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Daimler Benz AG and Chrysler Companies: International Management Report

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Updated: Jun 14th, 2020

Executive Summary

Daimler Benz AG and Chrysler are companies that manufacture and sell automobiles. While Chrysler is in the United States, Daimler is a German based company. In 1998, the two companies merged with the assumption that their union would reduce the level of competition, increase customer base, and boost sales volumes. However, due to difference in management and leadership styles, the merger was unsuccessful.

Some of the strengths associated with Daimler and Chrysler include their dominance in their respective markets and regions that they enjoy extensive range of product popularity and huge market share. Moreover, the opportunities that exist for the companies include the chance to increase production and market share. The major threats associated with Daimler and Chrysler is the increased supply of automobiles from other parts of the world such as Asia. Among the major weaknesses of the companies are high costs of human resources and the declining demand for the products from potential clients.

Ethnocentric and geocentric approaches are the main international management approaches that Daimler and Chrysler could employ to solve the challenges associated with unsuccessful mergers. The theory of mergers explains the opportunities and challenges that emanate from merging of firms and helps leaders and managers avoid recurrences of the same mistakes in the future. In addition, some of the solutions to the problems that Daimler and Chrysler faced in the merger include a good choice of international management approach and an extensive market research.

It is imperative to understand that besides mergers, joint ventures and franchises are alternatives that managers and leaders in the field of business can employ to minimise the challenges of mergers. The main objective of selecting joint ventures and franchises is that they do not require total commitment and ownership, as is the case with mergers. In contrast, joint ventures and franchises give freedom to the parties involved in that they can terminate their relationship without incurring a great deal of expenses.

Introduction

Daimler is a German based company that manufactures and sells automobiles. Some of the vehicles sold by the company include Mercedes Benz. The main causes of the problems include different management styles, and cultural clashes. Therefore, the paper analyses the merger between Daimler AG and Chrysler and its challenges using SWOT analysis, present approaches, and the theory of mergers, case evidence, solutions, plans, as well as evaluation on the feasibility of alternatives.

Mission Objectives

The mission objective of Daimler is provision of vehicles that satisfy consumers and increase the demand. Chrysler has a mission objective of producing cars that match consumer expectations so that it can augment its market share.

Background Information

Daimler is a German based company that manufactures and sells automobiles. Some of the vehicles sold by the company include Mercedes Benz. Comparatively, Chrysler is an automobile company that manufactures and sells vehicles such as jeeps.

Limitations

Although the merger had positive outcomes like the introduction of new ideas and skills from the two companies, which proved to be one of the strengths, it suffered weaknesses and limitations such as management problems and cultural clashes.

Strategy

Some of the strategies that the Merger should adopt include employment of a good international management approach, extensive research on the target market, and a survey of potential customers. In addition, companies should apply alternatives like joint ventures and franchises to minimise the challenges and problems that mergers instigate.

Assumptions

The main assumptions driving the merger of the firms included the belief that the union would increase their market base, amplify profits, and minimize competition in automobile industry.

SWOT Analysis of Daimler AG and Chrysler

Strengths and Opportunities

The main strengths associated with Daimler and Chrysler includes their dominance in their respective markets and regions. While Chrysler dominates in parts of the United States, Daimler is a dominant and popular supplier of automobiles in Germany. In addition, both Daimler and Chrysler enjoy a good range of product popularity and good market share, which is a strength that contributes to their success in the market. The companies enjoy customer loyalty as their customers love to associate with the brands offered by the firms.

Some of the opportunities that exist for the companies are the opportunity to increase production and market share. Increased production and market share can take place successfully through a well-planned and organised merger, which is common among popular companies. According to Boone and Kurtz (2011), well-designed mergers and acquisitions have positive results in the sales volumes and profit margins of the subject firms. Therefore, Daimler and Chrysler can employ the opportunities like increased market share and productivity to their advantage.

