European Business Review

Renault-Nissan: a marriage of necessity?

Tom Donnelly, David Morris, Tim Donnelly,
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EBR
17,5 Renault-Nissan: a marriage
of necessity?
Tom Donnelly, David Morris and Tim Donnelly
428 Motor Industry Observatory, Coventry Business School,
Coventry University, Coventry, UK

Abstract
Purpose To examine the reasons why Renault of France and Nissan of Japan entered into a merger.
Over the past decade the automotive industry has been subject to a spate of merges and take-overs
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which not only brought about a considerable degree of consolidation, which made it increasingly
difficult for smaller concerns such as Renault and Nissan to compete globally. This paper examines the
reasons why these two merged and demonstrates how success was achieved in the short term.
Design/methodology/approach The main methodology applied was that of conventional pre-
and post-merger analysis models, but with a particular focus on that of Testa and Morosini which has
been applied to other industries, but not so far to the automotive.
Findings The conclusions drawn from the papers were that careful pre-merger approaches had
been made by both parties to each other and that Nissan had little alternative but to see Renault as a
rescuer. Also illustrated is the role played by strong leadership in the process and the necessity of
speedy implementation of post-merger strategies. Decisions were taken swiftly and the short-term
goals set were achieved.
Research limitations/implications Limitations centre on the short-term nature of the paper
which has a very narrow focus.
Practical implications These centre on the importance of a strong relationship between pre- and
post-merger strategy policies.
Originality/value This lies in demonstrating the importance of the Testa-Morosini model in
cross-border merger analysis.
Keywords Globalization, Profit, Automotive industry, Strategic alliances
Paper type Research paper

European Business Review
Vol. 17 No. 5, 2005
pp. 428-440
q Emerald Group Publishing Limited
0955-534X
DOI 10.1108/09555340510620339
Introduction
In recent years, the automotive industry the assembly sector has become so concentrated
that the top five assembly firms account for 80 per cent of world output. No longer is
production concentrated entirely in the Triad areas of the United States, Western Europe
and Japan, but is found in many emerging countries (Dicken, 2003). Accompanying
geographical expansion from the 1970s, was technological change in automotive
manufacturing. Traditional Fordist methods of production gave way to Japanese methods,
known as lean production which spread across the world in various hybrid forms (Dicken,
2003; Frigant and Lung, 2003). Much of this growth and change was a function of rising
consumer incomes, so much so, that by the 1990s, consumers were no longer content to
acquire basic vehicles, but sought a wider variety of products ranging from small, fast
sports cars, people carriers, 4 4 off-road vehicles to luxury vehicles. Markets became
increasingly fragmented and producers sought to have a presence in every major
geographical and product market segment either through internal development or
acquisition. Indeed, in the mid-1990s, it was forecast that eventually the world auto
industry would be dominated by no more than six major groupings drawn from two firms
in each of the major triad regions. What was not foreseen were the cross continental
 mergers between Daimler-Benz of Germany and Chrysler of America and Renaults virtual Renault-Nissan:
take-over of Nissan of Japan, and it is the latter that this paper intends analysing. Finally, it a marriage of
need stressing that this particular case study is part of a wider research study on mergers
in the auto industry being undertaken in Coventry Business School. necessity?
What makes the Renault-Nissan study important is that it represents the first time
that a European car company gained a major interest in a Japanese counterpart.
Secondly, it was part of Renaults attempt to embark on a fast track in becoming a 429
global player and so escape its dependence on its northern European market through a
series of mergers in 1999-2000 when it also acquired Dacia of Romania, Samsung of
Korea and expanded its operational base in the Mercosur markets of South America.
Thirdly, Nissan was weak and had been actively seeking a partner. Its domestic
market share was in near continuous decline, lagging badly behind Toyota. In 1999, its
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consolidated balance sheet debt stood at Y4.3 trillion yen (US$22 billion) and it suffered
from excessive over-capacity. Some commentators saw such a merger as a marriage of
desperation for both parties. Both had tried to merge with other firms Renault with
Volvo and Nissan with Daimler-Chrysler but their overtures had been rejected,
leaving them exposed and vulnerable to competition and predatory approaches from
rivals. Finally, the relationship between Renault and Nissan is legally an alliance,
especially with the setting up of RNBV in October 2001 under Dutch law to protect the
separate identities of each (Renault Press Release, 2001c). In reality however, the early
behaviour between the two firms was more of a merger in pattern and style over the
first two years of their relationship. Therefore, the approach taken throughout this
paper falls more in the merger than in the straight strategic alliance field and will be
treated as such in terms of academic analysis.

