CARLOS GHOSN: MULTICULTURAL LEADER AS CEO OF NISSAN AND RENAULT
Introduction:
In 2002, Loius Schweitzer, CEO of Renault announced that Carlos Ghosn, the president and CEO of
Nissan would also take over the reins at Renault in April 2005, while Louis Schweitzer would remain
the chairman of the board. With the new position, Carlos would lead two companies Nissan and
Renault. As of 2004, Renault held 44% stake in Nissan which owned around 15% of Renault’s shares.
“Turnaround artist” as Carlos was called was behind the industry’s most remarkable turnaround at
Nissan. After he became the CEO of Nissan in 1999, he had brought in many un-Japanese changes in
the Japanese company and had actively persuaded the employees to accept change. Carlos was
credited for reviving the company from $254 million losses and $19 billion debt into profits within 2
years.
After taking up his position as the CEO of Renault in April 2005, Carlos faced many challenges.
Heading two different automobile companies from two different countries was first of its kind and
industry observers expressed doubts whether Carlos would be able to take up the pressure and
rework the “Nissan magic.” Although Renault witnessed an increase in its net income from $2,836
million in 2005 to $3,376 million in 2006, it witnessed decrease afterwards.
Carlos Ghosn: The “Nissan Magic”
In March 1999, Renault, the then ninth carmaker in the world announced its alliance with Nissan,
investing $5.4 billion. Nissan had losses for many years from 1990 – 1999 except for profits reported
in 1997 and looked for partners to recover from the troubles. The brand recognition was very low
and it was estimated that Nissan was losing $1000 for every car it sold in the US. By the end of the
1990s, Nissan exported cars to Europe and Australia and some parts of Asia. The company had losses
to the tune of $5.5 billion, had debts of $19 billion and was suffering from a poor product portfolio
and diminishing brand value. Nissan’s market share had dropped from 6.6% in 1991 to 4.9% by the
late 1990s.
Renault at the same time was expanding internationally through acquisitions. After the unsuccessful
merger with Volvo, Renault under Louis Schweitzer entered into an alliance with Nissan acquiring
36% stake in the company. Triggering the alliance was Nissan’s strength in product designs and
sophisticated manufacturing that blended well with the engineering quality at Renault. For Renault,
the alliance would help in international expansions in the long-term while for Nissan; it was to get rid
of its short-term troubles that had accumulated.
Initially, industry observers were sceptical about a non-Japanese leading a Japanese company. While
Carlos was successful in cutting costs and had sometimes imposed hard regimes during his tenure at
Michelin, many were apprehensive if he would be successful. He was 46 when he joined Nissan and
was far younger than the middle level managers in the company. Carlos knew nothing about Japan
and had no knowledge of the culture there. He once said that he had a “very vague” idea about the
country and accepted, “I did not try to learn too much about Japan before coming because I didn’t
want to have too many preconceived ideas. I wanted to discover Japan by being in Japan with
Japanese people.” On the first day, when Carlos arrived at Nissan, he took an elevator to reach his
office. As he entered the lift, which was already packed with workers who were coming up from
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garage, everyone knew he was the new CEO. To his surprise, at every floor the lift stopped, none got
down. Finally, when he got down, the employees bowed as he left and went back to their floors.
After such an unexpected incident which reflected major cultural difference, Carlos realised how
important it was to understand them. Since the first day, Carlos had made the cultural diversity a
catalyst rather than a crutch for the company.
However, since the beginning, Carlos was in a catch -22 situation as Japanese were not used to
dictatorship kind of leadership. He knew that if he tried to dictate terms that could lead to bruising
employee morale and if he remained lenient, it could hinder the required change. Instead of
imposing change, Carlos brought about the need for urgency in operations by mobilising the
managers. Carlos identified that the basic flaw with Nissan’s culture when he took over was that
employees were reluctant to accept failures and held other departments or economic conditions
responsible for them. This resulted in a lack of urgency among employees as everyone assumed the
other would take action. He found that instead of solving the problems, they were trying to live with
them. Nissan throughout the 1990s, had been concentrating on short-term market share growth
rather than long-term growth and instead of investing its profits towards product portfolio
improvement, it was spending then towards equity purchases of other companies especially its
suppliers. Its products profile was comparatively out-dated with old designs when customers craved
for stylish designs while competitors were steadily focusing on new product designs. By 1999, it had
around 44 billion held in the form of shares while its purchasing costs remained very high, around 20
– 25% more than that of Renault’s.
