Reasons And Issues Behind The Failed Merger Of Daimler And Chrysler Were Analyzed In An Essay.

Answer the following two questions:

1. Critically assess the reasons/rationale provided in the case for Daimler and Chrysler merger.
   
   
2. Analyse various issues inherent in the DaimlerChrysler merger process, whether explicit in the case or dormant, from a cross-cultural comparison perspective.

Globalisation and the use of mergers and acquisitions in the automotive industry

Globalisation has completely changed the appearance of today’s economy. Particularly the firms of 1990 have now expanded into new markets in order to operate more on the global world as well as to develop their businesses. For this reason, most of the companies choose to expand by means of corporations with the other companies in order to make the entry in the market much easier and simpler for strengthening their position in the market. In this world of globalisation, merger and acquisition has become one of the widely used tools for the development. Some of the merger in between several successful and well-known firms has always caused a sensation in the market. However, there are certain mergers too, that have failed because of several inherent reasons. One of the example of such merger is the Daimler and Chrysler merger. Daimler was founded in the year 1886 by Carl Benz and Gottlieb.  After 125 years of its emergence, it was declared as one of the most successful automotive companies in the world. It is one of the biggest producers of the premium and luxury cars in the world and is also the biggest manufacturers of the commercial vehicles with global reach. The financial services of Daimler offers its customers with full range of automotive financial services comprising of leasing, fleet management, financing and insurance.

On the other hand, Chrysler was established in the year 1925 by Walter P. Chrysler. This group produces Ram, Jeep, Mopar, Fiat and Dodge. Some of its products are considered to be the most recognisable vehicles in the world and they include- Dodge Challenger, Jeep Wrangler, Chrysler 300 and Ram 1500. On 7^th of May, 1998, the Daimler-Benz AG, the German company and the Chrysler, the American company had announced a “merger of equals” in between the two. Due to the worldwide development of industries, the internal problems and the cultural differenced on the sides of the Americans turned out not to be as successful as they expected.

As per the provided case study, there are several reasons behind the merger of these two companies. The Daimler-Benz deal with the situation due to the fact that they used to think most of the automobile companies that manufactures such luxury cars for the market have done the merger and acquisition so as to expand their market share outside of the market share of theirs at their time. The manufacturing of the luxury cars were experiencing overcapacity due to the fact that the demand was smaller. This was the perception of Daimler-Benz. Despite its notable success in Europe and Germany, Daimler-Benz never experienced success in getting ahead of the competition on the then U.S market (Smeets, Ierulli and Gibbs, 2003). Before the merger, the market share of this company in the American market was significantly less than 1 %. With the same, the high working intensity all through its process of production for guaranteeing the high quality of standards did not let this company to attain competitive advantage on the American market. It wanted to access to the market of United States and reduce their cost of production. With the same, they were also in the fear of losing their competitiveness in the market.

Background of Daimler and Chrysler before the merger

On the other side, Chrysler had then developed an image of being a skipjack and also had proven their ability to bounce-back several times. However, towards the end of Second World War, this company has faced insolvency a total of four times but finally it managed to acquire success from defending itself from the ever increasing competition as well as to stand its ground all against the prevailing competitors each time. But this was in the nineties when the times became harder than ever before for the automobile industry and it compelled Chrysler to look for a new strategy in order to prepare itself for the hard times coming ahead so as to avoid the issue of bankruptcy to occur one more time. During this time, Daimler-Benz too had to undergo the exact same problem on global market for the passenger cars. These two companies need to manage these challenges that are been imposed because of overcapacities, the rising environmental consciousness among the customers and the strengthened position of the customers. In addition to this, in order to overcome these challenges Daimler-Benz thought of strengthening its market position on the U.S market as well. Hence, from its viewpoint, the merger with Chrysler was promising and therefore, it hoped for gaining important competitive advantage for its future. He found Chrysler its perfect counterpart. Chrysler too was interested in doing this merger as they were one of those companies that have fashionable and trendy cars. Therefore, due to merger, Chrysler thought that they would be getting a chance to become successful in the market and hence they have the obsession for achieving cost effectiveness. Chrysler is a very small automotive company and therefore, when the American economy gets declined, the Chrysler got effected. The competition among the segment of sport utility vehicles (SUV) and minivans that were dominated by the Chrysler was increasing with a rapid pace. Therefore Chrysler was weak and due to this its competitors were getting higher in the market. It also thought that after the merger it shall be successfully improving its R&D department and would be able to access to the Europe market. Its primary motive behind this was to team up with the Daimler-Benz so that it can extend its global or international reach. Moreover, it was expected that the merger will bring great amount of savings by combining the purchase making and the other related operations. It was also objected at reducing the total development costs along with the total research. The main intention of both the companies after the merger of the companies is to safeguard the long lasting competitiveness of themselves. Its goals was to reduce the total development costs and research as well as to ensure huge savings by collaborating the purchasing and the other operations of the companies. However, it was seen that all the efforts that were made by these two companies for the merger got failed despite being the two most reputable automotive organisations in the world.