Literature review
International mergers are by no means unique in the automotive industry. Therefore,
the relationship between Renault and Nissan needs to be contextualised within the
expansion of international markets, regional market integration, the intensification of
competition and the reduction in tariff barriers to the extent that mergers and
acquisitions have become the most widely used method of achieving growth
particularly in oligopolistically structured industries (Capron, 1999). Though mergers
fall into different classifications, the only one of immediate relevance is the horizontal
type which basically is a merger between two entities that produce similar goods using
similar inputs and technology with approximately the same type of suppliers and
customers (Capron, 1999). The motivation behind merger or acquisition activity is
varied. On the one hand, for an expanding company there may be a desire to achieve
economies of scale and scope, penetrate new markets, gain access to design, technology,
production processes and achieve a degree of synergy so that the outcome of the exercise
proves beneficial to both parties. On the other hand, for a declining company it may be
part of a resuscitation operation to prevent further deterioration (Vermeulen and
Barkema, 2001). As Slatter (1994) has shown, the hallmarks of the declining firm are
easily illustrated and can be summed up as falling profitability, declining sales and
market share and weak top management to cite but a few examples.
In contrast to the broad market theories behind mergers, some scholars have identified
a range of what are called managerial theories. These argue that mergers often take
place when the prime objective of the controlling managers is the growth of the firm rather
 EBR than its profitability. Such theories suggest that fast growing firms, having already
17,5 adopted a growth maximisation approach, are likely to be involved in merger activity,
both to grow the firm and to enhance managerial status and remuneration (Vermeulen and
Barkema, 2001; Seth et al., 2000) Despite such elaborate theorisation, it must be stressed
however, that often the expected outcomes in improved market performance and
profitability are not realised (Meeks, 1977). In fact, it has been suggested that around 50 per
430 cent of mergers are unsuccessful (Pritchett et al., 1997; Testa and Morosini, 2001). In the
automotive industry itself, this has been borne out in the failure of British Leyland and the
experience of BMW with Rover (Donnelly and Morris, 2003; Foreman-Peck et al., 1995).
Current research on mergers goes beyond the bounds of company performance,
showing that success or failure can often be bound up with strategic fit, pre- and
post-merger inter-firm relations (Testa and Morosini, 2001). In the pre-merger or
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courtship period, attention needs to be devoted to critical aspects such as an evaluation