The employees openly resisted cross-functional teams as they strongly believed in territories and
sectionalism, which was a major part of their culture. Carlos explained, “Engineers work very well
together, financial people work very well together, salespeople work very well together. But when
you start to add an engineer, a marketer, a salesperson and a manufacturer, here all the strengths of
Japan in teamwork disappear.” To overcome the resistance, he had to explain to the employees why
cross-functional teams were important and how they would impact the overall benefits. Carlos
believed that the general human tendency was to resist anything different. He considered that by
accepting change, people tend to become stronger as they understand the differences and try to
analyse the causes for such differences. Cross-functional teams were formed and employees were
involved in the revival process. This helped Carlos explain his plans and gain acceptance easily.
Through these cross-functional teams, employees made to look beyond their line of responsibilities,
understanding the nitty-gritties of the other departments as well. After the cross-functional teams
were in place, people owned up responsibility whenever something went wrong. “The solution to
Nissan’s problems was inside the company. The main idea we would have for revival of the company
would be a rebuilt motivation of Nissan’s employees and partners,” he explained.
Immediately after appointing the teams, they were asked to submit plans to achieve the maximum
possible output in each area and within a week decisions were made. The outcome was the Nissan
Revival Plan (NRP). After the NRP was announced, every aspect from the timing, the plan schedules
and the commitments as well as targets were clearly stated. Shiro Tomii, Vice President, Nissan
Japan remarked, “He establishes high yet attainable goals; makes everything clear to all roles and
levels of responsibility, works with speed, checks on progress; and appraises results based on fact.”
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Listening to employees and facilitating their participation in the decision-making process was key
aspect of Carlos’ leadership. By avoiding impersonal meetings through mails, he stressed the need
for face-to-face communication. He believed that the people close to the company could come out
with better solutions than an outsider like him. In contrast, the Japanese were polite, reticent and
never spoke about the plans to their boss. Carlos had to repeatedly explain to the employees that he
needed their viewpoints and would not mind if they speak out. This, according to him was the
greatest hurdle. While in France at Renault, he emphasised on teamwork, in Japan he believed it was
not required and instead individuality was given more prominence.
By maintaining transparency from the stage of planning to action, he aimed at the best possible
outcomes while also lifting the morale of the employees who were particularly distressed after the
crisis at the company. He invited suggestions from every influential from suppliers, Nissan’s
employees, dealers etc. He explained, “As you know credibility has two legs, performance and
transparency. Performance, we had none to show at the time, so we were determined to be highly
transparent.” He called the NRP an “organisation’s collective effort” involving thousands of
employees at every managerial level. To show his commitment to the plan, he declared that he
would resign along with other top executives if the plan fails in bringing in the benefits. Carlos
wanted immediate results by fixing short-term targets. While he called the passive style of
management-by-consensus a killer, an active and constructional version could work miracles,
according to him. He believed that an 85% consensus was enough and 100% was not always
essential.
While cultural adaptability had been his key, he was also at the same time affirmative about giving
more priority to the bottom line growth rather than just to the cultural aspects. He remarked, “I do
not want to intentionally offend people, but I am more concerned about making Nissan profitable
again that being culturally sensitive.” The first phase of NRP focused on cutting the costs and
improving profits. The first major step Carlos undertook was divestments from subsidiaries to reduce
the debt. Suppliers accounted for major part of costs of production and the age-old Keiretsu system
and the obligations that come with it were adding to heavy costs. Deviating from the system, Carlos
opened the purchasing offer to all suppliers encouraging new suppliers who were ready to supply at
low prices. As part of the revival plan, suppliers were forced to offer discounts to the tune of 20 –
30% and the number of suppliers was brought down to 600 from 1,145 while the purchasing costs
were reduced by 20%. During a meeting with the dealers of Nissan, Carlos announced, “I don’t want
any excuses. I want to know what you are going to do to make things better.” Cost cutting at each
stage began to be regarded as the need of the hour as the employees were encouraged to reduce
expenses through all possible ways. The cross-functional teams were given one month time to
identify areas to cut costs and increase profits through bottom line growth.
The most un-Japanese practices like closing plants and cutting workforce, in a country, which
believed in lifetime employment, were the biggest of al challenges. When he planned to close five
plants, the board of director were not informed until the night before; as Carlos knew some people
within the company wanted his plans to fail. After he announced, he was reported to have
threatened, “If this leaks out, I will close seven plants, not five.” For Carlos, convincing labour unions
over the disadvantages of rigid job definition was a big task.
