A case study presentation about cultural mismatch in cross cultural merger

1. Daimler-Chrysler Merger
A Cultural Mismatch

2. About Chrysler Corporation
 The company was founded by Walter Chrysler (1875–1940) on June 6, 1925.
 The Chrysler was a 6-cylinder automobile, designed to provide customers with
an advanced, well-engineered car, but at a more affordable price than they
might expect.
 The advanced engineering and testing that went into Chrysler Corporation
cars helped to push the company to the second-place position in U.S. sales by
1936.

3. About Daimler - Benz
 In 1885 Daimler, together with Maybach began work on the first engines that
were designed specifically for use in motor vehicles.
 This German firm, initially operating at Cannstatt near Stuttgart, was the
origin of the business variously known as Daimler Motoren Gesellschaft from
1890 to 1926, and then Daimler-Benz from 1926 to 1998.
 Daimler Benz was founded in 1926. An Agreement of Mutual Interest - was
signed on 1 May 1924 between Karl Benz's Benz & Cie., and Daimler Motoren
Gesellschaft.

4. Daimler-Benz and Chrysler Corporation‘s
strengths in 1998
Daimler-Benz
 Mercedes is the most popular luxury brand
 A strong dealer network
 Ranked #17 globally
Chrysler Corporation
 Low-end/sub-compact cars and trucks
 Big auto manufacturer in North America
 Mini-vans, Jeep and Dodge trucks
 Ranked #25 globally

5. The Merger
 In May, 1998, Daimler-Benz and Chrysler Corporation, two of the world's
leading car manufacturers, agreed to combine their businesses in what they
claimed to be a ―merger of equals.‖
 The process began when Jurgen Schrempp and Robert Eaton met to discuss
the possible merger on January 18, 1998.
 The merger was completed on November 12, 1998.
 The merger resulted in a large automobile company, ranked third in the world
in terms of revenues, market capitalization and earnings, and fifth in the
number of units sold.
 German and American styles of management differed sharply.
 To minimize this clash of cultures, Schrempp decided to allow both groups to
maintain their existing cultures.

6. Troubled Times
 When Chrysler performed badly in 2000, its American president, James P Holden,
was replaced with Dieter Zetsche from Germany.
 A few senior Chrysler executives had already left and more German executives
were joining Chrysler at senior positions.
 In an interview to the Financial Times in early 1999, Schrempp admitted that the
―DCX deal was never really intended to be a merger of equals‖ and claimed that
―Daimler-Benz had acquired Chrysler.‖
 By the end of 2000, there were only 128,000 Chrysler employees still working in
the US operations.
 Chrysler reported a third quarter loss of $512 million for the period ending
September 30, 2000; and its share value slipped below $40 from a high of $108 in
January 1999.
 The expected and wished for synergy effects stayed out. Instead of gaining
competitive advantage over their competitors, the merger rushed the two car
producers ever deeper into the crisis and did not provide the companies with the
necessary tools to overcome the recession.

7. Clash of Cultures

8. Mergers and acquisitions take place to
realize the synergies between the two or
more companies.
‗Daimler-Chrysler merger failed to realize
the synergies that were expected from the
merger‘

9. Opposing Cultures
Chrysler Daimler-Benz
Encouraged creativity Methodical decision-making
Egalitarian relations among staff Respect for authority, bureaucratic precision,
and centralized decision-making
American CEOs were rewarded handsomely Disliked huge pay disparities
Performed little paperwork and liked to keep Used to lengthy reports and extended
their meetings short discussions
Favoured fast-paced trial-and-error Detailed plans and precise implementation
experimentation
Flat structure Top-down management approach

10. Imposing One‘s Culture
 At first, the German management granted Chrysler the freedom to do what
they had always done.
 Daimler-Benz wanted to simply take advantage of Chrysler‘s efficiency.
 But a number of Chrysler‘s key players had left the corporation and remaining
employees were demoralized and demotivated.
 Within 19 months two American CEOs were dismissed and German
management took over.
 Daimler-Benz tried to administer the Chrysler division as if it was a German
company.
 From Chrysler‘s point of view, instead making use of new synergy effects, and
instead of gaining competitive advantages over the competitors, the merger
with Daimler-Benz drove Chrysler into chaos.

11. In September, 2001, Business Week
wrote, ―…Daimler-Chrysler have
combined nothing beyond some
administrative departments, such as
finance and public relations.‖

12. Daimler Chrysler is a cross-cultural
merger. But it was a failure. What
culture differences were there?
What issues should be addressed to make a
cross-cultural merger a success?

13. Transnational Corporation- Distinct corporate cultures

14. We are not the same!
 Power Distance-Germany(70),U.S.A(50)
 Fewer women in higher positions-Germany
 Individualism-U.S.A(91),Germany(67)
 Masculinity Vs feminity- Germany (69),U.S.A(62)
 Uncertainty Index-Germany (7),U.S.A(87)
 Long term orientation-U.S.A(56),Germany(23)

15. Sorry ! I can‘t be you, I cannot change
 Corporate structure
 Corporate culture
 Customer proposition
 Value chain
 Leadership
 Practical experience
 Pragmatic and goal oriented
 Laid off from work

16.  Daimler- conservative, rigid
 Chrysler—informal, outward oriented
 Future planning, supervisory boards, expatriate
management, executive salaries,labour relation
 Consensus building, seniority
 Headquarters moving to Germany
 Use of German in meetings
 More members from Germany in supervisory
Boards

17. Selection of corporate spouse
Lets make the marriage work!

19. Daimler finally divorces Chrysler-
How to avoid it
 Stereotypes need to be unlearned
 Recognize the differences in corporate context
 Channels of communication must be open
 Cross cultural training
 Strategies to harness the intercultural differences
 Development of cultural intelligence
 Respect all workers-equal representation
 Use of a common language
 Hire a mediator
 Partnership and trust vs. power and domination

20. Today you can eliminate that hyphen
because we are taking steps to make
Daimler Chrysler truly one company
everywhere in the world:
No Hyphens ;No spaces;
-Dieter Zesche,CEO,Daimler Chrysler
January 25 ,2006

21. Very often companies involved in a merger
claim it to be a merger of equals but this is
not the case always.
'The Daimler-Chrysler deal was never
expected to be a merger of equals.'

22.  AIM-COMBINE CULTURE AND GENERATE
SHARED CORPORATE CULTURE.
 POST-MERGER-IMPLEMENTATION.

23.  Neither acquired by Daimler-Benz nor guaranteed equal status.
 Freedom to Chrysler based on past success.
 Eaton successors Holden and Stallkamp dismissed within 19 months.
 German manager Zetsche and Bernard.
 Chaos in Chrysler.

24. Conclusion
 When it comes to cross-border or cross-cultural M&As, you must not
disregard the cultural differences inherent. One corporate culture
cannot simply suppress and replace the other one. A consensus has to
be reached and the foundation for a new culture, based on elements
of both cultures involved, has to be laid.
 In the case of DaimlerChrysler, both parties were never truly willing to
cooperate wholeheartedly and to accept changes and to enter
compromises in order to make this merger of the two companies a
success.