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Global Strategy of Renault in Morocco and around the World: Global Cost, Local Efficiency and Market Dimension

Downtown Mazagan - El Jadida

with Quatre Chevaux, "Forgonette" Renault and Traction Avant Citroen

In February 2008, Renault celebrated 80 years in Morocco. Renault had long lasting, unbroken relationship and active presence in Morocco. Renault station wagons, autocars, and the famous Quatre Chevaux where favorites of our Fathers that they used to own and drive in narrow stretched roads and in downtowns of coastal cities in Morocco.

We also know about the great contribution of Moroccan immigrant workers as well as of other foreign workers in Renault assembly lines at the Boulogne-Billancourt factory (Boulogne-sur-Seine). All these historical facts can be traced to the leadership of Modern Vietnam and China (Hồ Chí Minh and Zhou En-lai).

More recently, L’Expansion published in 1997 an article decrying the demise of Renault in the European and the international marketplaces and the rise of Volkswagen to the position of a world player, leaving Renault far behind in output and world market share. In fact, the first half of the eighties were “the crossing of the desert” for Renault that reached the edges of bankruptcy with mounting losses, a lack-luster range of models and falling market share, while Volkswagen continued to expand in terms of production and market reach. L’Expansion article described how in shot term the 2 companies have pursued different strategies and found diverse fortunes with Volkswagen developing its international base through the acquisitions in 1991 of Skoda the automobile manufacturer in the Czech Republic and Seat - the Sociedad Española de Automóviles de Turismo. After the withdrawal of Fiat in 1981, the Volkswagen Group subsidiary Audi AG signed a cooperation agreement with SEAT, becoming the major shareholder in 1986, and 100% owner of the company in 1990 and expanded its operations in China and Latin America.

In comparison, Renault put a brake on its international drive and concentrated its efforts on solving internal dissensions in the aftermath of the terrorist slaying of its CEO, renewing relationship with the new French Government, smoothing the resistance of left-wing Unions, finding acceptable solutions to its large and aging Nord-African immigrant workers in France, developing creative models, raising quality, while seeking to increase its market share in the Northern European countries where it faced hard competition and realized only low profit margins. Renault has to change direction and by early 2000, it was time to join the Global Club. Emulating Volkswagen, Renault went through a series of acquisitions. In 1998, Renault inaugurated the trend by acquiring the plant of Curitiba in Brazil and during the following year, it became the major shareholder in Nissan of Japan, Dacia of Romania and Samsung of Korea . In the same drive, new leadership emerged from the ranks of the Asian joint venture and later rode the waves of this expansion to reach the most sought after spot in the Renault hierarchy. The new team formed on the Just-in-Time approach will enable Renault to develop more global centric regionalized business units that are connected by synergistic output and productivity performances with terms of quality, technology and profitability that equals if not surpassed the major global car manufacturers.

Renault acquired a Romanian factory Dacia that specialized in the production of the super budget Renault / Dacia Logan Car the small sum of Euro 5000 (USD 6105) that competed with the best of the world’s cheapest cars. With this move, Renault escaped from its European Donjon and establishes itself as the fifth largest car manufacture in the world. Renault applied an integrated productive strategy that imposed the implementation of total quality management and the enhancement of competitiveness to the level of international standards, particularly in the cases of Samsung and Dacia. With Nissan, Renault considered its partnership as synergistic one in longer term despite the difficulties faced at early stage of their alliances. Targets for the Renault Logan car included Rover’s CityRover, Kia Picanto, Seat Arosa, Daihatsu Cuore, Daewoo Matiz and the Volkswagen Fox.

During the current global eco-financial meltdown, Renault is still pursuing its big expansion plan in Morocco as reflective of its multi-dimensional strategy. This persistence is reflective of the new strategic adjustments applied by Renault in response to the international competition, the international, European and peripheral fluctuating demands and the local European competition. The other determinations are the strategies or the downturn experimented in the U.S. and the European car markets and the emergence of challenging cars producers in the BRIC economies (Brazil, Russia, India and China).

