21COE, University of Tokyo

MMRC Discussion Paper No. 104

MMRC-F-104

Interview with two vice-presidents
of Renault at their head office

Koichi Shimokawa
Professor, Tokai Gakuen University

Shinya Orihashi
Associate Professor, Tohoku Gakuin University

Daniel Heller
Associate Professor, Yokohama National University

Hidetada Higashi
Ph.D. Student, The University of Tokyo
November 2006

21COE, University of Tokyo

MMRC Discussion Paper No. 104

Interview with two vice-presidents
of Renault at their head office

Koichi Shimokawa
Professor, Tokai Gakuen University
Shinya Orihashi
Associate Professor, Tohoku Gakuin University
Daniel Heller
Associate Professor, Yokohama National University
Hidetada Higashi
Ph.D. Student, The University of Tokyo

November 2006

PrefaceThis interview was held in March 2005 as part of a program to survey the European
automobile industry, funded by a Ministry of Education, Culture, Sports, Science andTechnology grant for scientific research.
After presenting the contents of the interview, conducted in a question-and-answer
format with two vice-presidents at Renault’s head office, we give a summary at the end of
this document. The interview was arranged through the kind concern of the public relations
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Shimokawa, Orihashi, Heller, Higashi

departments of Renault Japon and the head office of Renault. First of all, we wish to express
our thanks to both PR departments. We are also grateful for receiving their permission tocarry the interview report here.
The two vice-presidents interviewed are Mr. Georges Douin, executive vice-president incharge of strategic and product planning, international operations, and Mr. Jacques Verdonck,
who is responsible for corporate and strategic planning. Mr. Douin is reported to have retired
in June last year. According to the PR department of Renault Japon, Renault’s businessstrategies have been undergoing considerable changes since Mr. Carlos Ghosn’s return toRenault. We would like to note that the interview reflects the state of affairs before suchchanges.
The questions asked cover a wide range of topics –– the results and features of the
Renault-Nissan alliance over the last six years, Renault’s global business operations, how togauge the synergy of the two companies, quality standard evaluations for joint purchases ofcomponent parts by both companies, establishing the identities of individual products, themethod of mutual study between the two companies, Renault’s business strategies in Eastern
Europe and Russia in the context of the expansion of the EU, mutual study of production
technology between Nissan and Renault, the difference in development lead times and modelchange cycles between the two companies, achieving commonality of their respective
platforms, the method of their joint product development, and finally what makes the
Renault-Nissan alliance different from that of other automakers.
Evolution of Renault-Nissan Alliance
Shimokawa: Six years have passed since the Renault-Nissan alliance was formed, and Mr.
Ghosn will be returning to Renault this year. We can see several important steps or stages,
like the Nissan Revival Plan, over this time period. We can also see that the alliance contents
have deepened as the relationship has developed. Nissan's global business has also beenstrengthened and the same can be said of Renault too. The importance of the Chinese market
has also clearly increased.
Verdock: It has been a continuous process. It is not accurate to say that the alliance haschanged very much after the NRP. From the beginning we decided to establish Cross

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Interview with two vice-presidents of Renault at their head office

Company Teams (CCTs) and Functional Task Teams (FTTs) were established. These weremainly opportunity hunters for developing synergies and enhancing the profitability of eachcompany. Each team contributed to the success of NRP, and they continued to work after
NRP because it is long-term business when we talk about developing powertrains andplatforms. It does not take only two years to implement. It takes a long period of time.
So, from the alliance point of view, we do not see that there is a break or a change after
NRP. For sure when we consider Nissan as a company, it is something different. NRP wascoming back to the black. Thereafter was the expansion and sustainable growth of Nissan
which was demonstrated. Nissan 180 was one main task of the whole management team of
Nissan.
It is important to say that as far as Renault is concerned we concentrate our efforts
during the first two years of the alliance to help Nissan succeed in NRP. Thereafter, for sure,
we supported the efforts of Nissan, but we also looked forward to have a balanced successfor both Renault and Nissan. All the things that have been decided through the CCTs and
FTTs had to demonstrate that they were win-win for the alliance. It means a win for Renault
and a win for Nissan. There is no way to develop something in common where one party islosing and the other is winning. This guided all the efforts of the CCTs and FTTs from theend of NRP to now.
This work is still going on. There is no end. We could measure the impact of thesynergies. It was possible to measure it because we can say that we would not have been able
to achieve all these things if we were alone. But there comes a point in time where it doesn'tmean anything, because six years have passed. We can't say what would have been thesituation of Renault if we had been alone. Therefore, we could measure the impact of thesynergies for the first three years. After that, it is impossible to measure.
Verdock: Within the alliance, today we have set up 19 CCTs and 4 FTTs. The number ofthese teams changes depending on the priorities of the alliance.
The CCTs are joint teams made up of Renault and Nissan people, with co-leaders, one
from Renault and the other from Nissan. There are also 2 pilots, again one from Renault and
one from Nissan. They meet regularly. They are opportunity hunters. They are charged withimproving the business of each company. They make proposals to the boards of Renault andNissan, and they work it out. They make sure that these proposals are implemented at3

