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Strategic Alliance
Definition
Agreement for cooperation among two or more independen firms to work together towards common objectives Companies in a strategic alliance do not form a new identity to reach their aims but cooperate while remaining apart and distinct.

Rationale-Nissan
Japans economy was under recession. Nissan net debts amounted to 2.1 trillion(Yen) in 1997. Nissan was facing acute liquidity crunch. Nissan couldnt raise money by floating bonds as it was classified to junk status. Hence seeking alliance with foreign carmaker was the only option left. Talks failed with Ford and Daimler Chrysler

Rationale-Renault
Renaults total global market share was around 4%. Renault was confined to European market. In order to gain access to global market, Renault started looking out for strategic tie ups. Talks failed with AMC and Volvo. Finally Renault zeroed onto Nissan

Nissan-Renault
Nissan could provide Renault access to Asian & U.S market. Renault would push Nissan out from the point of bankruptcy. Neither Nissan nor Renault where top global players, but in combination would become a top world player.

SWOT ANALYSIS-Renault Nissan

Strengths-Nissan Access to Asian and U.S market High Technological Acumen Weakness-Nissan 2.1 trillion yen in Debts Japans economy in recession No shared common vision on Nissans future No cross functional & cross regional communication Cars were out of trend Less emphasis on managerial culture Money locked up in keiretsu partnership Weakness-Renault Too small to compete in world stage Access only to European Market. No access to world market

Strengths-Renault Strong Management Practices and Strategic long term vision Cost control-debt reduction Resource optimization Good supplier relation Innovation & creativity

Cross-Share Holding Agreement

Renault would acquire 36.8% stake in Nissan(& could increase it to 44.4%), while Nissan could take a stake of 15% in Renault by subscribing to newly issued shares for 150 billion Yen. Renaults would exercise its options in warrants worth 216 billion Yen. In effect there will be a cash flow of 70 billion yen to Nissan. Nissans stake in Renault was not given any voting right. Also the agreement gave 82 plus billion yen worth profit to Renault.

Type of Alliance

Strategic Value for Renault

1.Acceleration of international deployment 2.Economies of scale (purchasing, common engines & platforms, co-development) 3.Sharing of best practices (quality, industrial & engineering) 4.Optimization of capacity utilization 5.Contribution to net result & dividend flow 6.Cooperation on leading technologies

Strategic value for Nissan

1.Initial financial input from Renault 2.New performance orientated culture 3.Cost and vehicle project management 4.Re-invention of a product policy 5.Turn-around in Europe 6.Development of captive finance business