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For Renault, the first half of the 1980s were “the crossing of the desert” when the French automaker reached the edges of bankruptcy, while Volkswagen continued to expand in terms of production and market reach. Volkswagen developed its international base through the acquisitions in 1991 of Skoda, the automobile manufacturer in the Czech Republic and SEAT, the Sociedad Española de Automóviles de Turismo. After the withdrawal of Fiat in 1981, the Volkswagen Group subsidiary Audi AG signed a cooperation agreement with SEAT, becoming the major shareholder in 1986, and 100% owner of the company. In1990, SEAT expanded its operations in China and Latin America.
In comparison, Renault put the brakes on its international drive and concentrated its efforts on solving internal dissensions in the aftermath of the terrorist slaying of its CEO. Renault also focused on renewing its relationship with the new French Government, smoothing the resistance of left-wing Unions, finding acceptable solutions to its large and aging North-African immigrant workers in France, developing creative models, and raising quality. While seeking these goals, Renault also sought to increase its market share in the Northern European countries where it faced hard competition and realized only low profit margins. Renault had to change direction and in 1998, Renault acquired the plant of Curitiba in Brazil and the following year, it became the major shareholder in Nissan of Japan, Dacia of Romania and Samsung of Korea.
The Logan Global Phenomena
Renault acquired the Romanian factory Dacia with the aim to become specialized in the production of the super budget Renault / Dacia Logan Car to be sold for 5000 Euro (USD 6105), which competed with the best of the world’s cheapest cars. Targets for the Renault Logan car included Rover’s CityRover, Kia Picanto, Seat Arosa, Daihatsu Cuore, Daewoo Matiz and the Volkswagen Fox. In June 2005, Renault made the Logan available in France, Germany, and Spain at a base price of $9300, half of the average price of competitive offerings. Renault’s initial target markets were countries like Romania, Poland and Russia, where most people cannot afford a car with Western European pricing. This is the first step in a global rollout of the Logan. In mid-July 2005, Renault announced that it had manufactured 100,000 Logan vehicles at its Romanian factory, exceeding its own most optimistic estimates. Shortly after the launch in Eastern Europe, Renault was shocked to learn that Western Europeans liked the Logan as well. Over the next several years, Renault factories in Russia, Morocco, and Colombia will begin producing the Logan. The Logan sells for about $6000 in these countries, while cars like the Ford Focus or the Volkswagen Golf cost around $18,000. Deutsche Bank estimated that Renault can produce the Logan for $1089 per car; equivalent autos produced in Western Europe run about $2500. In fact, this fast produced car is not recognized only for its low cost of operation but also production and usage.
“The Logan is the McDonald’s of cars â€¦ The concept was simple: Reliable engineering without a lot of electronics, cheap to build and easy to maintain and repair,” said Kenneth Melville, the Scot who headed the Logan design team (Edmondson, 2008).
In February 2008, Renault celebrated 80 years in Morocco. Renault has had a long lasting, unbroken relationship and active presence in Morocco. But it has only been since 1966 that Renault has been assembling vehicles at SOMACA (Moroccan Society of Automobile Construction), located in Casablanca, and owned 80% by the Renault Group and 20% by the PSA Group. SOMACA started the assembly of Dacia Logan in 2005. In total, Renault currently employs 1,800 people in Morocco, and represents 1.4 percent of the Group total and the production in 2007: 28,764 vehicles, or 1 percent of the Group total. In this way, Renault strengthened its presence in a significant market, where it was a sales leader at the end of August 2000. Before 2000, Nissan was a brand unheard of in Morocco. Then Renault took a majority stake in the carmaker. The next step was made by Renault Morocco in taking over SIAB, the Nissan’s exclusive importer in Morocco, which was until then wholly-owned by the ONA Group. Renault Morocco stepped up distribution of Nissan automobiles through the same Group, and in 2006 1,100 Nissans were sold.