of the trade-off balance between the price paid, respective strengths and weaknesses, the
product and operational mix, geographical coverage, the quality of the acquired
management team, future investment requirements and potential development. In the
case of cross-border mergers, technical problems such as differences in market
conditions, taxation and accounting systems, stakeholder and shareholder expectations,
as well as cultural differences, need to be taken into consideration. All of these can be
extremely complex with the human aspects being perhaps the more subtle and difficult
to manage (Leighton, 1993; Pritchett et al., 1997; Van de Vliet, 1997). Indeed, mergers
may fail because of too short a courtship period because firms fail to get to know each
other well enough prior to effecting the merger (Morosini and Radler, 1999).
Research indicates that the post-merger phase generally proves to be the more
difficult of the two, primarily because it focuses on strategic and operational
implementation policy which involves organisational, cultural, personnel and process
issues as companies try to combine to achieve desired ends (Van de Vliet, 1997). Three
clear stages in the post-merger process that need swift implementation to be effective
have been identified (Testa and Morosini, 2001). Firstly, in the initial three months,
integration plans need to be drawn up and the managerial power structure decided.
Secondly, the decisions taken in this initial period should be effected quickly. Thirdly,
in the following 12 months all measures concerning rationalisation of operations and
market procedures should be carried out. This entire process should take no more than
18 months to two years. Implicit in this, is dealing with short, medium and long-term
solutions. These may involve rationalisation of production facilities and of labour,
refocusing and repositioning in the market place, divesting poor performing assets and
embarking on new product development (Slatter, 1994).
According to Testa and Morosini (2001), crucial to the success of mergers is the role of
implementation management under strong leadership, a process through which
management in the acquired firm can be motivated to identify with and work with the
acquiring team. It is, therefore, essential that an implementation team or teams
sometimes drawn from both firms be created to identify what changes are necessary,
how and within what realistic time frame these should be implemented in the short,
medium and longer term. Typical of the key topics covered are organisational structure,
reporting and decision-making structures, performance measures, rationalisation,
human resource management, operating procedures and management systems etc. In the
case of cross border, let alone inter-continental mergers, such issues need to be handled
 carefully to avoid upsetting cultural feelings in relation to beliefs, language, knowledge Renault-Nissan:
and values (Ghosn, 2002). Finally, from this brief literature review it is clear that the a marriage of
tasks in effecting a successful cross border merger are considerable and it is to the
Renault Nissan experience that attention now turns with much of the analysis, though by necessity?
no means exclusively, following the Testa and Morosini (2001) model.
In the light of the above brief literature review on mergers, the main research
questions generated in writing this paper centre firstly, on why the merger happened in 431
the first place; secondly, on how Renault and Nissan jointly decided upon and
implemented a recovery strategy and, thirdly, how they planned for the medium to
long-term future. The chosen method of analytical approach is that of the case study.
The reason for this is straightforward in that it permits the systematic investigation of
both organisations, allows data to be collected over a period of time and facilitates the
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analysis of the context and processes surrounding the particular topic under scrutiny.
In this instance, the approach is qualitative rather than quantitative. Even though it is
often difficult to generalise from individual cases, in this example the value of such an
approach lies in its relatability in that it allows comparisons to made with other
mergers in the auto industry such as those between Ford-Jaguar, Rover-BMW and
Ford-Land Rover and so is a contribution to the general body of literature on mergers
in the auto industry. The relevant data were collected between 1998 and 2003 and were
drawn from a range of sources including company accounts of both Nissan and
Renault, press releases and letters to shareholders as well as from both French and
English language sources, such as academic and professional journal articles, the trade
press, case studies, newspapers and web sites. Overall the quality of the information
found was consistent and held up well through triangulation analysis.

Why did the merger between Renault and Nissan happen?