Shimokawa, Orihashi, Heller, Higashi

Renault and Nissan.
Cross Functional Teams (CFTs) are something different. Each company has from before
the alliance vertical organizations, like R&D, etc. So the idea of CFTs is to cross all of these
vertical boundaries and work on specific tasks. This was implemented at Renault before thealliance, particularly when Mr. Ghosn came to Renault in 1996. At Nissan, CFTs were also
introduced, but it had nothing to do with the alliance. It was done within Nissan.
Alliance Synergies and Benefits
Shimokawa: How do you handle the issue of measuring synergies when you are faced withdifferent cultures in each company?
Verdonck: I can speak about how we measure the efficiency of the actions we developing
today within Renault and Nissan. When we decided a project it should make sense
economically speaking for each company. It is easy to measure. For example, I will get alower price from the supplier if I purchase 200 units rather than 100 units. So, it is easy tomeasure the impact of joint action. This is the case for everything. If we decide, for instance,
to develop a common engine, you can measure how much you win on each side because you
develop it jointly. It is easy to measure.
Shimokawa: But in some cases, for example, like in common purchasing, cost evaluationis very clear, but if the contents of the quality, the standard and the way of thinking at Nissan
and Renault, are different, how do you measure these?
Verdonck: It was a tough issue. It is not any more. Because we have decided that quality
will not be a differentiator between Renault and Nissan. We have decided to set up the same
standards of quality for Renault and Nissan. It does not mean we have downgraded one. Infact we are looking for at the top level of quality for both companies. We recently set up,
what we call, Vision Destination for the alliance, where we set clear objectives for thealliance. One of these is to be among the top three of manufacturers worldwide for eachproduct and service for each company.
Of course there are a lot of charts and processes that are common from the design of anew product up to the in-service of a project. We have a Quality Charter. We have set
milestones in the development of a program where we have to make sure that we fulfill the4Interview with two vice-presidents of Renault at their head officequality criteria of a product, which are the same between Renault and Nissan. Therefore, forthe cost issue, we cannot say that we will take a lower cost for one company because it is alower quality. We take a lower price, because we are a winning alliance. We are upgrading
the quality of both brands.
In sales and marketing, we benefited a lot from this alliance. It allowed us to come backto counties, such as Mexico, where we were not prior to 1999. A few months after thealliance started, we decided we could come back into the market by having some of our
product manufactured in the Nissan plant. And develop a network based on some Nissandealers in Mexico. So, very rapidly we could sell many thousands of vehicles in Mexico andbe profitable one year after the start of the operations, which is a very successful synergy. We
could do the same also in Mercosur, where we decided jointly to set up a plant forcommercial vehicles in Curitiba (south of Sao Paulo), which we probably would not havedone alone. But as Nissan was coming with us it was possible to justify the creation of theplant because we could manufacture a sufficient number of products to fill the plant.
Also, in the commercial sector, Nissan benefited a lot from the alliance, for instance inEurope, when Nissan decided, and we decided jointly, to allow Nissan to cross badge someof our commercial vehicles. It increased the volume of commercial vehicles we had to
manufacture and in such a way we could decrease the cost of our product because of higher
volumes.
In other regions of the world, in Korea for instance, we fully benefited from Nissan
support. As you know, Renault Samsung Motors is a plant that nowadays belongs to Renault.
But before it was acquired by Renault, this plant was a plant under cooperation with Nissan,
which means that the plant itself was according to the NPW. The vehicles were licensed by
Nissan. Therefore, we could benefit from the full support of Nissan to enhance and improve
the product range of RSM since the beginning. RSM has nearly 10% market share in Korea.
It is a success. It is a profitable company. We are going on with developing this company
with the help of Nissan. I am not sure we would have had such a success without the Nissan
support in Korea.
Shimokawa: What do you think is Nissan biggest improvement with Renault's support?
For example, management capability reconstruction is one of the very important issues,
especially after Nissan had essentially lost its strategic way in Europe and the US.

