Renault-Nissan Strategic Analysis - Case Study Example

? Renault-Nissan Memorandum BA4196/BA4101/BA4996 Delgado Board of Directors Nissan-Renault Re: Renault-Nissan Strategic Analysis Executive Summary It is a great opportunity that we have worked with your company regarding the strategic analysis of alliance. This is a report on the strategic analysis of the situation presented by the alliance and how the strategies adopted by the company are sustainable during this era of intense market competition. The strategic analysis performed on the company included SWOT analysis, porters five forces analysis, financial analysis and competitor’s analysis. The four analyses were adequate to address the different strategies of the company and enabled us derive recommendations on how the company can address its problems (Ramaswamy, 2009, p. 2). Statement of Problem The strategic alliance that was signed in 1999 between Renault and Nissan saw the formation of our company. The company has managed to enjoy economies of scale and this has made significant contributions in our company becoming competitive in the market for cars and spare parts. However, our company has been recording poor financial results and this has led to the raising of concerns by shareholders and potential investors (Ramaswamy, 2009, p. 3). Analysis 1. SWOT Analysis The rationale behind the use of SWOT analysis was to identify the strengths, weaknesses, opportunities and threats relative to our company. The analysis on strengths and weaknesses was to identify the internal factors of the company whereas the analysis on threats and opportunities was aimed at identifying the external conditions that influence the performance of the business. Strengths refer to the factors that have enabled the company create competitive advantages in the market whereas the weaknesses refer to the factors that hinder the company from making progress (Ramaswamy, 2009, p. 11). On the other hand, opportunities factors that our company may explore to remain competitive and threats represent the factors that may hinder the company from recording positive performances. The four factors are analyzed below: a. Strength The company is strategically located in market regions with the highest demands for cars. Renault is located in France whereas Nissan is located in Japan. Europe and North America account for more than 60 percent of the market share for motor vehicles whereas Asia accounts for 21 percent. Our company also enjoys a diverse management team that consists of managers from both Nissan and Renault. The strategic alliance has also proven to be instrumental in driving sales and enhancing economies of scales that allow the company to operate at efficient levels. The company Chief Executive Officer has vast experience in the motor industry and has managed to record positive results in almost all of his former positions including Michelin. The company has been recording increasing sales from its subsidiary, Nissan. b. Weakness Nissan has been facing quality problems in its Ohio plant and this has created a bad publicity for the company. The company has also been recording fading profits since 2007 and this was compounded by the fact that the company has been missing its sales targets since 2009 (Ramaswamy, 2009, p. 9). Nissan has also recorded a decrease in its operating margins with its domestic market recording reductions in sales levels. Generally, the company has lost a significant share of the market. In the case of Renault, we have not managed to improve our product line which has led to the ageing of the product line. We also have poor human resource management structures that have led to the company facing increasing demands from unions. c. Opportunity There is a market gap for the production of hybrid vehicles that are environment friendly. In recent times, there has been an increase in the price of fuel and gas hence creating demand for fuel efficient vehicles. Market statistics indicate that the common influencing factor on consumer purchases in fuel efficiency. An increasing number of car manufacturing companies are forming strategic alliances to exploit new markets and reduce costs of operations (Ramaswamy, 2009, p. 8). d. Threat Increasing competition from both small car manufacturers and large manufacturers poses the greatest threat to the company. Toyota and General Motors have strengthened their positions in the market making it difficult for the company to make expansions. The other threat is that the company has been recording fading profits and this poses the threat of reducing the financial resources of the company that can be used for expansion plans. The growth of the market for used vehicles is a threat to the company because it reduces sales for the company. STRATEGIC IMPLICATION The above SWOT analysis implies that our company can make good sales by shifting and concentrating on the production of fuel efficient vehicles. The company needs to also to design new standards for quality in order to address the challenge of quality issues. The managers are competent enough to steer our company to greater levels of performance given their diversity and experience in the market. We need to improve our market presence in Europe and North America because the two markets form the largest market for cars. However, we should be aware of stiff competition and device superior entry strategies in order to remain competitive in new markets. 