The negotiations in regard to the formation of a strategic alliance are now the crucial elements as far as the portfolios of a number of business organizations concerned. In the time of technological changes, and the changes in the competitive environment, a lot of companies are opting for getting engaged into alliances. In most cases, companies do not choose to join the alliances with other companies that are engaged in the competition forming the alliances with other companies; a company is left with no option but to form an alliance with other organizations so as to negate any advantages that other competitors may gain from such alliance. The failure rate of formed alliances has increased from 30 to 70%. Some of the alliances that have failed include the Meiji – Borden alliance and as well the Corning – Nestle alliance, among others (Culpan, 2002).
Most of alliances fail to succeed due to the number of reasons; but the alliance is well negotiated. Some of the reasons that may lead to the collapse of the alliance include the lack of compatibility of the clear vision and goals amongst the partners. The cultural differences can also be a contributor as well as one of the partners employing some opportunistic tendencies. Another factor includes partners being unable to coordinate their activities as well as to change in business environment; this may pose a question on the need of the existence of the alliance. Another danger is the formation of an alliance with a partner that may become a competitor in future.
Negotiations that are made when companies form their alliances are not easy; in most cases, negotiations will raise common tensions on certain fundamental issues claiming the value as well as creating the value. According to Rugman (2009), some of the reasons that could make the alliance negotiations complicated include: the following ones
– The alliances being formed by competing companies. The companies will tend to be aware of sharing any information; this may later be used against them. By offering this information the company may lose its competitive advantage.
– In most cases, alliances involve becoming partners, if negotiations are complicated while two companies are being involved; the challenge is more complicated when more companies are included to play.
– Alliances are, in most cases, the temporary plans, even though the partners may be aware of the importance of this alliance, they put a kind of uncertainty on the future of the alliance, especially how long it may last.
– The alliance partners also may be from different cultures, and this becomes difficult to get accustomed to these differences.
The Renault – Nissan alliance was created in 1999 after the Renault had acquired a 36.8% ownership in the Nissan Company. The Renault’s plan was to increase its market presence in North America as well as in the Asian region (Lynch, 1993). Nissan had some financial problems and was in need of a company to bail out of these problems. Both organizations had almost the similar goals but the differences in their cultures were a huge issue for them. The alliance was going to be a success due to the crucial negotiation skills of Carl Ghosn who was able to win the confidence of Japanese negotiators and, finally, the alliance worked.
Role of the Senior Executives from the Nissan and Renault throughout the Negotiation Process
Hanawa, who was a head of Nissan, and Schweitzer, who was in charge for Renault communicated the possibility of forming an alliance. The formation later appeared to select groups that secretly met with a view to prepare for the meeting between their Chief Executive Officers. Hawana and Scheweitzer after a while held their first meeting in Tokyo with the intent to create a stronger alliance. They quickly developed a. relationship that was made the basis for the future collaboration between these two companies. Thereafter, the work groups were formed for both Renault and Nissan, so that the preliminary analysis could be conducted on various aspects, such as purchasing, distribution, production, as well as the international marketing, among other issues (Lynch, 1993).
After some time, they had established the enough trust, and it was at that time that Schweitzer informed Hanawa on the need to build their relationship with each company owning or holding the other company’s shares. It was then that Hanawa informed Schweitzer that Nissan had no resources to purchase Renault shares. Schweitzer responded that they would discuss the issue again later but emphasized the importance of the alliance to the future of Renault. 10September 998 was a crucial day in the alliance formation as the two companies’ executives (Schweitzer and Hanawa) et in Paris, and it was then that they signed the Memorandum of Understanding the possibilities of evaluation the synergy between the two companies in regards to the extensive cooperation for the next three and a half months. They signed this Memorandum on behalf of their respective companies.
This triggered 21 meetings from September to December with the teams of specialists from both companies that made the studies of the operations of these two companies. Almost all sites of both companies everywhere in the world were visited and such information as the cost and other relevant information had been gathered. This information was crucial especially in the industry where such information as was highly guarded.