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Verdonck: It is difficult to summarize. I think it is a whole set of measures, and thewillingness to build something that is well balanced between Renault and Nissan, whichmakes the success of the alliance.
Of course we can say that one key element was the shareholding of Renault in Nissan.
In fact, we brought a lot of cash to that company. It was necessary. I think otherwise nothing
was possible. It was a very huge investment for Renault. That means we were looking for
payback on this investment. Therefore, we were very keen that this investment be profitableand justify the many efforts we had developed in the beginning. It also must justify the factthat we had dedicated a very high-level management team headed by Carlos Ghosn to thiscompany. I think this is the first point.
Pursuit of Both Unique Product Identities and Commonization
Shimokawa: Please describe how you coordinate unique product identities, platform
commonization, different model change cycles at each company, etc. to get win-win.
Verdonck: We are very careful to coordinate but not to mix. Each company should keep its
own culture, its own identity. We don't have to change the identity of Renault or Nissan
because the alliance exists. Therefore each company has to run its strategy according to its
own identity. This is true also for the products we are developing. But this does not meanthat we can't do anything, that we can't work together. You can have common engines,
common gearboxes, a lot of common components, air conditioner, for instance, which can fit
in similar products or even products from different segments.
It is a big puzzle, where we can play together. But each company is sticking to its own
identity. This is not an easy task. We definitely do not want to limit the development of either
Renault or Nissan due to the alliance. It should help each company to develop. It should not
be a stumbling point.
Shimokawa: When we met before you (Mr. Douin) explained to me that, for example, in
the Seat/Volkswagen case, from the viewpoint of product development engineers, you canunderstand how the Seat engineers might be quite annoyed. Of course, their platform
originally came from Volkswagen in Wolfsburg. So, how do you coordinate both company's
innovators at Renault and Nissan, with their quite different way and philosophies toward
product. Of course, mass-produced cars, like the Micra and Clio, are available, but in the6Interview with two vice-presidents of Renault at their head officecase of other types of cars, it seems to be somewhat different situation, with more difficulties.
How do you coordinate this commonization strategy?
Douin: I don't know how Volkswagen has evolved recently, but some years ago their claims
about platforms was that they were very mandatory. It was a must. There was very limited
freedom to change. There was a range, but at the end of the day, a Seat was very close to a
Volkswagen.
Verdonck: It was not only the platform, but also the body.
Douin: There was a huge focus on the limitation of diversity, the axle, the powertrains, theinstrument panels, and so on. In the case of the (Renault-Nissan) alliance, in the beginning
the CEOs put some pressure to make sure that people worked together. But now they arequite happy with the way people are working together. So, there is more freedom todifferentiate in any way.
Another important issue is that we are absolutely convinced that there is not any more
any "world car" definition. There are very significant differences between Japan, Europe,and the US. So, even Nissan, has to make quite significant differences for the same car in
Europe, Japan, and the US. Nissan's scope is wider than Renault's. Renault is mainly Europe,with the rest of the world maybe 20 or 25%. Nissan is really free with its targets. Among thevarious targets of Nissan, we can easily find differences. For instance, the Japanese Marchand European Micra are not the same. One is focused for fuel economy in Japan. One isfocused for safety in Europe. One has the diesel. So, now, I think we have worked together
for 5 years, people are speaking with more freedom about the specific needs of the European
market, the B-segment, C-segment, the estate, multi-purpose vehicles being different fromhatchbacks. So at the end it is a complete mix, a complete combination. You may use somecomponents from the bank of components, but it is not exactly in the same type of cars, face
to face.
For example, in Europe, the 2-liter engine displacement is a key level for different
reasons. So our gasoline engine is 2 liters. Beyond 2 liters, we have the turbo version, which
has more power. But this is unique to Europe. When we decided to have an SUV made in
Korea at Renault-Samsung, we thought that this 2-liter turbo was too short and would not be
accepted by Korean customers. So, we went to Nissan, and we could find in the Nissan bank7

Shimokawa, Orihashi, Heller, Higashi

of engines, a 2.5-liter, which was the right answer for such a vehicle. This is Renault's only
use of this engine. By the way, this engine will also be used by Nissan for similar SUVs. So,
this is a good savings. For Nissan, they did not have enough (work done) on diesel engines,
and we said to them, we shall work on this. So, you can see that it is case-by-case, on what toshare.
We are not condemned to reach, say, 80% commonality. (This would be) a mistake(from the view) for customer expectations.
Shimokawa: As you mentioned, Nissan and Renault are still pursuing commonization
strategy, but how do you coordinate the different ways of thinking at the two companies? My
feeling is that the modularization contents may be different and each car category may bequite different at each company.
Douin: Maybe you are right. Probably what is most difficult to mix is the engineering
backup. Let's take a critical issue, like painting. We do not have the same way of painting
cars. It seems surprising. But this is (an issue) with twenty years history. Twenty years ago,
Renault has some problems with rust in Germany. But we had additional progress and now
we are clear with twelve years durability for rust. We have a quite complex (system) for
paint protection and painting. The engineers do not easily want to change this, because they
are afraid that they will put at risk (this performance) if they change. Nissan has anotherapproach, and they are also good. But it is not the same approach. So, when we want to maketwo cars in the same factory, we want to paint them on the same line. This is a difficulty. To
say that we want one unique painting system, it would require a long learning process to be
sure, and so on and so forth. So, this will take a long time. But, for instance, for the platform
and the modules it is easier. For instance, what is the difference between two platforms?
Basically it is, in the front end, do we have a diesel or not? Do we sell this diesel in Europe
or not? This basically fixes the requirements for the front end of the car, for the weight, thesafety, the front axle of the car, and so on. For the rear part of the car, is it a hatchback for apassenger car? Is it an estate? Is it multi-purpose? What kind of weight and handling system
do you require in the back of the car? So, if we agree on the targets, then we can quite easily
agree on the answers. So, I think the modules and parts approach, also led by RNPO, ourcommon purchasing organization, we want to have the same parts, with common suppliers,
is doing well. The difficulty is the backup technology of each company. This is not that there8Interview with two vice-presidents of Renault at their head office

is a suspicious way of each party. It is not this. It is rather that we know it works, so we are
not really open to change when it works.
Shimokawa: In my feeling, American companies, like GM and Ford, introduced too much
modularization and did not try to do parts commonization, and only used big modules
aiming for economies of scale, and then their product year-by-year became not very
differentiated. It is still a problem.
Douin: Getting back to the current issue, we do not have the same problem as the otherFrench group, because we are not brothers in the same area. Seen by customers, this is aJapanese car against a French car. Even in the SUV, we have exactly the same cars in the
SUV (segment), but we can do it in a better way than Peugeot and Citroen, who are really
the French brothers. When they sell a Citroen it is (viewed) against a Peugeot. Within thesame group, I think it is more difficult to play this game, than when you are two far cousins,
as we are.
Mutual learning
Shimokawa: If you look back on your fours years of experience on the alliance committee,
can you describe what mutual learning, Nissan from Renault and Renault from Nissan, has
happened?
Verdonck: I think it is a never-ending process. We say that each company should be rununder its own management processes, its own management board, with its own autonomy.
Therefore we learn everyday from the other, because these are different companies. We
develop benchmarks between each company, which means that it is a never-ending process.
Maybe we can each imagine new ways of development or manufacturing. Everyday we canlearn from them, and vice-versa.
Heller: Could you please give more details on what Renault has been learning from Nissanand how that has been evolving?
Verdonck: There are different fields of activity where we have learned from them. In the
manufacturing sector, for instance, Nissan implemented the Nissan Production Way. A few
months after we signed the alliance, we decided to implement a copy of the NPW, which is

