- Pages: 11
- Word count: 2659
- Category: Company
A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteedOrder Now
Mergers and Acquisition are famous for their deceiving benefits. It often poses as a great decision according to financial and other ‘on-paper’ considerations, but then proven to be a joke after being applied in practice. Research stated that over than 57% from 300 merged companies studied in a 10 year -period came back to their shareholders lagged behind the average of their industries (Mergers, n.d).
The fact stated above bring significant interest in the study of companies who succeed in conducting their mergers and acquisitions undertakings. The merger between Renault and Nissan is one of the largest and the most successful mergers conducted in the 20th century. It is a join considered to be very profitable, despite the significant culture barriers, and the fact that one of which had a relatively weak international presence and the other was running on debt (Company Report, 2003).
This study, however, will only discussed a little of how the merger shocked the world of business. We will focus on defining the problem present within the process of merger and present a suggestion for the solution of the problem. But for a sufficient understanding of the problem, anshort introduction of the merger process in required.
I.1 Renault/Nissan Merger
After acquiring 36% of Nissan’s ownership, Renault sends Carlos Ghosn, a 45 year-old Brazilian-French as Nissan’s new Chief Operating Officer. Since then, the recently chosen CEO of both Nissan and Renault has become the most frequently interviewed and the most often quoted businessman in Japan (Nezu, 2000).
To allow two companies with similar size, but contrasted culture to pursue the same ideals, the merger was conducted under three goals adopted as principles, which are:
- To share resources in relation with economics of scale considerations
- To leverage the complementary strengths regarding products, technology and to increase efficiency
- To preserve separate brand identities in order to maintain strong band image and its wide customer base.
The steps publicized by the new management are:
- Reinforce the mutual Interest of both Partners.
This merger is designed that each company profits from the performance of the other.
- Increasing the strength of Renault/Nissan’s strategic management by building the Renault-Nissan BV.
Renault-Nissan BV is a strategic command structure in charge of coordinating Renault-Nissan’s operations worldwide.
- Keeping separate identities and independence of the two groups
Each companies responsible for its own operations and thus have the freedom to maintain their management style
I.2. Nissan Revival Plans
Carlos Ghosn is known for his “stripping the fat” and “returning to profit” techniques. On one of the interviews, he stated that there are 2 facts ensuring the success of the merger, first, the clear vision from the start that what they are doing is a form of partnership and not acquisition, and second, the understanding that the synergies created are strictly to benefit both companies trough cost cutting, higher quality, and better sales (Finlay, 2005). Some of it bold actions included in his “Nissan Revival plan” are:
- Closing plants
- Imposing merit based pay
- Selling off assets
- Dismantled the unprofitable Keiretsu bonds
- Cutting purchasing cost
I.3 Present Performance
The effective cost cuts and the massive launch of new models resulted amazing developments. Nissan was recorded to produce losses for the past 7 years prior to the acquisition, but the Nissan Revival Plan has been met one year ahead of schedule in 2001 by an operating margin of 7.9% and by the end of 2004, the company achieved zero net debt (Eppert, 2003).
Nissan’s profitability has also contributed to Renault’s income. In 2002, the company produced a net income of EUR 1.9 billion, EUR 1.3 billion of them are resulted from Nissan. The merged companies are now considered passing the performance quality of its predecessor, Daimler-Chrysler (Diem, 2002) and having no direct competition in Europe. In 2002, Renault sold 2.3 million vehicles, while Nisan sold 2.7 million (Eppert, 2003).
- Statement of Core Problem
Mr Carlos Ghosn has presented the miracle of transforming one of the most debt ridden companies to an actual profitable investment subject (‘Company Report’, 2003). But studies indicated that he did it by sacrificing thousands of jobs and several partnerships with long term suppliers and customers. Some articles refer to him as ‘keiretsu killer’, while keiretsu is one of the well known Japanese culture considered a significant part of its business habits (Nezu, 2000).
This problem was considered tiny by many business observers, due to the fact that Nissan’s keiretsu network was in fact the largest contributor of Nissan’s unprofitable transactions and commitments (Nezu, 2000). Ghosn was still considered a hero from the fact that he enters a horrible crisis situation and managed to solve Nissan’s debt problem thus, turn Nissan to a very productive and profitable company.
The absence of strikes and other violent reactions following the head cuts in Nissan was due to Nissan’s poor performance over the years. The company believed that they are in need for fresh perspective toward the business, therefore, they are very much open for foreign culture. However, we must incorporate Renault to obtain the whole picture. An article mentioned that Ghosn, beside being the most famous businessman in the world today, has also stroke some analysts as a cold hearted manager thinking head-cuts are normal (Wrighton, 2005). As he is chosen to be the leader of both Nissan and Renault, he is also expected to bring considerable difference to Renault. Shareholders are behind his actions as they hoped to obtain the same cost cuts as happened in Nissan, but analysts stated that he would have a very big trouble with France unions if he tries to pull the same strategy (Wrighton, 2005).
