Daimler chrysler merger a culturalDocument Transcript
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1 Introduction 2
1.1 Merger 2
1.2 Importance of post-merger Organizational Change 2
1.3 Reasons for failure of organizational changes. 2
2 Daimler–Chrysler Merger: a Cultural Mismatch 3
2.1 Q1 3
2.2 Q2 4
2.3 Recommendations and action plan 4
3 Renault Enters India with a Joint Venture 5
3.1 Q3 5
3.2 Q4 5
3.3 Recommendations and action plan 6
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A merger is the combination of operations of two companies. Merger generally happen with the
acquiring company giving its stocks to the shareholders of the target company in an exchange for the
shares of the target company.
It could also be done with partial cash and partial stocks or complete cash.
Mergers are as important in the growth of a company as organic growth. Mergers can happen to
consolidate a market by the combination of more than one firms in the same industry. A company
can look to expand in new geographies or acquire competencies of another company such as its
distribution channel. Mergers create shareholder‟s value for the acquiring companies by creating cost
and revenue synergies.
1.2 Importance of post-merger Organizational Change
A merger is said to be successful if the expected synergies are realized after the merger. For the
expected synergies to be realized, integration of the two companies is essential. One of the most
important aspect of post-merger integration is the integration of the cultures of the two companies.
Cultural integration means addressing the differences in basic management styles and values. The
potential causes of differences could be addressed in a way that it becomes a positive experience for
the acquired company. It will depict the acquiring firm‟s respect for the employees of the acquired
company and convey a message that they are interested in running the two businesses together.
Restructuring is essential to realize the cost synergies. Organizational change is also needed for
improving the efficiency of the acquired company and to match cultures of the two organization.
1.3 Reasons for failure of organizational changes.
The decisions about management structure, roles and responsibilities, hierarchical relationships,
layoffs and restructuring should be made as fast as possible after the merger. Slow changes lead to
discontent and uncertainty. This has severe effects on the expected synergy and value is not realized
from the acquisition. For ex. GE has learned that doing restructuring fast makes the integration
process smooth and easy. Just after the mergers, the acquired company expects changes and layoffs.
They readily accept the decisions immediately after the merger. It removes uncertainty and
ambiguity at the start. So that the employees could focus on growth and performance.
Many organizations fail to implement changes after merger. Some of the reasons are:
Delay in Organizational changes: The acquiring company may think that early layoffs
would portray them as “bad guys”. So, they intend to postpone the layoffs till the right time
comes. They also worry that it would send bad signals and would tarnish the company‟s
image. This delay adds to uncertainty and anxiety of the employees. Insecurity leads to
frustration and motivation level of the whole organization would go down leading more
opposition to changes in future.
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Restructure with respect and dignity: The acquiring company should understand the
stress and emotions after being laid off. The employees should be let go with dignity and
respect. Also, employees could be conveyed that they would be laid off in near future without
giving exact date. So that they would start looking for new jobs. This uplifts the motivation
level of rest of the employees.
Lack of information: Seamless information exchange through forums and at all levels
removes ambiguity and insecurity.
Cultural issues are not dealt with:Cultural differences between the organizations make
restructuring difficult as it leads to ambiguity regarding the intentions. A policy decision
could have an unexpected response from the newly acquired company simply because they
misinterpreted the decisions. If the merging companies are of different nationalities then it
becomes more challenging because of communication gap arising out of language barrier.
2. Daimler–Chrysler Merger: a Cultural Mismatch
2.1 Mergers and acquisitions take place to realize the synergies between the two or more
companies involved. Using Cultural theories, explain why do you think the Daimler-Chrysler
merger failed to realize the synergies that were expected from it?
Ans. Daimler-Chrysler had planned for synergies by reaching to global automotive market through
geographical reach and product segment coverage. But these synergies were not realized.
Daimler-Chrysler failed to integrate the two organizations after the merger. Thus, expected synergies
could not be realized. This failure could be attributed to the difference in corporate cultures.
The management style:German and American styles of management were totally
different.They had different decision making process. One followed methodical process
whereas other valued creativity. Similarly, Demler-Benz had bureaucratic culture whereas
Chrysler has an egalitarian culture. To avoid the clash of culture it was decided to let the two
companies continue with their existing management styles. But when Chrysler performed
badly in 2000, its senior managers were replaced. The German style of management were
being imposed on Chrysler. This drove the morale of employees down.
Difference in nationalities: This lead to language barrier between the organizations.
Though, they tried to bridge this gap, there post-merger integration efforts were not fruitful as
it was authoritarian in nature.
Delay in Restructuring and layoffs: DCX fired two presidents of Chrysler after 2000.
Further, three CEOs were fired. But these changes took place after 6 months to 12 months.
According to GE, one of the most successful acquirers, once a company has decided to
restructure, it should be done as fast as possible. Also, the employees, if laid-off should be
treated with respect and dignity. A slow restructuring as followed by DCX hampered
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employees‟ sense of security and made them anxious. This hampered there performance as
they were obsessed with self-survival rather than focusing on their work.
Lack of Information and Anxiety: Daimler-Chrysler merger did not have a well laid out
plan for post-merger restructuring. When they failed to run the two companies as separate
cultures, they started laying off people. The employees got confused and worried. They felt
disgusted and punished.