Launched in July 2005, the Logan became the best selling vehicle in Morocco within its first six-months. In 2006, 12,700 Logans were sold in Morocco, making it the success of the year there. The true moment of the explosion in sales was the release of the 1.5 diesel engine. Around 75% of the cars sold in Morocco by Dacia Logan were diesel versions. Early in 2008, the Renault-Nissan Alliance started work on the “Renault Tanger Méditerranée” industrial complex. It will comprise an assembly plant for low-cost vehicles based on the Logan platform. The Moroccan Hub is one link in the chain of regional and global integrative cost-efficient manufacturing units implemented in other emerging marketplaces to produce low cost vehicles. This global integrative efficient production while facilitating access to labor, knowledge and skills at the lowest rates. This kind of system is the prelude to the manufacturing of new electric cars; a $3,000 car for the Indian market and a joint venture with Russian carmaker Avtovaz to build a car for the Russian market. In fact, the Logan produced in Morocco is already exported to Europe.
Renault is now ready to implement more global centric regionalized business units that are connected by synergistic output and productivity performances with terms of quality, technology and profitability that equal if not surpass the major global car manufacturers. Renault applied an integrated productive strategy based on the Just-in-Time approach that imposed the implementation of total quality management and the enhancement of competitiveness to the level of international standards, particularly in the cases of Samsung and Dacia. With Nissan, Renault considered its partnership a synergistic one in the longer term, despite the difficulties faced in the early stage of their alliances and the recent challenging times that resulted in Carlos Ghosn stepping down in favor of a veteran deputy, Patrick Pélata.
With this move, Renault escaped from its European Fortress and established itself as the fifth largest car manufacture in the world. This world ranking enabled Renault’s innovative and creative departments to develop, in concert with Nissan cutting-edge technologists, engineers and designers, more efficient and alternative fuel driven vehicles that will differentiate and localize productions and models in accordance to local demands and regional market needs.
Copyright © 2010.
Gail Edmondson in Pitesti, Romania, with Constance Faivre d’Arcier in Paris, “Got 5,000 Euros? Need A New Car? Drivers across Europe are clamoring for Renault’s ultracheap, no-frills Logan” July 4, 2008, Business Week, European Edition.
INTERVIEW WITH CARLOS GHOSN
YOKOHAMA, Japan | Fri Feb 25, 2011 9:15am EST
YOKOHAMA, Japan (Reuters) – Carlos Ghosn, chief executive officer at Nissan Motor Co (7201.T) and Renault SA (RENA.PA), spoke to Reuters in his office at Nissan’s global headquarters on Friday.
Below are Ghosn’s comments from the interview on key issues for the two companies.
ON RENAULT-NISSAN CAPITAL STRUCTURE
“This structure has been very solid to help us cement the alliance, create a strong sense of belonging to the alliance, even though people are still fiercely Renault or fiercely Nissan, attached to the culture.
“(But) we are challenged (by financial markets) over how much capital we have imprisoned into the structure of the alliance. It’s a fair challenge.
“We are going to be studying and analyzing this with outsiders also, what are the ways to respond to these expectations from the financial markets without challenging the operating model which consists of keeping the two companies vibrant, motivated, engaged and keeping their identities.
“You have to study all the consequences. This is a very delicate balance between the two companies. You need something that makes all the shareholders happy, both at Renault and Nissan.
“As the CEO, I have to take care of the short term, mid term and the long term.”
Asked if a change in the capital structure would come by the halfway point of Renault’s business plan to 2016, he said: “Hopefully it will come even before.”
BIGGEST CHALLENGE FOR RENAULT-NISSAN ALLIANCE
“The biggest challenge is modernizing and adapting the alliance and, at the same time, keeping the strength of the alliance.
“What I want to do is to adapt the alliance to the new realities of the markets, make the changes that are necessary but at the same time keep what made the alliance resourceful and so strong in front of adversity.”
VIEW ON MERGERS
“Every single time you make a merger, somebody is losing his identity. And saying something different is just rubbish.
