Growth Model That Daimler Uses - Essay Example

? Part Three: The growth model that Daimler uses is to form strategic alliances with like minded automakers. This enables the company to use the facilities of its partners, while entering into a new market. This is neither an acquisition, nor a merger. It is only cooperation between similar companies which aim at using each other’s distribution channels and production units for their benefits. Under this model, profits are shared equally, or in accordance to the contribution that the companies forming the alliance make. In 2010, Daimler managed to form an alliance with Nissan and Renault (Reed, 2013). Before this alliance, it is important to denote that Daimler and Chrysler had a merger with Chrysler. But because of cultural differences, the merger ended. Under this alliance, Renault and Nissan allowed Daimler to use their channels of distribution, and production units. This is in countries such as Slovenia and Japan. Daimler on the other hand allowed Nissan and Renault to use their 6-4 cylinder technology to produce diesel engines for their productions. In 2012, Nissan allowed Daimler to use its production plans in Tennessee to manufacture their Mercedes brand. This was the first time that Daimler managed to produce vehicles at a North American trade zone. Another deal that occurred this year was the incorporation of Mitsubishi, into an alliance with Nissan-Renault-Daimler. Under this agreement, the companies agreed to share factories and production units for purposes of creating a huge multi-brand international automotive group. The purpose of creating this automotive group is to manage to compete against automotive giants such as Toyota, and Volkswagen. In this agreement, the three companies are to help Mitsubishi to develop electric cars at their North American plants, in exchange of using the distribution channels, and production units of Mitsubishi in Japan, and the emerging markets of Asia (Pearson, 2013). This deal covered mainly, the production of electric cars. Daimler does not only have a strategic alliance with Renault-Nissan, but it also has a alliance with Beijing Automotive company. Beijing Automotive Company (BAIC) is a state owned company in China. For purposes of capturing the Chinese market, and making its brand of Mercedes as a leading brand in China, the company had to form an alliance with BAIC. Most recently, Daimler entered into a deal with BAIC. In this deal, Daimler managed to acquire a 12% stake at BAIC. This was worth 844 million dollars. In return, Daimler was to cede the control of their manufacturing joint venture. BAIC was to increase its stake at this manufacturing joint venture from 50, to 51%. This gave it a controlling stake at this venture. Daimler and BAIC also had a joint sales operations alliance (Tejada, 2013). Under this deal, BAIC was to cede the control of their sales operations to Daimler. Therefore, Daimler was to increase its stake at their sales operations joint venture from 50 to 51%. Under these deals, Daimler is able to tie itself to its Chinese partners, and hence provide stiff competition to BMW. BMW is the leading luxury car brand in China, and Daimler seeks to overturn this. Another alliance is with that of Teslo Automakers Corporation. The company owns a 4.3% stake at Teslo, and it uses their drive train technology, for purposes of producing electric cars. The main reason of entering into an alliance with Teslo is to reduce the market share of BMW as a leading luxury car brand (Welch, 2013). Part Four: The strategies of the company are divided in four main areas, namely (Daimler. 2013); Strengthening of the organization’s core businesses. In order to strengthen its core businesses, Daimler has embarked on improving the quality of its motor vehicles through innovation, and by using new and emerging technologies. These innovations are aimed at expanding the market share of the business, by catering for the needs of its customers, as well as improving the quality of its cars, in order to search for new markets. In 2013, Daimler was able to develop the KIS technology. This technology made it possible for Daimler to manufacture light cars, without compromising the quality of its motor vehicles. This technology helps the company to save weights, therefore reducing the cost of producing its motor vehicles. The advantage of this reduced cost is that it will reflect on its motor vehicles, through reduced prices. This will in turn lead to more sales, leading to the profitability of the business (Daimler, 2013). Identification of emerging markets. Daimler seeks to expand its market share by investing in the emerging markets of China, Brazil, Russia, and India. Countries such as China and Russia were communist (Escritt, 2013). China opened up its economy in the late 1970s, while Russia opened up its economy after the end of the cold war. Daimler took advantage of these developments, and invested in these markets through alliances (Murphy, 2013). One of the main purposes of Daimler entering into an alliance with Renault, Nissan and Mitsubishi is to seek new markets, by capitalizing on their production units, and marketing channels of its partners. The main competitor of Daimler is BMW, and the company seeks to reduce the market share of BMW, in favor to its growth. North America and the Chinese market are some of the target markets that Daimler seeks to capture. For example, in a bid to capture the North American market, Daimler has decided to open a manufacturing plant in Alabama, as opposed to Germany, where most of its production units are found (Boudette, 2013). This production