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called the Renault Production Way. This is not the NPW; it is Renault's. We have taken thebest features of the NPW and adapted them to the Renault culture, and we are implementing
it for more than six years now. It is quite efficient. We have improved the productivity andthe quality performance within our plants.
What we have learned also how to launch a vehicle in a short period of time. The
ramp-up period at Renault was not as efficient as what we are doing currently today. This
success is a result of the benchmark we carried out with Nissan.
Sticking to manufacturing, we learned how to invest in a better way, limiting theamount of investment, having more efficient investment, having more carryover which was acurrent practice in Nissan, but it was not the case in Renault.
In the engineering sector, we have also learned how to develop in a shorter period oftime, even though we have a lot of progress to make. I do think we will get a lot more fromthe alliance in the years to come, than what we have achieved today. We can shorten
development. We can limit the number of prototypes to be more efficient in the number ofprototypes.
In the purchasing sector, we learned from them how to manage more efficiently the
suppliers in terms of quality. We had some experts from Nissan come in, who were working
full time in Renault so as to implement this way of working with the suppliers. The suppliers
are very happy also to get these advices from Renault and Nissan.
Higashi: I am interested in the production line. I think NPW and RPW are so different.
Please explain how Renault learned from Nissan in production.
Shimokawa: Last week we visited the Nissan plant in Newcastle, England. It was very
interesting what they are doing in synchronization. Last year we went to Spain and visited
your Palencia plant and the Barcelona Nissan Iberica plant, which is producing yourcommercial vehicles. They told us that in the Renault and Nissan Production Ways theessential points are the same, but somehow there are different ways of thinking still there
too.
Douin: The global approach is to learn from Nissan, as you say, and to adapt theperformance of Nissan to European conditions. Second, from our global experience withJapanese OEMs, in particular with Nissan, is that they are focused mainly on physical10Interview with two vice-presidents of Renault at their head office

performance. And in sometimes the cost performance is not directly optimized in the same
way as physical performance. An example, I think we have started the program now in avery careful way, about final logistics to the production operation, where the worker works.
He has parts around him and all Japanese OEMs bring to him very small batches. To do thisfor the sake of the worker, you have to prepare it somehow. Delivering these small boxes
several times a day is not obviously cost efficient compared with bringing larger boxes. The
same for cockpit preparation, or front-end modules, seats, exhaust lines, etc. It is not always
proven that it is less costly to do the preparing ahead of time than to do assemble the parts on
the line. These are some things.
However, roughly speaking our ways of measuring performance are becoming roughly
the same. So, normally there should not be so much difference between the way ofmeasuring performance at Renault and at Nissan.
Verdonck: The way we learned is, in fact, we copied. It's very easy.
Douin: Hundreds of people going to the Newcastle plant. And this is important, because wethought it was more important to see them active in Europe than to go to Japan.
Another thing we learned from them, for instance, is the need for perfect quality comingfrom the supplier: the supplier's PPM. The quality when the parts enter the factory. If we
don't trust the supplier to reach it, we should put our own control at the entrance, which had
been eliminated. Second, in many of our factories, mainly for luxury cars, we havere-introduced check men. This was also a requirement given from the Nissan expertise. That
we need to put people at various points on the line to check quality at different stages. The
same is true at the entrance of the line and end of the line, a check for quality.
Heller: May I clarify something… You used to have check men at Renault for incoming
parts?
Douin: Yes. Ten years ago, we had check men for incoming parts. Then, we got rid of thembecause we thought we had to trust the suppliers, and we asked suppliers to do the job. Now
we have re-introduced them when needed. The suppliers have now dramatically improved
their quality. Let's say that five years ago, there was a range of 500 PPM, now we are down
to 80 PPM.
This also was a method that Nissan also helped us in the way of managing the quality of11

Shimokawa, Orihashi, Heller, Higashi

the suppliers. We had a man in our plant, Mr. Sato, and we have introduced the Satosystem--it involves step-up or rank-up of suppliers. This has become a reality now. And also
the suppliers are doing it themselves for the second-tier suppliers.
Heller: You mentioned the importance of keeping the identities of the two companies
independent and self-propelling, but it would seem that this copying of each other could bediluting the identities.
Douin: No. There is no risk or any issue about it.
Heller: But it seems like it could be a tradeoff if it is managed poorly.
Verdonck: By introducing the Nissan Production Way, it does not mean you are diluting theidentity of Renault. You copy the efficiency. So it is not a question of identity.
Douin: The risk could be related to the commonality of parts, engines, platforms. But evenso we don't consider that there is a risk of diluting the brand identity by using the same parts.
Roughly speaking there is not a big difference between a Peugeot and a Renault. (We are)using the same parts from the same suppliers, the same architecture, and so on. The final
touch, tuning, design, it makes it (different).
Heller: In these final touches, tuning, these will remain very Renault and very Nissan
identity?
Douin: I think directly and implicitly. Each company has its own history and the output isslowing evolving, but there is a real heritage. The handling of a Renault is nearly always thesame. And it is different from the handling of a Peugeot and a Citroen. The tradeoff between
comfort and handling (is also different.) So, that is surprising in our industry, at least in
Europe. Small details make the difference. Because if you look at, as I said, a competitor'scar, such as a Polo or a C3, a 206, and a Clio, (and they are) very close. But sometimes one
is much more successful than the other one. It is impressive to see that you can find it reallyin the details. These details are important and I am always impressed to see in productplanning that they are focusing on some detail that they consider will be important. Seenfrom the viewpoint of the cost department or ergonomics, and so on, (you must ask) why do
you ask for this? It is just a detail, but in the end this makes the difference. Including of12