Threats and Weaknesses

Some of the major threats associated with Daimler and Chrysler is the increased supply of automobiles from other parts of the world such as Asia. A massive supply of vehicles has led to over concentration in automobile industry, and thus, reduced the overall sales of the companies. Apparently, the issues of overproduction in North America and European regions have greatly affected the quality of vehicles provided by Daimler and Chrysler, a factor that has initiated losses in their revenues (Deresky, 2007).

Among the major weaknesses of the companies includes high costs of the human resources and the declining demand for the products from potential clients. The rising cost of living and the cost of fossil fuels have caused a concomitant increase in the cost of production, leading to an increase in prices of vehicles (Srinivasan, 2009). Increased cost of production is an element that has promoted high purchases of vehicles from Asia, which are not durable, but are cheap. In addition, several target markets have an oversupply of cars from other parts of the world.

Present approaches

Some of the present international management approaches that firms need to consider during mergers and affiliations include polycentric, ethnocentric, and geocentric. The present approaches of international marketing and management encompass aspects such as intensive research, study of external and internal marketing environment, and performance of an extensive survey of the diversity of demand and culture.

Before embarking on a merger, the firms need to understand the diversity that exists among their target potential consumers in terms of cultural orientation, socioeconomic status, tastes, and preferences. Imperatively unsuccessful mergers between companies take place when firms fail to meet the desires of the target clients or clash in areas such as management and approaches to marketing. According to Punnett and Shenka (2004), international management requires an extensive survey of the diversities that exist among the target consumers. Therefore, companies need to undertake an extensive survey and research into the diversities that exist in the target market.

To understand the existing diversities in the target markets that the merging firms focus, a good management approach is very crucial. The crucial nature of the present management approach lies on the fact that a right approach leads to success in the merger, whereas a wrong choice of management approach results in poor performance. Misra and Yadav (2009) explain that some of the most important approaches to international management and mergers include ethnocentric and geocentric approaches.

The ethnocentric approach of international management emphasises on employment of individuals from the host countries, who are aware of the cultural orientation and preferences of the target clients. Furthermore, geocentric approach aims to amalgamate the best-of-the-best in execution of the operations in the mergers regardless of their places of origin. Both ethnocentric and geocentric approaches to international management are fundamental because they facilitate easy and quick understanding of the desires and preferences of clients targeted in the host countries.

Theory of Mergers

The theory of mergers highlights that when two firms come together and develop a union, they start enjoying the profits because of reduced competition and reduced cost of production. According to the theory, mergers lead to an exchange of ideas among the firms coming together, and thus, the introduction of new products into the market and reduced competition. Fuesrt and Geiger (2003) assert that one of the most important benefits that mergers occasion is minimised competition because the number of competing firms reduces because of the union.

Therefore, the range of products available in the market for consumers increases a factor that can lead to positive development and growth of the merging companies. Essentially, merging results in the expansion of the market base and consumer spectrum of the firms and in turn initiates augmentation of the revenues. It is important to understand that successful mergers can lead to the minimisation of challenges that a firm experiences, especially if the problems are regional.

Conversely, besides the opportunities that the mergers present to the firms, the theory of mergers advances a range of challenges that transpire from the fusion. Apart from the opportunities that mergers occasion, there are various problems that they initiate (Gaughan, 2002). The theory of mergers explains that mergers initiate a conflict in management since the unity among the firms introduces different management styles and leadership qualities.

As a result, disagreements concerning the type and structure of management can take place among the merging firms. Moreover, the theory states that mergers can lead to loss of loyal clients and reduced revenues of the merged organisations. Some of the loyal clients, who become dissatisfied with the merger can leave the company and start purchasing products from other companies, a factor that reduces the amount of potential customers.

Dominance is another challenge that mergers among firms can initiate since some of the parties to the merger can dominate and eventually take over the leadership and control of the merger. Therefore, mergers have a number of challenges and problems that can transpire in the absence of organised planning and structured strategies.

Integration of Theory

The theory of mergers is relevant to the study of international management and mergers between and among companies as it presents the opportunities and weaknesses that mergers instigate. Since the theory explains the opportunities and challenges that can occasion from unsuccessful mergers, its significance in the study of international management and approaches is critical. The theory highlights the opportunities that can transpire in the case of a well-structured and organised mergers, a concept that managers and leaders of firms can employ in their quest to develop successful mergers.