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The seniority-based promotion system was replaced by a performance-based and merit-based
incentive system. Instead of sacking people, who were against the culture in Japan, 21,000 jobs were
cut through retirements, pre-retirements and golden handshakes out of which 16,500 were in Japan
alone. The plants were closed, while offering alternative jobs to the employees in other plants of the
company. The complex manufacturing structure, which involved 24 platforms at seven assembly
plants, was brought down to 12 platforms, which were shared by four plants. Around 10% of the
retail outlets were closed and 20% of the dealer affiliates were streamlined to further reduce selling
and marketing expenses. After the phase one of the revival plan was over, Nissan reported profits of
41.5 billion for 6 months between April to September, which was the best result the company had
ever seen.
At the same time, Carlos began to be called an iconoclast, who had brought in some un-Japanese,
western style of culture in the company’s operations. In contrast to the traditional Japanese business
etiquettes, he shook hands with his partners and other executives. As a result, there was discontent
among the traditionalists and other industry associations in the country. And his bold decisions, like
closing plants, had invited repugnance among many including the insiders and Carlos began to take
along a bodyguard wherever he went.
The cross-cultural alliance between French and a Japanese firm raised several other challenges. The
alliance aimed at cost savings through sharing platforms and engineering capabilities. Initially
through the employees and the design engineers were convinced over the superiority of the
platforms brought I from Renault plants, they were reluctant to adopt them. To overcome
resistance, regular meetings were conducted among Nissan and Renault employees. At the same
time, Carlos began to recruit more designers from Japan to design new models. He maintained that
the best way to solve the cultural differences was to avoid forcing the cultural blend. Rather, he
believed in appreciating the differences between the cultures and minimising the cultural clashes by
bringing in a performance-driven management. To ensure that the Japanese staffs understand what
the French managers spoke, English was made the common language in the company. A dictionary
of 100 keywords used by the management was prepared to solve the differences that came in the
way as work was interpreted by French as well as Japanese. The words included ‘commitment’
‘transparency’, ‘objectives’, ‘targets, etc.
In Japan, attending all formal parties of suppliers was very important and one was not supposed to
miss them unless there was a strong reason. When Carlos missed the New Year party hosted by the
suppliers’ association, it was considered as a sign of disrespect to their culture. Carlos attended all
such gatherings since then. Carlos understood all these subtle aspects which were an essential part
of the culture as he began adapting to them.
In the second phase of the revival plan, which started in 2001, Carlos stressed selling more cars,
improving the top line growth as well. Dropping non-performing products from its portfolio, the
company introduced trendy new models in SUVs and minivans category. An updated Z sports coupe
was reintroduced I the market. The phase two increased sales by 1 million and debt was brought
down to zero.
With this unconventional leadership style and charisma, he began to win praises from the
employees of the company as well as from the industry and the public. Sometimes, people in streets
would stop him and wish him success – saying, “Gambatte (go for it).” Time magazine named him
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the most influential global business executive and more and more Japanese companies were
embarking on the gaijin (foreigner) – Carlos style for attaining maximum benefits in a short time. His
colleagues at Nissan were particularly impressed by this dedication towards achievement of targets
and his 24/7 work ethics reinforcing the importance of hard work. His devotion towards the revival
of the company from problems, for which he was not in any way responsible, encouraged his peers
to work hard and contribute towards a common goal. Toshiyuki Shiga who made in charge of
Nissan’s expansion in China had once remarked, “He told me to make a clear strategy for Nissan in
China and he gave me two months to do it.” While he ensured that the progress was undertaken
without holding any individual responsible for the past crisis, he was also at the same time particular
about results. Dominique Thormann, senior vice president, Nissan Europe, said, “To people who
don’t accept that performance is what is at stake, he can be ruthless.”
Calling his turnaround a Nissan a “near death experience”, Carlos said he had experienced extensive
cultural diversities during his tenure at Renault, Nissan, Nissan North American business and
Samsung Motors, a Korean-based company acquired by Renault. His management style is woven
around two attributes – “value and motivation.” He believed in motivating employees and
demanding performance by empowering them. “Your employees must be interested in what is going
in the company. Nothing is more inefficient than a boring company. You have to create an
interesting environment where people are interested in the story you are creating and want to hear
the happy ending,” he said. He was called “Ice breaker” by DaimlerChrysler chairman Jurgen
Schrempp because of his unconventional thinking and implementing western style of management
in Japan breaking the prevalent myth in the industry.