Interview with two vice-presidents of Renault at their head officecourse global design of the car.
But really if you drive a Nissan Micra and a Renault Modus, you will not imagine thatthey are using a common platform, but I think it is about 50 or 60% of the car is common.
Another thing we have learned from Nissan is to invest in a more efficient way. We
invest more than Nissan. But in fact when we make a new car it has more new content thanNissan. They have more carryover than we have. But they are replacing their cars more
quickly than we do. If you look in the past, a new European car was a complete event. For
example, Citroen switching to the DS, it was a huge event. A complete revolution oftechnology and so on. So, this of course is decreasing. But even the new Clio, for instance,
which we will release in September, we forecast 3 million units… investment in the range of
1 billion Euros. It is a huge event. I don't know, but I don't think there are as many big eventsin the Japanese industry.
Verdonck: Volumes are smaller.
Douin: Volumes are much smaller. The total production of each model is also quite short. So,
who is right? In Europe, we are closer tot the European approach. In Europe, the life cycle isseven years. For mass production cars, (we are) looking for 1 million units or even more.
Verdonck: 5 million.
Douin: Yes. 1 to 5 million. If you look at a Japanese car, there are not so many that reach 1
million or 2 million. Even the small Twingo, which is a very narrow program, is now morethan 2 million units. So the amortization per unit is maybe not so different.
Shimokawa: When I met you four years you explained that the Nissan and Renault
production philosophies are quite different from each other. Not only Nissan, but the whole
Japanese industry is shortening lead time and the model change cycle. But Renault's
philosophy is more orientated towards gazing at the market trend and trying to understandthe customer's mind, brand quality, brand image, and you can evaluate what is the goodtiming to enter the market. The Japanese way is different, some products are good, but someare…
Douin: They are changing, because they are…

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Shimokawa, Orihashi, Heller, Higashi

Shimokawa: What do you think about this now?
Douin: I think we now still try to do it like this (way you described). We have improved ourdevelopment time. Mainly for our more current programs we are down to one batch of
prototypes. This was learned from Nissan. So we have only one batch of prototypes, which
are quite late. Our prototype batch is made from final production toolings, at the early stageof production tooling. This has become the rule for current programs. If the program is very
innovative, then we may still have to (do more prototyping.) Second, as you said, Japanesecompetitors are learning too. They have benchmarked us. Our way of predicting theconsumer tastes. They are quick. And Toyota has become a very good market trend-setter, aswell. Toyota, for instance, is the market leader in Europe in the SUV segment, the Rav4.
This is impressive. 16% of the market.
In the vehicle engineering, they are working very closely with the Nissan team. They
are sharing the same platform. The platform approach has become very sophisticated, theway of speaking about modules and parts. We have improved. Nissan has also improved.
But we do not intend to reach some minimum development time. We are not convincedthat this is necessary. Maybe at some point, speed may be costly. If you have a good productplanning, normally you should be able to plan a product three years before. You should be ontime with a good performance, but not with too costly performance.
Way of working together
Heller: You mentioned the CEOs being happy about the way the people (in the twocompanies) are working together. May I ask how this working together is done, the actual
day-to-day interaction?
Douin: We have here the secretary of the Alliance Board, who sets the points of the agenda.
Verdonck: We have monthly meetings, where we review the work of each CCT or FTT.
When it is time for decision making at the board, we have 8 members, 4 coming from Nissan
and 4 from Renault. We discuss and we make the decision. In fact, there is no vote at thelevel of the board, but the decision is usually taken after discussion.
Douin: And sometimes we say that there is not enough reason to have differentiation, andwe will have only one. But other times we say that there are good reasons to have
14

Interview with two vice-presidents of Renault at their head officedifferentiation and we will accept the differentiation. For example, this year we will havediscussion about reviewing our engine policies, because we think we are not as advanced in
the engine convergence. There are such differences between Japan, the US, and Europe. So,
it is quite complex. So, we are behind in engine convergence as compared with the vehicle.
So, we shall have two or three meetings about diesel engines and gearboxes.
Heller: Moving away from the planning, I am curious about the implementation of thestrategies made by the CCTs or other programs. How is the day-to-day interaction of Renault
people with Nissan people doing joint product development, the teamwork? How is thatmanaged? Could you describe this interaction?
Douin: Generally speaking one company develops and the other one follows. So, it is not
50:50 shared development, because our experience is that this is not good.
Verdonck: It is like this for platforms or engines. One company develops for the other.
Douin: In such a case, there are different steps of common discussion: product planning,product requirements, technical specifications, and then if we agree that such a new engine
will have a chain instead of a timing belt, the engineering company makes it happen. The
other one has just a few people, maybe 1 to 5 people, to follow. This is the way we havedone it for manual transmission which will be out this year in the coming few weeks. It had
Renault leadership.
Verdonck: For gasoline engines, we did it (this way). It was developed by Nissan.
Douin: Nissan made together an engine, a 1.6 and 2-liter. And Renault will roll out a diesel
engine for the alliance, but mainly it is a Renault engine. I would say 90% Renault.
Heller: So it is not outsourcing engineering work to Nissan (in this case), primarily justdone by Renault?
Douin: Well, it is case-by-case. What is the best company to be the engineering company?
We really have the concept of one company being the engineering company and the other(being the following company.)
Verdonck: In fact, the product is co-owned. It is not a Renault product purchased by the15

