zilRENAULT IN BRAZIL1 Sitting in his Parisian office overlooking the Seine, at the beginning of 2003, Louis Schweitzer, President of Renault, was unable to hide his irritation from the board members for the Mercosur area (The Common Market of the South which includes Argentina, Brazil, Paraguay and Uruguay) on reviewing the results of the company’s launch in Brazil (appendices 1 and 2). Four years after opening the plant in Brazil, and in spite of a brilliant entry onto the local market (gaining 3% of sales at the end of the first year), they had just been unable to expand. The Brazilian market was a difficult one to forecast and it was developing quickly. (appendix 3) Until 1990, all the automotive producers had concentrated their efforts on the medium to top range cars, given that Brazil was one of the countries with the widest range of income differences and that the few attempts to capture the low income market had failed. The development of a low range market niche – what was known as economic cars or “carros populares in Brazilian”- was going to revolutionise the market from then onwards. In 1998, this segment had gained 70% of the market and largely represented the growth of the Brazilian market during this period. Taking advantage of this trend, Renault deemed it a good moment to develop a new segment, that of top range economic so as to enter this market which had been dominated for years by the four major manufacturers (Fiat, Volkswagen, General Motors and Ford). These vehicles were identical to those of industrialised countries but with a lower cc engine. Renault was right in its hunch, as by the beginning of 2003, this segment was making up 15% of the market. However, the arrival of ten new competitors with a similar positioning added to the Brazilian economic crises of 1999 and 2002 and it forced Schweitzer to consider the following two strategic options which were presented to the company: 1. To maintain its initial strategy. This positioning meant giving up the smaller segment of family saloons which still made up 55%2 of the market in 2003 in spite of the local economic crises. 2. Launching new models to gain a global positioning on the Brazilian market. In this case, Renault’s investments would enable it to break away from its competitors in its original positioning and find margin for manoeuvre in the low range economic car segment although this could mean facing up to the big four. RENAULT’S INTERNATIONAL EXPANSION Since 1898, the date of its foundation, the internationalization of the French firm had undergone various stages which alternated expansion in different zones of the world with some withdrawals in its natural market, western Europe. If up until 1955 the company had concentrated its efforts within national borders3, its aim from then onwards was to export 50% of its total production.
Tanguy Jacopin, current Professor of Marketing at EADA and previous Visiting Student at Instituto de Empresa, and Guillermo Cardoza, Professor at Instituto de Empresa wrote this case. They are grateful to Joseph Ganitsky, Professor at Loyola University, Manuel Becerra, Professor at Instituto de EMpresa, and Adriana Angel, Coordinator of the cases at Instituto de Empresa for their comments. 2 The market share of low range family saloon cars had fallen from 70% to 55% between 1998 and 2003. 3 After World War Two, the French government concentrated on the internal reconstruction of the country. Renault, which was nationalised in at the end of the war, took part in this project.
Between 1955 and 1962, chose an implementation strategy based on specific objectives. It signed agreements with Australia, South Africa, Japan, Mexico, Brazil, Argentina, and the United States. Expansion in the US kept Renault temporarily away from the European Union markets4 Between 1961 and 1973, Renault took advantage of the European Common Market, exporting one third of its cars there. At the same time, expansion in Eastern...