Business in Europe of Nissan - Essay Example

Business in Europe – Nissan Nissan Motor Co. Ltd., a Japan based automobile manufacturer is studied in context of its European operations from different perspectives. Its strategies in terms of using the EU geography in context of spreading its manufacturing, designing, product development sections across the different member countries has been delved into. How the company puts importance on local management development and improved quality management as well as its efforts on the environmental front also has been discussed. What implications and effects the alliance between Nissan and Renault has had is also explored in the report. Some threats or challenges which are staring at the company have been looked into. Contents Abstract 2 Contents 3 Introduction 4 Analysis 4 History 4 Nissan and the European Union (EU) 5 Background 5 Company Strategies 6 Leveraging Geographical Spread 6 Quality and Manufacturing Process 7 Nissan- Renault Partnership 8 Environmental Initiatives 9 Stakeholder Perspective 9 Challenges 10 Deficient in ‘diesel technology’ 10 Annual net loss 10 Culture dissonance 10 Prices of raw materials 11 Market saturation 11 Conclusion 11 References 12 Introduction Nissan Motor Co. Ltd. is an automobile giant based in Japan. The company manufactures a wider range of vehicles, starting from passenger vehicles, trucks, to buses and marine vehicles. The organisation has operations in different countries of Asia, US, South America and Europe. It produces luxury cars under the Infiniti brand. Under the leadership of CEO Carlos Ghosn it has grown to be the number two automobile company in Japan just after Toyota. Presently Renault which is a leading French automobile company owns 45% of Nissan Motor Co. Ltd. (Company Profile For NISSAN MOTOR CO., LTD., May 2009; Nissan Motor Company, 2008). Analysis History The Japanese auto giant by the name of Nissan motor Co. Ltd. has risen to become the 2nd largest automaker in Japan after Toyota and has got its operation in different countries of the world spanning the continents of North and South America, Asia and Europe. In Europe Nissan initiated its business by acquiring an equity stake in S.A., Barcelona, Spain’s Motor Iberica and begun producing the Patrol/Safari model there three years later. The next year in 1984, the company established Nissan Motor Manufacturing (UK) Ltd. in Sunderland, UK. In 1988 it established the Nissan European Technical Centre Ltd. again in UK. The next year the company established a centre in Amsterdam by the name of NENV or Nissan Europe NV to look after a broad scope of work all over Europe, from developing new products, procuring raw materials, raising capital to manufacturing. Owing to the success in UK market the company again established Nissan Motor (GB) Ltd. was established as a new sales company in UK in 1991.In 1992 in Germany Nissan design Europe GmbH was established. The same year saw the launch of Micra in the European market which went onto win the award for the best car of the year in the European market. In 1995 the company set up Nissan technical Centre in S.A. Spain. The year 1999 was a significant one for Nissan as it went onto sign a Global Alliance agreement with France’s auto giant Renault. The next year Carlos Ghosn of Renault was designated the CEO and president of Nissan. The decision proved beneficial when in 2001 the company posted its highest ever worldwide operating profit of 8%. Renault and Nissan opened their first three legal entities in Netherlands, Switzerland and then in Germany and Australia between the year 2001 to 2003. 2003 was also the year which sad the opening of the Nissan’s design center for Europe in London, UK.2005 became a marquee year for the company as it sold its ten millionth automobile in Europe that year. This way the company went on to sell a record 636,000 units in Europe in the financial year 2008. (History of Nissan in Europe, November 2008). Nissan and the European Union (EU) Background To end an era of wars and confrontation finally in the 1950 six European countries, namely Germany, France, Belgium, Italy Luxembourg and Netherlands came together to form the European Union. In the 1960s the EU banished custom duties while trading with each other, thus ushering in liberalised trade practices. Important economies of UK, Ireland and Denmark joined EU in the 1970s, more specifically in 1973. In 1981 Greece joined EU and after Greece Portugal and Spain follow suit. In 1987 trade was liberalised further and a single market was created with the signing of the ‘Single European Act’. 1995 saw Sweden, Austria and Finland join EU while 2000 saw EURO emerge as the common currency for the many member nations of EU (The History of European Union, n.d.). The company forayed into the European market in the year 1980 and since then has chartered an interesting path for itself in the continent, which has been shaped by the changing scenario of the European Union. Though Nissan Motor Co. Ltd. started its European venture by picking up equity stake in Spain’s Motor Iberica, yet experts say that its most important decision for the European market was the establishment of the Nissan Motor manufacturing (UK) Ltd. in the year 1984 (Strange R.,1993). Company Strategies The company had taken a multi pronged strategic path of establishing different important operational centres in different economically important countries in the European Union. Leveraging Geographical Spread In the year 1989 the company established its European headquarter in Amsterdam which was moved to Trappes in France which was near to Paris. This was done for better coordination with Renault. This was known as the Nissan Europe S.A.S. or NESAS and became the holding company for Nissan in European operations. The Nissan technical centre for Europe was established in Bedfordshire, UK with branches in Germany and Belgium. The plant in S.A. Spain is used for producing a wide array of flagship models like the Navara, pathfinder, Primastar, Opel Vivaro and others. While the UK Sunderland based plant produces vehicles like Qashqai, Micra series cars and Note. Nissan as well as many other Japanese MNCs established their European headquarters with the objective of rationalising and coordinating and also establishing a European management structure which would streamline the business process and operations for the continent and provide greater focus and opportunities for growth. Quality and Manufacturing Process Nissan has been very serious about the European market and has always strived to provide the best quality of cars to the consumers there. In this context it has adopted a philosophy which is supported by a culture of continued improvement of quality or Total quality management (TQM). Its focus on quality and productivity of its workers ahs enabled it to earn the coveted ‘Best Factory Award in Europe’. In fact this quality focus has also enabled the company to create a brand equity and positive differentiation point in relation to established and Western marquee names like GM, Ford and Daimler Chrysler). It’s no mean feat for any company to beat the ‘Big Three’ of auto manufacturing in productivity. According to 2004 data Nisan required 15.7 labour-hours to manufacture a car where the same data stood at 44.2, 29.9 and 33. 