In 1970s and early 80s Nissan along with another Japanese automobile premier, Toyota forayed into U.S. automobile market. The strength of Nissan was its technological competence. By 1985, the company exported around 8,30,000 vehicles to U.S., thus making it second largest exporter after Toyota. In late 1980s, things started worsening for Nissan. Growing competition from Toyota and Honda, and appreciation of Yen against U.S. dollar contributed to the downturn of Nissan. The problem got aggravated due to bureaucratic structure of the organization. In 1987, when the Japanese economy was booming, Nissan invested heavily by borrowing and doubled the production capacity. Because of high borrowing, the debt burden of Nissan reached $22 billion by 1999. Later, the company fell into a debt trap with recession in the Japanese economy. The company also incurred a loss of $1000 on every car sold in the U.S market. The domestic market share had fallen from 17.4% to 13% at the end of first half of 1999. Nissan's global market share dropped from 5.8% in 1988 to 4.9% in 1999 and its net debt was more than Yen 2.1 billion. Added to these problems was the culture of the organization, where people found fault with each other for problems. Also there were no well defined areas of responsibility for managers. Further, heavy investments in non-core areas had added up its woes. All these with huge debt burden and lack of new models in the product line made the management of the company to think of a potential partner for joint venture. In late 1980s, one of the top automobile marketers in Europe, Renault was also facing various problems. The company was considered strong in R&D and design. However, the company had no global presence and its productivity was low. Further, there were many structural problems that plagued the company. The company was restructured in 1990 and was privatized in 1996. The same year, Carlos Ghosn was appointed as deputy CEO for Renault. He launched various restructuring initiatives, which boosted Renault's profitability. In 1998, Renault had around 7.9 billion pounds as equity and another 1.9 billion pound of cash and was debt free. Therefore, the company was well placed to tie up with a partner in order to achieve its objective of becoming the most competitive European car manufacturer by year 2000. The merger of Daimler-Chrysler in 1998 prompted both Nissan and Renault to look for a partner. In March 1999 the alliance between Renault and Nissan was finalized after 8 months of negotiations. The negotiation was done in 4 stages. In the first stage, both the partners formulated their expectations regarding the alliance and explored the various things that the potential alliance would involve. In the second stage, work groups scrutinized various areas of potential synergies in terms of market, product line, procurement, manufacturing and distribution. For instance, Renault had only meager presence in Asia and no presence in America while Nissan got substantial presence in U.S. and Asia. Nissan was strong in trucks and luxury cars whereas Renault was strong in small cars. In the third stage, the economic value of the alliance was calculated. In the final stage, the details of the agreement were negotiated and the Renault board approved the alliance. However, Renault itself admitted that the deal with Nissan was a high-risk, high-reward strategy. After the merger had taken place, Renault decided to send Carlos Ghosn to head the turnaround efforts in Nissan. Nissan had worked in four continents. This experience helped him prepare for his new job in Nissan. After the merger, a Global Alliance Committee (GAC) was formed to promote joint strategy and exploit synergies between the two companies. According to Ghosn, Nissan suffered from lack of clear profit-orientation, insufficient focus on customers and too much focus on chasing competitors, no culture of working together across functions, borders, or hierarchical lines, lack of urgency, and no shared vision. There were many cultural differences between the two companies. The differences were in language, decision-making processes, communication patterns, accountability and labor management relationships. In Nissan, the decision-making process was through consensus, whereas decisions were taken by senior managers in Renault. In Nissan, responsibility, accountability and reward systems were group based; in Renault, importance was given to individuals. Finally, Ghosn came up with a Nissan Revival Plan and established English as the common language throughout the company to avoid miscommunication. He further formed nine cross-functional teams to concentrate on various business functions. Ghosn decided to tackle all problems like utilization of plant capacity, launching new models, retrenchment, shutting down plants, repaying debt and transforming purchasing practices at one go. Ghosn's revival plan faced strong resistance both from internal and external forces. Even Hiroshi Okuda, chairman of Toyota, was skeptical about the success of Nissan's revival plan. However, Ghosn was stubborn and did not relent to the criticisms. He said, “There were fundamental management problems. Nissan had to do things that make business sense, not because of habit or tradition.” Ghosn adopted the seniority system with regard to payment and promotion. He adopted a career progression system, which was merit based. He defined areas of accountability. Things started changing and Nissan was able to cut down purchasing costs by 20 percent. The number of suppliers were reduced to 700 from 1,145. Even service suppliers were also reduced by 70 percent. The company later initiated rationalization of the distribution network in Japan. Many of the overlapping outlets were closed down. Ghosn even closed down five plants of Nissan and the workforce was reduced by around 23,000 thousand. In 2000, Nissan's sales had fallen to 27 year low of 17.4 percent. Though, the sales increased in 2001 to 18 percent, still it was lagging far behind Toyota, which had 42.2 percent of the Japanese market. However, Ghosn was not worried. He said, "I have no problems in losing market share that I don't deserve. We are concentrating on profit."

1. Mergers can be of different types. What is the type of merger that took place between Nissan and Renault known as? Discuss the economic rationale of the merger between Nissan and Renault. 2. There can be various motives and reasons for cross-border mergers. What could be the motives and reasons for the merger between Nissan with Renault? Explain in detail?