After eight months of negotiation, Renault and Nissan ended their courtship and sealed
their relationship in April 1999. At first glance the two looked ill-suited bedfellows.
Renault had been partially privatised in 1996 with the French state still owning 44 per
cent of its capital. In 1984, it had stood on the verge of bankruptcy, but the following
decade saw a dramatic turnaround with the emphasis on internal restructuring, cost
cutting and on quality rather than volume. New cars such as the Espace, Twingo, Clio,
Megane and Scenic models saw a return to profit with European market share
stabilising at around 11 per cent (Lebeault, 1996). In 1996 Renaults revenues stood at
FF184 billion, but within two years had swollen to FF244 million, representing almost a
decade of profitability. By European standards Renault was highly efficient. Almost all
of its plants were operating at close to full capacity with some running at three shifts per
day (Feast and Hunston, 2000). Sales, however, were highly concentrated with 84.5 per
cent being in Western Europe alone. The high concentration on its domestic European
market meant that in comparison with other major producers, especially its European
rival, Volkswagen, Renault was extremely parochial in scope and possibly vulnerable to
a predator when the industry was globalising rapidly (Schweitzer, 1999).
Nissan was a traditional Japanese firm that had been founded in 1933 by Yoshiuke
Aikawa under the name of Jidhosa-Seizo (hereafter referred to as Nissan) After Japans
defeat in 1945, the firm, along with other Zaibatsus, was disbanded, but the car division
survived. In 1966, it merged with Prince Motors in the hope of challenging Toyota. This
failed to materialise and from the late 1970s its domestic market share declined annually
 EBR over 27 years until 1998, when it stood at only 19 per cent compared to Nissans 40 per
17,5 cent. The situation was made worse by the fact that its plants ran at an average of only 54
per cent of capacity utilisation which had an adverse effect on unit costs (Hunston,
1999a). Similarly, its world market share dropped from 6.6 per cent in 1991 to 4.9 per cent
in 1998. Even in North America, Nissan was falling behind its Japanese rivals in market
share and in local build. In 1998 alone, sales plunged by 15 per cent to 621,550, leading to
432 a loss of $700 million dollars (Business Week, 1999; Hunston, 1999b). In other words,
Nissan conformed to Slatters paradigm of a declining firm (Slatter, 1994).
How did Nissan manage to get into such a state? The answer is complex rather than
monocausal and is bound up with the overall stagnation in Japans economy in the 1990s
and the rising strength of the yen, which hampered exports. As a consequence, overall
Japanese automotive production fell almost continuously throughout the decade,
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declining from over 13 million units a year in 1991 to marginally above 10 million in
1998. More significant were problems internal to Nissan. Essentially, Nissan was a
conservative firm enmeshed in traditional Japanese business culture. Its senior
management, recruited primarily from the law faculty at Tokyo University, was
bureaucratic and conservative in approach, whereas, allegedly, Toyota was run by a
bunch of mercantile bruisers from the Nagoya countryside (Hunston, 1999a). In such an
environment there was little emphasis on profit. Implicit in this, was an extremely
functional approach to management with little cross-functional relationships, resulting
in poor internal communications. Indeed, it has been argued that due to its insular
structure, Nissan suffered from a lack of urgency and had no shared vision of its
strategic future (Hunston, 1999b). This expressed itself not only in decline, but in the
high prices Nissan paid to its almost captive suppliers through the Keiretsu system in
which prices were inflated through a lack of cost control. Having 3,000 suppliers
almost ten times more than Ford exacerbated this further. Additionally, cost problems
were not helped by the fact that Nissans over capacity was running at around 500,000
cars a year through having too many factories with over 50 models produced from 25
chassis compared with Volkswagens four. Nissans design capabilities were considered
extremely deficient in that too many bland models were launched on the market with
several being considered almost clones of earlier Toyota models (The Economist, 1999).
By 1998, credibility in Nissans senior management cadres had all but disappeared.
Nissans poor shape raises the question of why did Renault want to ally itself with
it? Firstly, in the light of the industrys increasing concentration, Renault needed to
expand beyond the confines of its Northern European base if it was to survive in the
long term. Secondly, to be credible in a global context, a presence was required in North
American and Asia Pacific markets. Thirdly, such expansion was prohibitively
expensive and could not be effected without a partner. An American partner was out of
the question as Ford, General Motors and Daimler-Chrysler were still trying to digest
their own recent marriages with other European firms. Attention then turned to Japan
where Nissan alone appeared to be on the market. Subaru and Isuzu were under the
sway of General Motors and Mazda was under Fords aegis.
Merger rationale often entails the potentialities in future market development and
access to a range of technologies (Capron, 1999). In the case of Renault-Nissan this was
clearly apparent from the outset. Firstly, Nissan enjoyed a strong market presence in the
United States and Asia, whereas Renault was buoyant in Europe and the Mercosur
markets. Secondly, their combined technological strengths would undoubtedly be of
 mutual benefit. Renault offered considerable expertise in research and development, Renault-Nissan:
concept design and in marketing, whereas Nissans main strengths lay in its engineering a marriage of
technology. Additionally, Renaults product range was complemented by Nissans
reputation in pickups and off-road vehicles as well as in top-of-the range models, such as necessity?
the Infiniti, whereas Renaults Safrane had proved a singular disappointment (Schweitzer
