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Nissan culture clash could give Geely food for thought
By Ni Tao |
April 3, 2010, Saturday
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Print Edition
Print Edition
CHINESE media is recently abuzz with reports of homegrown car maker Geely's merger with auto maker Volvo.
A nonentity only five years ago in the global automotive industry, privately owned Geely has pulled off the feat of acquiring a 100 percent stake in the beleaguered Swedish brand.
Media reports have heralded the deal as a milestone in Chinese car makers' quest for global renown. But in a consolidating industry where botched mergers abound, optimism generated by the deal fades fast.
As the fanfare ebbs, it's time for a reality check. For this Geely-Volvo alliance to work, Geely's chairman Li Shufu has his work cut out for him.
"Shift" by Carlos Ghosn and Phillippe Ries might be a timely read for Li. The book is the autobiography of Ghosn, who as Nissan's president successfully turned the loss-ridden company around.
While the book is subtitled "Inside Nissan's Historic Revival," a sizeable portion of it is devoted to Ghosn's Brazilian-French upbringing and the early days of his career at Michelin and Renault, which might help explain his success later on at Nissan.
At Michelin, Ghosn came up with multiple cost-cutting methods -- including cross-manufacturing using the same production line to make different brands -- that increased the efficiency with which Michelin rolled out tires.
At Renault, Ghosn's decision to close a plant in Belgium sparked an outcry. But he carried on with it nonetheless as it was necessary to Renault's survival in an intensely competitive business climate.
Reduction of inventories, layoffs and closures of under-performing factories were part of Ghosn's legacies at Michelin and Renault -- legacies that bolstered both companies' bottom lines and earned him the nickname "Le Cost-Killer."
With a series of exploits under his belt, Ghosn was given the even more challenging job of steering Japanese car maker Nissan out of the woods after the two car makers announced their alliance in 1999. Renault had paid US$5.4 billion for an equity stake of 36.8 percent in Nissan.
Nissan had been in a desperate financial shape for years. Many prospective investors such as DaimlerChrysler and Ford had balked at its mountainous debt. Given the economic and cultural odds stacked against him, few observers then believed Ghosn could revive the company.
Pessimism was pervasive at all levels within Nissan when Ghosn arrived. Although he had been advised to tread carefully in Japan, Ghosn felt he could ill afford the time to adapt to the Japanese way of running a business.
Unperturbed by conventional wisdom that shock surgery, such as cutting ties with suppliers, would backfire in Japan, Ghosn began a radical restructuring.
He was shocked by the poor cost-consciousness he saw within the company, which had too many suppliers and dealers in interlocking industrial groupings, known as keiretsu. They ate steeply into Nissan's falling profits.
So "Le Cost-Killer" came back in defiance of the Japanese business norm he was supposed to conform to. In his Nissan Revival Plan, unveiled in October 1999, Ghosn focused on relieving Nissan of its financial burden.
The plan included halving the number of Nissan's suppliers, cutting its excess capacity and whittling down its shareholdings in keiretsu companies to free capital to be spent on strategic and core assets.
Ghosn made even more profound changes to Nissan's HR practices. Promotion and bonuses would be based on performance, not determined by seniority as is the norm in Japan. Under his stewardship, Nissan's global payroll shrank to 86 percent of its pre-merger level. These layoffs, while painful, gave Nissan the wherewithal to focus on design and styling, its comparative advantage.
But becoming lean and efficient was only part of Ghosn's plan. He breathed new life into the stale air at the Japanese workplace, where employees seldom communicated across functions, borders and hierarchical lines.
What lessons can Geely draw from Nissan's shift? A self-made entrepreneur, Geely's Li Shufu has little experience in managing a reputable foreign brand such as Volvo. His promise of bringing Volvo back to profitability have yet to be fleshed out by a detailed rescue plan.