Shimokawa, Orihashi, Heller, Higashi

other one.
Douin: It is a 50:50 split.
Heller: Even though one company leads, the end product is shared.
Verdonck: This is not only for intellectual property rights, but also in terms of expenses.
One company develops the whole of the project, but it charges back the other company 50%of the cost.
Douin: We have complete contracts, exactly as if we worked for Peugeot or Volkswagen.
Very clear contracts about costs, investment, quality, planning. But by exception, we may
decide not to have common parts. For instance, if Nissan decides to develop of new V8 (but)we have no interest in a new V8, we will not co-own it just for the sake of having a V8.
Verdonck: In such a case though, we could still have a buyer-supplier relationship.
Heller: For example, the one used in the Korean SUV, you mentioned. If it is the only casethat Renault is using it, you could just have Nissan supply it, rather than jointly own it.
Douin: Yes. In the case I spoke about, the engine is bought out from Nissan.
Shimokawa: When I met you before, you mentioned the importance at Renault and Nissanof the basic philosophy of each company respecting each other's culture. Maybe I guess thisphilosophy is continuing and being strengthened, but if we look other globally reorganizedcompanies, like DaimlerChrysler or GM-SAAB, where we see more consolidation, theresults do not always seem to be very good. If you compare other company's way of making
an alliance with Renault-Nissan's way, which is better?
Douin: I think this is the key success of Mr. Schweitzer's strategy. The other night he gave aspeech in India, he was very clear again on this point. He has purposely managed the allianceso that it will not be seen as a merger by the other party. We prefer to have some toughdiscussion, to have some counter proposals, and to negotiate step-by-step in the meetings
rather than to have some kind of imposition coming top-down. With the help of Mr. Ghosn
on the other side, who himself has very strong leadership, the Nissan party was a real counterparty. It was not just like a subsidiary that will accept anything. So, Mr. Schweitzer the other16

Interview with two vice-presidents of Renault at their head officenight insisted that this was a unique example, and he expected that this would not only be
successful for the past five or six years, but that he was sure that Mr. Ghosn will go ahead
with the same double way of management. In each meeting that Jacques (Verdronck) spoke
about, when we select an engine, when we select a site, it is after the two parties have madeproposals to look at which is the best proposal. (This is) the best kind of competition
between the two parties. Of course, this may be destroyed if there is some mismanagement.
But we believe we have good managers at the top of the companies. Maybe Mr. Schweitzer
and Mr. Ghosn are among the best we have today in the automotive industry compared tosome other one at least.
This (way of cooperating) is part of the success. We are at 44% (ownership) of Nissan.
It makes us the main owner, like a control situation, but it is not like 51. It is not 51 or 49, it
is just 44%. If there is a challenger coming in, then we can ask to fight against it to reach 51.
But this is not the purpose. The purpose is to remain as it is, and to succeed as often as
possible common works, common components, common platform sharing, etc. But as muchas possible we are not supposed to do it at whatever cost.
But if we meet again four years from now, we will have to ask it again, because I will
not be in the business. I will be just watching.
Views on various overseas markets
Shimokawa: Please explain Renault's strategic philosophy towards China.
Verdonck: This is a case that illustrates quite well what the alliance could bring to eachcompany. First of all, if Renault goes to China, it is Renault's decision. It's not a Nissan
decision. It's not an alliance decision. It is first a Renault decision. We consider at Renault
that the Chinese market is a promising market, for sure. In 2002 and 2003 it increased a lot,nearly 60% growth a year. Unfortunately, in 2004 it was not as much, but still nearly 15%,
which is still very high growth. We expect this market to be the number three in the world,
after the US and European markets, that is, before the Japanese market, by about 2010.
Therefore, if we consider the worldwide industry volume, the growth will come from Asianmarkets, specifically from China. Therefore, if we look for profitable growth for Renault, weconsider that we should be an actor in the Chinese market. This is the first point.
The second point is that we are a latecomer to the Chinese market. Every OEM is17

