Resilience Lessons From Renault-Nissan-Mitsubishi Alliance: Partnership to Dethrone a Market Leader

Forming a formidable strategic alliance can give companies a competitive edge in the age of disruption. For one thing, a strong alliance will boost growth and profitability. Companies can also use an alliance to dethrone the market leader in a cutthroat competitive industry. However, knowing something works and understanding how it works are two different things.

Since 1999, the Renault-Nissan (including Mitsubishi from 2016) alliance has become arguably the most resilient in the automobile sector, given the tsunami of disruptions it has withstood over the years. The Carlos Ghosn scandal was a testament to that resilience in an industry littered with well-documented failures. Consider the Volkswagen and Suzuki alliance: Volkswagen bought a nearly 20% stake in Suzuki in 2009.

However, cracks soon appeared on the alliance’s walls due to the managerial blunder of Volkswagen’s CEO Martin Winterkorn. In his firm financial report in 2011, he asserted that Volkswagen could influence the economic decision-making of its ally, Suzuki. Also, he stated that his firm’s new ally is in it for Volkswagen’s technologies—however, he (Winterkorn) is allying for a different reason.

The claims angered Suzuki’s CEO, Osamu Suzuki, given that, in his view, Volkswagen wanted to treat his firm as an unequal partner. Accusations of breach of contractual agreement spiraled out of control when Suzuki allied with Fiat. Finally, they divorced in 2011. As the case of Volkswagen and Suzuki illustrates, many strategic alliances turn sour, but the automobile industry is notorious for its failure rate. Similarly, in 2007, the Daimler-Chrysler alliance ended, given the frustration stemming from the poor inter-firm engineering knowledge management. As these cases illustrate, strategic alliances can go wrong for many reasons.

Do not Form an Alliance for opportunism’s Sake — it Doesn’t Work

Another pitfall of a strategic alliance that companies need to avoid is allying to improve an organization’s weaknesses, like technologies, know-how, or capabilities. In this regard, a classic example of an international alliance is that of General Motors during its heyday.

It formed a portfolio of alliances with the Japanese robotic technology firm Fanuc and Isuzu, yet it developed alliances with dozens of parts suppliers across the industry. On top of that, it allied with Toyota for its Total Quality Management method when they built their joint manufacturing plant in Fremont, California.

However, General Motors failed to capture value from these alliances, particularly that of Toyota, after 10 years in that alliance, given that it struggled to build high-quality small cars. In its partnership with Toyota, General Motors broke one of the cardinal rules of a partnership. An alliance value is derived from the synergistic complementarity. Do not ally to correct strategic capabilities deficit. To be sure, General Motors is not alone in the car industry making such a strategic blunder. The Honda-Rover alliance in the United Kingdom produced similar results. Rover hoped to learn from Honda’s innovative car designs through their coproduction. Again, like General Motors, Rover was disappointed when it broke the same cardinal rules of alliances.

The trillion-dollar question is: what makes the Renault-Nissan-Mitsubishi alliance so resilient? How can an alliance’s synergistic capabilities be used to dethrone the market leader (Exhibit 2)? First, what stands out, among other things, is that they know how to manage four tensions that have destroyed most alliances, according to our experience. For one thing, an alliance is a classic co-opetition. That is, allying organizations compete while they cooperate. Thus, to win the cooperative and collaborative game, the clarion call of an alliance businesses needs to manage four interrelated tensions.

Intra-organization tensions: For the sake of organizational ambidexterity, each allying firm needs to build a dedicated team for the alliance. However, quite often than not, tensions can arise between the people working on the alliance (the interface) and those working on the competition side of the companies. CEOs need to be aware of these challenges and craft appropriate responses, rules, and policies to formalize the alliance. In other words, what should we do, and when should we do it?

Inter-organization tensions: Indeed, the goal of an alliance is to build a win-win relationship between allying firms. However, like the Daimler-Chrysler alliance above, when poorly managed, the connections, instead of being a conduit for knowledge sharing, can become knowledge plunder, where each partner loses.