In Morocco and since 1966, Renault has been assembling vehicles at SOMACA (Moroccan Society of Automobile Construction) and is located in Casablanca. Owned 80% by the Renault Group and 20% by the PSA Group. October 2000, in an agreement with the ONA Group in Morocco, Renault increased its equity stake in Renault Morocco from 50 to 80 percent. Renault bought a 30 percent shareholding from S.N.I. (Société Nationale d'Investissement), which is controlled by the ONA Group. S.N.I. continued to hold on to a 20 percent shareholding in Renault Morocco.

SOMACA lately it has been the sole production plant in the world at which both the Peugeot Partner light van and its direct competitor, the Renault Kangoo, were made. The Renault Kangoo and Kangoo Express are panel van and leisure activity vehicle produced by French automaker Renault since 1997. The Kangoo is manufactured in the MCA plant in Maubeuge, France, and in Santa Isabel, Argentina and assembled at SOMACA. It is also sold by Nissan in Latin America and Europe as the Kubistar.

In June 2005, Renault made the Logan available in France, Germany, and Spain at a base price of $9300, half of the average price of competitive offerings. Renault’s initial target markets were countries like Romania, Poland and Russia, where most people cannot afford a car with Western European pricing. This is the first step in a global rollout of the Logan. In mid-July 2005, Renault announced that it had manufactured 100,000 Logan vehicles at its Romanian factory, exceeding its own most optimistic estimates. Shortly after the launch in Eastern Europe, Renault was surprised to find that customers in Western Europe wanted the Logan as well. Over the next several years, Renault factories in Russia, Morocco, and Colombia will begin producing the Logan. The Logan sells for about $6000 in these countries, while cars like the Ford Focus or the Volkswagen Golf cost around $18,000. In fact, this fast produced car is not recognized only by its low cost of operation but also production and usage.

“The Logan is the McDonald's of cars … Reliable engineering without a lot of electronics, cheap to build and easy to maintain and repair.” Declared Kenneth Melville, head of Logan’s design team, in Business Week

In this way, Renault strengthened its presence in a significant market, where it was sales leader at the end of August 2000. Before 2000, Nissan was a brand unheard of in Morocco. Then Renault took a majority stake in the carmaker. Next step was made by Renault Morocco in taking over SIAB, the Nissan's exclusive importer in Morocco, which was until then wholly-owned by the ONA Group. Renault Morocco stepped up distribution of Nissan automobiles through the same Group and in 2006, 1,100 Nissans were sold. Both companies are implementing synergies from the Renault-Nissan Alliance in a new market. Launched in July 2005, Logan became the best selling vehicle in Morocco within its first six-months.

In 2006, 12,700 Logan were sold in Morocco, making it the success of the year there. The true moment of the explosion in sales was the release of the 1.5 diesel engine. Around 75% of the cars sold in Morocco by Dacia Logan were diesel versions. Renault-Nissan demonstrated here and elsewhere around the world how partnership between French and Japanese car manufacturers can establish a Globally Adaptive Organization.

Since its first launch, Logan has undergone two aesthetic changes. The first, in 2006, referred to the rear stop lights and the trunk lid, and the second, in 2008, to the front part and the rear part which were modified. Similarly, the Logan’s design and production runs counter to many of the recent actions taken by auto companies in the US, Europe, and Japan where most automotive factories highlight sophisticated robotics. In comparison, Renault Logan is characterized by the following operational and productive differentiations:

1) Manual labor and simple tooling is emphasized at the Logan’s production across national borders of the emerging and peripheral markets. This allows Renault to get maximum advantage from low labor costs. In Romania, the average wage for an autoworker is $324 a month. In Western Europe, the average wage is $4700 a month.

2) Maximum simplicity is the design aim for Logan resulting in lowest cost while many car models are incorporating technologically sophisticated design and features such as GPS and DVDs. Only recently, Renault is offering models with sophisticated gadgetries and higher selling price tag.

3) Gradual introduction of vehicles based on the X90 platform which boosts production capacity utilization at specific regional auto plants and enable the use of the same operational logistics for the supply and the rolling out of similar models for Renault and Nissan that can be sold under the Nissan or the Renault brand.

4) Selection of productive sites that have a presence of cars producers not competitive to the new models and where to establish agreement and joint venture for the production and the supply of more than 50 percent of local content and the capabilities and expertise for the sales, distribution and customer support in local, regional and neighboring marketplaces.