It was the responsibility of management teams in both organizations to facilitate the collaboration from study teams and in the receipt of the reports from the committee. The executives used this information to make a business strategy; the issues that related to finance were left untouched and to be tackled, finally. Hanawa and Schweitzer as well as their negotiation teams from both companies had been meeting many times and in a lot of places including Singapore, Mexico, at their companies’ headquarters, and other venues.
Schweitzer and Renault as well as their negotiation teams felt they should enter the alliance and had to express also their previous experience with Volvo. They also made a study on Ford and Mazda alliance and concentrated more on the cultural aspects together with the financial ones. Later, the negations between two companies continued with the discussions of the investment to Nissan by Renault. Hanawa on behalf of Nissan decided to set four conditions for the alliance that included: the retention of Nissan name, the protection of jobs and the appointment of a CEO from Nissan; thus, ensuring that the restructuring that had already been in the process was not interrupted. In November, the directors from Nissan invited the top executives from Renault; this was a step that was out of ordinary. Those who visited Tokyo were: Schweitzer, Ghosn, and Douin. Their main task was to present what they had perceived as a vision for a good partnership.
Hanawa visited Schrempp who was a CEO in the DaimlerChrysler in their head office in Germany. The DaimlerChrysler had their own interest in Nissan Diesel and also wished to make the investments into Nissan. It is at that time that Hanawa went to Renault headquarters, and felt he should have proceeded with an offer by DaimlerChrysler. Hanawa visited other potential partners before visiting Nassar who was the CEO in Ford; but Ford had no interest in Nissan.
In December, two companies faced a challenge after legal teams had made suggestions on the formation of the subsidiary or possibility of a joint venture; both suggestions were rejected by Nissan. It was Ghosn who later introduced an informal suggestion which was accepted by both companies. Later, Hanawa and Schweitzer made several negotiations, and they came to an agreement that Hanawa should not contact other partners concerning the formation of alliances. They signed a letter of intention with Renault to make an offer for Nissan Motor; later Hanawa requested Nissan Diesel to be included into the alliance.
DaimlerChrysler was to affect the relationship between Nissan and Renault; and Nissan used DaimlerChrysler as the leverage in discussions. Nissan supposed the relationship with DaimlerChrysler to be better as DaimlerChrysler had more resources, and they admired the Mercedes brand. But later DaimlerChrysler was to withdraw its interest towards Nissan. This was after DaimlerChrysler learnt that Nissan had been in debts. It was at that time that Hanawa realized that their only way out would be Renault.
In March, Schweitzer received an approval from the Board of Directors from Renault to purchase 35% of Nissan. This was more than 33.4% were necessary for a veto power for the company in Japan; it was also below 40% that this was needed in France for the consolidation of Nissan debts (Lipsky and Kochan, 2003). The deals were declined by Nissan, though Renault later increased the shares to 36.8% (Lasserre, 2007). The partnership globally was signed by Hanawa and Schweitzer in March 1999 and this partnership worked in making the two companies achieve a number of synergies, while at the same time they maintained their identities. The direction of the alliance had to be set by the Global Alliance and was co shared by the companies with the members from both companies
How the cultural differences between Nissan and Renault influenced on the negotiations
There were a lot of cultural differences between Nissan and Renault. Nissan had the culture of complacency; and it was said that it lacked the urgency in its activities. The company was not good in communicating with other companies and was rigid to any change. This was clear that their vehicles were not close to the reality. Also, the company had the culture of bureaucracy making this rather difficult to adjust to any changes in the society. Nissan had an engineering culture which superseded its management culture. They were determined more at the quality and performance and were not concerned with the cost cutting; thus, their products were very expensive. Also they had their own style in regards to the collective responsibility as well as they made decisions collectively; this made everything very hard for taking the decisions in Nissan (Rugman, 2009).
The French culture was also different; Renault had a culture of expensive products. Also, the French people paid a lot of attention to discussions of concepts. Much time could be spent in discussing the concepts which could have been converted into strategies. Besides, the French were not as hard working as the Japanese were. Renault had the culture of controlling the costs as well as purchasing the products globally, and an increase in the innovation of products. Except all this, they had the culture in which the decisions were made rather easily
Why did Renault and Nissan reach an agreement and why did the possible consequences for both parties fail for their alliance to be created?