Shimokawa, Orihashi, Heller, Higashi

currently making business in China. We are not. Therefore if we come to the Chinese market,
we have to make sure that we bring something different to this market, that we can be an
OEM with a well-adapted product. We of course should look also to be profitable. Then
comes the alliance. It would be a mistake if we do not look at what Nissan has done so far in
China. Therefore the first strategy for Renault should take into account the strategy of Nissan.
So that we can develop in the Chinese market as much synergy as is possible, so as to help
Nissan and to help Renault.
Based on these facts, one key idea is to have the same partner. As you know, you mustselect a joint venture to enter China. You cannot go on your own. It is much easier to develop
synergies if we have the same partner at Renault, as Nissan, which is currently Dongfeng.
This is the first point.
The second point is that as the as the Chinese market is growing, but also it changed a
lot in 2004. Prices have decreased, by let's say, nearly 15% in one year, due to China entering
the WTO, due to the expectations of the customers to wait for further decreases of prices
because the OEMs were very profitable, which the customers knew. Therefore, customers do
expect prices to decrease and it happens every month. So, it would be very risky to go on ourown and set up a greenfield plant, investing a lot of money, running the risk that we do notfill our capacity. It is the same problem for Nissan, which has developed a new plant. They
are running the risk of not completely filling that plant. Therefore, we have a joint interest in
making as much use as possible of the existing capacities, which at the moment is
Dongfeng-Nissan capacity, and in the future Dongfeng-Renault capacity. So our strategy inChina is to make as much use of the capacity of our partner (Nissan) and in the future
Dongfeng-Renault.
This shows how we can do something that makes sense, making use of what alreadyexists in China. Of course, when we will look for suppliers in China, we have what we callthe Renault Nissan Purchasing Organization, which operates in China. We expect to benefit
from this organization, to have the same supply bases, perhaps to have common logistics.
Perhaps to have, maybe, dealers, which will not be common, but if we know quite well a
Dongfeng-Nissan dealer that is very efficient, it may be better to ask him to become a
Renault dealer in the future, than to run the risk of choosing a dealer that we don't know atall. Therefore we will make use of all of these possibilities.

18

Interview with two vice-presidents of Renault at their head office

Orihashi: How about the South East Asian market? Will Renault enter this market
coordinating with Nissan.
Verdonck: We consider that SE Asian market to be interesting. If I remember correctly, it is
3 million vehicles for the whole market. But this market is made up of different markets. The
Thai market is made up of pick-ups and classical passenger cars, which is different fromIndonesia. The Malaysian market is quite smaller. The Philippines is also quite different. The
most important market is the Thai market. If we consider the international development ofRenault, we can't do everything at once. We have to set priorities. In the development
strategy, you can't go everywhere at the same time. It was not at the top of our priorities to bein the ASEAN market, though this does not mean that we will not go there or are not there.
We consider that we will be there tomorrow.
I gave you the example of China of how we can set up strategy making use of thepartner. When we go to the ASEAN market our approach will be the same. Nissan has
currently much present in Thailand. It has taken over its Thai partner, which offers much
more freedom to develop something that makes sense for Renault in the future, than what wewould have been possible in the past. With Nissan in full ownership of its operation, it ismuch easier to develop something if we need it.
The second point is when we consider the product, it needs to be specific to the Thai
market. So if we want to be there, we have to get the right product. It is a combination of
product, industrial scheme, dealer network, and when we will decide to go there we willconsider all of these things and we will try to work as much as possible with Nissan.
Currently in ASEAN, we have operations in Malaysia with our partner, where we are
manufacturing the Kangoo, a light commercial vehicle. Nissan has the same partner. I think
it will be quite easy to develop synergies in the future since we have the same partner.
Shimokawa: What do you think about the future of the Eastern European market, including
Ukraine and Russia? Of course, Renault has an operation in Romania, Dacia, producing thenew product, Logan.
Verdonck: As you know, the European Union is still developing. Today there are 25
members, and by 2007 or 2008, Romania and Bulgaria will join. So, I think it is something
different when we speak about Romania and when we speak about Russia, which is not

19

Shimokawa, Orihashi, Heller, Higashi

expected to become a member of the European Union today. Therefore, when we speak
about Romania and Poland, by 2008 it will be definitely part of Europe. In Europe there area set of regulations that make it what is called a single market, even though it is quitedifficult and you have specific rules for each member. There are some automotive
regulations that are Europe-wide. This is true for distribution, which will apply to Romania
the same as the rest of Europe, describing how you can sell your cars.
If we look at these countries of Eastern Europe that will definitely be Europe by 2008,
the markets are interesting. They are growing, maybe 5 or 6% a year. Therefore, the growthis higher than what we can expect from Western Europe. But it is still a limited market, lessthan 2 million vehicles, compared to the whole of Europe that is nearly 17 million vehicles.
It is important to say that these markets are low-cost countries.
Douin: In 2006, we will see Russia enter the WTO, which will already be a good
improvement.
Verdonck: An improvement, yes, but still it does not mean compliance with European
market regulation.
What we can say is these Eastern European countries are low-cost countries. The laborcosts are lower. For some of them there is a tradition of industry. This means that you canfind suppliers or you can ask your suppliers to manufacturing locally to decrease the cost.
For the new OEMs coming into Europe, such as Toyota or the Koreans, it is quite obviousthat they prefer to set up new plants in Eastern Europe, because you can benefit from lower
costs and at the end of the day you are part of the European Union. So, if you have a choice
to make it is better to be in these parts of the region.
If we speak of Russia, it is something different. As Mr. Douin mentioned it will become
part of the WTO. It is a very big country. The market is also growing quite importantly. The
growth of the market depends on the growth of the GDP, which also depends on the price ofoil.
Douin: But it is becoming more serious, because they are also putting aside a part of themoney they earn from petrol. They keep a ceiling of about $25 a barrel, and anything overthis they receive is set aside to improve current (industry). This is a safe approach, if they
can do it.