Inter-employee tensions: People working as an alliance interface need to be incentivized to enhance the working relationships between allying organizations to avoid unnecessary disruptions and petty disputes between allies.

Technological tensions: In our increasing platform age, platform governance and architecture are the key building blocks requiring serious discussion regarding decision authorities between allies. For example, in decentralized platform ecosystems, developers can make many decisions. However, within a centralized platform, the decision authority stays with the platform owner, stifling innovation. On top of that, despite all the talks of digital transformation, legacy technologies still run amok across many industries. Allying organizations need to consider the pitfalls and challenges of running an alliance with some of these technologies in this age of artificial intelligence.

The Renault-Nissan-Mitsubishi Alliance Capabilities That Dethrone Market Leaders

The alliance capabilities are based on the strength of each member. Indeed, one of the alliance’s key advantages is Renault’s experience. It has been in the game for nearly 20 years with Volvo since 1971. However, six years before allying with Nissan, Renault and Volvo divorced. The French auto giant is present in 18 countries, with 38 manufacturing sites spread around the world. Its strength lies in vehicle design, diesel engines, and R&D. On top of that, it has a strong market position in countries such as Germany, France, Russia, and Brazil. However, it has a weak presence in the United States and Asia, where Nissan is very strong – with a distribution network spread across North America and Asia. Moreover, Nissan’s strength lies in quality assurance and gasoline engines, including efficient production systems (TQM) learned from its home country.

The alliance capabilities are based on the strength of each member. Indeed, one of the key advantages of the alliance is Renault’s experience. It has been in the game for nearly 20 years with Volvo since 1971. However, six years before allying with Nissan, Renault and Volvo divorced. The French auto giant is present in 18 countries, with 38 manufacturing sites spread around the world. Its strength lies in vehicle design, diesel engines, and R&D. On top of that, it has a strong market position in countries such as Germany, France, Russia, and Brazil. However, it has a weak presence in the United States and Asia, where Nissan is very strong, with a distribution network spread across North America and Asia. Moreover, Nissan’s strength lies in quality assurance and gasoline engines, including efficient production systems (TQM) learned from its home country.

Mitsubishi, the third and last alliance member, has strengths and weaknesses. Foremost among its strengths is its substantial presence in Australia, Thailand, and Indonesia. Similarly, with the emergence of electric cars as the auto industry’s future, Mitsubishi’s strength in plug-in hybrid vehicles is a blessing for the alliance.

Thus, with these synergistic relationships, the alliance created a separate company through a 50-50 joint venture registered in the Netherlands called Renault-Nissan BV, the seat of the alliance’s board and critical orchestrators, including the Renault-Nissan Purchasing Organization. By 2017, the partnership became the world’s number one carmaker by volume, selling 10.6M vehicles worldwide. Likewise, in 2020, in the electric vehicle segment, Mitsubishi SUV plug-in vehicles (PHEV) dethroned Tesla to become Europe’s bestseller. Again, Renault’s Zoe was the best-selling electric car vehicle in Europe last year (2020), beating the Tesla Model 3. In other words, Renault Zoe sold more than 235,000 units versus 115,000 units for the Tesla Model 3, thanks to the strategic capabilities built into the Renault-Nissan-Mitsubishi alliance.

An alliance is an imperfect contract full of ambiguities where many details of the interaction between allies can’t be fully known at the outset. As such, the Renault-Nissan-Mitsubishi alliance has mastered the art of working through ambivalence, which is ever-present in every collaboration.

An alliance, when well executed, can be a potent competitive edge. However, knowing that something works and mastering how it works are two different things. Thus, Learning the building blocks of a successful and resilient alliance such as the one built by Renault, Nissan, and Mitsubishi is crucial in the platform economy. However, comparing it with other alliance failures was necessary to understand its strength, capabilities, and resilience fully. As it has been said, a firm’s net worth will be proportionate to its network in the digital economy. Because growth and profitability are a function of the degree to which an organization allies with partners to increase the size of the economic pie.