5) Globalscale strategy and crossborder management for the production, distribution, sales and servicing that enable Renault-Nissan partnership to regenerate a source of competitive advantage in distant, differentiated and emerging marketplaces.

6) Regional industrial complex that combines natural geographic advantages and leading-edge logistics infrastructure than can benefit and supply the interfirm and international operations of the plants while facilitating the alignment of the operations and the completion of the tasks of the various business units which will all together enhance the aggregation of the global and regional productivity.

7) Establish boundary-spanning structures and processes needed to create alliances and interfirm networks in a global context. Renault built partnerships that converged toward the development of strategic capabilities in regions around the world where -Nissan had limited or insignificant presence and access.

8) Coordinated global marketing that facilitates a consistent client centric approach, a culture of global business awareness and coordinated operational responsiveness.

Simple tooling and other strategic moves have also enabled Renault to produce the Logan in a number of factories across the world with relatively low capital investment, reducing the exposure and stimulating the offer of local incentives and participation in the production of local content, even in Mumbai, India with the MahindraRenault, see: http://www.mahindrarenault.com/index.html

Mahindra will own 51 percent stake in the joint venture while Renault will retain the 49 percent of the equity. The agreement brings Logan, a mid-sized sedan that was launched in the first half of 2007 as one of the many cars Renault plans to introduce in India. A vehicle assembly plant is being set up for the purpose with an initial production capacity of 300,000 cars per year and within two years the Logan will be produced with 60 percent of local content.

India got the first updated model already but the second facelift will arrive in two months time. We believe that the ‘modern day looking’ Logan will make its Indian appearance immediately after the international launch as India turns out to be one of the most important markets for Renault. In fact, the existing Logan was developed by Renault/Dacia with the Tata Indigo as a close competitor and benchmark. The then President and Chief Executive Officer of Renault, Louis Schweitzer declared: “this project registers with our strategy of international development in new car markets.”

This international expansion included also the introduction of Logan in Colombia, Venezuela and Ecuador, followed by the launch of Logan under the Renault brand in Argentina in May and in Brazil in July 2009 marks a new phase in the implementation of Renault Commitment to the MERCOSUL and to the rest of Central and South America.

The gradual introduction of vehicles based on the X90 platform boosted production capacity utilization at the Curitiba complex in Brazil. The list of vehicles produced in Curitiba includes a model derived from Logan for the Mexican market, where it is sold under the Nissan brand.

The region's two main automobile markets – Brazil and Argentina – are currently expanding and represent significant potential for Renault. Thanks to its Santa Isabel plant in Cordoba, Renault has benefited from production facilities in Argentina for more than 50 years. In 2006, a total of 1,834,581 vehicles (cars + LCVs) were registered in Brazil, plus a further 420,356 in Argentina. These volumes represent an increase of 28% and 57%, respectively, from 2004 to 2006.

Logan can also count on strong brand awareness in Argentina where Renault claimed a market share of 11.5% in 2006. Reports suggest that the new model of Logan will be launched anytime between 2010-2012, the Business Standard daily reads, quoting the Renault Technologie Roumanie's director Philippe Prevel. “A decision is to be made regarding the replacement of the Logan in a few weeks, at the latest within a few months”, Philippe Prevel said. He added that carmakers update cars every 6 to 8 years and the same will be applied to the Logan, which indicates a possible 2010-2012 launch.

Cross the Atlantique, as early 2008, the Renault-Nissan Alliance started work on the “Renault Tanger Méditerranée” industrial complex. The new facility is built on a 300 ha site in the Tangiers Mediterranean Special Economic Zone. It will comprise an assembly plant with access to the Tangier-Med port platform. The new site will expand Renault’s production base for low-cost vehicles based on the Logan platform used to produce around the world the same model. In Morocco, Renault estimated the combined cost of wages and labor taxes are about 40 percent less than in China, or about nine times cheaper than in France. Deutsche Bank estimated that Renault can produce the Logan for $1089 per car; equivalent autos produced in Western Europe run about $2500.

