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An Interview with Carlos Ghosn, President of Nissan Motors, Ltd. and Industry Leader of the Year (Automotive News, 2000).

In cross-border acquisitions or alliances, cultural differences can be viewed as either a handicap or a powerful seed for something new.

Carlos Ghosn

Carlos Ghosn, joined Nissan from Alliance Partner Renault in July, 1999. Three short months later, in October, the auto industry's most celebrated turnaround artist announced a Revival Plan to salvage troubled Nissan. He positioned his plan in very strong personal terms, saying that he and his top management team would resign if Nissan isn't profitable in 2001. A former Michelin executive, Ghosn was born in Brazil and educated in France. After seven years as head of Michelin North America, and three years at Renault, at the age of 46, Ghosn took on the demanding challenge of this cross-cultural turnaround, with the aim of making Nissan one of the top global automotive manufacturers in three years. Within a year of taking the operating reins of the company, Ghosn was named President and COO, and is changing the tune of naysayers who in the beginning chanted "mission impossible," then a few months later, "mission improbable," to now, "mission undercontrol." Over the last six months, the automotive and financia l industries have been warming to the possibility that Ghosn's leadership will deliver the stamp of "mission accomplished"!

Last fall, Mr. Ghosn, who holds an honorary doctorate from the University of South Carolina, spoke with Victoria Emerson. They discussed the underlying strategic and financial objectives behind Renault's 36.8% stake in Nissan; the issues and challenges Ghosn faces; arid the dramatically powerful yet common-sense approach he is taking to manage the transformation of Nissan and its integration with its French alliance partner. Their interview follows:

Q: What were the reasons behind the Renault-Nissan deal?

A: First, let's talk about the interests from the Nissan point of view and then about those of Renault.

From the Nissan point of view, it was about finding a partner to overcome short term challenges. Essentially, three main challenges, by order of importance and urgency, were:

* The first was high debt-Nissan had a 2.4 trillion yen (22 billion dollars) debt, and had come to the conclusion that they couldn't manage it alone and had to find a partner. It was both an important and an urgent issue. People in Japan were wondering how long an environment in which money was quasi-free would last. The monetary policies of the banks were being questioned. Essentially there was a cash crunch.

* The second issue was the inability of the company for many years to show a profit. Although this is important for the shareholder, it is also important for the image of the company. Lack of profit can have a negative impact on consumers. It can backfire on the image of the brand. Buying a car is usually a big investment for people. They like to buy from healthy, well-run companies. When there are insufficient profits, it creates a lot of questions in the minds of consumers.

* The third issue was important but certainly not as urgent as the first one. This was the issue of Nissan's continuous decline in global market share since 1990.

These three challenges were part of the equation when Nissan was looking for a partner. There is another element, in an industry going more and more global. Questions were being raised inside Nissan about what their future would be in a rapidly consolidating industry. So, although most of their concerns were short term, they did not overlook the future.

From the Renault point of view, the issues were much more long term. There were no real short term or urgent issues. The 1997 through 1998 turnaround had brought profitability. There was no debt. Market shares were moving up. Profits were strong in 1998 through 1999. There was really only one big concern for Renault. That was a concern for the future.

In light of the consolidation and globalization taking place, first in terms of competitors, and then in terms of the markets that were opening up, Renault was thinking maybe there was no future without a solid partner in the picture. Although their view was focused on becoming part of a global group, they couldn't neglect the potential for synergy that can come from a partnership, both in the short and the midterm.

The drivers for the deal were reversed: Renault was much more moved by long-term considerations, and much less by the short-term; whereas Nissan's concerns were much more short-term, and a little bit less long-term. Clearly, the deciding factors didn't have the same weight in each company.

Q: What do you see as the challenges of a "turnaround" being part of an acquisition, or in this case, as part of an alliance partnership?

A: Before coming to Nissan, I had the experience of a "turnaround" at Renault. Before that, at Michelin, in a very competitive industry, I had the chance to handle the acquisition of Uniroyal-Goodrich. My mission there was to put together two players, both of whom were struggling somewhat at that time, and make them a strong one by mixing the culture and creating something that could compete against the then giants of the North American tire industry, Goodyear and Bridgestone/Firestone.

