Reference no: EM132283498

Case Study

DAIMLER CHRYSLER MERGER AND THE IMPACT OF CULTURE CLASH

In 1998, Daimler of Germany and Chrysler of the United States merged. The combination was intended to generate a company that would reach the critical mass necessary to compete on a global basis. The economies of scale in the auto industry are great. It is expected that worldwide the number of firms will decline dramatically over the next 50 years as the industry consolidates, seeking to reach the critical mass necessary to survive. Contrary to expectations, the value of Daimler’s stock declined with the announcement of the deal and would continue to decline until it was worth less than 50 percent of its original value. Daimler would ultimately have to sell Chrysler to private equity investors. Daimler purchased Chrysler for over $36 billion and would ultimately sell it for less than $5 billion. Combining two firms is always very difficult and, in this case, problems arose that could not be overcome. Particularly problematic in integrating the two firms were their differences in culture. Some of these differences were firm specific. For example, the two firms focused on two different types of products. Daimler sold high-end, highly engineered automobiles. In contrast, Chrysler was a scrappy, cost-conscious company. The Germans were aware of this difference, but they were never able to truly value the American brands. This had two results. First, the brands of the two firms were never integrated, which meant that brand management for this newly combined firm became confusing. Additionally, the two firms were never able to fully integrate their supply chains. The Daimler engineers felt using the Chrysler lower cost/lower quality inputs would damage their brand image, and Daimler did not want to share its parts with Chrysler. Chrysler would ultimately get some steering and suspension components, a transmission, and a diesel engine from Daimler. But generally, there was little integration of the two firms, with both Daimler and Chrysler largely keeping their supply chains separate. Compare this to the previously discussed Ford Volvo merger, in which the input parts were fully integrated across the two firms. The separation of Daimler and Chrysler is clearly illustrated by the fact that there were corporate headquarters in both the United States and Germany. A single corporate headquarters was never created.

Another clear difference is the language difference. Almost all young Germans speak English. But Americans seldom learn German, and language- learning ability for individuals over 40 years old tends to be much less than for younger people. The result was that language difficulties would continue to plague the two firms working together. However, more critical to the failure were the differences in national cultures of Germans and Americans. German culture tends to be very hierarchical, while Americans, as noted earlier, are very egalitarian and prefer flat organizations. One impact of this was that the Germans felt Americans were too unstructured, while the Americans found the Germans too rigid. To illustrate, Germans typically take a problem, analyze it, discuss the potential solutions, pick one, and then move on. Americans use a much more interactive process. They not only have active discussions with large numbers of people, but they revisit issues as new information or insights become available. At Daimler Chrysler, the Germans felt that once the decision had been made, they would not revisit a problem. The Germans also felt very uncomfortable with the active give and take of the Americans. The Americans saw such interactions as healthy, but to the Germans, they were confrontational and very uncomfortable. The result often was that the Americans would think a consensus had been reached when in fact the Germans just did not want to argue. The means to analyze many of the problems at Daimler were also different. The Americans felt comfortable stopping at their bosses’ or anyone else’s office and discussing the issue at hand. They considered this creative. Germans, how- ever, had a structured approach in which lower-level employees generated extensive analysis of the problem and then passed that analysis up the hierarchy until a decision was made. This approach resulted in the Germans having much larger staffs than the Americans. This does not mean that Daimler did not realize they had a problem and try to address it. For example, to encourage communication among the various parties, the firm forced both firms to use IBM Lotus Suite, which allowed instant messaging among the parties, but this did not address the underlying differences. The out- come of these differences was that the synergy initially expected between Chrysler and Daimler was never been realized.

Daimer Chrysler Merger and the Impact of Culture Clash 700 words

1. What are some of the major differences you see in doing business in Germany if you are an American?

2. Renault Motors is a French firm that owns Nissan Automobile of Japan. Why do you think this merger worked when the Daimler Chrysler merger did not?

3. Think of ways that the Daimler Chrysler merger could have been encouraged to succeed.