Assets (ROA) is a key indicator of
profitability and thus, overall financial position and management. Since 2000, Nissan
has a ROA of 5.1% which is quite high for a company of such a large size.
Furthermore, Nissan has had an Assets/Long Term Liabilities Ratio of between 0.2
and 0.22. This is an excellent figure and indicates that Nissan will be able to
withstand tough economic conditions. This is verified by an AAA rating issued by
Standard and Poor’s (2006).

One final indicator of the strong financial position held by Nissan is its overall
growth. Despite a lack of European growth (Nissan Motor Company, 2004), from
2000 to 2004 inclusive, Nissan experienced an annual average of 8.94% revenue
growth, 11.53% net income growth and 11.16% asset growth. These figures strongly
support the argument that Nissan globally is in a strong financial position and will be
able to provide Nissan Europe with backing to compete in the saturated European
market.

1
This table is sourced from Nissan’s Annual Report (2004) but has been adapted into AUD for
convenience using 1AUD = ¥86.58.

8
Manufacturing Processes

One of the key strengths of Nissan Europe is its manufacturing processes and
technology. Nissan has worked hard to foster a culture of continual improvement
which is in many ways similar to Total Quality Management (TQM) (Drummond,
2001). TQM and related strategies have been shown to have the potential to provide
sustainable competitive advantage - this is true in Nissan’s case (Reed et. al., 2000).

In 2004, Nissan’s European operations were rewarded financially for their culture of
improvement. Works Management (2004) found that there were examples of line
workers enabling Nissan to cut 70% of their floor space requirements and 0.16
minutes per vehicle in their European operations. It has been a combination of
utilising and developing all elements of their workers and machinery that has led
Nissan Europe to develop a core competency in this area. Line workers even spend
five days training in the use of a screwdriver to ensure that they are as efficient as
possible (Glover, 2006). The gains by improvements such as these have resulted in
Nissan Europe being awarded the Best Factory Award in Europe (T&P, 2004).

This strength that Nissan holds within the European market has resulted in
quantifiable differences between the performance of Nissan and the ‘Big Three’
(Ford, DaimlerChrysler and General Motors). According to Welch (2003), the ‘Big
Three’ are forced to ‘play catch-up’ because of their inferior manufacturing processes.
For example, it requires 15.7 hours of labour for Nissan to manufacture a car
compared with 44.2 for Ford, 33.8 for DaimlerChrysler and 29.9 for General Motors.
Additionally, Nissan’s plants can build-to-order different vehicles on the same line
resulting in no costly inventory requirements (Treece, 2005).

Local Management Development Programs

The third key strength of Nissan Europe is its continuing investment in management
development programs. These focus around increasing both the quality and speed of
decision making (Datamonitor, 2005). As these two goals are being realised, Nissan
has been able to attain the competitive advantage associated with coordinated

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management training (Winterton & Winterton, 1997). These include rotations of 12-
18 months incorporating training with high performance benchmarks that the manager
must achieve within this time (Nissan Motor Company, 2005).

Furthermore, recently Nissan Europe has, in conjunction with Renault, developed a


program that all managers must complete (known as the ‘Alliance Business Way’).
Managers across the Nissan-Renault Alliance are formed into cross-functional and
cross-cultural teams to solve specific problems. This has three key outcomes that all
lead to competitive advantage. Firstly, Nissan Europe achieves solutions that are,
according to Tucker et. al. (1996), superior to those produced by individuals or intra-
functional teams. Secondly, the managers are given a broader view which they can
then apply to subsequent problems that they face in their roles. Thirdly,
communication channels are developed across the Alliance and organisation which
results in increased performance (Lee & Rajdeep, 2004).

Partnership with Renault

As described in the Introduction, Nissan and Renault are part of an equity, capital and
knowledge sharing alliance. This has even reached the level where they share a
common CEO – Carlos Ghosn. As a part of this, they both jointly own the RNPO and
RNIS. Despite the possible threat of cultural disharmony between the organizations,
there are significant signs that the alliance is proving mutually beneficial. Overseen
by 7 steering committees, Nissan and Renault are amalgamating the competitive
advantages that they had each formed over their past history. This alliance should
ensure that new levels of competitive advantage are achieved and is a core strength of
Nissan.

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Weaknesses
Product Recalls

In 2004, Nissan recalled more than 2.5 million cars worldwide and more than 300
million in Europe alone, due to an engine defect (Business Manager, 2004; Bowden &
Austin, 2003). Aside from the direct cost (estimated to be approximately €1.5bn),
significant harm has been done to Nissan Europe’s brand image (Rupp, 2004).