“It is not validated by any example in the car industry that this works. Not one example.
“So that’s why we’re trying to avoid this by saying we want two companies which are vibrant, proud, eager for their own performance but at the same time, which want synergies
“This is the beauty of the alliance. It is a synergy with a different identity, while a merger is synergy with one identity. But the problem of the one identity is always perceived that somebody loses and somebody wins.”
“As long as I’m heading Renault, I would like to propose that I continue to head Nissan because I think it’s good for Nissan to have the same CEO. It guarantees partnership, the same level of decision.”
Ghosn’s mandate as CEO of Renault goes to 2014, while his two-year term at Nissan is up for renewal this year.
Asked if Nissan’s next CEO should be a Japanese national, he said: “Definitely it should be somebody who is recognized at Nissan. That’s number one. Personally I have a preference for a Japanese. (But) this doesn’t depend on me because the shareholders have their own say.”
“My main resources, my main strengths, my main talents and expertise are in Japan. On the other side, we’re going to have to deal with unfavorable exchange rates for a while.
“So in function of these two elements, and our sales forecast — fortunately for us, we are in a strong growth — we are envisioning that we will be producing more than 1 million cars in Japan (a year) for the foreseeable future, even at this exchange rate level.
“With the strong growth, I need capacity. Because we are growing, thanks to the emerging markets and thanks to our investments in China, Russia, etc, and in the Middle East, we need this capacity in Japan.
“If the yen goes to 90, 95, 100 yen (to the dollar), then the 1 million is going to be a piece of cake. If it’s stuck at 80 or 85, it’s going to be tough.”
ON THE SURGING OIL PRICE
“We’re not happy it’s going up, but in a certain way, we were prepared because now we have alternative technology allowing us to compete at this level.
“(But higher oil prices) mean the growth prospects of many markets are going to be downgraded, some kind of uneasiness for people to be buying a second car or third car.
“It’s not always only bad news. What is important for us is to have a strategy that is balanced.”
RENAULT INDUSTRIAL ESPIONAGE CASE
“When a company is facing a problem, it always takes a stance and takes a decision, but at the same time it wants to make sure of what it can learn from it, what enhancements it can make
“Obviously I cannot tell you more because we are waiting for French justice to take a position. Until they take a position, nobody is going to move.
“When justice comes out with a final conclusion, we will communicate.” (Reporting by Chang-Ran Kim; Editing by Edmund Klamann)
(a)The need for survival after having been on the edges of bankruptcy was a major force behind Renault’s drive to globalise. Identify and discuss forces internal and external to an international organisation that, as in the case of Renault, lead firms to globalise.
By Globalization we mean to merge or interaction between distinctive and separate markets of different countries in to one gigantic global market place. The firms are now sourcing different goods and services from different locations around the globe to take advantage of national differences in the cost and quality factors of production like labor, land, capital and energy. Due to the decline in barriers of free flow of goods, services and capital Globalization has prospered. Now due to the current business environment, it is very important for the organizations to globalize. There are plenty of factors, internal or external, which force the organizations to globalize. External factors are out of control of the organization but internal factors are controllable and that create a favorable environment for the organization to globalize. They include enhancing financial worth, severe industry competition, poor company performance, uncontrollable costs, operational inefficiency, expansive or incompetent workforce etc. The key internal and external forces in favor of globalization are:
The main internal factor that makes an organization to globalize is to improve its financial deficits. Same was the motive behind the globalization of Renault the French automaker. Industry experts were predicting the Renault’s takeover. Similarly India initiated the globalized economic reforms in 1991 in order to recover from an unfavorable Balance-Of-Payment (BOP) situation by earning foreign exchange through an increased access to the world markets in return for opening to the foreigners the Indian markets.