Additionally, managers and leaders of firms can work hard to avoid, prevent, or minimise the challenges posed by the theory. The ability of managers and leaders of firms to prevent, avoid, or minimise merger challenges arises from the expertise acquired from the theory of mergers. Therefore, the relevance of the theory in the study of international management and its approaches is a factor that stakeholders and scholars of marketing cannot downplay in understanding the significance of successful mergers.

Case Evidence

The case of the merger between Daimler and Chrysler reflects the issues presented by the international management approaches and the theory of mergers. Daimler and Chrysler merger led to initial profits and success in the primary stages of their mergers. Profits and success enjoyed by the two firms occasioned because competition reduced as the two major suppliers of automobiles joined forces and sold their products jointly.

In addition, the supply of the firms’ products became easy with time as the firms outsourced their products from countries that hosted each of the parties to the mergers. Vadapalli (2007) explains that soon after the merger, the firms introduced new products that included the Jeep impressive Cherokee and new brand Mercedes M-class. The human resources of the two firms introduced the new ideas and contributed to the success of the merger.

However, as is the case with the theory of mergers, the union did not last long before challenges commenced between Daimler and Chrysler. The challenge revolved around management and leadership structures of the firms. Soon after its inception, the merger experienced problems associated with management and leadership. Since Daimler is a German based company and Chrysler is a corporation based in the United States, it was evident that the two firms came from areas that had different leadership structures and management styles (Herbst & Coldwell, 2004).

While the German owned Daimler believed in making systematic decisions, Chrysler believed that creativity was the key driver towards organisational success. The differences in ideas and beliefs led to disagreements that culminated in the dominance of Daimler over Chrysler. Moreover, after the merger, both firms experienced problems regarding the manufacture and delivery of products that matched consumer desires. The challenge led to reduced loyalty among the potential clients of the subject parties, and as a result, the firms experienced a decline in purchases, a factor that highly contributed to the merger’s poor performance.

Solutions to Problems

Some of the solutions to the problems that Daimler and Chrysler faced in the merger include a good choice of international management approach, and an intensive market research. Fundamentally, the application of appropriate international management approaches is central in prevention, avoidance, and/or minimisation of the challenges associated with the union. Approaches like ethnocentric and geocentric are very practical in introducing new ideas and concepts to the company. A fine implementation of the ideas generated from the approaches leads to the development of products that match consumer expectations, and thus, the ability to improve sales and reduce the effects of unsuccessful mergers.

According to Misra and Yadav (2009), ethnocentric and geocentric approaches to international management and merger facilitate introduction of ideas that are practical and realistic. Therefore, the application of ethnocentric and geocentric approaches helps mergers to design products, which are in line with client needs and preferences. The use of these approaches would have reduced the problems that Daimler and Chrysler faced in their merger.

Moreover, an extensive market research would help Daimler and Chrysler to understand important aspects like their management styles and methods of operation. Through an extensive market research, Daimler would understand that Chrysler executed its operations in a creative and team oriented style as opposed to their systematic, orderly, and hierarchical system (Deresky, 2007). The market research would also facilitate an easy fusion between the firms because they would have an enhanced understanding of the likes and preferences of consumers in either market.

Losses and expenses incurred in trying to rejuvenate the companies’ products would be minimal if the firms acquired a prior knowledge on the needs and wants of potential customer basing on an extensive market research. Therefore, an extensive market research would have proved to be productive in solving the challenges occasioned by the merger between Daimler and Chrysler.

Plans for Mergers in Future

Companies like Daimler and Chrysler needs to adopt some strategies to successfully plan for mergers. The firms need to understand that a good and well-designed management approach that facilitates a good delivery of products that match client needs is critical. Moreover, the firms, which intent to merge in future need to realise the practical nature of an extensive market research and due diligence so that they avoid, prevent, or minimise the challenges experienced by companies such as Daimler and Chrysler.