20Interview with two vice-presidents of Renault at their head office

In Russia, we have a very difficult issue, that is, the competition between previous
Russian OEMs and newcomers. Newcomers, we are fighting to decrease the taxes on(imported) parts. We are investing in Russia. We will increase our local content, but for thetime being it is very difficult to have more than 50% local parts. So, we must import parts.
These parts should be at very low tax, compared completely built vehicles that are heavily
taxed to protect the local industry. The Russian OEMs are not very happy with this. They
want both to be taxed very high.
There is a big change to expect in Russia in the next five years. We do not expect theRussian industry to survive as it is in the next five years, because they have no R&D, no
quality. Their only asset is that they are selling cars in the range of $4000 to $7000. This isvery difficult to compete with. But at one point people will switch, with the new regulation,
new safety features, current technology, etc.
Shimokawa: In the past Renault had some truck operations in the Soviet Russian era, no?
Douin: In fact, it was only a technical assistance contract. We were never directly involved.
Shimokawa: I see. The Russian market is an interesting market.
Douin: Yes. We find Toyota, of course.
Verdonck: Ford.
Douin: The Koreans are importing cars. There is even an Indian car in Russia. There truck
market is also quite interesting in Russia.
Future Perspective on the Alliance
Shimokawa: Finally, could you explain what is the most important issue from now in the
Renault-Nissan alliance, the future perspective?
Verdonck: The most important issue I think is to succeed in helping Renault in its
sustainable growth in making Renault a key actor in different countries, not only in Europe,
to extend the role of Renault internationally, and on the Nissan side, to sustain also the
profitability and the growth of Nissan.
Douin: Another one is together to reach a good level of technology. There are huge
21

Shimokawa, Orihashi, Heller, Higashi

requirements in the coming years, we must absolutely have a complementary approach andhave a very strong approach. Together we must try to be a leader.
(End of Interview)After completing the interview with the two-vice presidents at Renault’s head office, theauthors summarize the interview here. This interview began as a meeting with Mr. Verdonck,
which was later joined by Mr. Douin. Mr. Verdonck is vice-president in charge of planningbusiness strategies at Renault. He is also the secretary and coordinator of the Renault-Nissan
alliance board that meets once a month. The following points summarize the questions andanswers that were exchanged in the interview session.
1. How has the alliance evolved over the last six years?
The basic form of the alliance has not changed, even after the implementation of the Nissan
Revival Plan (NRP). The Cross Functional Team (CFT) and the Functional Task Team (FTT)
are still in action, contributing to the evolution of the alliance into long-term development of
power trains and platforms, for example. Concerning ways to assess the synergy ofcooperation between the two companies, it is easy to evaluate the type of synergy that can bemeasured in terms of economic efficiency, such as joint purchases and joint development ofengines. On product quality, however, our goal is to achieve a higher standard throughmutual efforts, even for low-cost products. To that end, we have been working on thedevelopment of a program to create the same quality standards for both companies.
2. How do you adjust your efforts to establish identities and achieve a
commonality of platforms for products for two companies with different
model change cycles?
We have been extremely careful about this in our approach. We have no intention ofblending the two companies. They have their own strategies based on their own identities
and do not want to change them. The same goes for the products we develop. However, thisdoes not rule out the use of common engines, gearboxes and components under the alliance.
3. What do you think about the mutual study program between the two22Interview with two vice-presidents of Renault at their head officecompanies?
This is an endless process. Renault has learned a lot from Nissan, including Nissan’s
production methods, their management of short development lead times, and their system ofcollaboration with suppliers to improve product quality. On the marketing front, we havebeen able to exchange experience and knowledge with each other through shared use ofdealer networks in Central and South America. Renault has obtained cooperation from
Nissan in making investments in Samsung Motors and launching business operations.
4. What are your strategies for the Chinese market?
Renault has not expanded into the Chinese market on its own. We will probably advance intothat market in a way somewhat different from other OEM manufacturers. Renault needs
cooperation from Nissan as a business partner to head off the major risks incurred inbuilding its own factory in light of the production capacity of Dongfeng Nissan. Especiallyfor China, we are watching automobile price trends and suppliers’ moves with keen interest.
5. What about Eastern Europe and Russia?
In Eastern Europe, an increasing number of countries are joining the EU, while Russia will
be on its way to becoming an economic power after it joins the WTO. Renault plans tostrengthen its production bases for its low-cost Logan model in Croatia and Romania, whileat the same time paying attention to the moves in the Russian market. In Russia, recent
increases in imports of Indian and Korean cars are of particular note. Significant changes arelikely to occur within five years, resulting in the decline of any local automakers that do nothave enough R&D capacity. We are closely watching how things will go.
6. There was a difference in development lead times between Renault andNissan. Nissan had a shorter development lead time. What is the present
development lead time at Renault?
We have reduced our development lead time for products for which it is needed. This is oneof the lessons we have learned from Nissan. We will allow for a longer development leadtime for products that we need to examine carefully to meet customer needs.
7. Finally, how does the Renault-Nissan alliance differ from M&As among other23

Shimokawa, Orihashi, Heller, Higashi

automakers?
This alliance is based on mutual trust and respect for the other’s corporate culture. We would
like to emphasize that these principles are the keys to our successful alliance and the basic
philosophies of Louis Schweitzer, the former chairman of Renault.
Reviewing the meeting, the interviewers may say that these basic points are still alive at
Renault, even though the interview was held one and a half years ago.

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