INTERNATIONAL BUSINESS STRATEGY IN ACTION

Daimler-Chrysler

The Daimler-Benz merger with Chrysler in 1998 is probably the most

famous of all international mergers then ended in failure. Cultural differences and
organisational culture are both acknowledged to have played their part.

It was this failed partnership that first rang the alarm bells that cultural
factors just cannot be ignored on a global level, especially not within mergers and
acquisitions.

Cultural factors

Analysts agree that the cultural gap in corporate cultures was one of the
main reasons for the Daimler-Chrysler failure. Daimler was a German company
which could be described as “conservative, efficient and safe”, while Chrysler was
known as “daring, diverse and creating” (Appelbaum, Roberts and Shapiro,
2009:44).

If one looks closely, they will find numerous manifestations of these

differences in the corporate cultures.

Firstly, the attitude to hierarchy was quite different. Daimler was a very
hierarchical company with a clear chain of command and respect for authority.
Chrysler, on the other cultural hand, favoured a more team-oriented and
egalitarian approach.

The other cultural difference lay in what the companies valued in terms of
their clients. Chrysler valued reliability and achieving the highest levels of quality,
while Chrysler was placing its bets on catchy designs and offering their cars for
competitive prices. These two factors resulted in conflicting orders and goals in
different departments. American and German managers had different values
which drove and directed their work. Different departments were heading in
opposing directions.
 Apart from differences in corporate culture there was also an issue of
trust. Employees on both sides felt reluctant to work with each other. Mainly this
was caused by the realization that the agreed term “merger of the equals" was
pretty far from reality. During the initial stages of organizational integration, huge
bulks of Chrysler’s key executives either resigned or were replaced by Germans
counterparts.

Moreover, Daimler was much more imposing and tried to dictate the
terms on which the new company should work (Appelbaum, Roberts and Shapiro,
2009:44). Such a situation didn’t inspire trust in Chrysler’s employees and raised
some serious communication challenges.

So to summarize the cultural factors in play here:

 differences in corporate cultures and values

 lack of coordination
 severe lack of trust among the employees

All three resulted in communication failures which in turn caused a sharp

reduction in productivity.

Financial impact of the merger

'The proof is in the pudding' as we like the say; and the pudding did not taste
good. As you can see, share prices plummeted.

Daimler-Chrysler merger share prices

Daimler-Chrysler’s share’s prices between 1998 and 2002

How much money was paid by Daimler for Chrysler in 1998? $38 billion

How much money paid by Cerberus Capital for Chrysler in 2007? $7.4 billion

The sheer difference in the amounts of money paid for Chrysler by

Daimler and later by Cerberus Capital makes one really wonder how such a
promising merger could fail so dramatically.

Usually, it is extremely difficult to pin-point exactly what role culture

played in a success or in a failure. However, in the case of Daimler-Chrysler, it
would be a safe assumption to say that cultural factor was among the crucial ones
which determined the downfall of a new company