For all companies, making profit is theultimate 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 relationshipestablished by two or more companies to cooperate out of mutual need and toshare risk in achieving a common objects” (Cateora & Graham, 1999, p.332).

For Georgios (2011, p.165),” a merger is when two or more firms approachtogether and become a single firm while an acquisition is big and financiallysound 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 topmanagement, language barrier, geographical constraint and negotiation errors.

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The merger between two automobiles companies is the perfect example of whatpeople called “the merger of the century” in 1998 and “the failed wedding ofthe century” in 2007. The bid concerned, Daimler-Benz, the German companyestablished in 1926 and Chrysler, the American company established in 1925.Theproblem is that successful mergers/acquisitions are rather rare. For this tosucceed companies must take into account a multitude of aspects.

In my opinion,it is interesting to know and understand how to avoid pitfalls and unpleasantsurprises. It is interesting to see which problems encounter differentcompanies when they try to merger or take over another company and which kindof management is the best to use according to the situations. In this essay Iwill try to explain why the merger failed and what could have been done toalleviate the problems. Most of classic and contemporary literatures link merger andacquisitions failures with 3 majors themes: culture clash, mismanagement and the lack of due diligence.For theculture clash point, (Scherer & Ravenscraft, 1987, p.12) highlighted that “the culture of the organization is a complicatedfactor which takes time to change.” For Oden(1997), the corporatecultures of Germans and Americans are totally different and people oftenhave trouble working together.As (Ireland, Harrison & Hitt, 2001)warned, mergers involving companies from different cultures should understandand evaluate the cultural differences before they combine the business.

Becausea simple cultural issue may bring a lot of downfall later if it is not properlymanaged.Regardingthe mismanagement, according to (John J. Hampton, 2014) this example was a purefailure of situational leadership and bad management as well. Accordingto (Carleton, 1997) for a merger to succeed and avoid risks a strict duediligence need to be set up.   Scholars, to anticipate and avoid problems in case of merger andacquisitions, have provided recommendations and advices. Forexample, about culture clash, according to (Sicilia & Lipartito, 2004, p.232) “the culture of an organization is very important andshould be taken into consideration when conducting all the activities of the organization.” Whereas, for(Malekzadeh & Nahavandi, 1993), the culture of the Americans and theGermans are contrary to each other and mixing the two would require a good planto avoid conflicts.

Forsome scholars, many reasons could lead to mismanagement. A lack ofcommunication can be the cause of many pains in a company even more in a mergerand this is highlighted by (Herndon & Galpin, 2000) who said that communication is veryimportant during the formation of a merger. Further, Mueller (2003) argued thattransparency and honesty are the most important aspects during a merger toavoid all types of inconvenient.

For (Scherer &Ravenscraft, 1987), a company should create an atmosphere such that people willbe pleased by the decisions. This prepares them psychologically and showsconcern about the welfare of the different partners in the business. The lackof 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 analysedby all partners and a proper strategy laid down to provide the best method ofdealing with issues that may arise.In mergers,successes and failures are based on several details.

  According to (Carleton, 1997), causes offailures are due to cultural differences, an absence of post acquisitionintegration plans, a lack of knowledge of industry or target and a poormanagement of target. Whereas, successes are due to the clarity of acquisition purpose,a good cultural fit, a high degree of target management and cooperation. Atthe time the merger was supposed to be a huge success, as it was arapprochement between two of the world’s leading car manufacturers. Thisbusiness combination was claimed to be a “merger of equals” according tocompanies. This merger permitted to create a new and large automobile company,ranked third in the world in terms of revenues, market capitalization andearnings, 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 productlines, with Daimler’s luxurious and high-quality passenger cars and Chrysler’sline of low-production-cost trucks, minivans, and sport utility vehicles thecompany set up co-headquarters in Stuttgart and Auburn Hills, naming Eaton andSchrempp co-chairmen (, n.

d.). Most of the time, culture clash is the majorproblem in a fusion. The misunderstandings and disagreements between differentcultures 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 easyin the way that it effects the work attitude, quality and system of authority.However, the business culture creates itself alone with time. Daimler-Benz isperceived as an innovator of the automotive industry rather with a cultureformal, traditional, mannerly and bureaucratic.