Unfortunately for Nissan, the engine defect occurred in their diesel engines – their
most popular engines within Europe. Government-initiated product recalls (such as in
this example) generally lead the consumer to believe that any product from the
manufacturer is of inferior build quality and has low reliability. This quality problem
may not only halt Nissan’s European expansion but might also reduce current market
share. Although there have been no reports of accidents caused by the defect in the
engines, Nissan’s image as a major keiretsu has been severely affected.

Lack of Diesel Technology

In the Japanese market, diesel accounts for only 0.4% of vehicles sold (Rowley,
2006). In contrast, diesel is very popular in Europe and in 2004 roughly 46% of all
vehicles sold in Europe used diesel fuel (Bensaïd, 2004). This percentage is increasing
rapidly – in the year ending 1st January 2006 the number of diesel cars sold increased
by 7.5% compared to a sales fall of 7.4% for unleaded (Seguin, 2006). Some analysts
believe that the diesel market will account for more than 80% of total vehicle sales in
Europe by the end of 2008.

Diesel technology has been improving significantly over the past decade reducing
emissions, fuel consumption and cost. As Nissan’s home country has a low demand
for diesel engines, Nissan lacks the technology and experience to produce diesel
engines of comparative quality. This has been reflected in the segment market share
that Nissan has, which is currently less than 2% (see below).

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Figure 2: Share of European Diesel Car Sales (Ricardo Plc., 2005)

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External Factors

Please see Appendix B for the complete External Factor Analysis Summary.

Opportunities
Eastern and Central Europe
Eastern and Central European nations, many of which have recently joined the
European Union, are currently undergoing significant economic growth and thus, the
demand for non-essential goods such as vehicles is increasing rapidly. This provides
significant opportunity for Nissan Europe to expand their market presence. Many of
Nissan's direct rivals are currently experiencing large growth in these markets
(Mitsubishi reported an increase of more than 100%) and it is essential that Nissan
seizes this opportunity before these rivals establish themselves.

Renault-Nissan Purchasing Organisation

The RNPO, which was established in 2001 in the early stages of the alliance, was one
of the key ways in which Renault-Nissan would combine their resources to create a
more efficient organization. Currently Nissan and Renault share 60% of the same part
and raw material suppliers. This has led Nissan to achieve greater purchasing power
and has served to reduce costs and reduce the bargaining power of suppliers. There
still remains significant opportunity through the RNPO to decrease costs and provide
increased competitive advantage.

Distribution Network

Nissan Europe has sales networks in 19 separate countries across Europe. As a result,
Nissan lacks market presence in many countries within Europe. Whilst it is
prohibitively expensive for Nissan to setup its own distribution within these countries
(as it has such a low market share), there is opportunity for Nissan and Renault to
setup a joint distribution network. This would serve to reduce the costs of both Nissan

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and Renault and would enable Nissan to gain increased market exposure across
Europe.

Threats
Market Saturation

The Eastern European car market is roughly stagnant with regards to sales and growth
prospects are poor. For example, in 2005 the volume of car sales in Europe fell by
0.6% (PWC, 2006). Currently Nissan is losing money from its European operations. If
the market fails to grow then Nissan Europe's viability is threatened and Nissan may
be unable to retain its market presence.

Cross-Cultural Disharmony

Nissan Europe could face a number of cultural problems in Europe, as discussed in


the above cultural analysis. As Nissan and Renault become further integrated with one
another, the risk of cross-cultural disharmony increases. If disharmony occurs then, as
occurred at DaimlerChrysler, overall company performance may be reduced and the
current strengths that the Alliance provides may become instabilities. Nissan is
currently working to reduce the likelihood through its 'Business Way' program but
corporate and national culture takes a long time to change.

Commodity Prices

Due to the economic expansion of China, changes in commodity prices could affect
the costs incurred by Nissan Europe. Over the past 12 months, the price of steel used
in car production has risen by nearly 30% (London Metal Exchange, 2006). Nissan
has taken steps to reduce the effect of rising steel prices; in 2000, Nissan began using
hot dip zinc coated steel and converted to a less expensive steel in 2002, which saved
about $16 million per year (Nissan Motor Co., 2004). This however, has done little to
reduce the upward pressure on vehicle costs and prices. As this increase in cost has
been passed on to the consumer, demand for new vehicles has reduced. This threatens
Nissan's viability in the region.