Nowadays technology serves as a nucleus for organizations strategic moves. The fast technological innovations have forced the organizations to globalization. Organizations aim to improve productivity and market competitiveness by updating themselves according to the technological advancements, which are taking place at very fast rate. The emergence of improved vehicles and equipments has made the shipment and movement of goods very easy. Globalization offers them a convenient and cost effective way to achieve their objectives. Latest technology has allowed easy and speedy information sharing, greater capital mobility with very low costs.
Globalization of Competitors
Globalization of competitors is also one of the main reasons for globalization. An organization has to keep an eye on the movements of its competitors to successfully flourish. Whenever the direct competitors globalize by adopting some way of expansion overseas, the companies quickly have to react as they do not want to take risk of letting the competitors to stabilize in new promising venture. This could affect their future investments and various foreign operations in the pipeline.
Similarly different companies from other parts of the world can more conveniently introduce their products or services across borders. Now the market competitors are not only the local ones but from throughout the world. This coerces every organization to improve quality, offer innovative products and services, and cut down the costs through globalization.
Social and political Factors
The country specific external factors also contribute towards the phenomena of globalization. For instance in developing countries the poor economy, bankruptcy, World Bank, World Trade Organization, IMF (International Monetary Fund), local bodies and other financial institutes suggest globalization as a way to boost economy. The demands and priorities of customers are unpredictable. They are also influenced by various kinds of social and political pressures. So business organizations have to be flexible and knowledge to address these issues.
Often there are different types of trade barriers, tariff, fiscal policies, and export quotas. This reduces the organization’s profits, increase costs, and lowers its tendency to establish itself in the foreign market. Also some countries with tremendous growth opportunities resist foreign products and impose inconvenient and expensive restrictions. The governments support local manufactures by preferring company made products. For instance Indian government has traditionally been supportive of buy local policy. To avoid this, the organizations tend to shift their manufacturing operations across different suitable countries instead of exporting their goods to those countries and facing confrontation.
Globalization Friendly Environment
With the passage of time there has been an increased awareness about the positive outcomes of globalization among different industries and countries. This has lowered the traditional hindrance and uncertainty against the phenomena of globalization. Now the governments’ stereotypical hold of local producers and consumers is declining and they tend to support market liberalization and privatization. Growth of various global networks has made countries interdependent in particular industries. Most companies are becoming internationally oriented rather than traditional approach of being nationally centered.
Also Reduction of tariff and non-tariff barriers has fostered companies to globalize their operations. The organizations look forward to market environments with few foreign restrictive operations. These there is a concept of wide open markets and adoption of common standards e.g. EU, NAFTA. Every day strategic coalitions, new global alliances and new trading units are emerging to survive in constantly changing and highly competitive business environment.
Sometimes the markets in the local country can mature and there exist rare chances of further expansion. Globalization offers promising new ventures for such companies who want to expand and invest in new ventures to gain profitability. Similarly Renault opted for globalization as it wanted to expand other than the European markets and solidify its market position. The brand awareness of Renault in Japan was very low. The alliance between Nissan and Renault set a trust worthy ground for Renault in Japan.
Another school of thought behind globalization is the advent of similar needs and products worldwide. This has emerged as a consequence of considering the whole world as one global marketplace with common consumers. The companies are discovering similar consumer groups worldwide. For instance the teenagers almost have the same concerns and desires all over the world. So there is an increased probability that consumer products in one part of the world tend to also be desired in others. Renault did the same with its Logan cars by exploring that worldwide consumers want cheap and easily manageable cars.
Increased Operational Efficiency
Globalization allows the organizations to increase their efficiency in different ways. This is achieved by fully utilizing the available organizational resources and ability to get them at the lowest possible costs. So, these companies, in addition to investing their excess profits, also try to maximize efficiency by employing their underutilized resources in human and capital assets such as management, machinery, and technology.
Research and Development
The research and development costs are increasing day by day. Organizations have to leverage their monetary resources in quest of coming up with new innovative quality products. Global over-capacity and rising costs has made it increasingly important for firms to seek size through strategic partnerships or mergers to achieve profitable growth. Globalization lowers the expenses of research and development by developing joint teams and centers.