3 labour-hours for Ford, GM and Daimler Chrysler respectively. Also Nissan has established a system wherein it can manufacture different vehicle models on the same production line, thus saving costs (Wolley M., Low S.C., Irwin J. and Haynie R., n.d.). Management Development (Local) Nissan has continually put in money and resources for development of local management tenure fast decision making and faster reaction to changing market conditions. It has created high standards for its managers to follow and these training and performance benchmark periods are generally scheduled for twelve to eighteen months. This ensures that the managers perform fast and adhere to company quality standards and principles which get inculcated into them through the training programmes (Wolley M., Low S.C., Irwin J. and Haynie R., n.d.). Nissan- Renault Partnership In the year 1999 Nissan and Renault got into a ‘Global Alliance Partnership’ to leverage each other’s strengths through sharing of equity, capital as well as knowledge by forming a partnership. Carlos Ghosn of Renault also became the CEO of Nissan to bring parity in decision making. This partnership is supervised by seven steering committees. The ultimate objective of this partnership is to leverage their joint strengths and gain significant amount of competitive strengths in the cut throat global auto market. This alliance between two big automakers of the world provides benefits for both as they share the designing of platforms and cars and also manufacturing processes. But this does not impinge upon their own independence as they continue to design and define their own independent projects and processes as and when required. The combined entity sold 5,911,171 vehicles for the year 2006 which made this group the fourth largest automaker in the world thus increasing its clout in the market. This alliance has also resulted in the design and manufacture of new diesel engine for Nissan’s Qashqai model. The engine is called M1D 2.0 and is a turbo diesel engine (Wolley M., et al., n.d.; Renault-Nissan Alliance, 2007). This year this alliance completed its 10 successful years. Environmental Initiatives In fact the company’s environmental awareness dates back to early as 1947 when it launched its first electric vehicle called Tama. Even today the alliance is very serious about launching a zero emission electric vehicle into the mass market and has inked deal with a Silicon Valley based start-up called ‘project Better Place’ for the purpose. The alliance plans to launch this initiative on a big scale across Denmark and also Israel in 2011. The entity has also been planning to launch even larger cars which run on battery which would give equivalent performance in comparison to conventional cars (Renault-Nissan thinks electric, May 2008). One of the significant steps in Nissan’s environmental initiatives was its launch of ‘Nissan Green Program 2010’ which would focus on a three pronged strategy to take on environmental concerns i.e. curbing C02 emissions , to protect air, water and also the soil and to recycle materials to the maximum extent possible. In this context the company has been launching concept vehicles in the sphere of electric, fuel-cell and hybrid electric vehicles and has also taken upon itself to popularise bio-fuel vehicles as well as bringing down the emission of its gasoline powered models (Nissan’s Environmental Initiatives, February 2009). Stakeholder Perspective Due to the prevailing credit and economic crisis there has been a slowdown in the car market of UK and Europe. As a result the UK government has recently launches an ‘auto industry rescue package’ which has £2.3bn corpus and Nissan has been one of the first automakers to take advantage of this scheme. It has taken £370 million for the purpose of manufacturing even more fuel efficient vehicles. The European governments and especially the UK government had shown similar positive approaches towards Nissan when in 2001 it gave the entity £40 million as aid while it was setting up it plant at Sunderland, UK (Arnott S., April 2009 ; Barker S., March 2001). Challenges The company faces certain challenges in its path of business which pertain to: Deficient in ‘diesel technology’ In the European market diesel is a very popular among the car buyers and accounted for almost 46% of total number of vehicles sold in the year 2004. By 2008 end diesel technology was predicted to be accounting for almost 80% of the cars sold in Europe. Nissan being a Japan based company, where diesel is not so popular, lacked cutting edge diesel technology which it would have to pep up if it wants to garner a broader share of the European market. In this context it can leverage its alliance with Renault. Annual net loss The company has recently experienced its first net annual loss under CEO Carlos Ghosn owing to the fall in demand and tough economic conditions in Europe as well as other countries. In the first financial quarter ending March 31st 2009 it has seen a net loss of $2.84 billion (Murphy. J., June 2009). Culture dissonance The European entity has the danger of facing dissonance in context of clash of cultures as the company is Japan based, its CEO is a European and the company has people from management emanating from different European countries. Prices of raw materials Prices of commodities have been rising owing to the Chinese Olympic and other ensuing factors putting pressure on the company’s margins. Market saturation The market in Western Europe is saturated in term of vehicles and has been showing low growth the same is becoming true to the eastern part of Europe also due to the worsening economic conditions worldwide. Nissan would find it hard to row its business and revenue in this present market condition. Conclusion Nissan has is well known name in the world of automobile worldwide and has been following a strategy of expansion into different markets worldwide. As a part of this strategy it has forayed into the European market has leveraged the positives out of EU’s liberalised business environment and also the wide array of talent and resources available across the different countries of the union. It has also forged a very successful alliance with France’s Renault to leverage and utilize each other strengths and management skills. The company has been bestowed with the insight of ‘environmental concern’ from a log time back when it first launched its first electric vehicle in 1947, an era when not many talked about it. But in the present financial and economic crisis in Europe and world over, it has seen its first annual net loss in the last 10 years which does not auger well for it. Therefore the company would have to stretch itself and utilize its expertise and management skills to tide over this difficult period to emerge a winner after it gets over. 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