1999).
433
Post-merger implementation
As noted earlier, successful mergers depend very much on the swift implementation of a
carefully thought out post-merger policy, often only after a careful period of courtship
(Testa and Morosini (2001). After a pre-merger phase of eight months in which Renaults
vice-president, Carlos Ghosn, led the negotiating team, an agreement was reached.
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Under the terms of the accord Renault acquired the following equity participations: 38.8
per cent of the capital of the Nissan Motor Company; 22.5 per cent of the capital of Nissan
Diesel and 100 per cent of Nissans European sales and financing subsidiaries. The total
sum paid amounted to Y643 billion or FF32.7 billion (Schweitzer, 1999). This allowed
Renault the option of ultimately increasing its share in Nissan to 44 per cent, with Nissan
being able to take a share in Renault when the time was opportune. Almost immediately,
Ghosn, who had joined Renault in 1996, was charged with turning Nissan round.
Reaction to the deal in Japan was somewhat muted. There was a resentment that a
foreigner had been placed in charge of rescuing a famous Japanese company, but this
was tempered by the fact that all seven of Nissans own internal rescue plans had failed
and that it is managements credibility was at an all-time low (Hunston, 1999a).
According to Testa and Morosini (2001), the successes of mergers can be impeded by
the failure to enact it under a credible leader, able to deal with diverse national or company
cultures as well as being capable of decisive action. Important as this may be, there is also a
requirement for putting into place both managerial and communications structures. The
choice of Ghosn as Chief Executive was astute. His management record with his previous
employers, Goodyear Uniroyal and Michelin, was sound. At Renault, he was credited with
the successful restructuring of the firm in the late 1990s, getting costs under control and
revitalising the firm. Well aware of the social and cultural differences between the two
societies and firms, Ghosns approach to his task was sensitive. Among the differences
were those of language, decision-making, communications systems and labour
regulations. Decision-making at Nissan was by consensus in contrast to Renaults
European style of decision-making by senior management. At Renault stress was laid on
individual responsibility, accountability and rewards, whereas in Nissan these were group
oriented (Hughes et al., 2001). There were, however, similarities between the two entities.
Both were large, enjoyed a long history, had a sense of patriotism and were bureaucratic
with strong hierarchical structures with a high proportion of senior management being
former civil servants with little formal business education (Flament et al., 2001).
In dealing with such cultural problems and underlying resentments, Ghosn knew
that cultural sensitivity would have to be complemented by swift action if Nissan were
to be rescued quickly. It was made clear that Renaults approach was not one of
cultural imperialism but one of mutual respect in which the participating parties would
treat each other as equals (Le Monde, 1999). Moreover, there was no cull among the
executives who had failed Nissan. Instead they were reallocated to other duties when
Ghosns reforms were implemented (Hunston, 1999a).
 EBR In following the precept that speed and integration are vital in effecting a merger
17,5 (Van de Vliet, 1997), Ghosn moved fast. To improve communications, English was
made the official language of the company and a glossary of around a hundred key
words was drawn up in an attempt to avoid linguistic misunderstandings. English
language classes were made available to all staff. Ghosn himself did learn some
Japanese, but primarily for social rather than for professional reasons. The means of
434 communication though had to be supplemented quickly. New managerial structures as
tools of post merger policy implementation and also as a means of integrating the two
management personnel at different levels were essential. This was important if the
problems of debt, unit costs and model development were to be addressed within a
short time frame. To assist him in this, Ghosn brought with him a 20 strong team of
hand-picked executives including Patrick Pelata and Thierry Moulonguet who,
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respectively, were given specific responsibility for product development and finance.
At the same time, in June 1999, the Nissan Board was reduced from thirty members to
ten rather than the earlier agreed twenty-four in an attempt to streamline procedures.
The new board consisted of five members from each firm with Nissans former
president. Yoshikazu Hanawa, being given a seat on the main Renault Board (Hughes
et al., 2001). Finally, Ghosn broke the Japanese tradition of promotion by seniority,
introducing a merit system, so that it was possible for a young manager to direct
someone several years his senior in age (Flament et al., 2001).
The new trans-national board, called, the Global Alliance Committee (GAC), was
charged with trying to develop a joint strategy between the two firms. Additionally, to
effect speedy integration between the two management teams, nine Cross Functional
Teams (CFT) and eleven Cross Company Teams (CCT) were formed with the chair of
each committee being from Renault and the vice chair from Nissan or vice versa. It was
from their recommendations that the Nissan Revival Plan emerged. While the role of
the CCTs was to search for synergies, the themes, covered by the CFT teams, for
example, whose membership was limited to ten to ensure progress, covered business
development, purchasing, manufacturing and logistics, R&D, sales and marketing,
general administration, financial management, product phasing out and organisation
and decision-making processes. As all of these topics were extremely large so
sub-teams were set up to explore specific topics so that in all, around 1,500 people were
involved (Hunston, 1999b). The important point though is that cross-company
structures were established quickly so that both could identify with the problems and
the subsequent outcomes.

