BEN 401 BLICE

THE PARADOXICAL
ALLIANCE OF

RENAULT & NISSAN

CASE STUDY

Oran Rochrungrangsee
S00404092
Introduction

It had been many years since March 1999, the day when Renault and Nissan had
signed a partnership agreement that would make a bi-national automobile group of
global scale making it the fourth largest in the world. Now, many papers and case
studies have been written about their successes and how they had been a leader
creating such bold vision and strategy. However, it had not always have been this
way as stated in the first paragraph of this case by Deresky H (2008). The idea of
the alliance of such nature itself can still be considered revolutionary today. This is
so from the obvious contrasting French and Japanese culture or rather the West
meeting the East that would create difficulties during the cooperation. It would also
be harder for the two to work together under pressure and stressful environment of
Nissan being in great debt. Both companies also had no prior experience in one
another’s market.

This paper will explore deeper how Renault had turned the situation around in
Nissan and created synergies by structuring in 4 stages explained by Sales and
Mirvis’s (1999) framework of cultural integration.

By applying the cultural framework of Hall, Hofstede, Schwarts and Trompenaars,

the main body of this paper will be structured further accordingly mainly to answer
these 2 questions:

1. Why did the cross-border alliance between Renault and Nissan succeed
when early signs had been less than promising and after many
commentators predicted it would be a disaster?

2. What strategies did Carlos Ghosn employ to ensure effective integration of

global operations within the new alliance and to what extent were they
based on cross-cultural awareness?

With these additional 2 questions to be answered as supplementary:

3. Can cultural differences be transcended and overcome through the right
leadership qualities, ones that are respected no matter what the culture?

4. What else can we learn about effective cross-cultural management,

communication team working and leadership from this case study?
Pre- Cultural Integration Stage

There is a difference between synergy potential and synergy realization. 2

companies may have a lot of synergy potential to gain from an alliance or merger
but to actually gain the synergy is a completely different story.

Most merger and acquisitions did not enjoy success because they fail to make this
distinction at the start. This can be seen from Daimler-Benz and Chrysler deal. By
using the traditional approach, the two companies only assessed the conventional
one-sided analysis of financial performance and value on maximization of profit
through finance and consulting firms. They thus only avoided the cultural clashes
and had proclaimed the deal to be the merger of equals. This later applied to
policies having both chairman remain in their positions causing the new company to
still have two headquarters. This also created separated fragments of divisions
preventing synergies. By the time they admitted to the fact that it was Daimler-
Benz who actually acquired Chrysler and had the authority, the damage had been
done. 2 years of miscommunications and unclear goals had caused two thirds of the
valuable management team at Chrysler to be fired or resigned and the company left
unprofitable and deeper in debt.

This was a different case for Renault and Nissan. In Japan even until today, the term
merger or acquisition still does not have a welcome tone in the business world of
the rising sun. In this still much an enclosed circle, businesses and companies are
believed not to be for sale. According to Ishizumi K (2005), despite globalization and
the rapid development of the world, the Japanese Ministry of Finance and the Legal
Affairs Bureau, who are responsible for all of the Japanese companies registry, still
advice and incline in the tone that it is still against the spirit of law to permit a
Japanese corporation to engage in such businesses as selling its own assets to other
corporations. There are also various studies on foreign companies in Japan
confirming that there exist still ‘invisible’ trade barriers in the Japanese market
based on attitudes, cultures, values, and tradition. Knowing this, Renault and Nissan
had chosen a longer alternative path of broad strategic cooperation instead of a
direct traditional one. They chose to invest 6 months of their own management
teams’ time to investigate the potential of their synergies and find plans to make
them practical. They had prepared for the integration by making the beginning
process to be interactive and gradual in which it enabled the two parties to have an
environment where they could both learn to work together and co-operate in the
goal of transferring of strategic capabilities and creating synergies. Trompenaars’
universalism and particularism dimension can be applied here. Here Renault
understood that an alliance with its Japanese partner will take time to develop
which will help form the basis of trust which is crucial in order to do business in
Japan. They also help Renault to understand that contracts are only a rough
approximation of guidelines. They thus had emphasized on both parties’ strategic fit
which focused on the compatibility beyond the normal finance value to those of
their cultures, management styles, decision-making approach, and communication
systems. By this, they had not just recognized the synergy potential but also the
existence of cultural friction and resistance that would result from within both
parties. From this, they had started the integration process successfully and on the
path to merge their culture and successfully realize the synergies.

3 Stages of Cultural Integrations

Sales and Mirvis (1999) have identified three main stages of the cultural integration.

The first stage being "threat against the own culture" is the phase where acquired
firm employees will have a resistance due to their feelings of shock, fear and
uncertainty.