Nissan had a lot of challenges as it was facing the financial difficulties; this was after the fact that the company incurred the loss of nearly 14 billion dollars; therefore, there was the need to take some measures to help rescuing the company (Deresky, 2008). Therefore, after DaimlerChrysler withdrew its interest in Nissan, the company had no choice but to turn to Renault as it was willing to inject as many funds as this was needed with purchasing the shares of Nissan. Also, Nissan needed an access to a better technology that could aid and assist it to put its focus on the production of small vehicles. The company even it was represented out of Japan, it was not able to make enough profits due to this; thus, the company felt that this alliance would assist to convert the presence into profits.
Renault needed to increase its presence in the Asian region that was turning out to be a growing market. Renault’s competitors were increasing their financial strength as well as the market power in the Asian region; and the company felt it would be difficult to enter the market on its own. The failure of the two companies to come to an agreement would mean the financial troubles and the possible bankruptcy to Nissan. Also, to Renault this could be hard to make any progress in the Asian market.
Did DaimlerChrysler make the “right” decision to withdraw from the negotiations? (Which were its interests?)
In some time, DaimlerChrysler made the decision to withdraw from the negotiations with Nissan; the latter was going through the financial crisis, and the future looked dim. The company interest was in manufacturing the light van together with Nissan Diesel but the idea of the mergence with the Nissan Company looked too risky due to the fact that the sales in Nissan had been lowering and it was moving through the losses. Later, everybody realized that the company had made a mistake in refusing to give Nissan a chance to revive after its tremendous return in the year 2000 (Richter, 2009). DaimlerChrysler had the funds and the ability to heed to Nissan’s demands but reluctantly it considered only the part of the deal with Nissan Diesel.
How do the Renault-Nissan negotiations compare to other international negotiations? What are the similarities and differences?
The negotiations between Nissan and Renault are different from other forms of international negotiations in the fact that the two ones acted as the partners even before they had reached any agreement. They formed the teams which openly disclosed the vital companies’ information. In other international negotiations, such information is normally concealed until the final deals have been done. The top executives played the biggest decision making role in comparison with the panels which recommend the major decision making role in international negotiations. The extreme trust is witnessed in the negotiations and independence from the state authority. At first, Hanawa feared of the reactions of the Japanese people; as such a big company was selling its stake to the foreign country but later everybody got to know that he received the support from authorities as well as from the Japanese citizens. A similarity in the international negotiations is that both governments took the position concerning this matter and the high ranking governmental officials had been involved. The French Prime Minister Lionel Jospine supported the movement by Renault, and the various Japanese ministers did not oppose to these negotiations (Hunter and Storz, 2006).
What lessons of the effective preparation and negotiations can you take from Renault and Nissan approaches towards these negotiations?
Before the onset of the Nissan and Renault negotiations, many other car makers tried merging without any evident success. Some of their mergers existed before the year 1999 when the famous alliance between Nissan and Renault occurred includes the Ford and Mazda alliance. The efforts by top executives of two companies were aimed at finding the solutions to decline business with merging with other bigger competitors; and they had been unsuccessful. Renault failed to strike a deal with the Swedish manufacturing company Volvo during 1989-1993. The negotiations between the top executives of two companies provided the valuable lessons which can be used to provide the solutions in some tough and complicated business decisions
Schweitzer and his team proved that the language, culture, and organizational differences are not an excuse to procrastinate the ideas for long term goals and targets. Schweitzer focused on the possibility of acquiring the stake in Nissan despite the fact that it was going through the economic hardships. They proved that the differences between the parties can be harnessed to get benefits to the organization. Both teams prepared thoroughly and jointly. Renault took its time for examining Nissan records, and, by so doing, it was able to structure a detailed and viable financial plan to close the deal. In this case, the joint preparation and sharing with the crucial information was done comprehensively, and this created a feeling of trust between these two companies.
