Value Creation And Success In Strategic Alliances

Value Creation And Success In Strategic Alliances

Corporations have increasingly seen alliances as attractive vehicles through which the companies can grow across the globe at faster rate and diversify in the multifaceted environment. (Gulati, Singh, 2001). Moreover the nationalities of partners, their motives, goals and structure of alliances have all become increasingly varied and important than before.

Prior research has shown that number of alliances has failed in the past as a result of poor implementation of structure and because of cultural differences. The aim of this study is to analyse the characteristics of alliances between Renault &Nissan as a successful case.

Subsequently suggest operational recommendations for car companies forming new alliances.

This analysis will discuss respectively the reasons of choosing an alliance rather than a merger, study Renault & Nissan before and after becoming an alliance, discuss the structure and cooperative operation of the alliance and the role of corporate and national structure. 147

Why it’s an alliance not a merger?

In the age of globalisation companies are trying to cope with consequences of this historical process. Scholars in this field have noticed that companies could either merge or conclude an alliance to cope with globalisation.

The scholars, however, differ among themselves as to which is better, alliance or merger. By being global a firm would have a better chance to enter a new market, and increase both its global market share and global competitive advantage.

The two processes differ in terms of their meanings and the reasons for choosing one of them rather than the other. International mergers are when two firms from different countries, and have their own capabilities, agree to integrate in order to create a stronger core competency in the global market (Shenakr2008:303).

However, strategic alliances are contracts between two parties from different countries, when they agree to cooperate in order to do a particular task.

This shared task can’t be realised and create a value unless the two parties work together(Andrew, Strategic alliances, P.404).(I can delete this phrase)

In the case of Renault-Nissan, it is preferable to have an alliance than merger for many reasons. Charles Hill (int. business:412) claims that Alliances, would facilitate more than mergers the entrance for companies to new geographical phases where there are some restrictions on foreign investments. (Comprehensive cases,p. 312)the two companies had their own capabilities in their own market. Renault for instance, already existed in Europe and North America, and was well-known for its design and marketing. At the same time Nissan was the powerhouse engineering in Japan, Europe and North America. Therefore, there was a good chance for Renault to Enter the Japanese market where there are many barriers from the Japanese government.

Synergy however, is vital for alliance. According to Shenkar( 2008: 333) alliance would be more rational when the two firms look for further synergy in their financial, technological aims. He adds, this alliance would provide the two parties with complementary resources and capabilities(HSenkar, 2008).

This synergy between two companies was the key element for choosing Nissan-Renault alliance. According to Chosn, the manager of the alliance: “we said from the beginning that we were not looking for a merger, but rather to get greater value from synergy between the two companies” (Emerson, the interview).

According to Chosn, the reason for choosing alliance rather then merger was that both companies were looking for “turnaround”. Although alliance was more risky than merger, yet they chose it because they thought it would give them more opportunities to develop.(Emerson, the interview).

However, despite the advantages Nissan-Renault gained from the alliance, they faced challenges. One of the challenges is whether the alliance would lead to an increase or decrease in the price share (Ernst& Halvey, When, p. 48).This was a real challenge for Nissan, whose share price fell when it entered the alliance.(Comprehensive cases). Furthermore, the two companies had a challenge of cross-culture problems. However, with their ability to focus on the work objective they were able to succeed. 508

Renault before and after alliance

The alliance between Renault & Nissan, as indicated by the results in March 2004, was an outstanding paradigm of a successful alliance around the world. However, before 1999, the prospective of forming an alliance between these two firms was not such rosy.

From Renault’s point of view, various factors were strengthening the former opinion. Firstly, (Morosini P. Dec 2004) Renault was recovering during 1996 and 1998-9 turning losses of US$680 million into combined profits of US$1.65 billion.

Moreover, the failure to merge with Volvo in 1995 had left its mark on the company and any further attempts to a new alliance were confronted distrustfully. In addition, the fact that both firms were playing a dominant role in the auto industry of their countries was indicating that a potential alliance was going to collapse in a decision-making stalemate.

Nevertheless, the supporters of the latter argument were gainsaid. The mutual benefits that they were going to absorb from the alliance laid aside the potential problems and both parties focused on the success of the alliance. This was a crucial challenge, which they managed to handle by learning to trust each other, be truthful and honest during the negotiations. Additio…………………..