The Global Leadership of Carlos Ghosn at Nissan
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case study The Global Leadership of Carlos Ghosn at Nissan John P. Millikin I Dean Fu did not try to learn too much and to realize that I could fail at about Japan before coming, any moment.” because I didn’t want to have too Carlos Ghosn, 20022 many preconceived ideas. I want- ed to discover Japan by being in INTRODUCTION “IJapan with Japanese people.”1 “Well, I think I am a practical per- Nissan had been incurring loss- son. I know I may fail at any es for seven of the prior eight moment. In my opinion, it was extremely helpful to be practical years when, in March 1999, [at Nissan], not to be arrogant, Carlos Ghosn (pronounced * A teaching note for this case study is available from the author. 1 “Decision-Making and Coordination Structures of the Alliance,” 20 October 1999, http://www.nissan- global.com. 2 “Nissan President Carlos Ghosn Talks about His Company’s Recovery,” Nikkei Business, 20 May 2002, http://nb.nikkeibp.co.jp/Article/1142. Copyright © 2003 Thunderbird, The American Graduate School of International Management. All rights reserved. This case was prepared by Professor John P. Millikin and Dean Fu, Research Assistant, with assis- tance from Koichi Tamura for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. Dr. John P. Millikin is the academic director for the Global Strategic Human Resources program in Thunderbird Executive Education and a visiting professor of management. Prior to joining Thunderbird, he was vice president of human resources at Motorola. He has also served as a national vice president of the Soci- ety for Human Resource Management (SHRM). His PhD is from Arizona State Uni- versity, where he also serves as a faculty associate ([email protected]). Dean Fu, who received his MBA from Thunderbird in 2003, is an international devel- opment professional working in Bosnia and Herzegovina on a USAID project regarding process and system improvement projects with ten governments at the municipal level. He has also worked on similar projects in Kazakhstan. Prior to international work, Mr. Fu led process and system improvement teams at Ericsson, Inc. and at medium-sized commercial printing companies in the United States ([email protected]). Thunderbird International Business Review, Vol. 47(1) 121–137 • January–February 2005 © 2005 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www.interscience.wiley.com). 121 DOI: 10.1002/tie.20043 John P. Millikin I Dean Fu GOHN) took over as the first san began to operate profitably non-Japanese Chief Operating under his leadership. Officer of Nissan. Many indus- try analysts anticipated a culture clash between the French lead- BACKGROUND OF CARLOS Ghosn boldly ership style and his new Japan- GHOSN pledged to step ese employees. For these down if Nissan analysts, the decision to bring Born in Brazil in 1954 to French did not show a Ghosn in came at the worst pos- and Brazilian parents, both of profit by March sible time because the financial Lebanese heritage, Carlos Ghosn 2001… situation at Nissan had become received his university education critical. The continuing losses in Paris. Following graduation at were resulting in debts (approx- age 24, Ghosn joined the French imately $22 billion) that were firm, Compagnie Générale des shaking the confidence of sup- Etablissements Michelin. After a pliers and financiers alike. Fur- few years of rapid advancement thermore, the Nissan brand was to become COO of Michelin’s weakening in the minds of con- Brazilian subsidiary, he learned sumers due to a product portfo- to manage large operations lio that consisted of models far under adverse conditions such as older than competitors. In fact, the runaway inflation rates in only four of the company’s 43 Brazil at that time. Similarly, as models turned a profit. With lit- the head of Michelin North tle liquid capital available for America, Ghosn faced the pres- new product development, sures of a recession while putting there was no indication that together a merger with Uniroyal Nissan would see increases in Goodrich. Despite his successes either margin or volume of sales in his 18 years with Michelin, to overcome the losses. The Ghosn realized that he would next leader of Nissan was either never be promoted to company going to turn Nissan around president because Michelin was a within two to three years, or the family-run company. Therefore, company faced the prospect of in 1996 he decided to resign and going out of business. join Renault S.A., accepting a position as the Executive Vice Realizing the immediacy of the President of Advanced task at hand, Ghosn boldly Research& Development, Man- pledged to step down if Nissan ufacturing, and Purchasing. did not show a profit by March 2001, just two years after he Ghosn led the turnaround initia- assumed duties. But it only took tive at Renault in the aftermath eighteen months (October of its failed merger with Volvo. 