To save Nissan, Ghosn set a specific timetable. Failure to deliver on his promises in time would cost him his job. It was in part this sense of urgency that led him and Nissan to cross the Rubicon. Now comes Geely's turn to show some sense of urgency.
A nonentity only five years ago in the global automotive industry, privately owned Geely has pulled off the feat of acquiring a 100 percent stake in the beleaguered Swedish brand.
Media reports have heralded the deal as a milestone in Chinese car makers' quest for global renown. But in a consolidating industry where botched mergers abound, optimism generated by the deal fades fast.
As the fanfare ebbs, it's time for a reality check. For this Geely-Volvo alliance to work, Geely's chairman Li Shufu has his work cut out for him.
"Shift" by Carlos Ghosn and Phillippe Ries might be a timely read for Li. The book is the autobiography of Ghosn, who as Nissan's president successfully turned the loss-ridden company around.
While the book is subtitled "Inside Nissan's Historic Revival," a sizeable portion of it is devoted to Ghosn's Brazilian-French upbringing and the early days of his career at Michelin and Renault, which might help explain his success later on at Nissan.
At Michelin, Ghosn came up with multiple cost-cutting methods -- including cross-manufacturing using the same production line to make different brands -- that increased the efficiency with which Michelin rolled out tires.
At Renault, Ghosn's decision to close a plant in Belgium sparked an outcry. But he carried on with it nonetheless as it was necessary to Renault's survival in an intensely competitive business climate.
Reduction of inventories, layoffs and closures of under-performing factories were part of Ghosn's legacies at Michelin and Renault -- legacies that bolstered both companies' bottom lines and earned him the nickname "Le Cost-Killer."
With a series of exploits under his belt, Ghosn was given the even more challenging job of steering Japanese car maker Nissan out of the woods after the two car makers announced their alliance in 1999. Renault had paid US$5.4 billion for an equity stake of 36.8 percent in Nissan.
Nissan had been in a desperate financial shape for years. Many prospective investors such as DaimlerChrysler and Ford had balked at its mountainous debt. Given the economic and cultural odds stacked against him, few observers then believed Ghosn could revive the company.
Pessimism was pervasive at all levels within Nissan when Ghosn arrived. Although he had been advised to tread carefully in Japan, Ghosn felt he could ill afford the time to adapt to the Japanese way of running a business.
Unperturbed by conventional wisdom that shock surgery, such as cutting ties with suppliers, would backfire in Japan, Ghosn began a radical restructuring.
He was shocked by the poor cost-consciousness he saw within the company, which had too many suppliers and dealers in interlocking industrial groupings, known as keiretsu. They ate steeply into Nissan's falling profits.
So "Le Cost-Killer" came back in defiance of the Japanese business norm he was supposed to conform to. In his Nissan Revival Plan, unveiled in October 1999, Ghosn focused on relieving Nissan of its financial burden.
The plan included halving the number of Nissan's suppliers, cutting its excess capacity and whittling down its shareholdings in keiretsu companies to free capital to be spent on strategic and core assets.
Ghosn made even more profound changes to Nissan's HR practices. Promotion and bonuses would be based on performance, not determined by seniority as is the norm in Japan. Under his stewardship, Nissan's global payroll shrank to 86 percent of its pre-merger level. These layoffs, while painful, gave Nissan the wherewithal to focus on design and styling, its comparative advantage.
But becoming lean and efficient was only part of Ghosn's plan. He breathed new life into the stale air at the Japanese workplace, where employees seldom communicated across functions, borders and hierarchical lines.
What lessons can Geely draw from Nissan's shift? A self-made entrepreneur, Geely's Li Shufu has little experience in managing a reputable foreign brand such as Volvo. His promise of bringing Volvo back to profitability have yet to be fleshed out by a detailed rescue plan.
To save Nissan, Ghosn set a specific timetable. Failure to deliver on his promises in time would cost him his job. It was in part this sense of urgency that led him and Nissan to cross the Rubicon. Now comes Geely's turn to show some sense of urgency.
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