A strategic analysis of DaimlerChrysler merger
... in the case of DaimlerChrysler merger neither of both companies intended to easily grant something to other party. From the very beginning the merger adopted the business culture of “you give, we take”. Therefore, it was the “marriage of equals” from the economical resources and operational side, yet DaimlerChrysler being so-called “one entity” still possessed two headquarters with two different leaders in each. The turning point in DaimlerChrysler merger happened on October 2000. In Financial Times interview DaimlerChrysler Chairman Juergen Schrempp officially said he had intended Chrysler to become a division rather than an equal partner (Forbes, 2004). This statement supports the merger’s one-winner-one-loser theory. The unofficial “contract of management powers” between two companies, was officially infringed. Thus, one can only imagine what scale of psychological mistrust, fighting for each resource, management miscommunication or even naked hate were filling every corner of the company during those years of the merger. As a result, lack of common vision, mutual trust and constant fighting for one’s rights engendered cultural hatred, which quickly paralyzed cooperation between the two headquarters (Economist, 2001). What about company culture differences between Daimler and Daimler-Benz? Can one ignore them completely and blame only the lack of strategic management transparency? The answer is “No”. The companies did contravene in terms of their business culture (figure-1), and thus certainly did add additional hot spice into the whole DaimlerChrysler post-merger “dish”. According to DaimlerChrysler former CIO, Ms. Unger: “Even the simplest differences between American English and the British English used by DC's German engineers could lead to frequent misunderstandings” (cioinsigth.com, 2002). However, let us stop for a moment and examine the famous Renault-Nissan example. We can see that even though Franco-Japanese management cultures have little in comma, the intercultural management differences did not seem to have that much of the negative impact on one of the most successful synergies in the car manufacturing industry (see figure-2). Therefore, in the DaimlerChrysler cross-border merger, management differences played secondary role, and were triggered after the strategic intent and strategic mission negative influence on post-merger strategy implementation, which in turn had direct relation to the ill-natured operational cooperation, cost-cutting, resource sharing, administration and, of course, communication. The Resource-Based model: DM’s lack of complementarity Would it be one company, or two merged companies, one thing that they will surely have in common is the ultimate goal to earn above-average returns in their industry. According to the resource-based model, the firms identify their resources, determine their capabilities and potential competitive advantage, and only then formulate their strategy and finally implement it to earn above-average returns. DaimlerChrysler’s top management underestimated the complexity, and most importantly, the economic logic of joining two already successful companies with their different distribution systems, marketing approaches, and costumer base and core competencies. From the point of view of resources, Daimler-Benz has the highest quality black-boxed physical resources, long-term costumer attachment to it’s’ brand and highly skilled and precise human resources. In general, Daimler-Benz is decentralized, allowing luxury brands to develop and prosper autonomously (Economist, 2000). Chrysler, on the other hand, has completely centralized resources, with superiority in IT systems, creative designers and assembling facilities designed for Jeep sport-utility vehicles and minivans. Apart from that, each company had different dealer and supplier networks, not to mention the specialized knowledge of Europe and America costumer preferences (Economist, 2001). From the capabilities side, if combined, both companies could only reap the economies of scale in R&D and engineering, since mentioned huge gap in both company’s resources would not allow them to use same parts for, say Daimler-Benz’s Mercedes and Chrysler’s minivan. I call it the “Mercedes Paradox”. That is, no one will want to buy Mercedes for, say $100,000, if they can buy minivan for about $20,000, while having the same quality and satisfaction on the road. Moreover, the same-parts-different-car assembly approach did not function simply because the new models launch schedules and marketing strategy differed from region to region. Consequently, if looked strictly from the resources and capabilities point of view, if combined, DaimlerChrysler would not have significant comparative advantages to other competitors – although bigger in size and capacity-. In other words, savings on combined R&D and engineering would not offset expenses from increased management complexities, staff traveling, re-constructuring, etc. Therefore, when formulating his global car company strategy, Mr.Shrempp obviously did not weighted correctly all the variables involved, while passionately dreaming about the ever-larger globally-based enterprise, competing in the main “car drivers’” centers of the world, with a competitive advantage of substantial cost-cutting from the combined parts sharing and other synergies. Mr.Shrempp’s “world engine” vision has a very high risk of transforming into a simple “world public car” vision, which, I presume, was the last thing on the DaimlerChrysler engineers’ minds. DaimlerChrysler Future Outlook As the Resource-Based model analysis showed, giving the presence of the resource incomplementarity and cultural difference barriers between the two merged companies, it is not surprising that the company experienced losses of $1.4 billion during the final quarter of 2000billion, 40% decrease in stock value, plummeted m...