The second stage being "cultural confrontation" is the phase when the two
companies’ employees will feelings such as anxiety and frustrations from having
difficulties accepting other different culture when they start to meet and work
together.

The third stage is "acculturation" being the last phase where the two companies can
decrease the unnecessary cultural clashes, create a common language, mutual

consideration, better understanding of others, and finally being able to

achieve meaningful synergies.

First Stage
Hall Hofstede considers culture to be a collective phenomenon that is because it will
always at least be shared and learnt by the people living in the same social
environment. He thus believes that culture is learned and not inherited. He further
distinguishes three levels in human mental programming as below.
This means that with Hofstede’s school of thought, company executives can
actually create and enforce cultures on their employees to learn if done the correct
way. This was the foundation of how Carlos Ghosn had the confident to take the
helm of Nissan and knew how to direct it.

He first started by making sure that the new culture of Nissan was transparent and
was full of factual clear communication which were to be instilled not just by himself
but also the rest of the top management in the manner of “walking-the-talk’’. This
helped not just eliminating Hall’s high and low context communication barrier but
also prevent future mistrust among employees. The scope of this policy also
spanned to others implementations making it clear to all the situation of the
company.

Decision making

At Renault, the top management took quick decisions, which created fast results
while in Japan the decision-making process took a long time and was done through
long discussions which could only be reached through a consensus. Ghosn foresaw
that this was due to Nissan's board comprising of 37 members and thus reducing it
to 10 enabling it to take a clearer and sharper decision.

Boundary –Spanning Leadership

By creating new mixture of management teams, Ghosn enabled the full utilization
of his bi-cultural team giving him both sides of opinions and thus synergized
capabilities. These teams later helped him came up with strategies and helped him
implemented them. He also gave them more authority and flexibility to enable them
to manage more effectively.

Language

Ghosn tackled this obvious difference between France and Japan by making English
the official language of the alliance. He went on further to eliminate the high low
context by making sure that the 100 hundred special words be focused on to make
sure there would be no miscommunication.

Individualism and Collectivism

Ghosn knew that the Japanese Nissan was collectivist based while his French
company puts emphasis on the individual. Nissan like other Japanese companies
also had their rewards system dominated by the seniority based promotion system.
He thus established a new reward system at Nissan, which assessed results based
on merits. This also included clear promotion plan once set objectives had been
met. This thus promoted more individualism within Nissan and attracted and
retained more new talents. This is also supported by its earlier policy of non-census
decision making encouraging initiative and individual advancements. This balanced
out the power distance and also promoted Schwartz’s value inventory of power and
achievement.

Long term orientation and short term orientation

The French multinationals believe in “Time is money” concept. This in other words
mean that the Western companies are more short-term oriented while the Japanese
perception of time, which is found in the Makimono time pattern, is the notion of
continuity or in other word they are more long term oriented. Ghosn thus
established a set plan for Nissan’s employee to have return of profit by 2001. This
made them more realistic and more stimulated with clearer goals. This also relates
to Schwartz’s stimulation and self-direction. This also helped to reduce the
uncertainty avoidance since goals can be known clearly now.

Second Stage

Ghosn continued on the integration of French culture into Nissan. He waited for the
right time and made the changes more gradual to make sure that his new Japanese
employees would be able to accept them. This could be seen when he tackled the
more sensitive issue and how he had respected the Japanese slower way of dealing
with matters and time orientation and also the understanding that the cutting of old
relationships would require more time. Thus he gave the Nissan management team
a deadline to abolish the Japanese sacred way of keiretsu if the companies in
relation could not meet the restructuring requirement. This meant that he was firm,
got the job done while still leaving room for the Japanese to absorb the new policy.

Masculinity and Femininity

The Japanese society is very masculine and this was profound in Nissan. This also
had helped fuel the collectivism root in its culture by focusing on the group and
ignoring on the voices of the minor individual. Ghosn decided to tackle this only
after other policies had been in place and started for the equal opportunity for both
sexes. This then indirectly helped to be a good support for his earlier policy of merit
based performance which promoted individualism and creativity. This is like
Trompenaars’ achievement and ascription dimension. This had further helped
Nissan made use best of its human resources and treated them fairly.
Third Stage

With all of his polices and teams in place, Ghosn had successfully reached the
“acculturation” stage where he had brought Renault to enjoyed the synergies
created under his management of the French-Japanese new cross-functional team.
After 5 years Nissan had a new culture brought by Ghosn. Now the company had
less power distance since upper management are made more available even Ghosn
himself. This increases clarity in company’s vision, strategy and communication
enabling the company to be unified in one direction. Nissan also now had a
successive group of values instilled in place and those were Schwartz’ Stimulation,
self-direction, universalism and achievement. This helped the Nissan employees to
be proactive and less on the old tradition way of sitting and waiting for themselves
to be more senior to advance in work. This promoted efficiency and the strive to
excel in work and promote the overall productivity of a single person. This overall
also had help reduced the undesirable values from Schwartz such as tradition and
conformity that only had prevented Nissan from being effective.