Today customers have become more aware because of increasing number of world brands and global advertising. Customers prefer global companies due to increased travel and reliability. Also foreign customers want local supplies to reduce logistical problems and improve the flow of production.
Economies of Scale
Globalization facilitates economies of scale for organizations. The costs of product development have increased as compared to expected returns and market life. Globalization allows them to lower these costs by achieving a higher level of output spread over large fixed costs and maximizing the use of their manufacturing facilities.
Developing countries are emerging as newly industrialized countries with productive capability and low labor costs. These countries offer certain benefits e.g. as infrastructure, subsidies, low tariffs, and cheap competent manpower to encourage foreign direct investment.
(B)Appraise the benefits and challenges of the globalisation strategy of Renault with emphasis on its sourcing, production and marketing functions.
Renault has enjoyed the benefits of globalization over a long time. It has evidently helped it to improve its sourcing, production and marketing functions. Everything good has some threats or challenges enclosed with it. Same is true for globalization. The benefits and challenges of globalization strategy for Renault are discussed below:
Globalization and Sourcing
Sourcing describes the full fledge procedure of spotting all those sources that are mandatory for product development. They range from infrastructure, raw materials to the personnel management. Initially Renault and other auto manufacturers resisted globalization thinking that getting the supplies from the countries like China and India might undermine their quality and efficiency, but this changed after a few years.
Benefits of Globalization
Competent Personnel Availability
Globalization has enable Renault to choose the best candidates from a pool of highly skilled and competent global workforce. This is also cost effective for Renault. The wage scales in developing countries are significantly lower than in France, North America and Western Europe, so it can easily hire well-trained professionals.
Advances in telecommunications
Globalization has led to tremendous advancements in international telecommunications capabilities, reliability and quality of communications. This has fostered easier sourcing as now Renault has many cost-effective options are available from wired, landline communication services to wireless, satellite services. The standards introduced by the Internet have also fostered quick deployment and inter-operability of networks and communications of Renault in virtually every country and company around the globe.
Outcomes of Mutual Interaction
Globalization allows people of different calibers and backgrounds to brainstorm together. In case of Renault this has resulted in the emergence of robust and high quality collaborative tools. Work units are easily assigned and synchronized between team members, and work products are controlled and shared in a central manner. Globalization has enabled Renault to get personnel sourcing from different parts of the world. This has helped to minimize the mishandling of communication, including time zone differences, protocols and different cultural nuances.
Challenges of Globalization
Safety and Privacy of Key Issues
Sourcing from different parts of the world has raised the issue of security of corporate secrets. Different countries have different setup and legal constraints so physical security and protection of intellectual property and trade secrets has become tough for Renault. Renault has responded by firing the executives who were involved in leaking secrets about the upcoming electrical cars and by limiting it’s sourcing to locations that can guarantee flawless security.
Because of globalization Renault facilities face the risk of business disruption due to political unrest, terrorist activities, natural disasters or miscellaneous factors in developing countries. Renault is addressing it by ensuring that work and resources can be quickly shifted between locations to minimize the impact of disruptions. Also the offshore project teams are trained to shift to a new locality in a short notice to restore full operations.
Globalization and PRODUCTION
Availability of Cheap Labor
Globalization has significantly reduced the production costs for Renault by enabling it to expand its operations globally in countries offering cheap labor and resources. There are many advantages which the companies can avail by production of its products globally.
Economical Raw material and Supplies
Another fruit of globalization for Renault is the availability of low cost quality raw materials. Renault has cut down its production and product development costs by shifting its operations in countries rich in natural resources of and thus minimizing transportation and delivery costs. It has also been able to get highly skilled and production processes trained workers in developing countries of the world. This is helping it to produce competitive and efficient product for its customers. Renault is achieving economies of scale in production and distribution.
