Daimler Chrysler (Case Study) - Potential Obstacles, Differentiation Strategy High Pay

9.A potential obstacle to the completion of the merger was US anti-trust regulation which seeks amongst other things to prevent enterprises achieving a dominant position in the US market, using material in the case explain why did not pose an obstacle to the merger.

US anti-trust regulation is also known as ‘Competition Law' prevents enterprises achieving dominant position in the US market. According to Organization for Economic Co-operation and Developments, the prerogatives of that regulation vary from law to law. Anti-trust regulation appeals on protecting consumer choices (also known as consumer welfare) and determine that entrepreneurs have an opportunity to compete in the market economy.

There are some other issues involved such as access to market, states aid and subsidies. In recent year ‘Competition law' (Anti-trust regulation) has been regarded as better way of providing public services. The main reasons for not posing obstacles on that merger are: •Merger combined two strong companies – Daimler Benz was an aggressive firm, which was trying to employ every possible way to the market. On the other hand, Chrysler was a very cost-effective company and slow progress firm which believed in the production and flexibility of operation.

•Savings resulting from economies of scale – It is been recognized that both companies could benefit each other in terms of production and operating costs. Daimler Benz required a large numbers of workforces and Chrysler was perfect match. •Record revenues and increasing market share – Daimler was looking for companion in US to increase its sales. However in 1997 it had only 1% of its luxury vehicle market in the US . Chrysler with low operating costs and extensive American dealership network was perfect match.

•Daimler is a leader in innovation, technology exchange – It is been recognized that technology exchange could have improved Chryslers vehicle performance. For instance it has been promised that Chrysler Jeep Grand Cherokee would use Mercedes diesel engine and automatic transmission. On the top of that Daimler has an outstanding reputation in vehicle's performance and reliability.

10.In what does the data on BMW support the view that differentiation strategies can underpin high pay and related social contributions for the workforce?

Differentiation strategies often imply expensive pricing of products and services. They can be also consistent with relatively high levels of pay and related ‘social' costs such as medical insurance and pension contributions. Daimler Chrysler was pursuing to increase its volume production of differentiated products. It has been argued there must be rationalization of activities in a merged company.

According to case study material, in the motor industry rationalisation is the exchange of technologies between vehicle models. For instance, Chrysler Jeep Cherokee used a Mercedes diesel engine and automatic transmission. "However, the cost reductions anticipated by the merged company in official announcements have been relatively modest." On the other hand, the costs that been anticipated in the merged company did not differentiate costs by division.

According to the case study material "The company's published accounts do not differentiate labour costs by division thus it is not possible to examine this issue with reference to published sources relating to the company." Clearly, an answer to that issue might be that some divisions are cost effective while other divisions are more expensive to run. On the other side, a firm that produces differentiated products does not necessarily match all the costs related with specific division for the reasons of efficient accounting management.

It rather operates on the basis of average cost assumptions. While BMW is the firm with consistent products and services which by its nature can afford to match costs for specific division, hence it produces more clear accounting reports. As a result it contributes high pay and related ‘social' costs more vigorously.

References: •Organization for Economic Co-operation and Developments, 2001, Regulations and Sectors [Online] Available at: http://www2.oecd.org/mcmdown/ •Mackintosh, J. (2003) ‘Mercedes moves up a gear in race against BMW', Financial Times, 29th December.

•Daimler-Benz AG" Standard & Poors Stock Reports. New York: Standard & Poors, Inc., July 21, 1997.