In making cross border mergers, the company is likely to encounter challenges that arise from different cultural environment. The cross cultural challenges arise from the unfamiliar languages, distinctive motivations, and the different values. Those companies doing business across the borders are likely to suffer from cross cultural risks that tend to occur due to cultural miscommunication. This paper analyzes the failed Daimler Chrysler Merger.
Chrysler and Daimler Motive of Merger
The main motive of Chrysler-Daimler merger was to take advantage of the synergies to increase their size, profitability, and their geographical spread. The management believed that such combination would create the most profitable company in the world. Immediately after the merger, the company became the third in the world in terms of revenues, the fifth in the units sold, and the third in terms of market capitalization. However, the merger between the companies failed to realize the synergies between them and the company began experiencing deep financial problems.
Failure of the merger
Many scholars have cited the cultural gap as the main contributing factor to the merger between Daimler and Chrysler (Roberts & Dorrenbacher, 2012). Being a German company, Daimler was conservative, efficient and safe. On the other hand, Chrysler was daring, diverse, and creating. To begin with, the diverse cultural background brought conflicting hierarchies in the management of the new organization. Therefore, Chrysler favored an egalitarian approach that was more team oriented. Due to such cultural conflicts, the synergies between the two companies could not be realized.
Economies of scale
How Daimler Chrysler Merger enhance the economy of scale and scope in respective firms. The economies of scale of the merger between Chrysler and Daimler was properly enhance through their merger. Initially, the companies had a good production based with properly established structured (Knight & Kim, 2009). The merger between the two companies enhance their production based and increased their bargaining power in resource mobilization and their interaction with stakeholders. With a larger capital base and increased number of employees, the company stood the chance of increasing their production tremendously. Despite the good chance, these two companies failed to achieve economies of scale. The different cultural backgrounds resulted into mistrust and conflict of ideas within the management. The decision making was also slowed tremendously. Therefore, the two companies failed to take advantage of the economies of scale.
Advantages and disadvantages of the merger
One of the advantages the company sought from the merger was the increased market presence through increased geographical reach. Since both companies were located in different regions, they stood the chance of increasing their geographical presence tremendously. On the other hand, mergers of this magnitude can also result into diseconomies of scale.
Issues to address in mergers
In terms of collaboration, these two merging companies failed to understand the risks of international mergers. One of the biggest risks these companies failed to understand is the cultural difference between companies operating in different environment (Knight & Kim, 2009). In addition, the companies failed to understand the importance of professionalism and corporate culture in the international context. The cultural bias needs to be avoided in the international mergers at all cost as it can leads to the downfall of a business.
Systematic process of merger
In order to increase the merger process, the management should follow a systemic process that would help them to increase their chances of success. First, the management should first analyze the different cultures of the merging companies. In this regard, the management should engage on a critical incidental analysis to allow for the adoption and the development of cross-cultural skills needed in the management of international business (Cavusgil, Knight, Riesenberger, Rammal, Rose, 2014). Secondly, the management should streamline their organizational structure to fit the two merging companies.
Knight, G.A. & Kim, D. 2009, “International business competence and the contemporary firm”, Journal of International Business Studies, vol. 40, no. 2, pp. 255-273.
Roberts, J. & Dörrenbächer, C. 2012, “The futures of critical perspectives on international business”, Critical Perspectives on International Business, vol. 8, no. 1, pp. 4-13.