Global Enterprise - Daimler Chrysler Company - Essay Example

Global Enterprise In 2000 it has been announced that Daimler Chrysler Company is interested in buying the stake of Mitsubishi Motors. This merge wasfollowing the BMW selling Rover to an English company for the symbolic sum of 10 pounds, and thus getting rid of the production which had not brought the expected benefits anymore. 1.1. Why was DaimlerChrysler interested in Mitsubishi in 2000 Daimler Chrysler was interested in Mitsubishi in the year 2000, as a part of its global strategy for conquering East Asia. But at the same time there was an impression that the senior management of Chrysler didn't have the direct line and has lost the connection with the reality. The best way out was supposed to be the buying of the Asian car manufacturer, among which Mitsubishi and Nissan were considered. But as financial indices of Nissan didn't make Daimler company optimistic about it, the decision of buying 34% of Mitsubishi Company has been taken. The problems and risks of Daimler Chrysler after having bought 34% stake of Mitsubishi laid in the necessity to lock together the separate pieces of this consortium. There should have been solved the problem of cost savings and technology cross pollination between Chrysler and Mitsubishi. 1.2 What were the advantages for DaimlerChrysler The benefits of the joint venture for both companies lied in sharing engines, transmissions, and other major components, which will finally reduce the costs of both participants, as well as will lead to the sharing of entire platforms which are the most expensive parts in car manufacturing. The merger of Mitsubishi and Daimler Chrysler was aimed at expanding the portion of Daimler in the world market of car manufacturing together with considerable reducing the costs. 2.1 What were the risks for DaimlerChrysler The main risks for Daimler were first of all, cultural difficulties in making the two companies work together. As one of the Daimler's managers has noted, 'when it is an Asian company and a European-American company, it is even tougher'. Another risks lied in the fact, that any investments (and buying Mitsubishi was the direct investing of Daimler) carry certain risks. 2.2 What problems did Mitsubishi have Mitsubishi was the only car manufacturer in Japan, working with financial losses and getting no benefits. Thus for Mitsubishi it was a huge chance to restore its position on the market and enter other foreign markets. At the same time, Daimler Chrysler, with Mercedes-Benz being the best-selling foreign car in Japan, took only 0.8% share of Japanese market and needed to find an effective solution for expanding its activity to West Asia. In addition, in six months after the historical merge had been accomplished, Mitsubishi admitted, that it illegally concealed the customer's complaints in relation to vehicle defects on systematic basis. 3.Explain how the acquisition of 34 % and then 37 % stake of Mitsubishi cou1d help DaimlerChrysler to meet the fuel pact The purchase of 34% (and later 37%) of Mitsubishi stake by Daimler Chrysler led to the possibility for Daimler to meet the fuel pact. According to the Kyoto protocol of 1997, the main car manufacturing companies had to turn to the fuel cell production, and all Japanese companies have already had their own prototypes of ecological engines, among which Mitsubishi held strong position. Thus Daimler was able to turn to the ecologically-effective production with minimum costs. 4.Analyse, in the context of DaimlerChrysler global strategy, the following options for DaimlerChrysler regarding the objectives followed with Mitsubishi with their advantages and disadvantages: 4.1 export from the US and Germany; 4.2 licensing; 4.3 joint-venture; 4.4 wholly-owned subsidiary. From the viewpoint of the global strategies of both companies, it should be said that of course, it was becoming easier for Mitsubishi to export car details from the US and Europe, but at the same time, this was another possibility for Daimler to strengthen its positions in selling car platforms in Asia. The joint venture of Daimler Chrysler and Mitsubishi was first supposed to be a positive step in relation to the making the production of the two companies more uniform, but at the same time, it posed cultural problems between managers, together with moving towards the globalization and monopolizing of the market, which is always undesirable. According to the Daimler Chrysler strategic plan in the Eastern Asia, which stated Chrysler was going to increase its sales in Asia to 25% of total revenues, in 2004 the company decided to break the cooperation with Mitsubishi and sell its stake. 5.1 Why did DaimlerChrysler decide not to invest additional funds in Mitsubishi and to sell its 37% stake in April 2004 5.2 What problems will this create for DaimlerChrysler Despite the fact that Mitsubishi was the key in the global strategy of Daimler Chrysler for its becoming the biggest car empire in the world, in April 2004 the company decided to sell its Mitsubishi stake. Though both companies assure that they will continue their close collaboration, it is already not a secret, that the reason for such step was the refusal of Daimler Chrysler to give another financial support to Mitsubishi equaling to 2 billion dollars. Though the Mitsubishi cars were gaining more popularity in Asia and Eastern Europe, Daimler Chrysler decided to stop its financial aid to Mitsubishi motors. Mitsubishi was going through huge difficulties at the time, and the management of DC decided not to take part in further increasing the Mitsubishi capital. The Japanese offered the DC their plan of coming out of the crisis. According to this plan, there has been presupposed active participation of DC in the Mitsubishi's activity. But there has been found no common solution, which would be suitable for the DC from the financial point of view. Due to the huge financial problems of Mitsubishi, and the refusal of Daimler Chrysler to give any financial aid, Mitsubishi sales in the home market were put under threat. 