Global Business Strategy: Renault-Nissan, Coloplast, Novartis & Nestle

Renault-Nissan Alliance: Partnership Resilience and Strategic Outlook

The Renault-Nissan Alliance underwent a significant maturation process over the last decade. Under Ghosn's leadership, the company stabilized, underwent a culture shift, and then expanded sales and profits. The partnership began to fall short of its objectives in 2006, but at that point was still outperforming its industry peers. The company's response was to continue pushing forward with its plans.

The vision of the Renault-Nissan Alliance is to become one of the top three automakers in terms of technology, quality, and profitability (Leslie, p.2). As of 2008, the company identified several means by which it could achieve this end. The firm had made investments in electric car production in India and Morocco (Leslie, p.2). In the face of sales declines in mature markets, Renault-Nissan had placed added emphasis on the BRIC countries (Leslie, p.1) through joint ventures with firms such as Mahindra, AvtoVAZ, and Dongfeng (Leslie, p.2).

At the time of writing, however, there were signs that the bloom was coming off the rose somewhat. The company was forecasting its first loss, attributed to a strong yen and a sales slump driven by the global recession (Kim & Massy-Beresford, 2009). This appeared to indicate that the strength of the partnership throughout the past decade had begun to fade — but this is not necessarily the case.

Comparing the firm's performance against the first disappointing year of the Alliance in 2006 reveals some similar trends. Nissan in 2006 failed to meet its targets, and at the time unfavorable currency exchange was partly to blame — a pattern that recurred. It is probably unreasonable to take too unfavorable a view of the company's performance in light of its inability to manage translational risk, since translational risk is typically very difficult to hedge. Accounting profit for a multinational entity may be used for goal-setting purposes, but its true value should be taken with a grain of salt given that some losses are only translational, not transactional. It could also be argued, however, that Nissan has done a poor job of hedging its exposure if those profits are being repatriated to Japan and the firm is losing money as a result.

The other trend is that sales slumps have hurt performance for the Renault-Nissan Alliance. The financial crisis, in its infancy in the middle of 2008, resulted in substantial sales reductions for all automotive companies. It is unreasonable to think that Renault-Nissan would be insulated from such systemic risk. A better measure of the effectiveness of the partnership would focus on firm-specific performance.

With respect to financial performance, Renault-Nissan has not fared badly. Despite its recent focus on the BRIC countries, the company's largest markets remain North America and Western Europe (Lundgren, et al.). In 2008, the Alliance had as major strategic thrusts the building of capacity in India and Morocco — plans that were put on hold (Kim & Massy-Beresford, 2009). However, this alone is not evidence of the partnership failing. Rather, it is a prudent move given the economic downturn. The two companies are in a position where they need to use some of their capital to finance ongoing operations, particularly at Nissan where losses were imminent. It is therefore reasonable to postpone investment projects until the economy begins to turn around.

The partnership may have hit a rough patch, but there is no evidence to support the view that its value has run its course. Indeed, the companies' willingness to adjust strategy to meet the current economic conditions is evidence of partnership strength rather than weakness. Further evidence of this strength is that while the Big Three U.S. firms were all struggling for survival and the major Japanese firms were beginning to suffer as well, both Renault and Nissan were merely experiencing a setback in their plans.

There are several reasons for optimism about the future of the Renault-Nissan Alliance. The first is that both firms are in solid financial position. While many of the world's leading automakers struggled even through the economic expansion of the mid-2000s, Renault-Nissan was able to ride that wave to improve margins, sales, and profits.

Another reason for optimism is that the company enjoys greater geographic diversification than many other major automakers. Today's global auto giants arose in markets with rapid diffusion of the automobile, and tomorrow's will arise in similar markets. The Alliance has a strong presence in the world's largest growth markets, with manufacturing capabilities in India, Brazil, China, Russia, Egypt, Southeast Asia, Mexico, and Iran (Lundgren, et al.). The company is focused on low-cost vehicles that appeal to consumers in those markets — a strategy with strong long-term growth potential.

Further optimism derives from the Alliance's long-term strategic planning. While U.S. automakers were fighting for their very existence, struggling from one government bailout to another, the Alliance was forming joint ventures in China to produce electric cars (Agence France-Presse, 2009). Other automakers had become fixated on the short term, while the Alliance was building a long-term strategy based on technological leadership in electric vehicles (The Economist, 2008).

The goals of the Alliance are to be an industry leader in quality, technology, and profitability. While the firm suffered in terms of profitability in the past year, this was more due to systemic factors than any failure on the part of Alliance leadership. Their strong geographic diversification has insulated them to some degree from the worst of the downturn. The impending losses at Nissan and reduced profits at Renault do not reflect firm-specific risks, and as such there is no indication that current performance represents a structural failure. That the Alliance continued to engage in long-term planning and deal-making, while judiciously postponing some of its most ambitious projects until the economic turnaround, demonstrates management strength and corporate vision.