units in Alabama, supplements its usage of the production units of Renault-Nissan. Another emerging market is that of China, the company seeks to reduce the market share of BMW in this market by forming alliances with Chinese automakers. An example is the alliance the company formed with Beijing Automotive Company (BAIC). Another emerging market that Daimler focused on was that of Central Europe. In the 1990s, Daimler managed to open production units in Hungary, and the Czech Republic (Escritt, 2013). Hungary and the Czech Republic were former colonies of the Soviet Union, and after the collapse of the cold war, these two countries managed to liberalize their economies because of the structural adjustments policies advocated by World Bank, and IMF. Daimler took advantage of this liberalization, and directly invested in the two countries. Leading in the production of green technologies. As an auto maker, Daimler is well aware of the devastating environmental effect of carbon emissions from their cars. To mitigate against environmental degradation, Daimler seeks to use new technologies that can help in the reduction of carbon. This is by producing hybrid cars that will help in reducing the emission of carbon components. For example, Daimler has a corporate alliance with Teslo Automotive, and this agreement allows the company to use the train-drive in technology for purposes of developing electronic cars. These cars are environment friendly, and they do not emit carbon. This innovation manages to create a positive brand name to the company, and hence leads to its success. Developing new services and mobility concepts. To satisfy the changing needs of the society, Daimler seeks to come up with new services and products. For example, the company recognizes the need to finance some aspects of the automotive industry. In this case, the company came up with its automotive financial service. This service covers over 40 countries of the world, and it is still a new product. With time, this service will manage to cover all the areas where the company has operations (Daimler, 2013). The automotive financial service also supplements the various earnings that the company manages to get from the various markets of its operation. Daimler Corporation has a very effective financial management strategy. The financial management system of the company consists of five key areas, and they are; credit risk management, financial management, pension asset management, capital structure management, price risk management and liquidity and cash management. The aim of these strategies is to protect the company against unexpected losses. To raise capital, the company manages to issue benchmarks, public bonds, and short term bonds (Fixed Income, 2013). The company also has shares at the equity market, but recently, the company hasn’t issued new shares. On this basis, the company relies on Bonds to raise capital. These strategies by Daimler are bearing fruits in their attempt to reduce the market share of BMW. For example, Mercedes managed to achieve a growth of 11%, in their ten months sale. The company managed to sale 1.19 million cars. BMW on the other hand, managed to achieve a growth of 8. 6%. They managed to sale 1.35 million cars, over a period of the last ten months. Looking at these figures, we can denote that the strategies that Daimler uses for growth are very effective in reducing the market share of BMW. Bibliography: Boudette, N. (n.d.). German Worries Help Auto Union Effort in US. Wall Street Journal. Retrieved November 21, 2013, from http://online.wsj.com/news/articles/SB10001424052702304672404579183560759486136 ?KEYWORDS=Daimler+corporate+alliance Daimler. (n.d.). Four strategic growth areas | Daimler > Company > Strategy > Growth Areas. Four strategic growth areas | Daimler > Company > Strategy > Growth Areas. Retrieved November 20, 2013, from http://www.daimler.com/company/strategy/growth- areas Daimler. (n.d.). Daimler develops new production process for trim parts | Daimler > Company > News > Technology & Innovation. Lightening Up the Interior. Retrieved November 20, 2013, from http://www.daimler.com/dccom/0-5-658451-1-1614630-1-0-0-0-0-0-8-7145 0-0-0-0-0-0-0.html Escritt, T. (n.d.). Central European entrepreneurs reap the benefits of new markets. Financial Times. Retrieved November 20, 2013, from http://www.ft.com/intl/cms/s/2/47b37f54- 7701-11df-ba79-00144feabdc0.html#axzz2lAQmQAGA Fixed Income. (n.d.). Daimler. Retrieved November 20, 2013, from http://www.daimler.com/investor-relations/fixed-income Murphy, C. (n.d.). The Business. Daimler sees Transition Year in China. Retrieved November 20, 2013, from http://online.wsj.com/news/articles/SB10001424127887324324404579044302139063512 ?KEYWORDS=Daimler+ Pearson, D. (n.d.). Renault, Nissan Add Partner. Wall Treet Journal. Retrieved November 21, 2013, from http://online.wsj.com/news/articles/SB10001424052702304391204579179073867128220 ?KEYWORDS=Daimler+and+Nissan+corporate+alliance Reed, J. (n.d.). Car Industry has poor History of Alliances. The Financial Times. Retrieved November 20, 2013, from http://search.ft.com/search?queryText=Daimler+and+Renault+alliance Tejada, C. (n.d.). Daimler is open at selling a stake at Beijing Automotive. Wall Street Journal. Retrieved November 21, 2013, from http://online.wsj.com/news/articles/SB10001424052702303985504579207500619222382 ?KEYWORDS=+Daimler Welch, D. (2013, October 31). Daimler Seeks More Tesla Cooperation in Pursuit of BMW. Bloomberg.com. Retrieved November 20, 2013, from http://www.bloomberg.com/news/2013-10-31/daimler-seeks-more-tesla-cooperation-in- pursuit-of-bmw.html Read More