Thierry Moulonguet, the executive vice president and CFO of Renault-Nissan, said that despite "drastic revisions" of its investment plans, Renault has decided to go forward with the Tangier Med factory on its own. Production will likely be downgraded and postponed until 2011, he said. This statement was also motivated by the success of Logan in Morocco.

Encouraged by the local and the international demand for this globally produced Logan, Renault stayed focused on its plans to achieve a multidimensional strategy based on the adaptation of the models to the local conditions of the market and the incentives offered for the implementation of regional productive and distributive units around the Mediterranean Basin. The Tangier-Mediterranean port “Tanger-Med” is a cargo port located about 40 km from Tangier, with industrial parks, a 45,000-seat sports stadium, an expanded business district, and a renovated tourist infrastructure. It went into service in July 2007. The management and development of port activities are ensured by Tangier Med Port Authority. Its initial capacity is 3.5 million shipment containers.

A draft loan contract of $180 millions to fund the expansion works of Tanger-Med port was signed in October 2008 to build a second deepwater port, dubbed "Tangier Med II", to meet the growing demand for containers treatment at the international level in sea transport. The port, to be operational by the second half of 2012, will include two container terminals with a total length of 2,800 m and a nominal capacity of 5 million containers. By 2015, Tanger-Med port is expected to reach full capacity and to operate 8 million containers, 7 million passengers, 700,000 trucks, 2 million vehicles, and 10 million MT of oil products. Meanwhile, on June 16, 2009 Morocco's King Mohammed VI attended a ceremony to mark the start of a project Tangier Med 2 port to create one of the biggest ports in Africa and the Mediterranean that has a financing of 825-million-euro (9.25 billion dirhams) contributed by host of countries including France, Italy and other oil producing nations.

This global expansion of Renault is becoming a model for the demonstration of the unsolved contradictions and the easiness how globalization is difficult to resist even by those who are the first to loose their jobs in face of outsourcing, giving their double economic identities as workers and consumers in a system that they cannot control or even succeed in reducing the local repercussions of their local activities and standard of living. French unions want Logans bound for Western Europe to be built in France, but even union representatives admit they are divided on such issue: the foreign-built Logan participate in the relocation of job opportunities, but are attractive to unionists as budget-conscious consumers. This is the "the paradox of the outsourcing debate," says Nicolas Jabko, a European political economist at Paris think tank CERI. Workers at risk are also consumers with much to gain. By 2010 Renault expects to sell a million Logans a year. For comparison, the top selling vehicle in the US, Ford’s F-150 pickup truck, sold about 400,000 units in 2004. The slogan for Logan will be Loganist of all countries United.

For more details on Logan and Renault-Nissan, please access the content of the following web sites, active links and listed references:

Renault Corporate
The Renault Group generated global revenues of €41,528 million in 2006. It designs, engineers, manufactures and sells innovative, passenger and light commercial vehicles throughout the world. The Renault Group is present in 118 countries and sells vehicles under its three brands – Renault, Dacia and Samsung. The Renault Group employs 129,000 people worldwide.
Within the Renault Commitment 2009 plan, the Group sets itself three commitments:
- Quality: New Laguna to be top three in terms of product and service quality
- Profitability: an operating margin of 6% in 2009
- Growth: sell an additional 800,000 vehicles by 2009, compared with 2005

Nissan Corporate
Nissan Motor Company generated global net revenues of 10.468 trillion yen in 2006. Nissan is present in all major global auto markets selling a comprehensive range of cars, pickup trucks, SUVs and light commercial vehicles under the Nissan and Infiniti brands. Nissan employs over 180,000 people worldwide.

Under the Nissan Value-Up business plan, the company continues to focus on long-term sustainable and profitable growth driven by three commitments:
- To maintain top level of operating profit margin among global automakers
- To achieve global sales of 4.2 million units in 2009
- 20% return on invested capital on average over the course of the plan
In 2007, Nissan will introduce 11 all-new products globally, with a further 33 to be introduced during the following three years.

The Renault-Nissan Alliance, created in 1999, is the fourth largest automotive group in the world by sales volume (5,965,000 vehicles sold in 2006). The Alliance aims to be ranked in the top three in terms of quality, technology and profitability amongst the major global automakers.