2. Porters Five Forces Analysis This section identifies the suppliers, competitors, substitute products, buyers and potential new entrants into the car manufacturing market. a. Barriers to entry There are fewer chances for new entrants into the market for cars because of the high costs of entry. It requires a huge capital outlay in order to establish a company in the car manufacturing market. There is also the existence of protective laws that patent knowledge and ideas of businesses. New products need to be differentiated and attractive in order to record sales. The attractiveness of a car is evaluated on the basis of prices and features. Restrictions to entry are further compounded by government regulations which restrict competition among car manufactures. b. Buyers It is simple and cheap for consumers to move from one product to another. This means that they can move from purchasing SUVs to smaller and fuel efficient cars. In the case of Nissan, there are high costs of switching because the partner company produces fuel efficient cars and this makes it difficult for buyers to switch. There are a large number of customer in the market hence marking them have a high bargaining power. Consumers in the market for cars influence both the price and quality of cars. In recent times, they have been demanding fuel efficient, comfortable and affordable cars. They do not compromise on quality and this was evident in the case where they returned cars with quality issues. c. Suppliers Suppliers have significant bargaining powers in the market for cars and its parts. In the case of our company, there are limited numbers of suppliers and they are large in size making them have controlling power in the determination of the price of the car. The price of the final car is to a large extent determined by the parts supplied by suppliers. Supplier products also have very few substitutes and the supplier industry is dominated by few firms. Our company has little or no substitutes against the suppliers and the entire production line depends on them. There are high costs involved in switching suppliers making it difficult for the company to substitute its suppliers. d. Rivalry among competitors There is intense rivalry in the market for cars. Companies such as General Motors, Toyota, Volkswagen, Hyundai and Ford have dominated the market and have increasing rivalry in the market. The situation has been compounded by the fact that there is increase in the number of alliances, and mergers and acquisitions. Increasing rivalry has also been recorded in terms of prices and quality of products. Car manufacturers are competing to produce affordable cars for their customers as well as maintain high quality. e. Substitute products There are high numbers of substitute products in the market which has increased the threat of consumer switching their demand when prices increase. The market for used cars has been recording rapid growth as a result of low pricing. This makes it easy for consumers to switch their demand to low cost cars whenever we increase prices. The situation has been compounded by the fact that dealers of used cars service their cars to improve their performance. This makes used cars relatively desirable. STRATEGIC IMPLICATION Buyers and suppliers have high bargaining powers in the market and this implies that our company needs to form alliances and expand into the international market. There is intense rivalry in the market and this means that we need to improve our competitive advantages based on price and quality in order to remain competitive. We also need to offer affordable products in order to prevent lose of customers to substitute products. 3. Financial Analysis Nissan has managed to be among the top six car manufacturing companies in the global market behind obvious companies such as General Motors, Toyota, Volkswagen, Hyundai and Ford in terms of car sales. In 2001, our company managed to improve its sales by about 1.9 percent and the sales levels were standing at $50 billion. The company also managed to reduce its debt by approximately 50 percent. There was additional good news for our company because we recorded an almost triple increase in operating margins. We managed to record a 4.75 percent increase in operating margins. Our company has recorded improving results from our Nissan and this shows the good investment that we made in purchasing the company. However, the company has recorded inconsistent operating margins since 2001. A similar trend has also been observed in the case of our operating income because we have been recording a consistent decrease in operating income since 2004. STRATEGIC IMPLICATION The company has managed to improve its position in the market in terms of sales volume from our business partner. We have also reduced our financial obligations to creditors by almost a half. This is a good sign that the business is improving ion its financial performance. However, there has been an decrease in operating income and this means that we should consider reducing the cost of goods while increasing the sales revenue. 4. Competitor’s Analysis The company’s major competitors include General Motors, Toyota, Volkswagen, Hyundai and Ford. The five companies occupy the largest market in terms of sales respectively. The range of products includes buses, cars and commercial vehicles. Cars are widely categorized into sports, luxury, large, midsize and small. However, most of the competitors manufacture midsize to small cars. Our competitors have managed to create a competitive advantage in almost all fronts and this makes it difficult for our company to make a breakthrough. The major strength of the competitors is their huge resources in terms of technology and finances. Toyota and General Motor are the leading car manufacturers in the global market in terms of sales. They employ the best technologies in their production process which enables them to operate efficiently. They also have huge financial resources that have seen them expand into new markets. However, they have the weakness of consistent quality issues especially Toyota. Due to their large size, they also suffer from bureaucracy which slows down their decision making process. One of their main strategies is merging and acquiring and this has enabled them consolidate their positions in the market. STRATEGIC IMPLICATION Our competitors have better resources in terms of finances and technology than our company. We need to invest more on acquiring modern technology and improving our capital base. We also need to acquire more companies in order to consolidate our position in the market and remain competitive. Strategic Options Option #1: Expansion into the international market This means that we need to supply more of our products in the international market. Some of the target markets may include Africa, North America and South America. This strategy will improve the company’s market share which will translate