Sample Case Study on Renault and Volvo Strategic Issue

Renault and Volvo Strategic Issue

The unsuccessful strategic alliance venture by both Renault and Volvo came about with the organizational structure issue both firms were facing. This issue according to White[1] arose due to the decentralized management nature Volvo aimed to adapt in their organizational structure, given Renault made use of centralized structure[2]. As a result, the decision-making processes between the two firms were delayed. This was further made worse with the non-equitable shares within the merger, given Renault owned 65 percent of the shares as compared to Volvo’s 35 percent. Furthermore, the cultures between the origins of the two organizations were totally different. This issue tends to bring about cultural conflicts within the various managerial domains in an organization[3]. The language for full communication within the organization became a concern, with the Renault management preferring French, while Volvo preferred Swedish more[4]. As such, it became a problem in regards to establishing the official language between the two firms strategic alliance venture to be established. In addition, lack of trust between the two firms led to lack of coordination between them[5].

SWOT Analysis of the Strategic Alliance

I will make use of the SWOT analysis to analyze the strengths and opportunities, which were available for the two firms, with their weaknesses and strengths also being analyzed to further establish the cause to their unsuccessful venture.

Strengths and Opportunities

Strengths

Capable Leadership

The management at Renault is one that has been well developed, because of the level of qualification their CEO Louis Schweitzer had, the case being the same with Volvo’s CEO Pehr Gyllenhammar, whose story of success came about from his determination[6]. As such, effectiveness in leadership tends to play a critical role towards any established strategic alliance venture[7].
Enhanced Financial Reserves

Both firms had better financial reserves; this was in respect to the support Renault had from its government, with Volvo improving its financial capacity through its intense business activities[8]. As such, better financial reserves from the two firms would have made it easy for the establishment of a successful strategic alliance venture[9].

Effective Production

In respect to efficient production, the strategic alliance was bound to make it much easier for both firms to be effective in the production of cars in the growing automobile market[10]. This was because raw material transformation into considerable products by both firms would be made effective, implying faster and better skills provision for both companies.

Opportunities

Support from the Government

The financial crisis Volvo was undergoing would easily be supported because Renault had immense support from the government[11].

R&D

Given the addition of financial support Volvo would gain, research and development will further be improved due to provision of necessary technologies needed for successful strategic alliances[12]

Technology Exchange

The enhanced safety embedment technology by Volvo and the cost containment skills by Renault will be beneficial for both companies because of the ease in which they would share such technologies[13].

Weaknesses and Threats

Weaknesses

Financial Crisis

In respect to Volvo’s financial crisis, there was clearly no effort put forward to support the alliance, given the issues as mentioned above and the new production ventures Renault aimed to venture into[14].

Barriers to Communication

Their disagreement in regards to the communication language to be used was also another reason to their unsuccessful venture. Renault did not agree to the use of English, which made Volvo feel neglected in the whole strategic alliance venture[15].

Organization Structure Conflicts

The decentralized management structure at Volvo did not in any way go hand-in-hand with the centralized system at Renault hence issues arose in respect to who will take the helm at the top management[16]. As such, the decision-making measures between the two organizations were hindered.

Planning Insufficiencies

Their strategic alliance plans were not sufficiently planned hence their supply measures to the various markets they operated in were not easily implemented.

Threats

Interference by the Government

The fact that Renault as partly owned by the French government meant the power would likely lie towards their side in the alliance, as such, Volvo would be dissatisfied given the restrictions the government would provide. The powerful rights Renault with the help of their government was also unfair to Volvo. This is in respect to the 65 percent share they had, in comparison to the 35 percent Volvo had been subjected to[17]. As such, investors questioned the fairness of the share; given the power the French government had prevented investors from acquiring shares above 17.85 percent of the direct interests from the Renault-Volvo alliance[18].

Competition and Customer Risks

Examples of successful alliances, such as Ford-Jaguar, and Citroen-Peugeot[19] intensified the competition within the market; with their production capacities attracting a large number of consumers due to the able reputation they were building required much in the automobile industry[20].

Recommendations

From the case of Renault and Volvo, it’s quite evident of the unfairness that exists between them. As such, formulation of an alliance strategy where their goals and objectives are integrated would lead to better results. The following recommendations will serve best for Renault-Volvo and any other firms aiming to engage in such:

  1. A joint venture would be a much preferred strategy, this is in respect to both Renault and Volvo investing their funds into coming up with a company which they will jointly own (50-50). As such, issues regarding non-equitable shares and management structures will not arise given the ease in which funds, knowledge and assets can easily be accessed from both Renault and Volvo. Furthermore, both Renault and Volvo can combine their features and ensure they don’t alter their own company activities. As a result, the new company will be a business on its own where the profits will be shared equally.
  2. The organizational structure under the joint venture for both Renault and Volvo can be agreed at a decentralized level because of the ease in which decisions are made. As such, better communication networks can be agreed upon with prior dedication towards R & D activities due to the ease in which decisions will be made under such a decentralized management structure.
  3. Proper communication language in today’s business world is English; as such, adoption of the language throughout the organization will further enhance their measures towards a successful strategic alliance.