Reasons behind the merger of Daimler and Chrysler

Issues inherent in the DaimlerChrysler merger process: The main reason behind the failure of this merger was of Culture clash in between these two companies. Cultural clash refers to the disagreements and misunderstandings in between two or more different cultures. The cultural issue is one of the most significant issues that creates problem in the combining process of the cross border companies and so is in case of Daimler and Chrysler. It is to note that the diversity in the culture from different region significantly impacts on the working attitudes, the system of working as well as the quality of work and hence, it creates its own business culture. As of the fact that  Daimler-Benz and Chrysler, both belongs from two completely different cultures- the Eastern culture and the Western Culture respectively, there was difference in their attitudes, believes and working style (Smeets, Ierulli and Gibbs, 2003). There is a significant difference in the American and German culture. As per the collected data of Geert Hofstede, there are four cultural dimensions that summarise the different cultures and explain why and how the people belonging from the different nations behave in the way they do (Smeets, Ierulli and Gibbs, 2003). Those four dimensions are power distance, individualism, uncertainty avoidance and masculinity. These dimensions help for explaining the cultural differences in between different nations.

Power distance- The index of power distance stands for the independence in between the boss and the subordinates. America scored 40 on medium level and Germany scored 35 with somewhat lower score than America. The subordinates in America tend to have very medium level of needs of dependence as the scores denotes. The managers in USA follow the leadership style of participative. Because of comparatively low PDI score of the Germany, it denotes that there are difficulties they face in the global business relations. As per the low PDI score, Germany has comparatively wider span of control as compared to their American colleagues. It is also to note that the German workers are much more autonomous in nature and they carry out comparatively greater job discretion.

Individualism or collectivism- USA has very high score of 91on this index. On the other hand, Germany scores lower than this. They score 67 on this dimension. It further symbolises that Germany has a collectivist culture. While the America are individualistic. The focus in the German companies is on social responsibility and family feeling, while that is of the US companies is on individuality and competition.

Issues inherent in the DaimlerChrysler merger process

Uncertainty avoidance- The USA in this dimension scores 46, whereas Germany’s score in this context is much higher than that of USA, i.e.., of 65. Germany always seeks for avoiding uncertainty. Germans prefer more structured form of learning with much more clearer objectives along with well-detailed timetables and assignments. With the same, they also seeks for the task where they could find only one correct answer. Furthermore, they also appreciate rewarding for correctness. Clear job descriptions as well as clear set of processes are very common among the German companies along with the high degree of formalisation. The German employees seek to work as per the set rules and guidelines.

The German companies evaluate the system of rules, set procedures and control to be much more important than the American firms consider them to be. They also has a very closed level of supervision and all their employees are very loyal to their companies than the American companies. As the American managers are of much more risk taking nature, they do not appreciate the unwillingness of any of the decision that are taken by their German counterparts without analysing the same in deeper manner. The relationship in between the management team of the companies and the labour unions are written in detailed manner and the German managers also accept the trade unions. For the German employees, safety and security is very vital, just like the achievement is important for the American employees.

Masculinity- The German companies have scored higher than that of the Americans. The Americans have acquired 62 score while the Germans have scored 66. Notwithstanding this fact, both the cultures s are regarded as masculine oriented countries. They do not have such difference in this very dimension. On the other hand, the score of 62 of the US on Masculinity determines that they have typical American behavioural pattern. It could be further explained by the combination of the higher masculinity that is driven together with highly individualist driven world. They show their masculine drive individually. People in this culture avoid the insecure and unknown conditions whenever possible and they also avoid risky behaviours. The cultures with a weak UAI have a lower level of anxiety. New and unknown situations aren’t harmful and the people are open for new situations.

Hence, from the above analysis it is clear that the main reason for both the companies to merge with each other is to become one of the biggest automobile companies in the world. However, the other reasons for the merger was more or less same for both the companies. It is to note that successful global growth could be achieved through strategic mergers and alliances. For getting merged, both the companies were willing to lose one of the parts of their identity. In this case, both the companies saw their benefits to merge with the each other. Many facts were considered to be the indicators for one of the perfect matches in between these two organisations in context to the compatibility of the other partner. Although Daimler and Chrysler, both were perfect for each other in terms of their regional penetration, operational strength and product lines, there decision of collaborating with each other finally resulted in their failure. The primary reason behind this was their cultural difference.

References:

Smeets, V., Ierulli, K. and Gibbs, M. 2003. Daimlerchrysler: Organizing the Post-Merger Integration. The Scandinavian Journal of Economics, 118(3), pp.463-493.