For all companies, making profit is the
ultimate goal. Entry in a new market needs a strategy, mostly in a new country.

It exists different modes but the more known of them are alliances and mergers/
acquisitions. A strategic international alliance is ” a business relationship
established by two or more companies to cooperate out of mutual need and to
share risk in achieving a common objects” (Cateora & Graham, 1999, p.332).

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For Georgios (2011, p.165),” a merger is when two or more firms approach
together and become a single firm while an acquisition is big and financially
sound firm purchase the small firm “. Most of the time these models fail
(between 70 to 90%) (McMorris, E., 2015) due to several reasons:  lack of communication, failure of top
management, language barrier, geographical constraint and negotiation errors.

The merger between two automobiles companies is the perfect example of what
people called “the merger of the century” in 1998 and “the failed wedding of
the century” in 2007. The bid concerned, Daimler-Benz, the German company
established in 1926 and Chrysler, the American company established in 1925.The
problem is that successful mergers/acquisitions are rather rare. For this to
succeed companies must take into account a multitude of aspects. In my opinion,
it is interesting to know and understand how to avoid pitfalls and unpleasant
surprises. It is interesting to see which problems encounter different
companies when they try to merger or take over another company and which kind
of management is the best to use according to the situations. In this essay I
will try to explain why the merger failed and what could have been done to
alleviate the problems.


Most of classic and contemporary literatures link merger and
acquisitions failures with 3 majors themes: 
culture clash, mismanagement and the lack of due diligence.

For the
culture clash point, (Scherer & Ravenscraft, 1987, p.12) highlighted that “the culture of the organization is a complicated
factor which takes time to change.”

For Oden
(1997), the corporate
cultures of Germans and Americans are totally different and people often
have trouble working together.

As (Ireland, Harrison & Hitt, 2001)
warned, mergers involving companies from different cultures should understand
and evaluate the cultural differences before they combine the business. Because
a simple cultural issue may bring a lot of downfall later if it is not properly

the mismanagement, according to (John J. Hampton, 2014) this example was a pure
failure of situational leadership and bad management as well.

to (Carleton, 1997) for a merger to succeed and avoid risks a strict due
diligence need to be set up.



Scholars, to anticipate and avoid problems in case of merger and
acquisitions, have provided recommendations and advices.

example, about culture clash, according to (Sicilia & Lipartito, 2004, p.232) “the culture of an organization is very important and
should be taken into consideration when conducting all the activities of the organization.”

Whereas, for
(Malekzadeh & Nahavandi, 1993), the culture of the Americans and the
Germans are contrary to each other and mixing the two would require a good plan
to avoid conflicts. For
some scholars, many reasons could lead to mismanagement. A lack of
communication can be the cause of many pains in a company even more in a merger
and this is highlighted by (Herndon & Galpin, 2000) who said that communication is very
important during the formation of a merger. Further, Mueller (2003) argued that
transparency and honesty are the most important aspects during a merger to
avoid all types of inconvenient. For (Scherer &
Ravenscraft, 1987), a company should create an atmosphere such that people will
be pleased by the decisions. This prepares them psychologically and shows
concern about the welfare of the different partners in the business. The lack
of due diligence is a serious point to take account. As (Mueller, 2003)
mentioned, all the consequences of the merger must and need to be well analysed
by all partners and a proper strategy laid down to provide the best method of
dealing with issues that may arise.

In mergers,
successes and failures are based on several details.  According to (Carleton, 1997), causes of
failures are due to cultural differences, an absence of post acquisition
integration plans, a lack of knowledge of industry or target and a poor
management of target. Whereas, successes are due to the clarity of acquisition purpose,
a good cultural fit, a high degree of target management and cooperation.

the time the merger was supposed to be a huge success, as it was a
rapprochement between two of the world’s leading car manufacturers. This
business combination was claimed to be a “merger of equals” according to
companies. This merger permitted to create a new and 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 AG was created in a $37 billion deal.

The deal gave factories in 34 countries on four continents, in terms of product
lines, with Daimler’s luxurious and high-quality passenger cars and Chrysler’s
line of low-production-cost trucks, minivans, and sport utility vehicles the
company set up co-headquarters in Stuttgart and Auburn Hills, naming Eaton and
Schrempp co-chairmen (, n.d.).

Most of the time, culture clash is the major
problem in a fusion. The misunderstandings and disagreements between different
cultures are the major issues. Each region in the world has its own culture,
and gathers two opposite cultures in only one company it’s not something easy
in the way that it effects the work attitude, quality and system of authority.

However, the business culture creates itself alone with time. Daimler-Benz is
perceived as an innovator of the automotive industry rather with a culture
formal, traditional, mannerly and bureaucratic. And a structure axed on high
authority, strong hierarchy and little payment disparity. Chrysler is known for
its culture relaxed, informal, flexible, risk taking, and free form. Its
structure was known for its top down management, its lean staff, its
centralization and its teamwork (Sarosi, 2016). The fact that American workers earned more
than four times than their German counterparts fuelled a tension, for example
Bob Eaton’s annual salary was $ 9.7 million compared to Schrempp who received $
1.3million. That was a real problem and see as an injustice by Germans (Johnston,
1998). This
tension led to deeper distrust and dislike between both companies’ employees
and executives. The obsession in the German business culture to control and
command everything instead of discussing with Americans and lower-levels add
oil on the fire as German managers decided in most cases.  The organisational structure of
DaimlerChrysler was axed on the German “decision making-process”. In addition,
wrong management decisions were taken until the company start reporting massive
losses (up to 1.5 billion in the 2006 third-quarter)(Maynard and Bunkley,
2006), from that mismanagement was pointed at.