1.What lessons in business strategy can we learn from the BMW experience with Rover Another business strategy can be viewed on the example of BMW and Rover. The first question to be answered, is why BMW bought River at all What objectives did it pursue in buying such company The question is very interesting, indeed. Its interest lies in fact that if BMW has never intended to keep Rover, what was the necessity in buying it BMW has always been known for its high and perfect image. At the same time, the market in which BMW cars have been sold was rather limited. Though the quality of BMW cars has never been put to doubt, but the processes of globalization put the development of the company under threat, and thus it needed to find an effective solution for broadening its markets and assortments, without making any harm to its perfect brand. In expanding the markets BMW had two options. From the point of view of global business strategy, BMW could either create a new brand or to buy an existing one. First BMW was looking at the first option, as it has been with Toyota and Lexus, Honda and Acura, etc. But due to the leakage of information it finally took the second route. BMW looked at Rover because it used to supply the diesel engines to the Rover group. But what BMW saw in reality, making a closer look at the company, was astonishing. Rover appeared to be even better than BMW in many respects, and thus one of the possible reasons for BMW buying Rover was the possibility to eliminate the rivalry between these two companies. At the same time, Land Rover was not a competitor to BMW but it fit perfectly well the product line of BMW cars. Another possible reason for BMW looking at Rover was in the fact that 20% of Rover's stake was owned by Honda, and thus the merger of Honda and Rover had a strategic plan for conquering the European market. After Rover was bought by BMW, the cooperation of Honda and Rover was immediately terminated, and one more rival has been removed from the European market. It is under argument, whether BMW lost money on Rover, as they purchased the whole group for 800,000 pounds, having later sold Land Rover only for 1,800,000. Having also invested into Hamms plant, it has retained it. Taking into account all the information mentioned above, it is very likely that BMW was not going to keep Rover as the part of its enterprise, but its purchase was more a step in its global strategy for conquering the markets, together with making additional profits. At the same time the business strategy of BMW in terms of Rover was very selective, as it has invested money only in the areas, which could later be sold with profits. The main objectives have been achieved - BMW was able to expand its markets, it has thrown Honda back by four years, together with eliminating Rover as a possible rival to BMW. It is clear enough, that the whole cost of these actions was minimal; at least it was much cheaper as it could be with creating a new brand. And the world not knows the 'Mini' marque, which is very successful all over the world. Rover was the means for BMW to learn their possibilities and disadvantages on the mass market. Coming to the conclusions, it should be said that, though both strategies of DaimlerChrysler and BMW were thoroughly developed, still BMW appeared to be more successful in its achieving the strategic goals. 7.1 What are Chrysler's key problems The main weakness of the Daimler's strategy was in cultural differences between the two companies, though the step of conquering the Asian market could be more successful if these differences were taken into account. 7.2 What should DaimlerChrysler management do to turn the situation around Second, DaimlerChrysler was taking the conservative investment strategy, which presupposes investing into the assets with fixed income, and stable long-term profits. But Mitsubishi was facing huge financial difficulties at the time it was merged with DaimlerChrysler, thus another strategy could become a possible way out of the difficult situation. If Daimler could take more balanced strategy, remembering that they were investing money into the assets which at the time didn't have high income, they could probably make real profits of the mutual cooperation. At the same time, the main mistake of Mitsubishi was in concealing the real state of affairs in terms of producer-consumer relationships, which became a decisive factor in the development of the cooperation' strategy. 2.What should BMW have done differently As for the BMW, its selling of Rover was the second successful step after the purchase of this brand. It has given BMW the opportunity to see its weaknesses on the mass market, together with making huge profits. Despite the common opinion, that if Rover was a success for BMW, it should have continued with it, the selling of Rover should be looked at as another step in global BMW's strategy. On the other hand, if BMW took the Rover as the part of its conglomerate, there could have been two possible ways out. First, it could still develop more brands within the Rover, making it the most profitable part of the merger, and thus taking the greater portion of the European car manufacturing market. Second, with Japanese car manufacturers coming into Europe, with their serious strategic plans, selling Rover later than it has been done could possibly lead to financial losses. Though Rover was not in BMW's ownership for long, this time was enough for BMW to eliminate it as its possible rival together with Honda, to broaden its assets and to sell the brand with huge profits. 7.4 Are they some long-term benefits to be expected In merging with Mitsubishi, the DC Company was pursuing the aim of accessing the Asian market of small car engines and platform technology, together with the existing sales channels. But in order to make the strategy work, there should be present some other conditions, as improving the overall production of cars. But the fact that DaimlerChrysler has stopped financial aid to Mitsubishi may become the sign of the DC's reluctance to invest considerable finances into the development of the plant. And this investment attitude was wrong from the very beginning the merger was initiated. Works cited Mudambi, Ram. "The Role of Duration in Multinational Investment Strategies". The Journal of International Business Studies 29, 2 (2002): 239-241 Read More