 

Bibliography

Adobor, Henry. “The role of personal relationships in inter-firm alliances: Benefits,

dysfunctions, and some suggestions.” Business Horizons 49, no. 6 (2006): 473-486.

Chalhoub, Michel Soto. “A Partial Equilibrium Game Theory Model: Application to the Partial

Privatization and Competitiveness of Renault SA.” International Journal of Public Administration 30, no. 5 (2007): 559-589.

Famuyiwa, Oluwafemi, Leslie Monplaisir, and Bimal Nepal. “An integrated fuzzy-goal-

programming-based framework for selecting suppliers in strategic alliance formation.” International Journal of Production Economics 113, no. 2 (2008): 862-875.

Kumar, Rajesh, and T. K. Das. “Interpartner Legitimacy in the Alliance Development Process*.”

Journal of Management Studies 44, no. 8 (2007): 1425-1453.

Lunnan, Randi, and Sven A. Haugland. “Predicting and measuring alliance performance: A

multidimensional analysis.” Strategic Management Journal 29, no. 5 (2008): 545-556.

Narasimhan, Ram, and Anand Nair. “The antecedent role of quality, information sharing and

supply chain proximity on strategic alliance formation and performance.” International Journal of Production Economics 96, no. 3 (2005): 301-313.

Nielsen, Bo Bernhard. “Determining international strategic alliance performance: A

multidimensional approach.” International Business Review 16, no. 3 (2007): 337-361.

Reuer, Jeffrey J., and Africa Ariño. “Strategic alliance contracts: Dimensions and determinants

of contractual complexity.” Strategic Management Journal 28, no. 3 (2007): 313-330.

Segrestin, Blanche. “Partnering to explore: The Renault–Nissan Alliance as a forerunner of new

cooperative patterns.” Research policy 34, no. 5 (2005): 657-672.

Taylor, Andrew. “An operations perspective on strategic alliance success factors: An exploratory

study of alliance managers in the software industry.” International Journal of Operations & Production Management 25, no. 5 (2005): 469-490.

White, Steven. “Cooperation Costs, Governance Choice and Alliance Evolution*.” Journal of

Management Studies 42, no. 7 (2005): 1383-1412.

 

 

[1], Steven White. “Cooperation Costs, Governance Choice and Alliance Evolution*.” Journal of Management Studies 42, no. 7 (2005): 1385.

[2] Rajesh Kumar, and T. K. Das. “Interpartner Legitimacy in the Alliance Development Process*.” Journal of Management Studies 44, no. 8 (2007): 1429.

[3] Blanche Segrestin. “Partnering to explore: The Renault–Nissan Alliance as a forerunner of new cooperative patterns.” Research policy 34, no. 5 (2005): 661.

[4] White, Cooperation Costs, Governance Choice and Alliance Evolution, 1390.

[5] Kumar, and Das Interpartner Legitimacy in the Alliance Development Process, 1431.

[6] Adobor, H. The role of personal relationships in inter-firm alliances: Benefits, dysfunctions, and some suggestions. Business Horizons, 49 no 6(2006):  477.

[7] Jeffrey Reuer J. and Africa Ariño. “Strategic alliance contracts: Dimensions and determinants of contractual complexity.” Strategic Management Journal 28, no. 3 (2007): 318.

[8] Kumar, and Das Interpartner Legitimacy in the Alliance Development Process, 1435.

[9] Zhiang Lin, Haibin Yang, and Irem Demirkan. “The performance consequences of ambidexterity in strategic alliance formations: Empirical investigation and computational theorizing.” Management Science 53, no. 10 (2007): 1649.

 

[10] Ram Narasimhan, and Anand Nair. “The antecedent role of quality, information sharing and supply chain proximity on strategic alliance formation and performance.” International Journal of Production Economics 96, no. 3 (2005): 307.

[11] Cooperation Costs White, Governance Choice and Alliance Evolution, 1390.

[12] Michel Soto Chalhoub. “A Partial Equilibrium Game Theory Model: Application to the Partial Privatization and Competitiveness of Renault SA.” International Journal of Public Administration 30, no. 5 (2007): 563.

[13] Ibid., 564.

[14]Randi  Lunnan, and Sven A. Haugland. “Predicting and measuring alliance performance: A multidimensional analysis.” Strategic Management Journal 29, no. 5 (2008): 545-556.

[15] Oluwafemi Famuyiwa, Leslie Monplaisir, and Bimal Nepal. “An integrated fuzzy-goal-programming-based framework for selecting suppliers in strategic alliance formation.” International Journal of Production Economics 113, no. 2 (2008): 867.

[16] Anan  Narasimhan, The antecedent role of quality, information sharing and supply chain proximity on strategic alliance formation and performance, 310.

[17] White, Cooperation Costs, Governance Choice and Alliance Evolution, 1392.

[18] Ibid., 1392.

[19] Andrew Taylor . “An operations perspective on strategic alliance success factors: An exploratory study of alliance managers in the software industry.” International Journal of Operations & Production Management 25, no. 5 (2005): 474.

[20] Bo Bernhard  Nielsen. “Determining international strategic alliance performance: A multidimensional approach.” International Business Review 16, no. 3 (2007): 353.