In short, we believe that some delicate factors in the process of merger are not realized. Mr. Ghosn Action of eliminating 21,000 jobs in Nissan in the process of Renault/Nissan merger was a very sensitive decision that have most likely resulted a submerged internal problem, which if not attended properly, would rise as a significant trouble in the future.
III. Summary of Recommendation
Merger is a big step affecting every part of the company. Thus, every part of the company must be incorporated in the considerations regarding to merger decisions. One of the largest causes of merger’s failure is the lack of sufficient communication between decision makers and employees (“Why Mergers & Acquisitions”, 2001). Relating to the keiretsu and ineffective cost control problems in Nissan, we propose a more delicate approach which incorporate employees and affiliates in the cost cuts decisions
Culture is people’s identity. Inside it lie their expectation of the future, their personally soothing habits and most importantly, their motivation to do the job. Denying someone’s culture would make him/her feel unappreciated and furthermore making the employee feel that working with the company would not take them anywhere closer to their personal end goal. Employee motivation will be suppressed and result poor performance all over the company.
If the problem lies within these cultural habits, then we must apply carefull steps ensuring that every manager and employee are ‘on-board’ on each managerial decisions affecting their working condition. Gradual changes are prefered than large reformations, but in case of smaller time frame, then tough decisions are required. However, we must maintain managerial credibility in each reformation step in order to preserve employee’s trust and morale.
- Alternative Solutions
Regarding to the interaction of individuals and companies inside a merger process, there are several ways to perform a merger:
- Combine companies to their fullest extent, including human resource management policies and product designs of the companies without regard of cultural differences. This type of acquisitions is usually vertical acquisitions, where cultural differences are rare and parent company desire absolute control over companies’ management. But the alternative could also be applied on large horizontal mergers, where parent’s management has future plans requiring the complete control over company policies.
- See mergers as partnership, each company stays on what they do best, but managerial decisions of the companies still comply with the same central management. This alternative is the latest model of mergers and acquisitions. It respects each other’s expertise but the companies have strong understanding of mutual goals. Managerial adjustments are made without eliminating each company’s identity. The merger of Carnival Corporation with Princes Plc, two giants of the cruise industry is known to use this type of acquisition.
- To listed the company as a single corporation, but to run them as separate individual companies. Assistances are only in financial forms and managerial adjustments are rarely made. This form of mergers usually happened with equal companies merged under a single management. Each company is holding on to their own policies and culture despite inefficiencies occurred, thus dragging the companies slowly to poor performance. Sometimes these mergers are strongly based on mutual respect over their bond of brotherhood, causing difficulty when it comes to making tough decisions. The Japanese Keiretsu culture is known to produce such managerial risks.
V. Analysis and Conclusions
Relating to the internal problem of employee morale, the second alternative is the most reliable form of mergers. the first alternative is undesirable because of its nature as an acquisition and not equal cooperation. As mentioned before, people depend on their culture for a sense of safety and pride. If a company failed to facilitate the employees with sufficient guarantee that new management will cooperate with original working habits, employee morale would be severely damaged resulting less desirable working performance.
The first alternative suggested that parent management is in complete control of the company, which implies that decisions are not necessarily communicated with lower managers and employees. This strategy does not comply with the demand for sensitivity toward cultural issues. In a normal condition, cost cuts in the form of factory closing and job cuts would present a strong signal of managerial lack of morale considerations.
In the case of Carlos Ghosn, this alternative has been applied to some extent. Ghosn is deemed responsible for a certain amount of factory closing and thousands of jobs missing. This method has seemed to be working with Nissan, but as he returned to his home company (Renault) he was welcomed by a series of warning not to apply the same strategy with France’s workforce.
The third alternative is also considered undesirable due to the weak state of managerial decisions. Despite the importance of honouring different cultures, tehre is no point of having a merger, if the central management doesnt have the power to make important changes. The third alternative suggested that the cooperation is conducted on financial terms and special projects only. In the case of Renault /Nissan merger, if this alternatie is applied, than there will be only minimum financial and product lines benefits.
The solution suggested is the second alternative which implied that certain behavioral changes are necessary, but with sufficient communication toward managers and employees. In the case of Renault and Nissan Merger the necessary changes are mostly related to the keiretsu companies. Thus, cost cuts by eliminating unprofitable keiretsu networks can be done by applying a performance standard. These standards must be communicated with all keiretsu affiliates before applied. In the final chapter of the application, affiliates which cannot comply to the cost or performance standard are eliminated without further considerations.
