Introduction In 1998 the German car maker Daimler announced a merger with American car maker Chrysler in a deal that was worth $38 billion, and was, at that time, the largest cross-border deal ever. This merger brought visions of the merged company competing in every facet of the auto market, from $11,000 compact cars to $100,000 Mercedes (DaimlerChrysler Dawns)…
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305). Moreover, neither the Americans nor the Germans liked the merger, and it destroyed both companies. Chrysler was faced with falling profits shortly after the merger, which destroyed Chrysler’s market advantage; meanwhile, Daimler was faced with the fact that their products were not as quality as they once were, which destroyed Daimler’s market advantage (Markowitz, 2003). The end result was that the company posted losses almost immediately after merging, and this occurred from the beginning, and Daimler had its biggest loss ever in 2001. The two companies finally de-merged in 2007 (Banal-Estanol & Seldeslachts, 2007, p. 1). Chrysler probably should not have been looking for a merger at this time, however, the CEO of Chrysler, Bob Eaton, felt that the coming years would bring problems for the company for three reasons. First, there was the issue of overcapacity. Chrysler had too much inventory and needed a new market, and wanted inroads into the European market. Two, there was the issue of environmental concerns, which threatened the existence of the internal combustion engine. Three, Eaton saw a retail revolution that would empower buyers (Tuck School of Business at Dartmouth, 2002, p. 1). Daimler was also looking for a partner. It had failed to make inroads into the American market, and was longing for a partner that would help it do so (Tuck School of Business at Dartmouth, 2002, p. 3). Daimler was also vulnerable, in that its company was dominated by one brand, Mercedes-Benz, which made up 95% of its sales. Therefore, it needed to diversify (Golitsinski, 2000, p. 10). A merger of equals proved not to be the case, however, as the German company Daimler insisted that the new merged company be domiciled in Germany, and Daimler CEO Jurgen Schrempp stated that Daimler would never be a junior member of any merger, and that Daimler must take the lead in the merger (Badrtalei & Bates, 2007, p. 309). Moreover, Schrempp never envisioned the company to be anything but a German entity. Finally, there was the issue of the name. While Bob Eaton, the CEO of Chrysler, wanted the name to be Chrysler-Daimler, the German company once again got its way, and the name was Daimler-Chrysler. Thus, Daimler managed to dominate on all the key issues – domicile & name, while still pretending that the merger of the two companies were equal. Later, Bob Eaton was made co-chair of the organization for three years, and this created a huge leadership vacuum in the United States end of the operations (Badrtalei & Bates, 2007, p. 309). Thus, within a year after the merger, many of the key executives from Chrysler had left the merged company and the stock prices for the company plummeted. In the end, however, much of the problem was that the merger involved a clash of cultures. Culture conflict is one of the leading causes of merger failure (Weber & Camerer, 2003, p. 412). The analysis of this problem, with regards to the failed merger of Daimler and Chrysler, will be conducted by using Hofstede’s Cultural Dimensions. These cultural dimensions represent four different ways that countries differ from one another in a fundamental way. The first is individualistic verses collective –
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