Renault-Nissan: The Challenge of Sustaining Strategic Change - Case Study Example

Re: Renault-Nissan: The challenge of sustaining strategic change Executive SummaryNissan was facing tough challenge in regards to meeting customer demands and thereby in gaining on its market share and revenue increments. This fact made it unable to reduce the impact of debt and in rendering dividends to shareholders. Thus the company focused on gaining assistance of Renault to help enhance on its productivity and profitability dimension. The paper in this regard focuses on evaluating the challenging conditions of the company and the changes that the company can bring about to revive its bygone position. In that the paper focuses on conducting an environmental analysis and thereby in rendering effective recommendations based on evaluation of alternatives available to counter emerging challenges rising thereof. Introduction The automobile company Nissan was finding it tough to exist in the market subjected to large number of challenges in regards to a decline in the level of market share, and also owing to the pressure of debt and rising ineptness in its supply chain systems. To this, Nissan felt the need to gain the assistance of Renault to help survive in the potentially competitive market largely governed by policies pertaining to amalgamations and mergers and rising customer expectations. The power of bargaining in regards to the consumers largely increased tempting the automobile manufactures to reduce the level of prices of the vehicles manufactured. Thus the automobile companies like Nissan and Renault having merged were required to enhance the level of value related to the production and supply chain processes side by side also focusing on reduction of the price parameter. Thus the demand of the market was enhanced innovation coupled with developed value but at the same time reduction of the cost related to such that became the challenge of the automobile companies (Ramaswamy, 1-3). The paper focuses on conducting an environmental analysis of Renault-Nissan to understand the key internal and external challenges and the strategy that the corporation would take on such count. Finally the paper would also focus on some potential alternatives that the company could have taken to revive and the recommendation and implementation plan on such account. Environmental Analysis of Renault-Nissan Internal Environment Analysis The internal environment analysis of Renault-Nissan would be conducted on certain salient parameters that can be outlined as follows. Firstly the two companies were found to largely differ on cultural parameters. Renault and Nissan both worked on the production and development of automobiles yet the two companies differed on cultural standpoints such that Nissan worked on a conservative mentality while Renault reflected a revitalising attitude. These cultural differences in the two companies created a sense of conflict among the employees working in the amalgamated firm thus reducing their sense of motivation to work productively. Furthermore, the management philosophy of Renault tended to encourage the communication flow from bottom to the top level thus reflecting a sense of empowerment in the company rather than conservative bureaucracy as reflected by the hierarchy of relationships in internal communication in Nissan. However the alliance formed between the two companies helped in the enhancement of potency pertaining to the procurement and information sharing activities. In regards to the procurement functions the formation of such alliance helped Renault-Nissan to gain on economies of scale while tending to conduct its purchasing functions for raw materials and other inventories. Through such strong alliance the companies gained the potency of countering the bargaining power of the supplier communities and thereby helped in gaining on scale economies. Henceforth internally the firm earned the potency of being able to reduce the price points of the products through rendering potential impact over the suppliers which was not possible previously by Nissan. On the other hand the joint alliance also helped in the formation of an information services company that worked to retrieve large amount of potential information about the changes in market demands. This information arm also helped the company in gaining the potential in effectively communicating with the extraneous stakeholders like consumers, government, shareholders and the like about changes in business policies with also other changes brought about in the design and competency of the product offerings. Thus the creation of the information and publishing arm by the company helped in reducing its dependence on external print media in regards to its endeavour to communicate effectively with external stakeholders. In addition the set of internal policies of the alliance company also worked in rightly differentiating between core and support functions through the creation of separate departments. However the functioning of the units is integrated through the sharing of potential information based on a technology platform. This process resulted in the amalgamation of synergies of the different units of the company to gain a wholesome productivity. The business policies of the company also included of holding of frequent meetings by the board or the top management of the concern where potential reviews were made by the company of the products produced and the existing business process in regards to the results in terms of sales and revenue. Moreover a large number of teams were created by the joint company that worked in rendering potency in regards to several functions pertaining to production, planning, procurement, marketing, sales and other international functions of the company. Thus the internal analysis of the alliance company Renault-Nisan reflected both cultural conflicts and strategic potencies in regards to the workforce and business structures (Pal and Richter, 28-29, 31-32). The above discussion can be reflected through two diagrams that can be rendered as follows. Figure 1: Renault-Nissan Internal Strategic Framework (Pahl and Richter, 31) Figure 2: Creation of Cross-Functional Teams (Pahl and Richter, 32) External Environment Analysis The external environment during the 2008 period reflected a drop in global sales by around 5 percent. In respect to the global drop in sales by 5 percent the Renault group also reflected a drop in sales by around 4.1 percent. However the market share of the firm is reported to increase by around 3.6 percent during the stated period. Some of the brands of Renault group like Renault and Renault Samsung helped the company gain an increase in sales pertaining to 1.5 percent in countries mainly outside the periphery of Europe. In regards to the rate of market capitalization, Renault is found to stand in the 12th rank during 2008 in regards to other international automobile brands. The graph given below reflects the above situation. Though the automobile market crashed during the 2008 period Renault