New Production Ideas
Renault has entered into several acquisitions and coalitions in road to globalization. Every country and organization has their own critical success factors. By sharing and utilizing this type of information Renault is improving its production facilities. For instance, the creation of Renault Tanger Mediterranee industrial complex has enabled it to discover new global integrative cost-efficient production processes.
Nissan is a Japanese based auto company. Japanese are extremely good in Just in time production, continuous improvement programs and total quality management initiatives. By creating an alliance Renault is improving in these respects and enhancing the competitiveness to the level of international standards.
Globalization has allowed Renault to lower costs by sharing production facilities of local companies in different countries. It is enjoying mutual use of manufacturing plants of Nissan, Dacia and Samsung in different locations.
3. GLOBALIZATION and MARKETING
Marketing is the hallmark of every global business strategy. The high range competition in the auto industry compels the organizations come up with new innovative marketing ideas.
Benefits of Globalization
Access to wide customer base
The globalization has enabled Renault to outreach customers across the globe by intelligent marketing. Renault now offers a wide range of products in different ways while simultaneously keeping the marketing costs low. Globalization has significantly increased the power and scope of advertising for Renault. It was only because of globalization association with Nissan that Renault succeeded in a traditional country like Japan in spite of no recognition.
Renault has been able to be recognized as an established brand worldwide in the auto industry other than French and European markets. Adopting two way communication channels Renault is creating its image as an innovative, dynamic and adaptive company. Because of globalization there exists a uniformity of marketing practices. Renault has been able to build up a consistent brand image.
Technologies are improving day by day because of growing trend of globalization. Renault is intelligently utilizing these technologies to improve its customer base. It was because of this Renault recognized that the demand for its Logan cars exists in Western Europe, Morocco and Spain other than France Romania, Poland and Russia. The Renault’s savvy marketers are also successfully targeting the niche markets.
Challenges of Globalization
Globalized marketing strategies usually consider the whole world as one territory and often undermine the differences in consumer needs, perceptions, and usage patterns for products in different parts of the world. For instance Nissan’s cars were initially not successful in the United States because they were designed according to Japanese weather. The customers in many parts of the United States had severe problems in starting their cars during the cold winter months.
Marketing Mix Elements
Different consumers respond differently to various marketing mix elements. Globalization has made it difficult for marketers of Renault to choose among various elements of the marketing mix the one to highlight on.
Culture represents the shared values, norms, life styles and socially accepted behaviors in a particular place. Globalization has made fast amount of resources available to the masses which have made strengthening of new multicultural relationships difficult for Renault. It has responded by adopting global marketing strategies with some local tailoring. Renault also prefers to recruit the talent from different cultural backgrounds so as to maintain adaptability and prosperity. At the time of alliance between Renault and Nissan 300 employees were chosen from each company and were trained about French and Japanese cultures to overcome this complex problem.
(C)How have the changes in Technology contributed to the globalisation of markets and production?
Would the globalisation of markets and production have been possible without these technological changes?
Technology is the gift of modern era which has changed the life of man from Stone Age to space. There is no argument in saying that the driving force behind globalization of production and marketing is the advent of modern technology. Technology has served as an amplifier for globalization. The technological advancements have made our life more convenient and up to date. The technological innovations will infact continue to serve as future drivers for globalization. The continuous changes in technology serve as an enormous contributor to the globalization of markets and production.
Hill, C., (2001) described globalization as being comprised of two main components: the globalization of markets and the globalization of product. According to this point of view, the changing in technology would lead to an influence on globalization of markets and globalization of production.
(Hill, H .C. 2001)
Advanced Information Technology
The advanced technology in microprocessors, Internet, wireless communications, and transportation has actually accelerated the spreading of globalization. Information technology has made it possible for organizations to easily take part in global economic activities. Internet has emerged as a global collaboration tool for extensive information sharing and trade discussions with out the traditional limitations of time and space. The traditional boundaries of distance, time and location no longer exist because of technological advancements.
The key contributor of technology
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