Leadership

It is very clear in the case that leadership was a crucial key in the success of this
alliance. From the important beginning stage, the presidents from both companies
showed similar positive qualities that went beyond their conventional national,
culture and boundaries. Despite the differences, both showed openness to change,
flexibility, respect for others, virtue and the ability to give trust responsibly. This
could be seen when they did not hold back on sharing of information to optimize the
effectiveness of the deal rather to conform the normal standard of self-preservation.
They were also willing to invest time and money to make sure that the rest of their
companies would be able to synergize one another cultures and structures. Without
these two starting the way correctly, the alliance might have not been successful so
quickly in the first place.

Schweitzer also had picked the right man Carlos Ghosn for the job. Being Lebanese
French might also have been one of the factors for Ghosn himself to be more
tolerant of other cultures. However, the rest was purely his qualities and abilities to
lead people despite their cultures. His leadership helped his people from both
companies to develop, understand and embrace the acquisition's purpose and see
their role in it. He had made sure that across the levels from bottom to up, the
managers and employees in the combined organisation did not return to their
former, more familiar behaviour but strive to change, be more receptive to change
and finally following together in one new direction. Ghosn had made sure that it was
know the purpose of the alliance and that was his NRP. He knew exactly that the
new combined firm would need direction and guidance and he gave just that
security and clear communication by articulating a new clear purpose. His virtue to
do as he said also helped tremendously to gain acceptance, respect and in turn the
loyalty and trust from his subordinates. He had been a role model. He also had the
tolerance and respect for other cultures. He did not completely and instantly abolish
keiretsu but gave the Japanese time to revise according to the factual standard. He
also embraced both cultures and this was also his key to success. He could
differentiate between good values and bad values to suit his company and did not
simply just destroy them. He created cross-functional with most mixture as he could
to gain most input from both cultures. This meant that he allow himself to trust
others while also teaching them to learn and make use of other cultures. By doing
so, he created more people with the same vision and direction. He was a team
builder.

Additional things that can be learnt

The most notable thing mentioned in the case is that to instead of avoiding the
culture differences and clashes, companies and executives should seek an embrace
them. By doing so, they would understand the situation more, know their
employees better and eventually gained more by doing so. This is a very refreshing
and new way to look and tackle the cultural issue. The key is also that the gain is
actually from the synergy of two different cultures.

Clear communication also had shown to be a vital part. Most companies did not
have this in place and caused delay which escalates down the levels of the entire
company. It shows how even the best idea can be useless if it is not heard thus it is
up the top management to find effective ways to get the message across and also
making sure that the listeners understand it.
The next thing is that team working is also important since culture is about people
and instead of enforcing the new culture or rules on them, it is better to build team
so that they can evaluate themselves and organically learn to adapt. By doing so,
they would have each other to motivate and provide constant support for one
another being sustainable by themselves without much help from the organization.
This proves to be very effective in this Renault and Nissan case.
Conclusion

No doubt Carlos Ghosn was the hero in this case. However he also had shown us
that it was not a one man show. He showed us that it was not just his quality or
knowledge as a leader to successfully lead and manage but a combination of all
other things like cross-cultural management, clear communication policy, team
working and building and effective leadership. He had been patient and tolerance.
He also knows the right time to be harsh or soft showing respect when it is required
and not too much to obscure the set goal of the company.
Reference

Geert and Hofstede (2004) Gert-Jan. Cultures and Organizations: Software of the
Mind. New York: McGraw-Hill U.S.A

Hitiris Theo (1999) "European Union Economics", Prentice Hall Europe

Ishizumi Kanji (2005) "Acquiring Japanese companies", Basic Blackwell

Pascal Clerc (2005) Managing the Cultural Issue of Merger and Acquisition

Sales A.L. & Mirvis P.H (1999) "When Cultures Collide: Issues in Acquisition", 1984,
through Friberg E. & Persson L., "Managing Cultural Differences in M&A in South
Korea", 1999, Gothenburg School of Economics and Commercial Laws

Shalom Schwartz (1994) 'Schwartz Value Inventory' (SVI)

Trompenaars and Hampden-Turner (1997) Riding The Waves of Culture on seven

value orientations