V.1 Aims and Principles of the Merger
The merger was at first considered an unbalance agreement as the Renault obviously gave Nissan a lot of generous contribution. Financially, Nissan has received the cash flow they need to pay their debts, in marketing, Nissan ha also received synergies with Renault in Europe and marketing expertise, new product designs and platform strategies. But Renault believes that alliance with Nissan would also bring them enormous advantage. Nissan could gave them access to Asia Pacific market, Nissan could gave them its superior manufacturing technology, and Nissan would finally contribute to their sales performance.
V.2 Throwing Away the Cultural Crutch
Solving the problem of cultural clashes, the best solution we can offer is the number 2 options. There is no contingency to this plan. Other options have been practiced and proven to be disasters more often than not.
Relating to the fact that workers would not be motivated enough to do the job beyond their cultural understanding, it is better to let them do the job from where they feel comfortable. But the privilege must come with a condition. Despite individualities of company operations, all employees must comply with central management’s decision when it comes to company’s survival. Therefore, cultural habits considered to cost the company enough to endanger its existence must be eliminated.
Management should implement this principle by presenting trustworthy performance, thus generates trust. The solution we have stated can be reasoned trough the following elaborations; we also incorporate some suggestion to implement the solution:
- Business marriages most likely to work when each company stayed in what it does best, therefore to some extent, interfering with partners business can cause unnecessary dispute, and not suggested by management (“How to Make”, 2001).
- The more each company knows each other, the larger possibility the merger would work. Mergers would work well if companies chose partners that “fits”. Before the merger is initiated, it might be best for the companies to work together in a few projects (“How to Make”, 2001).
- Adaptation period is vital. To rush on such a deal will most likely result a cultural shock making the employee feel they are being sold in some way. There is an old saying that goes “everything takes three months”. To some, it might sound rather ridiculous but analysts believed that there is reasonable logic behind the statement (“How to Make”, 2001).
- To cut cost is not the only way to increase productivity. Managers must incorporated calculations of intangible aspects of the company (“How to Make”, 2001).
- Knowing the cultural origins of each company your about to combine is a good idea. We all have our framework. In case of mergers and acquisitions, the question is how we can translate our framework to understandable form for those from totally different backgrounds (“How to Make”, 2001). The second solution would give managers some time to get to know their new employees without the necessity to “govern” them yet.
- Employees would respond to results. Thus, the managers must have clear vision of the objectives for short and long term and formulate them in the company strategy. Achieving short term objectives would encourage employees to start “accepting” the merger.
- Employees also respond to honesty. By having an honest and coherent management, employees would feel safe to comply with management’s decisions (“How to Make”, 2001).
‘Company Report – Renault’. 2003. World Markets Research Centre. Retrieved June, 18, 2005 Available at http://www.worldmarketsanalysis.com/wma_sample_pages/site_pages/WMASampLightVeh.htm
Diem, William. 2002. “Renault-Nissan Alliance Fulfills Its Promise”. WardsAuto.com. retrieved May 21, 2005 from http://wardsauto.com/ar/auto_renaultnissan_alliance_fulfills/
Eppert, Sven. 2003. “Daimler-Chrysler and Renault-Nissan”. European Strategies and International Business. Retrieved May 21, 2005 from http://sven-eppert.de/downloads/daimler-chrysler_nissan-renault.pdf#search=’renault%20nissan%20merger’
Evans, Ben. 2002. “Memorandum”. Retrieved May 21, 2005 from http://oak.cats.ohiou.edu/~be375497/esp/memo1.htm
Finlay, Steve. 2005. “Ghosn: On Skeptics, Dealers, C.S. Lewis, Freud and God”. WardsAuto.com. Reyrieved May 21, 2005 from http://wardsauto.com/ar/auto_ghosn_skeptics_dealers/
“How to Make Mergers Work”. 2001. Di Giacomo & Associates. Retrieved May 21, 2005 from http://www.di-giacomo.com/Merger&Acqusitions.htm
“Mergers & Acquisitions Business Integration”. n.d. TMC White Papers. Retrieved May 21, 2005 from http://www.tesauromc.com/whitepapers/mergers.htm
Nezu, Rizaburo. 2000. “Carlos Ghosn: cost controller or keiretsu killer?”. Observer. Retrieved May 21, 2005 from http://www.oecdobserver.org/news/fullstory.php/aid/231
“Why Mergers & Acquisitions don’t Work?” 2001. Di Giacomo & Associates. Retrieved May 21, 2005 from http://www.di-giacomo.com/Merger&Acqusitions.htm
Wrighton, Jo. 2005. “For Nissan’s Rescuer, new road rules await at Renault”. Auto Insider. Retrieved June 18, 2005. Available at http://www.detnews.com/2003/autosinsider/0310/26/a01-306486.htm