2000) for him to shock critics Because he was so focused on and supporters alike when Nis- increasing margins by improving 122 Thunderbird International Business Review • January–February 2005 The Global Leadership of Carlos Ghosn at Nissan cost efficiencies, he earned the ty, reliability and fuel efficiency. nickname “Le Cost-Killer” By 1991, Nissan was operating among Renault ‘s top brass and very profitably, producing four middle management personnel. of the top ten cars in the world. Three years later, when Renault formed a strategic alliance with Nissan management throughout After the Second Nissan, Ghosn was asked to take the 1990s, however, had dis- World War, Nis- over the role of Nissan COO in played a tendency to emphasize san grew steadi- order to turn the company short-term market share growth, ly, expanding its around in a hurry, just as he had rather than profitability or long- operations done earlier in his career with term strategic success. Nissan was globally. Michelin South America. For very well known for its advanced Ghosn this would be the fourth engineering and technology, continent he would work on, plant productivity, and quality which combined with the five management. During the previ- languages he spoke, illustrates ous decade, Nissan’s designs had his capacity for global leadership. not reflected customer opinion because they assumed that most customers preferred to buy good BACKGROUND OF NISSAN quality cars rather than stylish, innovative cars. Instead of rein- In 1933, a company called vesting in new product designs as Jidosha-Seizo Kabushiki-Kaisha other competitors did, Nissan (which means “Automobile managers seemed content to Manufacturing Co., Ltd.” in continue to harvest the success of English) was established in proven designs. They tended to Japan. It was a combination of put retained earnings into equity several earlier automotive ven- of other companies, often suppli- tures and the Datsun brand ers, and into real-estate invest- which it acquired from Tobata ments, as part of the Japanese Casting Co., Ltd. Shortly there- business custom of keiretsu after in1934, the company name investing. Through these equity was changed to Nissan Motor stakes in other companies, Co., Ltd. After the Second Ghosn’s predecessors (and World War, Nissan grew steadily, Japanese business leaders in gen- expanding its operations global- eral) believed that loyalty and ly. It became especially successful cooperation were fostered in North America with a lineup between members of the value of smaller gasoline efficient cars chain within their keiretsu. By and small pickup trucks as well as 1999, Nissan had tied up over $4 a sports coupe, the Datsun billion in the stock shares of hun- 280Z. Along with other Japan- dreds of different companies as ese manufacturers, Nissan was part of this keiretsu philosophy. successfully competing on quali- These investments, however, Thunderbird International Business Review • January–February 2005 123 John P. Millikin I Dean Fu were not reflected in Nissan’s 3. Nissan would take the princi- purchasing costs, which pal responsibility of imple- remained between 20-25% high- menting a revival plan. er than Renault’s. These keiretsu investments would not have been It was actually Hanawa who first Renault wanted so catastrophic if the Asian finan- made the request to Louis a partner that cial crisis had not resulted in a Schweitzer, CEO of Renault, to was savvy and devaluation of the yen from 100 send Carlos Ghosn to Nissan to established in to 90 yen = 1 US dollar. As a be in charge of all internal the North Ameri- result, both Moody’s and Stan- administration and operations can and Asian dard & Poor’s announced in activities. markets. February 1999, that if Nissan could not get any financial sup- Why would Renault agree to all port from another automobile of these conditions in this company, then each of them bailout of Nissan? Renault was would lower Nissan’s credit rat- also looking for a partner, one ing to “junk” status from that would reduce its depend- “investment grade.” ence on the European market and enhance its global position. Clearly, Nissan was in need of a In 1997, 85% of Renault’s rev- strategic partner that could lend enue was earned in Europe, both financing and new manage- 32.8% of which came from its ment ideas to foster a turn- domestic (French) market. around. In addition, Nissan Renault also had high market sought to expand into other share in Latin America, especial- regions where it had less pres- ly Brazil. On the other hand, ence. In March 1999, Nissan Nissan has the second largest President and Chief Executive market share in Japan and a Officer Yoshikazu Hanawa found strong market share in North such an alliance opportunity with America (see Appendix 2, Nis- Renault, which assumed a 36.8% san’ market share).