through its production and research and development strategies focused on gaining a huge market around the world. Moreover coupled with effective inventory system the group worked to help introduce new models that helped the company gain on registrations and financing activities in several regions of the world. The graphs below would rightly indicate on the same. However during 2008 the global sales of Renault received a bad hit for which it fell by around 4.1 percent. Still the company working on its research and development activities managed to gain an operating margin of around 0.6 percent of the total revenue gained. In terms of net income the Renault group gained around 571 million in Euros. Reflecting on regional status it is found that in the European market the sales of Renault group declined by around 7.2 percent. However in regards to market share it grew by around 9 percent by the close of the 2008 period. The same can be reflected through the following graph. Figure 3: Share of Financing of Renault Models Figure 4: Renault’s Performance in Worldwide Regions (Renault, 47) Figure 5: Market Capitalization Rate (Renault, 11) Moreover the revenues of the group also documented a huge fall by around 7 percent during 2008 period in regards to the 2007 period for the Renault group. However from the event of sales financing the group gained an increase in revenue by around 1.1 percent during 2008 in respect of the 2007 period. These downfalls in the activity of the Renault group can be largely accounted from the economic crisis that shook the globe during the same period making a heavy downturn of events for the automobile market as a whole. The fall in the revenue position for the Renault group can be reflected as follows. Figure 6 (Renault, 50) In a similar fashion the operating margin for the Renault group reflected a downward trend accounting for only 0.6 percent of the total revenues during the 2008 period in comparison to 3.3 percent of the total revenues accounted for the group during the 2007 period. An step increase in the cost of raw materials by around 271 million Euros during the 2008 period coupled with severe competitive pressure made the market for automobiles account a sharp decline as along the 2007 period. Thus the environmental situation of 2008 made the operating margin for the automobile industry as a whole decline by around 1,157 million Euros thereby making the operating margin for the industry stand around 275 million Euros in negative. A fall in the level of exchange rates pertaining to the European economies also accounted for the event reflected in the discussion and the graph that follows. Figure 7: Decline in Operating Margin (Renault, 50) The position of the Renault group in terms of percentage of market share and the number of registrations during 2008 in comparison to the 2007 period reflects a decline or same value thus indicating stagnancy in the market rates for the group’s product. The same can be reflected through the graphs rendered as follows. Figure 8: Renault Group’s Market Share and Registration Position (Renault) Commenting on the financial position of the company during the 2008 period in regards to the 2007 period it is observed that the amount of financial debt for the company rose to a level of 7,944 million Euros. This rise in the debt structure is found to accrue to around 40.9 percent of the equity of the shareholders. However the debt capacity of the company during the 2007 period was at around 9.5 percent of the total equity in regards to the shareholders. This rise in the debt position of the company is largely attributed to the reduction in the level of cash flows in the company owing to falling dividends and operating margins. The financial position of the company during the 2008 period can be reflected from the following graph. Figure 9: Financial Position of Renault (Renault, 51) Strategies Several strategic initiatives were taken by the company pertaining to rendering large scale innovation in regards to incorporating new designs and technological interface, recruiting of skilled personnel through the use of internet and thereby making an attempt to retain them through effective training and motivational activities. Similarly the company also focuses on enhancing its communication aspects in regards to the consumers both at the stores level and also through the creation of a business-to-consumer medium. This helped the company in effectively understanding the changes in consumer demands and thereby modifying their products and services accordingly. Strategic set of activities also include the introduction of vehicles run on electric batteries thus inculcating a sense of innovation in the product offerings. Moreover the group also focused on incorporating the action of diverse workgroups in its organisation pertaining to minority groups and also in regards to diversity pertaining to regions. This strategy helped the firm in gaining the idea of local markets and thereby in devising products accordingly to meet local tastes. Creation of local manufacturing and warehousing facilities also served the purpose. Identification and Evaluation of the Alternatives Alternative strategies by the company can be taken where customization of designs are sought in regards to different regions. Thus the company can focus on employing a diversified pool of skilled people belonging to different regions of the world who would help in rendering emotions to the designs sought for the different automobiles. The supply chain functions of the company can also be enhanced through the use of just-in-time concepts in addition to working on the concepts of comfort and convenience to help gain an enhanced consumer space. Recommendations and Implementation Specific recommendations can be placed where the management body of the company can tend to render visits to exhibitions where automobiles of competent manufacturers are displayed. This fact would help the designing and production units to gain hold of competent designs that can help attract the consumers. More so the company can take part in active sponsorship of sporting events like car races to help enhance its brand image in the global consumer market for automobiles. In regards to implementation sponsorship budgets need to be prepared for a specific period and monitoring would be done on evaluation of the returns in terms of sales and revenue obtained from car sales after the period such sponsorship events are held. A return based on investment standards made helps in evaluating the same in an enhanced fashion. References Pahl, Nandine and Richter, Anne. International Strategic Alliances and Cross-Border Mergers& Acquisitions. GRIN Verlag, 30-Mar-2009. Ramaswamy, Kannan. “Renault-Nissan: The Challenge of Sustaining Strategic Change”. January 5, 2009. Web. http://cb.hbsp.harvard.edu/cb/pl/13564283/13564285/9c2438daf22f0b569db70860993269ed April 21, 2012. Renault. “2008 Annual Report”. 2008. Web. http://www.renault.com/en/Lists/ArchivesDocuments/Renault%20-%202008%20Annual%20Report.pdf. April 24, 2012. Read More