And a structure axed on highauthority, strong hierarchy and little payment disparity. Chrysler is known forits culture relaxed, informal, flexible, risk taking, and free form. Itsstructure was known for its top down management, its lean staff, itscentralization and its teamwork (Sarosi, 2016). The fact that American workers earned morethan four times than their German counterparts fuelled a tension, for exampleBob 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). Thistension led to deeper distrust and dislike between both companies’ employeesand executives. The obsession in the German business culture to control andcommand everything instead of discussing with Americans and lower-levels addoil on the fire as German managers decided in most cases.  The organisational structure ofDaimlerChrysler was axed on the German “decision making-process”. In addition,wrong management decisions were taken until the company start reporting massivelosses (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 ismostly the fault of the executives of the company, when they do not know how tomanage 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 ofduties and risks by firms’ directors.

Daimler never did appropriate duediligences before buying Chrysler, so they didn’t really anticipate the futurelosses, competitiveness of Chrysler in the U.S. They only made themselves whenAsian automotive entered in the market but it was already too late. The fact isthat, in January 2001, according to Jurgen Hubbert, DaimlerChrysler boardmember “Daimler-Benzmanagement was blinded by Chrysler’s profits so that’s why there was no duediligence. “Unfortunately, without due diligence research, the companyunderestimated many aspects of Chrysler’s problems.

Like, the decliningattractiveness of the brand in the American market, the poor capacity inresearch and development, and the excessive inventories. The other problem was that accordingto Chrysler President “the deal was technically a merger and there is no merger that includesdue diligence.”But as often, the merged company, changed its words. In March2001, Walther, Daimler-Chrysler senior vice president for communications triedto explain properly this lack of due diligence by saying “If we would havecarried out a due diligence and for some reason the merger wouldn’t havehappened, Daimler-Benz and Chrysler could have faced lawsuits from theirrespective shareholders for allowing a competitor access to confidentialinformation.”Nevertheless,US legal experts argued that “say there were no rules to keep Daimler fromdoing the kind of research that would have foretold the severe problems thatemerged at Chrysler in 2001.” In that sense, it could be understand that theywanted to hide behind an alibi, which is not really a good one. Overall, thecompany tried hiding behind several excuses and ended saying the truth.

Therewas a huge problem of communication between both brands.   The Germans andthe Americans could have avoided many problems if they had done things in therules especially by avoiding lying repeatedly when they faced problems.  In a conglomerate, activities are affected by the differences of otherscultures and that should had been taken more into account and more seriously toavoid conflicts and discomforts between both parties. By taking strong measuresthe failure of the organization could have been avoided. Stakeholders of both companies shouldhad been taught the new culture they will face before implanting anystrategies, even if it is an equal merger on the text. By ensuring that you canwait for a certain understanding of different decisions.

In addition, cultureshould have been adjusted and shared through proper communication channels tohave the certitude that all stakeholders were able to participate in theprocess.  Cross-cultural managementtrainings should have been set up for example, so stakeholders could understand how toensure no conflicts arise between the two communities. The problem is the fault of both companies, in the sense that, eachcompany should has been considered all interests and difficulties beforesetting up the merger so in the new company people know how to manage thedifferent stakeholders’ cultures and how to deal with it. As (Herndon & Galpin, 2000) said, communication is the key inmanagement. A lack of communication can be the cause of many pains in a companyeven more in a merger.But the problemis that, since thebeginning there was a mismanagement, which could have been avoided by sayingthe truth and announcing the real title of the deal.

Transparency and honesty are the most importantaspects during a merger argued (Mueller, 2003).So, all thestakeholders should have learnt information about the merger from the companyitself and not from the media as Schrempp did, what in the future impacted morethe American side. To avoid all sorts of suspense, bad news and surprises all the aspectsin relation with the impacts of the merger should have been analysed, shelled,answered and revealed for solving any impending problem that may appearafterwards. 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 acquisitionsconcord with my analysis in a sense that by just following scholars’ advices alarge number of problems could have been avoided.  If things had been taken seriously and withprecautions this promising merger between the two car manufacturers would havebeen an inevitable success.

  It is alwaysimportant to identify risks and how to deal with it in a merger and mostlybefore.DaimlerChrysler is the result of what can happen the worse in a mergerwhere were reunited all the three main problems that is culture clash,mismanagement and lack of due diligence. My research concords with the differenttheories explaining failures in mergers, more specific should have been donebeforehand. In that case of important co-working companies no details are to betaken lightly as lot of money and jobs are at stake. So, a failure can lead tomassive sales and jobs losses.

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


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