Research Proposal: Novartis Nestle Coloplast and Nissan

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Renault-Nissan partnership underwent a significant maturation process over the last decade. Under Ghosn's leadership, the company stabilized, underwent a culture shift, then expanded sales and profits. The partnership began to fall short of its objectives in 2006, but at that point was still outperforming the industry peers. The company's response was to continue to push forward with its plans.

The vision of the Renault-Nissan Alliance is to become one of the top three automakers in terms of technology, quality and profitability (Leslie, p.2). As of 2008, the company felt that there were several means by which it could achieve this end. The firm had made investments in electric car production in India and Morocco (Leslie, p.2). In the face sales declines in mature markets, Renault-Nissan had placed added emphasis on the BRIC countries (Leslie, p.1) through joint ventures with firms such as Mahindra, AvtoVAZ and Dongfeng (Leslie, p.2).

Today, however, there are signs that the bloom is coming off the rose somewhat. The company is now forecasting its first loss. This is being attributed to a strong yen and a sales slump driven by the global recession (Kim & Massy-Beresford, 2009). This appears to indicate that the strength of the partnership throughout the past decade has begun to fade. However, this is not necessarily the case.

If we compare the performance of the firm today against the first disappointing year of the Alliance in 2006, we can see some similar trends. The first is that Nissan in 2006 failed to meet its targets and at the time unfavorable currency exchange was in part to blame. This has occurred again. It is probably unreasonable to take too unfavorable a view of the company's performance in light of their inability to manage translational risk as translational risk is typically very difficult to hedge. Accounting profit for a multinational entity may be used for goal-setting purposes, but its true value should be taken with a grain of salt in light of the fact that some of the losses are only translational and not transactional. It could also be argued, however, that Nissan has done a poor job of hedging its exposure, if those profits are being repatriated to Japan and the firm is losing money as a result of that exposure.

The other trend that we see is that sales slumps have hurt performance for the Renault-Nissan Alliance. The present financial crisis, in its infancy in the middle of 2008, has resulted in substantial sales reductions for all automotive companies. It is unreasonable to think that Renault-Nissan would be insulated from such systemic risk. A better measure of the effectiveness of the partnership would be with respect to firm-specific performance.

With respect to this financial performance, Renault-Nissan has not fared badly. Despite their recent focus on the BRIC countries, the company's largest markets are still North America and Western Europe (Lundgren, et.al.). In 2008, the Alliance had as major strategic thrusts to build out capacity in India and Morocco, plans that have now been put on hold (Kim & Massy-Beresford, 2009). However, this along is not evidence of the partnership failing. Rather, it is a prudent move, given the economic downturn. The two companies are in a position where they need to use some of their capital to finance ongoing operations, particularly at Nissan where they are about to begin losing money. Thus, it is reasonable to postpone investment projects until the economy begins to turn around.

The partnership may have hit a rough patch, but there is no evidence to support the view that its value has run its course. Indeed, the companies' willingness to adjust strategy to meet the current economic conditions is evidence of the partnership's strength, rather than weakness. Further evidence of the strength is that while the Big Three U.S. firms are all struggling for survival and the major Japanese firms are beginning to suffer as well, both Renault and Nissan are merely experiencing a setback in their plans.

Therefore, I am optimistic about the future of the Renault-Nissan Alliance. There are several factors contributing to this optimism. The first is that both firms are in solid financial position. While many other of the world's leading automakers struggled even through the economic expansion of the mid-2000s, Renault-Nissan was able to ride that wave to improve margins, sales and profits.

Another reason for optimism is that the company enjoys greater geographic diversification than many of the other major automakers. Today's global auto giants arose in markets with rapid diffusion of the automobile. Tomorrow's global auto giants will also arise in similar markets. The Alliance has a strong presence in the world's largest growth markets, with manufacturing capabilities in India, Brazil, China, Russia, Egypt, Southeast Asia, Mexico and Iran (Lundgren, et.al). The company is focused on low-cost vehicles that appeal to the consumers in those markets. This strategy has strong long-term growth potential.

Further optimism derives from their long-term strategic planning. While U.S. automakers are fighting for their very existence, struggling from one government bailout to another, the Alliance is forming joint ventures in China to product electric cars (Agence France-Press, 2009). Other automakers have become fixated on the short-term, while the Alliance has been building a long-term strategy based on technological leadership on electric cars (The Economist, 2008).

The goals of the Alliance are to be an industry leader on quality, technology and profitability. While they have suffered in terms of profitability in the past year, this is more due to systemic factors than any failure on the part of Alliance leadership. Indeed, their strong geographic diversification has insulated them to some degree from the worse of the downturn. The impending losses at Nissan and reduced profits at Renault due not reflect firm-specific risks and as such there is no indication that current performance is poor.

That the Alliance has continued to engage in long-term planning and deal-making, while judiciously postponing some of its most ambitious projects until the turnaround, demonstrates management strength and corporate vision. The firm's focus on electric cars is in line with their strategic objectives, as is their focus on the BRIC markets as the key drivers of revenue and profit. For these reasons, I am optimistic about the future performance of the Renault-Nissan Alliance.

Coloplast

Coloplast is the world's #2 producer of ostomy bags, and the #1 in Europe. Ostomy products represent 45% of the firm's sales; continence products 29% and wound/skin care 19%. The company markets its products through three channels -- retail/wholesale, direct to consumer and through hospitals/institutions (Brown, et al.). The company expanded production into Hungary in 2001 in order to maintain growth potential that would allow it to meet its aggressive long-term sales goals for 2012.

There are several risks facing Coloplast, however. The largest risk at present is that the governments of Europe are driving down reimbursements. This in turn reduces revenues for medical supply companies such as Coloplast. The main driver of prices for Coloplast is government regulation. Within Europe (80% of Coloplast's sales) individual national governments set reimbursement rates, which are a key determinant in product price. This means that Coloplast has little control over the prices it receives for its products (Brown, et al.).

There are several ways to mitigate this risk. Lobbying efforts may be utilized, but are unlikely to meet with success for a couple of reasons. One is that these efforts must be directed at each individual government, so the company would realistically be able to only deal with the largest governments. The other reason is that the impetus for the changes to reimbursement rates is the rising cost of health care. This in turn is the result of demographic shifts.

Thus, the price drivers are essentially out of Coloplast's control. Therefore, the company can mitigate the risks that result by recognizing the shift in the operating environment and altering its strategy accordingly. The demographic shift gives Coloplast the potential for increasing volume, given 84% growth projected in Europe (Nielsen et al., p.4). Combined with shrinking margins, Coloplast must improve volumes significantly, in order to maintain or improve profit levels. This will require further investment in overseas production. By May 2004, Hungary has joined the EU and is going to be forced to increase its corporate tax rates. Thus, Coloplast may need to look outside of the EU to find production capacity for continued expansion.

Each of the major risks highlighted reflects downward pressure on prices. Health care reforms in all of Coloplast's key markets are putting downward price pressure on Coloplast's products. These risk factors are both systemic and long-term in nature. As a result, Coloplast's solution should also focus on addressing these issues on a long-term basis.

Given that cost reduction is going to be required in order to maintain margins, Coloplast not only needs to consider offshoring more of its production and even development functions, but needs to improve its production processes on an organization-wide basis. At present, Coloplast has little coordination between its different facilities. Best practices are neither… [END OF PREVIEW]

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