Volvo Renault alliance

The article described the life cycle of the alliance between car manufacturers Volvo and Renault. That was one of the largest and most prominent alliances in Europe at that time. The marriage of the two corporations was promising as it held economic promises that were applauded by the industry experts. Three years after the alliance had been founded, the allies split apart under not very friendly circumstances. Although the motive was good, outcome was unhappy. Six factors were recognized in the article that undermined the failure of the alliance:

1)Misalignment of senior and operating managers

2)Path dependence

3)Alliance recontracting

4)Leadership style

5)Cultural differences between the french and the Swedes

6)Time

MAIN POINTS IN THE ARTICLE According to the article 60 % of the alliances fail. Even if the motive was strong between the parties and expectations were high, there are plenty of things that can go wrong in an alliance. Marriage of two companies can at its best mean higher production effencies and lower costs. It can expedite access to technology, markets and customers and also promote organizational learning. Strategic competencies can be expanded and strategic responses to a much larger competitors can be launched, provided that the co-operation between the two companies proves to be successful.

3 THE PROBLEM THE ALLIANCE FACED

The Senior Executives of both Volvo and Renault considered the alliance healthy and successful when the interviews were done in 1993. Components exchange was going well maybe because it had a long history. But operational executives were not that happy with the co-operation. Two projects proved that there were challenges in the alliance:

- P4 project was a development that aimed to manufacture a common platform for high-end executive car. In order to agree on the safety requirements and to have enough high power in the motors there was a delay of the launch.

- Truck production was another issue. It seemed that Renault’s truck operation was afraid of being swallowed by Volvo, and that Volvo feared losing both it’s brand identity and consumers franchise.

The co-operation between Volvo and Renault started as an alliance. That meant 50:50 control in ownership and internal governance was maintained by 21 committees. CEOs of both Renault and Volvo later claimed that that the ultimate aim had always been a merger of these two companies. Especially for some Volvo employees that news came as a surprise. Volvo CEO Per Gyllenhammar and Renault CEO Louis Schweitzer were conting on faster decision making after the merge.

3.1Factors that contributed to the problems Thus all of the mentioned six factors contributing to the failure of Volvo-Renault alliance were important, we found misalignment of management, leadership style, cultural differences and timing the most critical in this case. There will be more reasoning and discussion of those after clarifying the other two factors.

Path dependence was especially harmful for Volvo side when its business was recoved by American markets. The rigid structure of the alliance, including cross-shareholdings and a poison bill, made almost impossible to find alternative ways to survive in severe competition.

Recontracting of an alliance without approval from all parties can be difficult due to heavy opposition; in this case Gyllenhammar plainly miscalculated the reaction to the proposed merger.

The Volvo-Renault alliance is especially an exemplar for senior executives in many ways. The management involved in deploying the new alliance strategies were senior executives instead of the operational executives as it should have been in order to complete the tasks successfully. Senior executives of both Volvo and Renault side indicated that alliance was healthy and proven to be successful.

On the other hand, operational executives at Volvo expressed their dissatisfaction with the alliance. Financial Officer of Renault emphasized that higher managers were not able to explain to management their interest in the planned merger and strengthening the alliance. It is essential to bring the reality of these opportunities and challenges to the middle management and operational executives who are responsible for implementation.

As the people are the key to the alliance process, the views of management should have been deployed by middle management to the whole personnel and the ideology to be adopted many layers down from the ivory tower of CEO. Especially Gyllenhammar was referred to as aloof and hard manager, almost regal in his dealings with lower level managers.

There was no space for discussion and even though it was not said in laud that this was deeply resented at Volvo as an expression of dictatorship. Gyllenhammar had said to his managers clearly that those who are not in agreement with his plan have one thing to do: jump off the ship.

This kind of managerial style was not common in Sweden and aroused opposition among workers. The traditional implicit contract between management and workers in Swedish business society gives workers considerable influence.

Time is money. This was proved by the Chairmen of Volvo and Renault by the given statement: “To achieve economies you need speed and determination.” However, in complex alliances that cross national boundaries periods of time might be needed to establish sustainable ties among managers as well as workforce, to build a more responsive and accepting environment for cultural differences and increase commitment.

4 THE KEY FORCES THAT AFFECTED THE STRATEGIES USED The key forces were to gain production efficiencies and the resultant lower costs, to expedite access to technology, markets, and/or customers, to promote organizational learning, to expand strategic competencies, and to launch a strategic response to a much larger, or more nimble, competitor.

4.1.The key results of these strategies The key result of this strategic alliance between Volvo and Renault was, that it collapsed after just three years in a bruising argument. Observers were left reassessing the future of alliances and of European integration.