Pablo and Javidan (2009) elucidate that an extensive market research provides insights into the type of mergers to develop successfully. On the other hand, a good approach to internal management helps in easy and quick identification of client demands and preferences, and thus, an effective conformity to the market trends. Therefore, a good approach to international management and an extensive research are some of the main issues that present organisations need to employ to avoid future occurrences of challenges associated with unsuccessful mergers.

Evaluation on the Feasibility of Solutions to Objectives and Problems

Alternatives such as joint ventures and franchises are very realistic in the quest to minimise the drawbacks associated with mergers. While mergers require full commitment and total control of the assets and liabilities of the firm by the parties to the merger, joint venture is an agreement by organisations to work together, but as different entities. The significance of a joint venture lies on the fact that the firms in a venture can terminate their cooperation if the venture proves to be unsuccessful.

In addition, issues like dominance, which are common in mergers, cannot arise. Although ventures work together, they operate as different and independent organisations. According to Gaughan (2002), mergers are associated with dominance since the union of parties can render one party dominant over another. Therefore, joint ventures provide a practical and feasible alternative over mergers.

Another alternative to mergers is a franchise since it does not entail full ownership of any organisation. In a franchise, one firm uses the services of another through an agreement that is payable over time. As a result, the challenges associated with mergers such as conflict of management and leadership become avoidable since no firm controls another. It is fundamental to understand that although franchises work under the umbrella of another firm, they have the freedom to terminate their relationship if either party is not satisfied with the service.

According to Fuerst and Geiger (2011), in a franchise, the franchised party acts as the middle player in the franchising organisation. By accepting to work together, the franchising firm and the franchised organisation agree to share the name of one of the parties in the supply of their services to target segment of consumers. Imperatively, the organisation that renders the services is a popular entity, and thus, smaller organisations employ its name and brand to market services and products to the target clients. Thus, franchising is a practical alternative as it has limited challenges as opposed to mergers.

Conclusion

Daimler is a German based company that deals with the manufacture and sale of automobiles. Similarly, Chrysler is a United States based company that manufactures and sells vehicles. The companies merged in 1998, with the intention of increasing their market base, customer spectrum, and minimising competition. However, due to challenges associated with management and leadership styles, the merger was not successful and the sales volumes of the merger declined. Some of the strengths associated with Daimler AG and Chrysler include their dominance in their respective markets and regions, enjoy a good range of product popularity, and own a large market share.

Moreover, the opportunities that exist for the companies include the chance to increase production and market share. The major threats associated with the merger of Daimler and Chrysler is the increased supply of automobiles from other parts of the world such as Asia. Among the major weaknesses of the companies are high costs of the human resources and the declining demand for the products from potential clients. The approaches to management include ethnocentric and geocentric, as they are practical in facilitating development of solutions to future problems that can affect merging organisations.

References

Boone, L., & Kurtz, D. (2011). Contemporary Marketing. Massachusetts: Cengage Learning.

Deresky, H. (2007). International Management: Managing Across Borders and Cultures, Texts and Cases. New Jersey: Pearson Prentice Hall.

Fuerst, O., & Geiger, U. (2003). From Concept to Wall Street. New York: FT Press.

Gaughan, P. (2002). Mergers, Acquisitions, and Corporate Restructurings. New Jersey: John Wiley & Sons.

Herbst, F., & Coldwell, D. (2004). Business Research. Johannesburg: Juta and Company Ltd.

Misra, S., & Yadav, P. (2009). International Business: Text and Cases. New Delhi: PHI Learning Pvt. Ltd.

Pablo, A., & Javidan, M. (2009). Mergers and Acquisitions: Creating Integrative Knowledge. New Jersey: John Wiley & Sons.

Punnett, B., & Shenka, O. (2004). Handbook for International Management Research. Michigan: University of Michigan Press.

Srinivasan, T. (2009). Case Studies in Marketing: The Indian Context 4Th Ed. New Delhi: PHI Learning Pvt. Ltd.

Vadapalli, R. (2007). Mergers Acquisitions and Business Valuation. New Delhi: Excel Books India.

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