The Nissan revival plan

From the outset, it needs stressing that the NRP was not simply about cost reductions
and a short-term recovery. It was designed to reposition Nissan in the market place for
long-term growth and to identify where market and technological complementarities
and other synergies could be identified and achieved. The CFTs worked fast and in
October 1999, as shown in summary form in Table I, the Nissan Recovery Plan (NRP)
was announced. The NRP was predicated on three main premises:
(1) Nissan would be profitable by the end of 2002.
(2) Business debt would be reduced by 50 per cent by 2003.
(3) The return on equity would be at least 4.5 per cent by the end of 2002.
 Ambitious though these targets were given Nissans plight, the NRP was described as Renault-Nissan:
brutal surgery, but accepted with an air of resignation, as there was no viable alternative a marriage of
on offer, despite the proposed factory closures and job losses entailed (Nunn, 1999).
Of the main tenets of the NRP, it was the decision to close five plants in all with a loss necessity?
of 21,000 jobs that was the most offensive to the Japanese as it violated the concept of
lifetime employment. Yet costs had to be reduced by Y1 trillion or US$9 billion by 2001
and debt halved to Y700 billion. However, there were no enforced redundancies and the 435
desired reductions were achieved through natural wastage and the ending of short-term
contracts. Displaced workers were helped in finding alternative jobs in other Nissan
plants. The logic in closing the Murayama, Nissan Shatai Kyoto and Aichi, Kikai Minato
assembly facilities plus two engines plants was inescapable. The only effective way to
attack costs and improve capacity utilisation by over 30 per cent was to concentrate
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output in the most productive factories. Additionally, as a way of preventing inventory

growth in the light of poor sales, total annual production was reduced from 2.4 to 1.6
million units. Apart from jobs being shed in production a further 6,500 were cut in
affiliated dealerships, 6,000 in sales and general administration and around 5,000 in
spun-off businesses (Hunston, 1999b). Finally, all holdings in non-core businesses in
almost 1,400 companies were sold off to raise capital. In more than half of these Nissans
stake was as much as 20 per cent. In other words, cost saving and the raising of capital
was to be used for debt reduction and investment (Hughes et al., 2001).
Simply reducing capacity and the work force, though of themselves significant,
were insufficient to restore Nissans fortunes. This could not be done without a vast
improvement in design capabilities and the production of new customer attractive