Now, is a "turnaround" an asset or a liability as part of an acquisition or an alliance partnership? I look at it this way: It increases the risk but it also increases the opportunity. First, if there is no turnaround, you have a lower risk in making the acquisition or the merger work. On the other hand, you have a strong opportunity to cement an alliance when it is part of a turnaround. This is because you have a very clear mission and target for everyone to focus on.

By focusing on specific business objectives, people don't have time to worry about cultural differences or politicking (which is obviously a very dangerous thing in an alliance or a merger). This focus on results instead of politics gives you a much greater opportunity to create a success in an alliance or merger if the turnaround works. Realistically though, it can jeopardize the whole merger or alliance if it doesn't work. It really depends how you take it.

In my case, to have a turnaround as a part of an alliance, I take as an opportunity. The truth is, it's a double-edged sword. It makes it harder, but it offers potential prizes. I know that the success of the Nissan Revival Plan (the turnaround) will be the cornerstone of the Renault-Nissan alliance for the future. For Renault's part, you know, they contributed some of their top talent and resources to this undertaking and are in a position now to objectively help as much as they can to make the revival plan work. It won't make Renault any stronger if it isn't successful. In a word, it is more risky--you double the bet! An alliance is already difficult, if you add a turnaround, you take more risk, but you also have much more opportunity.

Q: A lot has been made about the differences between the Japanese and the French way of doing things. What do you see as the specific cross-cultural challenges of a French company acquiring a position in a Japanese company?

A: Cultural differences can be viewed as either a handicap or a powerful seed for something new. From the beginning, I said that I viewed cultural differences as an opportunity to innovate in achieving the pragmatic business objectives we had before us. This is risky when you say it before you even start. It's been 15 months since I arrived at Nissan. And now, six months after the start of the revival plan, I can tell you that today cultural differences are seen more as an object of cross-fertilization and innovation in the way we are doing things, than as a motive for frustration or reason to disagree. This is because of one thing--the Nissan Revival Plan. When the Renault people came to Japan, the management of Nissan had from the beginning a very strong consciousness about the severity of the situation. There was no room for bickering or fighting or infinite discussions about whose method or whose process we were going to adopt.

The Nissan Revival Plan came very fast and established strong objectives. It didn't leave any room for meditation on the differences about cultures. We were all mobilized and engaged in the revival of the company. What we see today is that differences in culture are being used more and more as ways of listening to what different people can bring to the table to achieve our objectives for the future. So, it is a careful selection of best practices and best approaches. There is enormous pressure on everyone to deliver. In a way it was simple, we just established a point where everybody understood what we had to do to survive as a whole company.

Of course there are frustrations that always exist with language barriers: where you don't operate in an environment of spontaneous communication; where you have to go through a translator (you know that when you go through a translator, about 40% of your intended meaning is lost); where you're not sure that what you want to get across to people, on the shop floor or in meetings with customers, is actually being communicated the way you intended it. These are what I consider small frustrations; if you accept these and other things that perhaps are part of the fact that people don't think or act the same way in France or in Japan, it is easier to deal with such things as language barriers. When you have taken the time to understand that, and when you are really motivated and mobilized by a very strong objective, then the cultural differences can become seeds for innovation as opposed to seeds for dissention.

Q: What kind of risks are involved in "going against the traditional culture" to integrate both people and business processes?

A: Well, first of all, I think we have seen that traditions can be challenged when they are responsible for keeping a culture from going where it really wants or needs to go. It is very important for people to understand why a tradition is being challenged. Next, it is important to explain how change will be brought about and with what the former tradition will be replaced. People need to know what the prize is, what are they aiming for, what are the benefits or the advantage to them of changing some established tradition. When this is clearly spelled out, people will be motivated to follow. This is clear in Japan. Japanese understand what is a crisis, what is a difficulty, and what is a challenge. They talk often about risk of change. Change is never easy. Lack of communication is the biggest problem. You cannot over communicate about why we're doing certain things or how we're going to do it and what is the advantage we're going to get from this. Each time we have respected this basic rule of communication, we have had no problem. This has been my own experience in a country (Japan) that has a reputation of respecting tradition.