After the implementation of the NRP, within 2 years, the company recovered from the losses and
reported a 10.2% increase I its revenues and nearly 84% increase in its operating profits. Though the
sales had not considerably improved, the cost cuttings contributed towards improving the bottom
line. In May 2001, the company reported its largest net profit of $2.7 billion. Carlos was named the
“Businessman of the Year” by Fortune magazine in 2002 and Automobile magazine called him “Man
of the Year” for his contributions to Nissan. Renault increased its stake in Nissan to 44.4% while
Nissan owned 13.5% of Renault’s share capital.
However, by 2003, Nissan started experiencing a downward trend in its sales, as the volume of
goods that passed out from dealers was dropping in size. Customers regularly complained of quality
defects and Nissan’s rank in overall quality dropped to 11 th in 2004 from 6 th in 2003. It looked as he
rigorous emphasis on the faster execution of the restructuring had resulted I these quality defects
while Carlos assured he would fix them. To counter the situation, in May 2004, he sent a quality
control team of 220 engineers to the Nissan plant in Smyrna (Tennessee) ad every part of the
assembly line went through a detailed scrutiny. Subtle issues like the workers who wore studded
jeans and rings causing scratches to the freshly painted cars, etc. came to light. Carlos was amazed at
some very obvious ones, which could be rectified at the plant like defective doors and reading lights
etc. Carlos had already achieved two of e three goals that were set for NRP, the debt was cleared
and profitability achieved.
The Nissan 180, an extension of NRP was launched and aimed at additional sales volumes of 1
million annually from 2005, the third objective of NRP. The US market was considered to play a key
role in achieving the goal of additional 1 million sales. A new plant was set up in Canton, the first in
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North America where Nissan was facing challenges from other Japanese automakers, Toyota and
Honda. Meanwhile, Nissan was planning an alliance with Mitsubishi after DaimlerChrysler gave up its
plan of partnership with Mitsubishi. The partnership would help Nissan enter the mini-car segment
while Mitsubishi would be able to reduce cost burden of new product development.
The shortage of steel suppliers forced Nissan to reduce its production in 2004, affecting production
of 15000 units amounting to $58.5 million of loss in sales. Nissan closed its plants for 5 days
following the shortage of supplies, as steel prices increased with demand for steel increasing after
the economic boom I China. While halting production was considered a sign of mismanagement,
many felt that Carlos’ attempt to bring down the number of suppliers as part of NRP had resulted in
over-reliance o few suppliers. However, Carlos defended himself saying that the savings achieved
during that phase were far more ($9.7 billion) than the losses incurred due to loss of sales.
Renault – The French Automaker
Renault was a state-owned government enterprise since 1945. It was started as a motorised vehicle
assembler I 1898. Renault built trucks, airplanes engines and heavy vehicles during the World War II
and after the war along with the economic boom, Renault achieved high volume sales with its low
cost cars like 4CV, Renault 4 and Renault 5 through the 1970s and 1980s. During early 1980s, Renault
expanded into US acquiring half the shares of American Motor Corporation. However, the deal was
unprofitable and the company had to withdraw from the market in 1987. A similar deal failed with
Mexico and with both the deals financed through debts, Renault was left huge debts accumulated by
the end of 1980s. It reported losses of $3.5 billion between 184 and 1986. Further, because it was a
state-owned business, obligations with labour unions led to more costs for the company.
When Louis Schweitzer joined Renault I 1986, Renault had accumulated debts to the tune of $9
billion and was in huge losses. Its proposed merger with Sweden-based AB Volvo in 1993 failed due
to unfavourable French political climate and with Swedish shareholders expressing reservation. The
company continued to have losses till 1996, when Louis Schweitzer brought in Carlos as the
executive vice president. Under the duo, product quality was improved; outsourcing secondary
activities and overheads were reduced along with reduction in workforce. At the same time, French
government started setting ground for its IPO when Louis Schweitzer discovered that privatisation of
the company could only save it. In July 1996, the IPO was completed. By 1998, with the midsize
model Scenic, Renault was successful in the European market and in 1998 alone; it made profits of
$1.4 billion from $40 billion sales.