The negotiations also illustrated that one should behave like a prospective partner apart from the normal negotiator covering their personal interests with the expenses of the prospective partner. The Renault team took enough time to analyze the Nissan problems and had the prior knowledge of its declining business portfolio. The companies had a habit of concealing the vital information from competitors but during the negotiation process the teams from both companies had a chance to learn the few things about the other party. This not only showed the trust between future partners but also was a good chance for Renault to value the financial position over Nissan and later Schweitzer was able to prepare a financial plan for bailing out Nissan (Culpan, 2002).
Most negotiations are evaluated by short term results but in the case of the Renault and Nissan alliance, many critics anticipating a quick downfall of the alliance were shocked by the rate to which Nissan had recovered. The teams made an accurate research and the possible future implications; and the fast recovery was an indication that proper preparations were imperative for the businesses to realize their dreams. Managing and assessing other options is another lesson demonstrated by this case; Hanawa had to weigh the presentation made by the richer company Chrysler while the negotiations were going on.
The negotiations were daring and dynamic. The negotiators had no previous experience with such a deal but they had been anyway capable of thinking beyond the box and formulated the plan for the alliance that later proved to be one of the best business ideas in the whole history. Throughout the negotiation process, the top executives played a central role in the negotiations but also shared with their experience with the colleagues and financial advisors. Most negotiations were conducted by delegates coming with some recommendations which sometimes could be either misleading or lack the originality and innovative ideas as the ones witnessed in the case of the Nissan and Renault negotiations. An involvement of senior employees increased the gravity of the matter at hand, and the results were more likely to be fruitful.
In your opinion, which party did better in 1999? After 12 years of cooperation, which party is now benefitting the most from such an alliance? (Please, be specific by providing the supporting evidence).
In 1999, the Renault Company did better than Nissan. Its decision to risk 36.8% of investment for buying the Nissan outstanding stock means that they had been on the better financial position than Nissan. Renault made a net profit of 534 million Euros in 1999 compared to the loss of 330 million Euros by Nissan in the same year. Even though both companies mutually benefited from the alliance with Renault becoming one of the biggest auto makers across the globe and also being on the position to compete with its French rivals, like Peugeot, Nissan has benefited more from this alliance. Before the alliance, Nissan was operating with the loss almost to be declared as a bankrupt due to the huge debts. Renault’s agreement to buy 36.8% of the outstanding stock from Nissan in 1999 was the turning point to the debt ridden automaker. In 1999, Nissan had the loss of 330 million Euros compared to the net profit of 534 million Euros made by Renault in the same year. Within a year, the profit margin for Nissan had risen to the net profit of 47 million Euros and 497 million in 2001 (Benoliel, 2011). Nissan enjoyed the sales from the big European market and since that time it has recorded the impressive returns into its investment. The Nissan group also learnt much related to the corporate governance due to the remarkable experience of Renault. By the end of December 2000, Nissan had reduced its debts to the impressive 100 billion Euros. Renault agreed to invest a higher stake of 44.3% into Nissan compared with Nissan’s 15% stake in Renault (Hitt et al., 2009).
This inequality has enabled Nissan to concentrate on its target on the debts reduction and at the same time enabled it to make enough profits to sustain the company’s interests. In the American market, it is only Nissan that had been able to penetrate the market and this added an advantage to Nissan. The leadership in Nissan has now gained the sufficient experience for the outsourcing and since that time it has successfully been able to sign other alliances with other companies, like Dong Feng, China. According to the CEO of Dong Feng, they reason to make an alliance with Nissan was the experience it had gained from Renault how to successfully recover from the crisis and remain independent (Das, 2010). This alliance saw the Nissan record with more than one million units’ sold in China in 2010. Renault is well known for its innovation record in the car manufacturing and before the alliance Nissan had been criticized in its marketing with old models of the car designs. The alliance helped Nissan upgrading its design through the joint research and within one year its total sales almost doubledPLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT!
Is this the question you were looking for? If so, place your order here to get started!