Alliances depend crucially upon common agreement about mission, economics, ideals, and culture. This collapsed alliance was due to lack of alignment and disagreements between senior and middle-managers, and senior management versus other stakeholders such as investors in France and Sweden.

This Volvo-Renault alliance created path dependency, which means that the companies were committed to a stream of decisions, outcomes and were dependent on a particular course of action. Path dependency is very difficult and costly to change. Attempts were also made to change the terms of the contract, which risks shattering the fragile terms of the alliance.

The study shows, that Volvo-Renault had leadership problems. Trust, creditability and honesty are key alliance management skills and Volvo’s executive chairman, Pehr Gyllenhammar was not comfortable in these roles. He was often described as elitist and aloof, and was not prepared to transform himself.

There were also some cultural differences between France and Sweden. One must attend to differences in culture on both a corporate and a country level. Inattention to the importance of cultural difference will only accelerate problems. Apparently both Volvo and Renault had not thought enough about the perceptions and stereotypes that they held about the other.

Time was also a factor because senior staff wanted the alliance to be completed quickly but it takes time to establish a good working relationship. The successful management of alliances takes time and effort.

6 HOW ISSUES COULD HAVE BEEN RESOLVED The poison pill of the alliance should have been avoided in order to make it easier to change the strategy under the changed circumstances (changed economic conditions – Volvo improved economic results due to the North American auto market growth and was perceived to cope without merger, Renault was supposed to be privatized in 1994).

Involvement of all levels –Swedish middle management did not buy the idea of benefiting from the merger. The abstract vision of Volvo’s CEO of integrating Sweden to Europe by this merger did not translate to the terms of real benefits.

7 ANOTHER EXAMPLES WITH SIMILARITIES The future development of one of the case company – Renault Nissan alliance – proved that with proper management the strategies could be implememented successfully. This alliance had the same goal and did not collaps. The alliance was established in 1999 when Reanault acquired a 36.8% stake in the Nissan company and subsequently these companies formed a full 50/50 joint venture.

Renault wanted to establish a stronger presence in Asia and in North America. Nissan, on the other hand was in financial difficulty and was looking for a saviour. Although both of the partner firms appeared to have matching goals, the cultural distance was large.

It required considerable effort and commitment on part of both firms to bridge this cultural divide. Initially, analysts were sceptical about how well the alliance would do. But as it turns out, the alliance has been successful. Careful preparation, cross cultural sensitivity, and the vital contribution of Carl Ghosn who led the new company all played a vital role.

Carl Ghosn had a multicultural background (French mother and a Brazilian father), was fluent in five languages, and had graduated from Ecole Polytechnique, one of France's most prestigious institutions. His credentials were impeccable and he successfully won the confidence of his Japanese colleagues and made the alliance work. This example serves to emphasize that alliances are complex social systems which require an approach that can help manage a complex arrangement. (Kumar)

At the same time period Daimler and Chrysler were seeking the alliance which finally did not succeed. The vision and strategy for conducting merger was to create a company that would combine the Mercedes’ engineering with Chrysler’s marketing and design savvy to develop a vehicle to be sold anywhere in the world.

The two companies fit well together geographically, Daimler strong in Europe and Chrysler in North America, and in terms of product lines, with Daimler's luxurious and high-quality passenger cars and Chrysler's line of low-production-cost trucks, minivans, and sport utility vehicles. Although this was a merger of equals--it soon became clear that the Germans were taking over the Americans. DaimlerChrysler was set up as a German firm for tax and accounting purposes, and the early 2000 American CEO left German CEO in clear command of the company.

In early 2000, DaimlerChrysler set the goal of becoming the number one automaker in the world within three years by increasing its presence in Asia and gaining a larger share of the small car market in Europe.

The Chrysler Group division was struggling with high costs and weak sales. Two-thirds of Chrysler.s senior management was fired or resigned (executives did not get along with German colleagues). The merger was centered too much around sustaining core competencies at either Chrysler or Daimler and not enough on integration of corporate culture between the two company. Synergies proved elusive, and the anticipated economies of scale never materialized. Daimler sold money-losing Chrysler Group to private equity firm in 2007. (James, 2007)

BIBLIOGRAPHY James, G. 2007.Lessons from the Mega-Mergers. URL: http://www.bnet.com/article/lessons-from-the-mega-mergers/163246?tag=mantle_skin;content. Quoted: 4.10.2010.

Kumar, R. Negotiating Strategic Alliance Partnerships. URL: http://www.negotiationtraining.com.au/articles/planning-alliances-strategically/. Quoted: 4.10.2010.