Mismanagement occurs when the management goes wrong or badly which is
mostly the fault of the executives of the company, when they do not know how to
manage employees.

The DaimlerChrysler deal was supposed to be a merger of equal, but the truth is that it was an obscure scam, which led to mismanagement. In reality, Chrysler had been bought by Daimler and treated Americans like worthless people. According to Juergen Schrempp (DaimlerChrysler CEO) in 2001, “the merger of equals statement was necessary in order to earn the support of Chrysler’s workers and the American public, it was never reality”. At the time of the merger in 1998, Eaton (Chrysler CEO) knew it but didn’t say anything and let it go argued (Lee Iaocca, 2008), a former employee. The reality was that Daimler-Benz was the majority shareholder and had the majority of seats on the supervisory board. In other terms, Daimler had bought Chrysler and not merged with an equal. The domination by Germans over Americans led the company into the mismanagement. As a consequence, the managers who were at the base of the success of Chrysler left judging the working conditions inappropriate. For those who remained on the staff, they felt ineffective, withdrawn and eclipsed by the Germans. Others left for promising companies like General Motors or Ford, with a lack of due diligence, Chrysler was not expected it.



Lack of due diligence is due to an underestimation in the evaluation of
duties and risks by firms’ directors. Daimler never did appropriate due
diligences before buying Chrysler, so they didn’t really anticipate the future
losses, competitiveness of Chrysler in the U.S. They only made themselves when
Asian automotive entered in the market but it was already too late. The fact is
that, in January 2001, according to Jurgen Hubbert, DaimlerChrysler board
member “Daimler-Benz
management was blinded by Chrysler’s profits so that’s why there was no due
diligence. “Unfortunately, without due diligence research, the company
underestimated many aspects of Chrysler’s problems. Like, the declining
attractiveness of the brand in the American market, the poor capacity in
research and development, and the excessive inventories. The other problem was that according
to Chrysler President “the deal was technically a merger and there is no merger that includes
due diligence.”But as often, the merged company, changed its words. In March
2001, Walther, Daimler-Chrysler senior vice president for communications tried
to explain properly this lack of due diligence by saying “If we would have
carried out a due diligence and for some reason the merger wouldn’t have
happened, Daimler-Benz and Chrysler could have faced lawsuits from their
respective shareholders for allowing a competitor access to confidential

US legal experts argued that “say there were no rules to keep Daimler from
doing the kind of research that would have foretold the severe problems that
emerged at Chrysler in 2001.” In that sense, it could be understand that they
wanted to hide behind an alibi, which is not really a good one.

Overall, the
company tried hiding behind several excuses and ended saying the truth. There
was a huge problem of communication between both brands.



The Germans and
the Americans could have avoided many problems if they had done things in the
rules especially by avoiding lying repeatedly when they faced problems.



In a conglomerate, activities are affected by the differences of others
cultures and that should had been taken more into account and more seriously to
avoid conflicts and discomforts between both parties. By taking strong measures
the failure of the organization could have been avoided. Stakeholders of both companies should
had been taught the new culture they will face before implanting any
strategies, even if it is an equal merger on the text. By ensuring that you can
wait for a certain understanding of different decisions. In addition, culture
should have been adjusted and shared through proper communication channels to
have the certitude that all stakeholders were able to participate in the
process.  Cross-cultural management
trainings should have been set up for example, so stakeholders could understand how to
ensure no conflicts arise between the two communities. The problem is the fault of both companies, in the sense that, each
company should has been considered all interests and difficulties before
setting up the merger so in the new company people know how to manage the
different stakeholders’ cultures and how to deal with it.

As (Herndon & Galpin, 2000) said, communication is the key in
management. A lack of communication can be the cause of many pains in a company
even more in a merger.

But the problem
is that, since the
beginning there was a mismanagement, which could have been avoided by saying
the truth and announcing the real title of the deal. Transparency and honesty are the most important
aspects during a merger argued (Mueller, 2003).

So, all the
stakeholders should have learnt information about the merger from the company
itself and not from the media as Schrempp did, what in the future impacted more
the American side.


To avoid all sorts of suspense, bad news and surprises all the aspects
in relation with the impacts of the merger should have been analysed, shelled,
answered and revealed for solving any impending problem that may appear

The German brand could have avoided unnecessary headaches if it looked more deeply into the American brand. As Daimler acknowledged that they made this choice for avoiding being sued by its shareholders. However, everything would have been easier with a best communication and a clarification on the “merger of equals” problem.Even if, Daimler played a double game, they should have done more researches on Chrysler weaknesses and not only focused on profits as they did. Because it is really important when you start working with a new company where which brand could help the other. Daimler has been dragging a ball to his foot by not doing things properly and not only relying on the big numbers of Chrysler. Nevertheless, Chrysler could have taken things in hand by warning since the beginning of the provisional problems that could have happened, which would have allowed Americans also to avoid a crisis.


To sum up, theories regarding failures in mergers and acquisitions
concord with my analysis in a sense that by just following scholars’ advices a
large number of problems could have been avoided.  If things had been taken seriously and with
precautions this promising merger between the two car manufacturers would have
been an inevitable success.  It is always
important to identify risks and how to deal with it in a merger and mostly

DaimlerChrysler is the result of what can happen the worse in a merger
where were reunited all the three main problems that is culture clash,
mismanagement and lack of due diligence. 

My research concords with the different
theories explaining failures in mergers, more specific should have been done
beforehand. In that case of important co-working companies no details are to be
taken lightly as lot of money and jobs are at stake. So, a failure can lead to
massive sales and jobs losses.

working with another company needs a lot of knowledge but even more when it is
a foreign company as cultures are not the same, all data are not known and
managers do not have sufficient skills to handle the type of work needed.


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