Cross-Cultural Management. The case of the DaimlerChrysler Merger

Table of Content

1. Introduction

2. General background information about the DaimlerChrysler merger
2.1 The Merger Objects – Chrysler Corporation and Daimler Benz AG
2.2 The ‘Deal’ - Preconditions and Expectations

3. Cultural Differences between Americans and Germans - Theories on Cross Cultural Management
3.1 Hofstede’s Cultural Dimensions
3.1.1 Individualism vs. Collectivism
3.1.2 Masculinity vs. Femininity
3.1.3 Power Distance
3.1.4 Uncertainty Avoidance
3.1.5 Term Orientation
3.1.6 Cultural Mapping
3.1.7 Conclusion and Analysis of the Merger
3.2 Trompenaars’s Seven Dimensions of Culture
3.3 Cultural Orientations Framework-Mapping

4. Two different Corporate Cultures
4.1 The new Corporate Structure
4.2 Communication Issues
4.3 Differences in Corporate Cultures and Management Styles

5. Conclusion

6. References

Appendix

1. Introduction

On 6 May 1998, Daimler-Benz of Germany signed a merger agreement with Chrysler Corporation of the United States.^[1] The merger marked the beginning of the ambitious goal of merging two styles of auto-making, two approaches to business and the proud, but distinct cultures of two nations.^[2] The opportunities for significant synergies afforded by a combination based on factors such as shared technologies, distribution, purchasing and know-how. Daimler’s engineering skill and technological advances could be complemented by Chrysler’s skills for innovation, speed in product development and bold marketing style. Juergen Schrempp, CEO of DaimlerChrysler, said, that the new company will reach an eminent strategic position in the global marketplace by combining and utilizing each other’s strengths. It seems that Germans and Americans in the enterprise have not become closer since the merger. This paper explores the reasons for DaimlerChrysler's failure to realize the synergies identified prior to the merger. It examines the different culture and management styles of the companies that were primarily responsible for this failure. The focus will be on the cultural issues and on the different theories that try to explain cultural differences between nations – the US and Germany - and how values in the workplace are influenced by those cultures. First of all it describes the overall circumstances that led to the merger. Both companies and their conditions prior to the merger are introduced as well as the general objectives that led to the merger and the goals of it are highlighted. After that, some of the theories that try to explain cultural differences such as the Cultural Dimensions of Hofstede are introduced with a special focus on the differences between the two cultures in play, the German and the US. It will proceed with an analysis of the different corporate cultures and the accompanying communication difficulties and mistakes that have been done in this context. The paper will conclude with recent developments, the current situation of DaimlerChrysler and some recommendations to work on the existing cultural issues and other problems within the merged company.

2. General background information about the DaimlerChrysler merger

2.1 The Merger Objects – Chrysler Corporation and Daimler Benz AG

While Chrysler has the reputation of being a ‘lean’ car manufacturer producing ‘cutting-edge’ vehicles, Daimler Benz was the symbol of Germans conservative, high class quality craftsmanship. Before the merger was made public, Chrysler was the most efficient one of America’s Top Three car producers with a very strong market position in the SUV and minivan market. Only a few years before the merger announcement, in the mid-1990s, Chrysler was very close to bankruptcy and survived a failed hostile buy-out attempt launched by Kirk Kerkorian, a corporate raider who had a big stake in Chrysler at that time. Chrysler’s advisers saw a need for the company to merge with another automobile maker in order to survive in the competitive car industry.^[3] Chrysler was considered a regional car manufacturer, with nearly 90 per cent of its sales in North America and only one per cent of its sales in Europe and almost all of its employees working in the USA. Its corporate strategy had its focus on the national market. However, Chrysler’s reputation was based on creativity, efficiency and economy in design and production.

On the other hand, Daimler-Benz, as a producer of mainly luxury cars and other non-automotive products and services, was not only the actual world’s most profitable car maker but also with one of the highest production costs in the industry facing strong labour unions and regulations in Germany. It owns the valuable brand of Mercedes with high international reputation about its high quality engineering. Its reputation was based on craftsmanship, quality and safety. Daimler-Benz had 63 per cent of their sales in Europe, and 21 per cent of their sales in North America.

2.2 The ‘Deal’ - Preconditions and Expectations

In May 1998 the German car maker Daimler-Benz AG and America’s third largest automobile company, Chrysler Corporation, signed the merger agreement to build one of the world’s biggest automakers. The merger resulted in a large automobile company, ranked third in the world in terms of revenues, market capitalization and earnings, and fifth in the number of units sold. DaimlerChrysler generated revenues of $155.3 billion and sold 4 million cars and trucks in 1998. Schrempp and Eaton jointly led the merged entity, as co-chairmen and co-CEOs. The financial markets and analysts where enthusiastic about the cooperation of two global players of the automotive industry coping two major geographical markets and completely different product and market segments.