While Renault became the No. 1 automaker in Europe, to be a global player, it had to expand its
operations further. By the end of the 1990s, it had very small presence I Asia and was totally absent
in the North American market. After the merger of Daimler and Chrysler in 1998, for Renault,
expansion became a prerequisite. And, Nissan seemed a lucrative opportunity, as an alliance with
Nissan could help I easier market expansion for Renault in developing markets. While others,
including Ford and Daimler Chrysler, had earlier attempted a deal with Nissan, they later withdrew
keeping in view the huge debt that Nissan held and its culture that was inflexible. After the alliance,
Renault managed to reduce its launching and warranty costs for a few product introductions by
recruiting managers from Nissan to undertake the launch. At the same time it sent its employees to
Nissan to oversee manufacturing, to achieve cost-efficient production. Later, Renault acquired
Samsung Motors in South Korea and Roman automaker Dacia as part of its international expansion.
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With the launch of multi-purpose vehicles, Laguna II and Avantine in 2001 and Espace IV in 2002 and
after its association with Formula One racing between 1992 and 1997, its brand popularity
improved.
By 2004, Renault held strong foothold I European market and reported a 6.5% increase in sales by
the first half of 2004 and was fourth-largest auto company in the world. It held nearly 11% market
share in Western Europe in passenger car and light vehicle cars. At the same time, Renault
performance in large cars segment was sluggish and was struggling to achieve operating margin of
4%, when the demand for cars in the European market was low. Some of the new launches like the
Vel Satis, a tall saloon luxury model, were not very successful in the market. A re-launch in the US
market was also under way. Renault was facing other challenges along with Nissan and other
automakers. Environmentally friendly cars, which seemed a likely potential opportunity, were costly
to manufacture at the price the customers were ready to pay. Renault was planning for expansion in
the Chinese market and South Korea and other parts of Asia through alliance with Nissan
Carlos Ghosn as CEO of Renault and Nissan
By 2010, Nissan and Renault would build their cars using the common building blocks. Carlos viewed
the alliance as “managing contradiction between synergy and identity” and confirmed that, while
gaining synergies, the individual identity of each brand would be safeguarded. The other major
alliances in the industry, he Daimler Chrysler and the GM / Fiat, had not proved to be very successful
because of improper management of merged assets, trans-Atlantic product development and failed
attempts in understanding the local market; Carlos confirmed that Nissan’s alliance with Renault
would creatively achieve it. At the same time, the alliance would avoid merger and would maintain
“a spirit of partnership.” The alliance would be the fourth-largest automobile group I the world. N
October 2004, the first car was built using a common platform of Nissan and Renault. Modus, a
subcompact minivan of Renault shared its base with Nissan’s Micra saving $500 million for Renault
every year.
After taking over from Louis Schweitzer at Renault’s I April 2005, Carlos would also continue as the
CEO of Nissan. Carlos was affirmative that he would not leave the company unless he finds the right
person who would succeed him at Nissan in such a culture-sensitive country. While at Nissan, he had
transformed himself into Japanese, adapting to the culture, analysts feared that he would breach
the French business etiquette as he takes the rein at Renault. Carlos took up the reins at both
companies when they also underwent senior level management changes. At the same time, many
wondered whether the sense of urgency brought through NRP would continue at Nissan or the
company would slip back to its old habits when Carlos left. The pressure was considered to be very
high as an analyst stated, “He will be less present at Renault than he was at Nissan and less present
at Nissan that he used to be. I believe this challenge will be more difficult.”
Carlos, who has never lacked for confidence, explained in an interview, “In 1999 Nissan was in
trouble and Renault was a very small regional company. Joining forces and working together, today
Renault Nissan has the second largest capitalization in the car industry and the second most
profitable car conglomerate in the industry.”
However, the automobile industry faces collapse due to the global financial crisis which started in
2008 without rapid intervention from governments. This affected Renault too. Carlos explained how
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to survive a crisis and prosper, saying, “First, you need to weather the next two years. That’s a basic
condition. To get through them, you need to make sure that you have a positive free cash flow. Or to
put it another way, avoid burning cash. That’s very fundamental. There will be an end and you want
to be ready. You want to have innovative products, strong fundamentals, a team that believes in the
brand and believes the company will be ready to fight again. Don’t think everybody is going to make
it through this period of time, but those who survive will have a boulevard in front of them because
people will still need to buy cars. It remains to be seen whether Carlos would do the turnaround
magic again.