to additional revenues for the company. Our company will be able to enjoy stable revenues from the sale of products in the international market. Prons: a) Additional revenue as a result of an increase in market share. b) Transfer of knowledge from diverse markets hence enhancing company performance. c) Increase in product awareness as a result of the penetration into new markets. Cons: a) Some countries have numerous factors that may hinder trade. Such factors include political instability, high taxes, quotas and tariffs. b) There may be difficulties in controlling the supply and quality of products because of a wider scope of operation. Option #2: Mergers and Acquisitions Our company may acquire small car manufacturing companies or merger with relatively bigger companies. Mergers and acquisitions will enhance economies of scale and our company will operate at lower costs (Peng, 2000, p. 199). The company will enjoy the advantage of recording high profit margins. We will have access to markets of the acquired companies and strategic partners and there will also be the merging of company resources. Pros: a) Consolidation of market share because we will be able to access the market of acquired companies or those that we merge with. b) Improved resources because two or more companies will come together and combine their resources in terms of knowledge and finances. c) Increased control in the market through the acquisition of competing businesses and increase in size. Cons: a) Loss of control in the case where we merge with a larger and more competitive company. b) It is an expensive exercise to purchase other companies. Option #3: Invest in new technologies and acquire more capital Our company should source for more funds in the financial market and also acquire modern technologies. This may call for the sale of shares to the public or taking a loan from a financial institution. The company will also have to order new production equipment from suppliers. New technologies are essential in reducing the costs of operations because they enhance efficiency. Additional capital will be used to implement strategic changes in the company in an effort to improve the financial performance of the business. Prons: a) The use of modern technology in production processes enhances efficiency. b) Acquiring additional capital will enable our company to expand its operations. Cons: a) It is expensive to service loans and we may lose control over management matters when we sale shares to the public. Recommendation Expanding into the international market is the most suitable strategy. This is because our company will have access to a wider market which translates to higher revenues. There is minimum effort involved in accessing the international market compared to the other strategies and the benefits are also overwhelming (Jansson, 2008, p. 299). The other two strategies are capital intensive returns are relatively lower. A wider market has proven to be the greatest source for any business and this is the best strategy because we will be able to diversify risks associated with our business in different markets hence reducing the overall business risks. Implementation Plan The implementation of the strategy to expand into the international market will involve a number of tasks. The first task will involve the business identifying markets for entrance and the risks associated with the markets. We will also have to analyze the financial implication of each market and identify markets that have the highest projections of profit margins. Timeline 1-3 months: Conducting market research in order to identify relevant markets to our business. 4-5 months: We will market our desire to enter identified markets and arouse demand for our products. 5-7 months: Hiring of employees who will be serving our new markets. 7-8 months: Establishing contacts with international suppliers. They will be supplying raw materials for our expanded operations. 9-12 months: We should commence operations and work towards becoming market leaders. Risk analysis Some of the risks associated with the international market for vehicle manufacturing are political instability, global economic recession, changes in customer needs and rising costs of production. We will have to look into such areas in order to design appropriate measures that can be used in handling such issues (Ireland & Hitt, 2008, p. 100). Financial analysis We will incur huge expenses in terms of market research and establishing operations in new markets. We expect that we will spend approximately $1 B and we also expect that we will start receiving positive results in the second year of operations. Risk mitigation strategies The international market is very volatile and we must be very cautious with how will be handling the risks associated with our decision to expand into the international market. Firstly, we need to totally avoid markets that have political instability (Campbell & Edgar, 2011, p. 200). This is because such conditions may lead to effects that may be beyond our control such as destruction of property during demonstrations and violence. However, the remaining risks may be handled by the company changing its strategies and responding tom market needs and preferences. References Campbell, D. and Edgar, D., 2011, Business Strategy: An Introduction, Chicago: Palgrave MacMillan. Ireland, R. and Hitt, M., 2008, Understanding Business Strategy: Concepts and Cases, New York: Cengage Learning. Jansson, H., 2008, International Business Strategy in Emerging Country Markets: The Institutional Network Approach, New York: Edward Elgar Publishing. Peng, M., 2000, Business Strategies in Transition Economies, New York: SAGE. Ramaswamy, K., 2009, Renault-Nissan: The challenge of sustaining strategic change, Arizona: Thunderbird School of Global Management. APPENDIX Appendix 1: SWOT Analysis Strength: Strategic Location Diverse management team Growing profits from Nissan Weakness: Quality problems Decreasing market share Poor human resource management policies Opportunities: Demand for fuel efficient vehicles Increasing number of alliances Threats: Competition Decreasing company profits Appendix 2: Five Force Model Read More