Analysts forecasted a further concentration in the industry such as only one third of the global car manufacturers would survive on their own or with the help of distinct (merger) partner. Both companies knew that. The merger would have a significant impact on sales and costs for both manufacturers. DaimlerChrysler had expected cost-savings of about $1.4 billion in the first year after the merger and $3.5 billion a year within two to three years.^[4] Executives of both companies expected considerable synergies by combining purchasing and distribution channels. Daimler-Benz saw the opportunity to share and therefore reduce costs especially of research and development which would then lead to strengthen the company’s financial position. Finally, management of both companies were sure that the success of the merger would mainly depend on their employees’ cooperation and motivation of being a vital part of a merged multinational corporation

3. Cultural Differences between Americans and Germans - Theories on Cross Cultural Management

3.1 Hofstede’s Cultural Dimensions

There have been several theories and approaches developed to explain cultural differences and their impact in the workplace. The most important work was by Geert Hofstede that mainly dealt with clustering countries on work-related value dimensions. Between 1967 and 1973, Hofstede conducted perhaps the most comprehensive study of how values in the workplace are influenced by culture.^[5] His work represents the largest and most influential effort to group countries by cultural values and his conclusions are based on a survey that asked over 116,000 employees of a large multinational corporation^[6] in more than seventy countries about their values and beliefs. With these data, Hofstede developed a model which originally identified four primary dimensions to differentiate cultures: individualism vs. collectivism, masculinity vs. femininity, power distance and uncertainty avoidance. Later, Hofstede added a fifth dimension called ‘long term orientation’.

3.1.1 Individualism vs. Collectivism

The first dimension, individualism-collectivism, describes whether people in a culture tend to view themselves primarily as individuals or as members of a group.^[7] In individualistic cultures, people are expected to take care of themselves, and a high value is placed on autonomy, individual achievement, and privacy. In collectivistic cultures, however, people are more likely to view themselves as part of a group that protects and takes care of each individual in exchange for loyalty and devotion. The group may be the family, a clan or tribe, or an organization. This dimension is the most widely studied of Hofstede’s dimensions and probably may be one of the most complex ones due to it includes several elements such as economic and expressive. In this dimension, Germany is rated with 67 out of 100, which makes it an individualistic with the tendency of being a collectivistic culture. It is clustered with most of the Nordic and German countries. On the other hand, the US is rated with 91 out of 100, which makes the US a highly individualistic culture.

3.1.2 Masculinity vs. Femininity

The second dimension, masculinity vs. femininity, describes whether success and the assertive acquisition of money and power (at the expense of others, if necessary) is highly valued, or whether people do more focus on the quality of life and e.g. good relationships with co-workers. Hofstede found that in most cultures men were more likely to endorse the assertive (or ‘masculine’) view of things. As well in Germany and the USA, that can be both seen as masculine cultures. With a rating of 75 out of 100 for Germany and 70 out of 100 for the US, both societies are identified as masculine, and thus are strongly achievement oriented, tend to view the ambitious pursuit of high performance as the ideal, and feel that men are better suited for positions of power. School systems in such cultures tend to identify and develop ‘high performers’ and see having a ‘successful career’ as an important social value. Workplaces tend to be more competitive, stressful, and prone to conflict.^[8]

3.1.3 Power Distance

The third dimension, power distance, reflects the extent to which people in a culture can accept large differences in power between individuals or groups in an organization and focuses on the degree of equality, or inequality, between people in the country's society. A High Power Distance ranking indicates that inequalities of power and wealth have been allowed to grow within the society. These societies are more likely to follow a caste system that does not allow significant upward mobility of its citizens. The view is that some people are destined to be in command and others are not. Therefore, managerial authority tends to be more concentrated in high power distance cultures. A low Power Distance ranking indicates the society de-emphasizes the differences between citizen's power and wealth. In these societies equality and opportunity for everyone is stressed and concentration of authority is more likely to be feared. Consequently, power is more likely to be used in a decentralized way, with companies having fewer layers of management. In such cultures, the development of close and trusting relationship with subordinates is more likely to be used by managers than their power. With a rating of 34 out of 100 for Germany and 38 out of 100 for the USA, both countries have a fairly small power distance and therefore can be seen as cultures that emphasize equality and opportunity for everyone.^[9]

3.1.4 Uncertainty Avoidance

The fourth dimension, uncertainty avoidance, focuses on the level of tolerance for uncertainty and ambiguity within the society - i.e. how people react to unstructured situations. A High Uncertainty Avoidance ranking indicates the country has a low tolerance for uncertainty and ambiguity. This creates a rule-oriented society that institutes laws, rules, regulations, and controls in order to reduce the amount of uncertainty. There is a strong desire to create stable and predictable work environments by implementing rules and procedures to keep uncertainty at a lowest level. Those cultures emphasize on absolute truths rather than on unusual behaviour or ideas and there tends to be less risk taking and personal initiative. Germany is an example for such a culture. It has an uncertainty avoidance rating of 64 out of 100 which identifies it as a strong uncertainty avoidance culture. The USA, however, is a weak uncertainty avoidance culture with a rating of 46 out of 100. Such a low uncertainty avoidance ranking indicates the country has less concern about ambiguity and uncertainty and has more tolerance for a variety of opinions. This is reflected in a society that is less rule-oriented, more readily accepts change, and takes more and greater risks. People in this culture embrace the idea that life is unpredictable by definition. So there is less concern with or adherence to rules, procedures, or organizational hierarchies. Competition and conflict are both viewed as inevitable parts of life in an organization.

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^[1] Kuehlmann, T. & Dowling P. J., 2005

^[2] Wendell H. & Frantz P. L. & Geringer M. & Minor M., 2002

^[3] TIME magazine, ‘Worldwide Fender Blender’, May 24, 1999

^[4] Human Resource Management International Digest, ‘DaimlerChrysler confronts the challenge of global integration’, Vol. 12, 2004

^[5] www.geert-hofstede.com

^[6] International Business Machines Corporation (IBM)

^[7] Compare McFarlin, D.B., Sweeney, P.D., 2006, International Management, p.121

^[8] McFarlin, D.B., Sweeney, P.D., 2006, International Management, p. 123 f.

^[9] McFarlin, D.B., Sweeney, P.D., 2006, International Management, p. 124 f.