Business development Introduce a minicar model in the Japanese market by 2002

Manufacturing and logistics Close three assembly and two power train plants in Japan
Increase capacity utilisation to 80 per cent by 2002
Purchasing Reduce the number of suppliers by 50 per cent
Reduce purchasing cost by 20 per cent by 2002
General and administrative costs Reduce SG&A by 20 per cent by 2002
Reduce direct labour force by 21,000 by 2002
Research & Development Organise globally
Raise output by 20 per cent by 2002
Sales and marketing Use a single global advertising agency
Close 10 per cent of retail outlets in Japan
Close distribution subsidiaries by 20 per cent in Japan
Create common back office centres
Finance and cost Sell noncore assets
Reduce automotive debt by 50 per cent to $5.8 million
Reduce inventories
Phase out of products and parts Reduce the number of Japanese plants from seven to four by 2002
Cut the number of platforms used in Japan from 24 to 15 by 2002
Reduce by 50 per cent the parts used due to differences in engines
or market destination
Organisation Set up regional management committees
Empower programme directors and managers
Introduce performance related pay incentives, including stock
options Table I.
Source: www.renault.com; www.nissan.com and Ghosn (2002) The Nissan revival plan
 EBR models. Though Renault executives provided some assistance in the design side, it was
17,5 essential that Nissans own design be strengthened. Symbolic in this was the recruiting
of Shimo Nakamura, an experienced designer from Isuzu. More importantly, 500 new
jobs were created in design, especially in engineering and styling. The revamped team
was instructed to express itself more forcefully than hitherto, while regional design
centres were empowered to work more closely to global standards and concepts
436 (Hunston, 1999a). Indeed, by 2001, Nissan was designing independently. Though no
fewer than 22 new models were promised between 2002 and 2004, the key to this, as
well as to boosting company morale, was success in the American market where four
new models were targeted by 2002 including a new Z series coupe. In Europe, the
model range was to be revamped through new cars such as the Altima, a new 4 4 and
a new Micra model which would share a platform with the Renault Clio (Hunston,
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1999b).
In the search for synergies and cost control through economies of scale and scope,
the NRP argued that there should be a sharing of platforms, engines and transmissions
across models. This is always easier said than done in the automotive industry,
especially when different models are at different stages in their development cycles.
Initially both firms wanted to reduce design-to-market times to circa 18 months and
gradually synchronise the cycles. The ultimate aim was to rationalise Nissans
platforms to 15 in number by 2002 and to no more than 10 for both firms by 2010 when
50 per cent of all models will be launched from the new B and C platforms. At the time
of the merger, Renault was producing approximately 250,000 units per platform, per
year and Nissan, 150,000. By the target date, the joint figures will be 500,000 per
annum. In 1999, teams of engineers drawn from both firms developed their first
common platform, known as the B platform as the basis for the successors of Renaults
Clio, and Twingo models and Nissan Micra, March and Cube cars. Similar policies
have been inaugurated in the sharing of engines. The long-term objective is to have
eight common families for engines and seven for gearboxes. Work is also being carried
out on the joint development of a new direct-injection 1.2 litre common rail diesel
engine for platform B vehicles. Equally there will be cross-use of existing power trains.
Renault will use the V6 3.5 litre engine as well as its four-wheel drive transmissions in
its larger vehicles such as the Vel Satis and the Avantine (now discontinued).
Correspondingly, Nissan will equip its small vehicles with Renaults low-torque
manual transmission. In other words, the two firms embarked on a modular strategy
(Renault Press Release, 2001a; Weenink, 2001; Hunston, 1999a). Finally, in research and
development for the future, apart from exchanging staff, both firms are cooperating on
a range of areas in advanced in engineering such as weight reduction, hybrid vehicles,
telematics and X-by-wire systems (Flament et al., 2001).
Further areas identified in the NRP for cost savings and pooling resources lay in the
field of suppliers. This became apparent when the problems Nissan was experiencing
through reliance on the traditional Kereitsu system came to light even though several
main suppliers were managed by former Nissan managers. Nissan did not know
exactly what a goodly number of its suppliers actually produced. It was made clear
that the situation could not continue and so annual price cuts were imposed on all
suppliers amounting to 20 per cent over three years. Moreover, Ghosn announced that
the total number of first tier suppliers would be reduced from circa 1,300 to around 600
by 2002 with exacting quality standards being imposed on those who remained with
 the firm. Moreover, they had to be able to supply globally and if they failed to comply Renault-Nissan:
with the revised standards, then the market would be opened up to multinational firms a marriage of
such as, Delphi and Visteon (Galliard, 1999).
Eventually, the two firms decided to go further in the search for synergies and necessity?
established a common purchasing organisation, called Renault Nissan Purchasing
organisation (RNPO) as an equal, joint venture in April 2001. Given the scale of
purchasing by both firms, this was an area where their combined strength was bound 437
to increase bargaining power over suppliers and yield considerable savings,
improvements in quality and delivery. At the time of formation RNPO covered 30
per cent of the global annual purchases of both companies, amounting to
US$14.5 billion, but by 2005 it will account for 70 per cent of total purchases and
should yield an annual saving of US$1.14 billion (Schweitzer, 2001) In total RNPO had
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a work force of a hundred strong drawn from both companies and dispersed across
Europe and America (Renault Press Release, 2001b).
As discussed earlier, one reason for mergers or strategic alliances is the possibility
of market or specific segment expansion. Renault and Nissan were strong in their
respective areas, but both needed to expand in a complementary manner, while
retaining separate identities. Renault, as discussed earlier, was strong in Europe and in
the Mercosur but had no presence in North America and was scarcely known in Asia.
Correspondingly. Nissans strength lay in Asia, North America and to a much lesser
degree in Europe and this was primarily due to UK operations. It was weak in the
Mercosur. The opportunities for assisting each other were ripe.
Beginning with Renault in 1999, the company announced its intention to return to
the Mexican market. Through using Nissans facilities at Cuernavaca, for example, the
Scenic range was launched in 2000 and year later the Clio was being produced at the
Aguacalientes plant. Both were sold through Nissan dealerships and were able to
benefit from the introduction of Renaults specialist credit facilities, Renault Credit
International in Mexico. In Spain, the new Traffic, a joint venture between Renault and
General Motors began production in Nissans Barcelona plant. In both cases Nissan
was able to increase capacity utilisation in its plants and expand its range of products
(Vedupuriswar and Mohopatra, 2003). Beyond these frontiers, Renault was able to
return to the Australian market, as well as penetrate the Japanese and Indonesian
markets (Just Auto, 2001).
For Nissan, it was vital to penetrate the competitive South American market where
Renault was well placed. Announced in 2000, Nissans long-term strategy in the
Mercosur is to sell a minimum of 150,000 vehicles a year by 2010 with Renaults
support. The NRP gave Nissan its first significant growth opportunity in this region. It
will invest a total of US$300 million by 2005 to manufacture five products locally. In
addition to production, Renault and Nissan will cooperate in various operations,
including manufacturing, purchasing, sales and administration to the extent that by
2010 they hope to share 15 per cent of the market. The first stage in this process was
the manufacture of the Nissan Frontier in 2001 at Renaults Curitiba plant, with 90 per
cent of suppliers being common and local content reaching 64 per cent in 2002. The
Frontier will be followed by the Nissan Xterra, a Sports Utility Vehicle (SUV) and then
by three further vehicles (Renault Press Release, 2000b). Further evidence of the
growing relationship between the two firms in Latin America was the opening of the
shared Ayrton Senna facility in San Jose dos Pinhais in Parana. This marked the first
 EBR stage in Nissan becoming a local manufacturer with the plant being able to
17,5 manufacture the Renault Master van and the Frontier pick up in 2002.
Returning to the European market a major feature of the alliance was the setting up
of a joint European marketing organisation to boost market share to 17 per cent and
expand profits, while trying to protect their respective distinctive brand image. The
intention was to function at local, national and European levels and was designed to
438 save US$1 billion between 2000 and 2005 through achieving economies of scale using a
hub and spoke approach to main dealers and subsidiary outlets, while sharing
backroom office functions (Renault Press Release, 2000a).
The importance of leadership in merger implementation, as stressed by Testa and
Morosini (2001) was evident in the crucial role played by Ghosn. Though he never quite
mastered Japanese to accompany his linguistic skills in French, Portuguese, Arabic
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and English, he proved more than capable of turning Nissan round. It was argued that,
apart from appreciating the scale of Nissans problem and the paramount importance
of turning the company round quickly, his greatest asset was his ability to
communicate his vision at all levels down to the shop floor and to appear not as a
French or Brazilian leader but simply as a leader. Ghosn realised that Renault had to
work with the Japanese rather than appear to dominate them. To this effect he selected
his own team carefully, created bi-national, cross company teams quickly, setting up
integrated structures to bring both sides together. He ensured that the flow of
personnel was not simply from west to east, but two-way with Japanese managers and
personnel being seconded to Renault in France. Additionally, his was an open style of
management that, while not seeking popularity, encouraged debate. Ambiguity in
communication was avoided by the setting of setting clear, quantifiable objectives
within specified time frames to create a sense of urgency with quick feedback given to
subordinates as necessary (Yoshino and Egawa, 2002).
In the end Nissan was turned round. By 2002 the debt had been wiped out, revenues
had grown to Y6.83 trillion and the operating margin stood at 10.8 per cent. In fact
Nissan entered the fiscal year 2003 in a cash positive state of Y8.6 billion yen. Indeed,
by 2002 it was Renault that was sagging in the market place with profitability being
kept up through Nissans success. All three promises had been kept. Ghosn was able to
say that 80 per cent of the original tasks had been carried out in 50 per cent of the
allotted time, making Nissan one of the most profitable firms in the industry
(Nissan, 2002; Le Monde, 2001).