Loss of identity: In the Daimler-Chrysler merger, employees of Chrysler felt out of place in
the new changing culture of DCX. Some of senior executives were laid off. The rest of the
employees could not find the pride in working for the firm. They felt disgusted and
frustrated. This feeling of loss of identity and purpose occurs as there was lack of a plan for
2.2 Many cross-cultural mergers have failed because proper attention was not given to
the difference in cultures between the two companies. What issues should be addressed
to make cross-cultural merger a success? Include an Action Plan in your
Ans. Like Daimler-Chrysler, many cross cultural mergers have failed. The reason being failure to
integrate the culture of the companies. Differences would always be there between two companies
but the merging companies should have an integration plan right from the due diligence phase. The
various issues that need to be addressed to make cross-cultural merger a success are:
a) Loss of Identity: All the employees of new entity created after the merger should be treated
with dignity and respect. They should see sense of purpose and feel proud about being the
member of the new company created.
b) Lack of communication and anxiety: Lack of information about the reason for the merger,
strategy and the way forward, the number of employees to be terminated and the basis on
which they would be laid off could lead to confusion and anxiety. This leads to drop in
employee motivation and he becomes more obsessed with survival rather than performance.
c) There should not be any delay in restructuring if it is planned: Delay in restructuring
creates confusion and anxiousness. The merger was never a merger of equals. Chrysler was
acquired and had to undergo restructuring. If this strategy would have been conveyed
properly then the employees going out would have felt informed and well aware. They would
not have feel cheated and disgusted with the sudden turn of events.
A well laid out plan for restructuring and integration is essential. The integration plan should contain
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a. Proper Due diligence before the merger
b. Planning for cultural integration right from the due-diligence phase: The planning of
merging the two cultures should be done right from the due diligence phase rather than
starting it after mergers.
c. Appointing an integration manager: The integration manager should be wholly responsible
for the integration of the two companies. The integration manager would be responsible for
the creation and delivery of an integration plan. The acquired company should report to
integration manager. They can ask all sorts of questions regarding the new culture which the
acquired company has to adopt to.
d. Restructure as fast as possible and layoff the employees with respect and dignity
e. Get the people from two organizations to solve problems and hold them responsible for
results: Small teams containing members from both the organizations should be given
responsibility to solve business problems and given targets to achieve.
3. Renault Enters India withaJoint Venture
3.1 Examine the factors that influenced Renault's Decision to choose a joint venture entry mode
as opposed to Green Field entry mode to enter the Indian market. Include in your answer an
explanation of how has the characteristics of India affected this decision.
Ans. There are various factors which a company considers before deciding on the growth strategy
into new markets like policy framework regarding FDI in auto sector, political risk, risk of loss of
technology, degree of market uncertainty and level of competition. Renault decided to choose a joint
venture with Mahindra as Mahindra had a strong brand in Tractor and SUV market. They had strong
distribution channel and after sales service which could be leveraged by Renault via a joint venture.
A Greenfield entry into India would mean establishing manufacturing facilities and distribution
channels in India from scrap. When a market is risky or future demand is uncertain, companies prefer
to have a Joint Venture as it limits the risk of the company. Renault was uncertain about the demand
of Low cost cars like Logan in future. So, it entered via JV. If the market for Logan would take off
well, they could always increase their stake in the company. Maruti Suzuki was the most preferred
car in India. It was uncertain whether Logan would be able to grab market share from Maruti.
3.2 Discuss the main advantages and disadvantages for Renault of using a Joint Venture mode
compared to a Green Field entry mode. In your answer, explain the main differences also
between the two modes in terms of control, risk, and flexibility. Include an action plan in your
recommendation section which includes some steps to portray Renault as a good corporate
citizen and to reduce its political risk
Ans. It was advantageous for Renault to enter into a JV with Mahindra. Some of them are:
1. Renault could use the brand image of Renault among the Indian people. Mahindra was
already an established in tractors and SUV markets.
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2. Renault could use the distribution channel of Mahindra. They could also take advantage of
extensive after sales service of Mahindra
3. It was a risky market as the future demand for Logan was uncertain. This JV decreased the
risk of Renault entering into an unexplored market.
4. Mahindra knew the Indian market extensively. They were aware of the needs of Indian
people and existing gaps in the market. Renault could take advantage of Mahindra‟s local
Disadvantages for Renault of using a Joint Venture mode compared to a Green Field entry
a) Research tells that 40%-50% alliances breakdown before the expected alliance period and
lead to financial damage for both the partners. Most probably the joint venture would break
down and company would have to sell its stake at low price. The cause of the future break
down could be potential conflict between partners.
b) Joint development of Logan for the Indian market would involve technology transfer to
Mahindra. If the joint venture breaks in future, Mahindra would already have acquired the
technology for low cost car and could develop car on its own. This in turn would go agaist
Renault‟s future prospects in India
c) Neither partner has full performance incentives: In a JV, the efforts put by one partner brings
return to both the partners. One partner may be reluctant to put the promised resources such
as technology, market knowledge and sales strategy.
d) Neither partner has full control: Neither partner is independent to take its own decision. It has
to be discussed. As a JV matures, these small issues lead to discontent among partners and JV
In Joint ventures, both partners have low risks, less control and less flexibility as compared to a
3.3 Recommendation and action plan
Steps to portray Renault as a good corporate citizen and to reduce its political risk:
a) Follow the Indian regulations regarding FDI in India.
b) Renault should not enter in the Indian Car market with a wholly owned subsidiary till it has a
joint venture with Mahindra
c) Government structure of India and its political environment should be considered before
entering. A sudden policy change should not take place effecting the company‟s prospects in
d) Renault should endeavor to conduct their activities in a politically acceptable manner.
e) Governments are interested to protect the national interest. Renault‟s activities should not
hamper the sovereignty of India
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