Q: Do you think it is a requirement for success in working with cross-border acquisitions and in global integrations that a leader needs to have cross-cultural experience?

A: I wouldn't put it that way. I can't say that it is a requirement, but it helps a lot to have multicultural experience. As you are involved with something that is a priori difficult and challenging, and you never know where you're going to end up, it is better to take the journey being as well-equipped as possible. Having lived and worked in different cultures and countries helps the way you approach situations. Some Europeans think that they are "international" when they have worked in France and Germany and Italy. What I mean is that you have to go to countries that have a totally different way of thinking, a totally different way of organization, and a totally different way of life.

You mentioned global integration. Globalization means that when you come to a new environment, you can be sure that nothing is guaranteed! You have to face change at all levels, not only professionally but also personally. Can you do this successfully without cross-cultural experience? Probably. I think that the quality of an individual can always overcome any experience. Personal qualities are the most important element--the way you are and the way you handle things is much more important than experience. That said, I won't say it's an absolute requirement for success to have had multicultural experience, but it is a value-added. You really just feel more comfortable with someone who has a strong international or global background.

Q: What approach are you taking to integrate/transform Nissan and Renault?

A: You cannot just expect one company to change a lot and to challenge itself without that process being, in a certain way, followed or supported by the other company. Now, the way we are pursuing this alliance is relatively simple. We said from the beginning that we were not looking for a merger, but rather to get greater value from synergies between the two companies.

The way you go about finding and developing these synergies is what I call the "tool"; it is not the objective. In a lot of cases, mergers or alliances may disappear because you didn't pay enough attention to the vision or the real objective. When you don't take time to communicate that, you end up having companies that treat the tool as the objective. Then the objective becomes: we have to make the alliance successful." It doesn't make sense. You partner with someone to achieve a certain objective. The alliance is the tool to realize the objective.

In the case of Renault-Nissan, it was clear that the use of potential synergies would work to the benefit of both Renault and Nissan. We're taking a very pragmatic approach. The way we're working together is reviewed constantly, and we're adapting. Our continuous review and adaptation is not our objective, but the tool to reach our ultimate objective of maximizing market share, and maximizing profit, and having the best return on assets. There is a huge field of possible synergies out there. It is not only about cost reduction, it is about things like overlapping functions where you can eliminate one or more of them. This is the most obvious kind of synergy.

But the more important synergies are what I would call "positive synergies." For example, in April 2000 when I announced a positive development in the Brazilian market, I revealed that we would launch five new Nissan products in five years through a $300 million investment, and we would do it using the Renault infrastructure that was already in place there--the plants of Renault in Argentina and Brazil, the supplier and dealer network of Renault, as well as Renault's back-office support. Nissan couldn't do this on its own. To go it alone would have cost Nissan four times more than through the partnership with Renault. That's a lot of money and a lot of time. Now, all of a sudden, you have a short cut. An alliance like ours gives you a short-cut for growth.

It's happening the same way for Renault in Mexico. We're using the huge presence of Nissan in the Mexican market, and limiting Renault's investment in money and in time to the minimum Renault has ever seen.

Q: This seems somewhat akin to the analogy I heard you present last year of an accordion player who only makes music by both expanding and compressing his instrument. Is this compression-expansion what is happening with the integration?

A: In a way, yes. The music of the accordion is the performance of the company. The player must go back and forth--extend, compress, centralize, decentralize--to get music. If you don't listen to the music, the moves of the player would appear ridiculous to you. If you introduce the dimension of feeling, then all of a sudden everything makes sense. It isn't the moves that are the goal. The music is the goal. The only way to get music is by systematically reviving the organization. You must decide what needs to be centralized and what decentralized to empower the organization. And this goes back to what I said earlier about focusing on the goals. When you do that, then people hear the music and they understand the moves, and the integrations that occur as a part of the partnership are coherent.