Conclusion
The Renault-Nissan alliance represents another example of the growing consolidation
taking place in the international automotive industry where size and scale, despite
flexible technologies, are still significant. The reasons for this quasi-merger were quite
complementary in that the coming together of their respective strengths allowed their
weaknesses to be addressed. In addition to the immediate complementarities, the
Renault-Nissan experience is illuminating it that firstly, it represents a clear example of
the need for a period of courtship between two concerns so that a solid element of
trust and mutual respect is built. Secondly, it emphasises the if importance of choosing
the right leader whose attitude is consistent to inter-firm bridge building and who was
singularly focussed on his task as delineated in Testa and Morosinis work. Thirdly,
Ghosns attitude led to the creation of a sense of urgency in turning Nissan round and
 to this end swiftly installed structures and cross company teams to help conceive and Renault-Nissan:
later drive his post merger implementation policy. Finally, the case illustrates the a marriage of
simple fact the synergies do not simply emerge but have to be carefully thought out
and worked at if they are to be achieved as time proved. necessity?

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assets, California Management Review, Vol. 42 No. 3, pp. 50-71.
Renault Press Release (2001), Renault and Nissan plan new moves on the Indonesian market,
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Renault Press Release (2001), Renault and Nissan inaugurate the first new common plant of the
alliance, 20 December.
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