Coloplast: Managing Regulatory Risk and Operational Transformation

Coloplast is the world's second-largest producer of ostomy bags and the largest in Europe. Ostomy products represent 45% of the firm's sales, continence products 29%, and wound and skin care 19%. The company markets its products through three channels: retail and wholesale, direct to consumer, and through hospitals and institutions (Brown, et al.). The company expanded production into Hungary in 2001 in order to maintain growth potential that would allow it to meet its aggressive long-term sales goals for 2012.

There are several risks facing Coloplast, however. The largest risk at present is that European governments are driving down reimbursement rates, which in turn reduces revenues for medical supply companies such as Coloplast. Within Europe — accounting for 80% of Coloplast's sales — individual national governments set reimbursement rates, which are a key determinant of product price. This means that Coloplast has little control over the prices it receives for its products (Brown, et al.).

There are several ways to mitigate this risk. Lobbying efforts may be utilized but are unlikely to succeed for a couple of reasons. First, such efforts must be directed at each individual government, so the company could realistically address only the largest. Second, the impetus for changes to reimbursement rates is the rising cost of health care, which is itself the result of demographic shifts. The price drivers are therefore essentially out of Coloplast's control.

The demographic shift does, however, give Coloplast the potential for increasing volume, given 84% growth projected in Europe (Nielsen et al., p.4). Combined with shrinking margins, Coloplast must improve volumes significantly in order to maintain or improve profit levels. This will require further investment in overseas production. By May 2004, Hungary joined the EU and would be forced to increase its corporate tax rates, so Coloplast may need to look outside the EU to find production capacity for continued expansion.

Each of the major risks highlighted reflects downward pressure on prices. Health care reforms in all of Coloplast's key markets are putting downward price pressure on its products. These risk factors are both systemic and long-term in nature. As a result, Coloplast's solutions should also address these issues on a long-term basis.

Given that cost reduction is going to be required in order to maintain margins, Coloplast not only needs to consider offshoring more of its production and even development functions, but also needs to improve its production processes on an organization-wide basis. At present, Coloplast has little coordination between its different facilities. Best practices are neither recorded nor shared among plants, and product innovations are not transmitted throughout the organization. This means that production synergies between the different Coloplast facilities are not presently exploited.

The company can mitigate the impact of health care reform by improving its product processes. The industry is beginning to shift from cash cow status to one characterized by tight margins and high volumes. Coloplast must become a low-cost producer, to use Michael Porter's terminology (Porter, 1980). This will force the company to shift its core competencies.

The current core competencies for Coloplast are its experience and knowledge of its own products, its customer-focused product innovation, its value-added services, and its extensive knowledge of the health care systems in which it operates (Brown, et al.). These competencies are more congruent with a differentiation strategy — an allowable mindset when Coloplast could leverage its knowledge of Europe's health care markets to gain healthy margins. Now that those margins are under threat, the company must undergo a strategic shift toward excellence in mass production.

To do this, the company needs to focus immediately on improving its internal communications and enculturation processes. The firm is presently more of a collective of facilities than a cohesive unit working toward a unified goal. They have gotten away with this because of their dominant position in relatively protected markets. However, the new realities of the medical supply industry demand internal improvement — a step necessary simply to maintain their successful position in Europe, much less to become a global firm.

Coloplast needs to redefine itself first and foremost. The changes in the industry must be understood by management and communicated throughout the organization. Essentially, Coloplast is facing challenges and risk factors on a scope the company has not seen before. Stakeholders throughout the organization must understand the current situation, how it has changed, and how those changes will affect Coloplast going forward. The Hungarian experience has been positive, but the risks ahead will demand that they repeat and extend this experience in order to enjoy continued success.

Coloplast is also going to have to open up more markets. The European market is relatively saturated, with strong growth prospects deriving strictly from the aging population. Growth prospects outside of Europe are much stronger — projected at 197% by 2012 compared to 84% inside Europe (Nielsen, p.4). A presence in Mexico, India, or China would give Coloplast low production costs and access to large markets. Many markets are beginning to see upgrades to their health care systems. In the case of the U.S., Coloplast could potentially leverage the distribution network it already has as a result of its purchase of Sterling.

Coloplast's main risk factors all boil down to the high level of government regulation in their industry. The company has little control over the regulation itself, but it does have control over its response. Changing demographic factors, increased regulation, and increased cost pressures mark a dramatic shift in the business environment. The best way for Coloplast to mitigate these risks is to shift its business model to match the changing environment — developing better internal communications, establishing a unified corporate culture, outlining not only the company's future objectives but how those objectives will be achieved, and implementing better coordination of production processes. This will allow the company to make the transition to being a low-cost, high-volume, global producer.