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Competitive Rivalry
Because the European market is so saturated, Nissan will face a high level of
competition as rivals attempt to increase their market share. The Senior Vice
President of Nissan Europe, Colin Dodge, defines Nissan’s positioning strategy:
‘Europe is an incredibly competitive market, with 15 companies trying to gain market
share. We decided not to compete directly in fundamental segments. Instead, we
chose to build unique, profitable vehicles’ (Nissan Motor Company, 2004). Nissan
has anticipated difficulties increasing market share in Europe, so instead of attempting
to increase their market share have instead chose to focus on making their operations
more profitable and differentiate themselves from their competitors by creating
unique vehicles. Furthermore, their strategy of continual improvement allows Nissan
to maintain its competitive advantage.

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Conclusion

Despite making a loss in 2005, Nissan’s operations in Europe appear to have strong
growth potential. Their alliance with Renault is providing Nissan with a new source of
competitive advantage and should provide Nissan with sufficient market leverage to
compete with larger manufacturers. However, there is risk associated with potential
cross-cultural conflict across the alliance. This is being addressed through the
‘Alliance Business Way’ program. There are two weaknesses that may prevent Nissan
from achieving its potential in Europe. Firstly, they have been suffering from product
recalls that has harmed Nissan’s European brand image. Secondly, they have a lack of
diesel technology relative to their competitors.

Eastern and Central Europe offers new markets and a local centre of production for
Nissan and if capitalised on will allow Nissan to increase their market share. Nissan’s
focus on profitability and continual improvement in Western Europe should allow
Nissan Europe to continue growth despite market saturation. Commodity prices pose
a threat to Nissan but they have reduced this effect by altering their input materials.

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Recommendations

1. Eastern Europe offers Nissan with prospective new markets that should be
capitalized on. Nissan should focus primarily on these emerging markets
rather than the saturated Western European markets.

2. Nissan’s Alliance should be further developed to continue to provide


competitive advantage. This should include a shared distribution network to
increase Nissan’s presence whilst reducing costs.

3. Nissan should greatly increase their expenditure on the development of their


diesel technology and apply diesel technology to their whole range. This
would increase their market potential within Europe which is severely limited
due to their lack of diesel products.

4. Programs such as the Alliance Business Way and personnel transfers appear to
adequately address the cultural conflict issues however; there is a lack of
control of the effects of these programs. It is recommended that Nissan engage
in a continual review process of these programs to measure their effectiveness
and adapt their programs accordingly.

5. It is recommended that Nissan aim to achieve ISO 9001 accreditation for their
European manufacturing processes. By ensuring that their business processes
and manufacturing processes are following best practice, Nissan should ensure
that product recalls are limited in both scope and frequency.

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20
Appendix A – Internal Factor Analysis Summary (IFAS)

Internal Strategic Factor Weight Rating Weighted Score Comment

Strengths
Global Financial Position 0.1 4 0.4 Able to be supported in the short-mid term
Management Development
0.15 4 0.6 Should provide competitive advantage
Programs
Manufacturing Processes 0.1 5 0.5 Significantly better than competitors’
Branding 0.05 4 0.2 Better than Japanese Rivals
Partnership w/ Renault 0.15 4 0.6 Provides Market Influence
Weaknesses
Lack of Market Knowledge 0.1 3 0.3 Renault partnership provides market information
Product Recalls 0.1 1 0.1 Potential to harm brand image
Lack of Hybrid Technology 0.05 1 0.05 Long-Term Risk if not pursued
Costing market share as Europeans strongly
Lack of Diesel Technology 0.2 1 0.2
prefer diesel over unleaded

Total Score: 2.95/5 (Slightly Below Average)

21
Appendix B – External Factor Analysis Summary (EFAS)

External
Weighted
Strategic Weight Rating Comment
Score
Factor
Opportunities
Eastern and Lacks clear strategy to
0.15 3 0.45
Central Europe penetrate market
Renault-Nissan
Has reduced the
Purchasing
0.1 4 0.4 bargaining power of
Organization
suppliers
(RNPO)
Distribution Potential for large cost
0.15 2 0.3
Network savings
Threats
Market Deliberate decision to
0.2 1 0.2
Saturation not segment market
Management training
Cross-Cultural
0.15 4 0.6 programs aid cultural
Disharmony
awareness
Commodity Little ability to affect
0.1 4 0.4
Prices prices
Advantage over other
Political non-European
0.05 4 0.2
Influence manufacturers due to
Renault alliance
Competitive Continual
0.1 5 0.5
Rivalry improvement strategy

Total Score: 3.05/5 (Slightly Above Average

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