Daimler and Chrysler’s failed analyze in International Strategic Management

1. IntroductionDaimler and Chrysler was merged in November 1998 but after nearly 10 years of “marriage”. DaimlerChrysler sale the Chrysler in 2007 with years of loss.

This merger become a big fail for Daimler and Chrysler. Almost in the same time, the other car companies’ “marriage” — Reynolds Holding Nissan in 1999, and entered into a strategic alliance to date, is not only Nissan out of bankruptcy situation, now, Renault-Nissan alliance but also become the world’s car the most successful cross-border merger group. In this essay will use Renault Nissan as the case to analysis Daimler and Chrysler’s failed. 2. Background

Since the first car come to the world in 1886, and more than one century developing of the automotive industry, the best part of car companies are faced with the problem of overcapacity caused by the saturated domestic market. In order to solve this problem and reduce costs through economies of scale, “marriage” has become the first choice of auto companies.

With this situation, for create the strategic concept which “Atlantic’s largest automobile manufacturers”, in May 1998, Europe’s largest car manufacturer Daimler, Daimler has made the biggest automotive industry merger at this time with Chrysler, which is the one of the three major U.S. auto company.

At this time, Daimler occupies more than 60 percent of the European market. In 1997, it annual revenues of $ 70 billion, there is 300,000 employees in worldwide, more than 2/3 of the revenue comes from outside of Germany, whose core business is luxury cars and large trucks. Chrysler was also divided up 93 percent of the market in North America by the minivans and sport utility vehicles. Different with the Daimler and Chrysler, when Renault holding Nissan, Nissan has been on the verge of bankruptcy. 3. The opportunity

The fast growing firms, having already adopted a growth maximization approach, are likely to be involved in merger activity, both to grow the firm and to enhance managerial status and remuneration (Donnelly, 2005) With the development and the improvement of technology and the saturation of the domestic market, competition within the industry is also increasingly intense. At that time, chairman of Hyundai Motor Company even gets the conclusion that there will be only six or seven large automobile manufacturers could only survive in the 21st century (Steers, R. M., 1998).

The benefits of the acquisition are reflected in the decline costs, the newly combined company has more bargaining power and get more advantage on procurement. Meanwhile, integration Daimler and Chrysler’s technology to build a unified research and development platform to avoid duplication of development and decrease the cost of R&D. Again with the cross-border mergers and acquisitions it also decreases the tax. It also gives the convenient for build entry market and with the existing market share to get a certain degree of monopoly. 4. The challenge

Firstly, Company almost did not the experience of entering low-priced car market. On the other hand, there is a potential conflict of its operation and management system, integration of the two company’s organizational culture was a big challenge. Furthermore, external threats still exist. EU and EFTA countries in the North American automotive market has become saturated (Mühlbacher, H., Leihs, H., & Dahringer, L. D., 2006). The last but not the least, competition in motor market was become more intense, 5. Strategic

Daimler and Chrysler, Renault and Nissan, those two couple of companies merged with different strategic. Renault holding the share of Nissan, but maintain its’ independence, and for managed team, they mix member for Renault and Nissan. Although Daimler declare the merger is “merger-of-equals” (DaimlerChrysler, 1998).

But, in fact, Daimler control the new company. On the other hand, the aim of two merger is also different, Daimler and Chrysler want to share the technology and to entry the new market, but with the Nissan, which brink of bankruptcy, they focus on Nissan’s revival and mutually complementary advantages. 5.1. Results and reasons

Daimler and Chrysler focus on the complementary product lines and the power distribution in different market, their expectations the economies of scale of the collaborative platform after mergers. For the products line, they almost no repetition expect a few products.

Thus, the horizontal integration strategy could be found in this merger. Horizontal integration is a strategy where a company creates or acquires production units for outputs which are alike – either complementary or competitive (Wikipedia, 2013). It expand production scale, reduce costs, consolidate their market position and improve their competitive advantage and enhance their strength to alliances with other companies (Hamel, G., Doz, Y. L., & Prahalad, C. K., 1989). In the combined initial, the amazon sale data could be found in the new company. Revenue increased 12% than last year; each brand sales increased significantly. T

hat shows the benefits for the company in the beginning. The reason of it comes into four part. Firstly, it helps Chrysler circumvent the limitations of some European trade barriers, making it smooth entry into the European market, to achieve a monopoly on its market share. Secondly, it avoid excessive competition and improve efficiency. Furthermore, expand the economies of scale to gain competitive advantage. On the other hand, make full use adequate human resources and resources of the company after the merger. 5.2. The reasons of fail.

As mentioned earlier, from the advantages of product lines and the market share, it provides an important source of financial synergies and operating synergies to provide the preconditions. But the increase of sale could only found in the first year, after that, it plummeted. With years of losses, this merger could be asserted that is failed. Achieve synergies on management is much important for the company to obtain sustainable competitive advantage than other aspects (Kotare, M., & Murray, J. Y. 2004).

On the other hand, for Daimler, as a luxury brand, is not a smart idea to choose Chrysler, the history has already shown the luxury brand merger and acquisition the civilian brand. Such as BMW with Rover in 1994 and Ford’s PAG Group in 1987. The product with different price level also has a different quality standards; it’s hard to achieve cost-sharing effect. The different level of brand have different business models, in the case of rising management costs, independent operators will have more effect, which like the alliance of Renault-Nissan. With the lie from Daimler, it’s doomed to fail.

The merger was not “merger-of-equals,” Chrysler did not get its rightful place; it also resulted in the loss of management. Compare with Renault-Nissan The culture different also play an important role in this fail; the new company does not make a new corporate culture but want to inherit the culture from Daimler, disregard for the cultural conflict doomed its failure. At the same time, some unpredictable external factors have led to its failure. Firstly is the oil prices, from 1990 to 1998 showed a downward trend in international oil prices, it once reached the minimum $9 a barrel, in 1998, when Daimler and Chrysler “get marry”.

But oil prices rebounded quickly after that, in the early 2000s continued to rise after reaching $30 a barrel. The increasing price reduced of High-power car, which is the mining business of DaimlerChrysler, but it a good news for Renault-Nissan, which make the car with low energy consumption. The Asian financial crisis in 1997 is also hit DaimlerChrysler, when Daimler and Chrysler merger on Europe’s economy did not cause more impact, but the manager to expand the production of luxury cars in the wrong time.

6. ConclusionFailure of DaimlerChrysler was from multiple aspects, in addition to the lack of predicted of environmental changes, company should focus on collaborative management and culture communication.

7. ReferenceSteers, R. M. (1999). Made in Korea: Chung Ju Yung and the Rise of Hyundai. Psychology Press. Donnelly, T., Morris, D., & Donnelly, T. (2005). Renault-Nissan: a marriage of necessity. European Business Review, 17(5), 428-440. Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with your competitors and win. Harvard business review, 67(1), 133-139. Mühlbacher, H., Leihs, H., & Dahringer, L. D. (2006). International marketing: A global perspective. Cengage Learning EMEA. Kotabe, M., & Murray, J. Y. (2004). Global sourcing strategy and sustainable competitive advantage. Industrial Marketing Management, 33(1), 7-14. Wikipedia. (2013). Horizontal integration. http://en.wikipedia.org/wiki/Horizontal_integration