Q: What do you think are the key success factors in making this alliance and particularly, the revival plan, work?

A: Essentially, I think there are three main ingredients to our success. First, we have to make sure that our priorities are respected; and that our priorities are only business goals.

We can't get lost in debating the numerous ways there are to accomplish something. Again, the process is only the tool. We have to focus on the "prize," as I referred to it earlier, the end results, the goals. And these are to create value--value in the short and midterm for our customers, our shareholders, and our employees.

Second is our attitude and our behavior. Top management is highly visible. What we think, what we say, and what we do must be the same. We have to be impeccable in ensuring that our words correspond to our actions. If there are discrepancies between what we profess and how we behave, that will spell disaster. Included in this is our accountability. We must be committed to the responsibilities we've agreed to. When we don't deliver, we have to face the consequences. The Japanese culture is a very proud culture. Our workers and managers want to succeed. For that matter, so do the Unions inside Nissan. They want to be proud of their company and their management. They need management to manage. And good management involves accountability.

And third, there are at least four dimensions of our behavior that will be critical to our success. First we have to be open-minded. We cannot go in with preconceived notions of how something must be done. Next we have to listen ... really listen ... to everyone in the company; to ideas and to concerns--but mostly to ideas. You'll recall how important I believe the innovations that come from our cross-cultural blend are. You get those by listening to ideas. Then we must focus on the prize or our goals. And finally, we must act very fast. There can be no compromises in either our timing or in our execution.

These are the basic ingredients of any management recipe for success. Putting them together in just the right way is, however, rare.

Q: How and when will you know the effort is successful?

A: The first 12 months are critical. We have to assess how far we can go. We think we know. The challenge is that we must demonstrate our results every six months. We'll be announcing results at the end of October 2000 in Tokyo and in May of 2001, followed again in October, 2001. We will present clear and quantified evidence of our market share, our profits, our profitability, and our return on assets.

Then there is the subjective side of determining how we're doing and whether we're successful. We need to know how the Nissan brand is viewed at each stage compared to before the Revival Plan started and to the previous six-month review. Is the brand stronger? More attractive? We have to look at the products themselves. Do people like them? How are they characterized? We need to get an analysis of our advertising results. In general, we have to get a "feel" for where the company is. Is the brilliance coming back? Are we technologically advanced? Is there grace in our design? All of these concerns impact our image, and image is crucial to our overall success.

In the end, perhaps the greatest determinant of our success will be our attitude and our commitment. The Japanese culture is very pragmatic, and by nature, so am I. We made a pledge when the Nissan Revival Plan was introduced that "if we're not profitable in 2001, we will all resign!" That's a big commitment and it requires a positive, productive attitude. But it is very much related to that sense of clear vision of, "I know where we're going." It's the feeling one has from the beginning, which precedes any results, that each of us can make a difference and is committed to the end goal. There is a contagion in Nissan that "we' re committed; we'll make it; or we'll walk!" That's an obvious result one can already see inside the company.

And evidently, the industry is beginning to seriously view our efforts in this same light. Even without any hard financial results, the fact that Automotive News named Nissan's President Industry Leader of the Year for 2000 indicates they foresee some real successes coming out of both the Nissan Revival Plan and the Alliance. This encourages us all to deliver on our promises!

Acknowledgment: Thank you Mr. Ghosn. Your business model and your clear, precise, committed leadership serve as an example to the rest of the world that "mission impossible" can indeed become "mission accomplished." I can hardly wait until 2002 when I can trade in my sport utility for the new Nissan "Z" sports car! You've won a new customer in me! (VE).

Victoria Emerson is Vice President, Corporate Business Development for NetGen Learning Systems, a technology enabled solutions provider focused on meeting the learning challenges of corporations, associations, and universities.
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Author:Emerson, Victoria
Publication:Journal of World Business
Article Type:Interview
Geographic Code:4EUFR
Date:Mar 22, 2001
Words:3624
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