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Prior to the merger, the rationales for how Mercedes and Chrysler produced, distributed, and captured value in economic, cultural, and social contexts were quite different. As a result, the proposals for how the two firms derived sales and benefit differed, mostly in terms of the goods and services that each intended to produce and sell, as well as the business model. Mercedes was recognized as the founder of the German automotive industry, with an internationalized commercial vehicle market, while the passenger car segment pursued the German export. The integrated technology corporation of 1980s was influenced by oil crisis as well as the ecological movement, and was aimed at diversifying the activities towards probable sectors of growth such as aerospace, monetary services and electronics. As a result, there was a purchase of many companies, the founding of the inter-services AG, and the conversion of automotive divisions into the autonomous company known as Mercedes-Benz AG. After passing through its historical severe crisis in the mid-1990s, Schrempp Jurgen came up with a strategy he referred to as globalization and restructuring that re-concentrated on the automotive divisions and the closure and selling of different other businesses. There were four elements that were focused on in the passenger car division under the globalization and rationalization approach including converting into a producer entailing full-sortiment, reopening of the markets in the United States, globalization and improvement in productivity and process. Immediately before the merger, the company launched the Smart Combart Car. The model employed by the Mercedes Company aimed at segments with lower volume. The presence of the company was strengthened in the American continent through the new plants in Tuscaloosa and Juiz de Fora. A completely Knocked-down assembly was adopted as the major strategy for market access, and there were other assemblies like C, E and S models that served to address local and regional demands. The period before the merger, was concentrated with activities to abandon the German export model and build production facilities as well as completely knocked-down assembly plants overseas. Moreover, the company internalized the management, looked for transnational alliances and adopted another global player image to “made by Mercedes Benz” and not made in Germany as it had been. There were also other strategic objectives entailing learning and productivity. The union-free Greenfield plants had laboratories involving new processes of production. There was a new corporate philosophy that involved value added orientation, which was implemented in a manner that transformed the firm’s organizational dynamic (Vyas, Shelburn and Rogers 1995, p.47).
Chrysler experienced a turbulent period with many existential crises. The leaders of the company kept on reinventing it every time when a change was forced by economic conditions. Lee A. Iacocca is known to have revitalized the company from bankruptcy using state loans and a tough strategy for downsizing. The company had also involved in an adventure of acquisition and diversification that resulted in a financial crisis. In 1990s, a new product line was the basis of reinvention of Chrysler entailing minivans and light trucks, thereby providing the company with market leadership. The company did well in the 1990s, especially between 1994 and 1997, when it bit various historical records, but the strategy seemed risky since it was not permanently sustainable and Chrysler was limited to the market in North America.
The Main Differences Between the Mercedes and Chrysler Production Processes and Configuration of the Supply Chains, and How These Differences Affected the Strategic Outcomes of the Merger
The production processes as well as configuration of the supply chains were different in various aspects, thereby affecting the strategic outcome of the merger. The systems involved in moving products and services to customers varied in the two companies. On one hand Daimler possessed a systematically process of making decisions while on the other hand, Chrysler was inspiring creativity. Chrysler stressed on effectiveness, fair treatment of staff as well as empowerment, which made the company flexible and adoptable. The cultural differences were very visible in the activities of the two countries. For example, the managers of Daimler were very concerned with everyday trivial cases that disappointed the executives of Chrysler such as pamphlets’ shape (Fine, Golany and Naseraldin 2005, p.389). The working styles between Mercedes and Chrysler were also different. While the Germans were accustomed to lengthy reports and discussions that were extended, the Americans on the other hand did minimal paper work and maintained short meetings. The Americans liked trial and error experimentations that were fast paced, which was different from what the Germans favored, as they were more inclined to plans that were painstakingly detailed, which they implemented precisely.
The automobile supply chain is a huge and omplex operation that needs sophisticated techniques for management, appropriate information technology expertise as well as close coordination to minimize the throughput time as well as get rid of activities that do not add value (Waehrens, Riis, and Johansen 2011, p.2). as a result of diversity that was evident in the two companies, the resulting company had to implement various changes like enhancing the operational flow with information technologies that are new. In addition, it had to implement tracking technologies for performance and execute process that could enable efficient tracking of transited material. The supply team had also to look for new breakthrough improvements (Harps 2005, p.1).
The main differences between labor politics at Mercedes and Chrysler and how they affected process design in the two companies
Labor politics are significant aspect of corporate governance in the Germany’s and U.S.’s big automobile groups, but embedded in varying institutional environments and models of capitalist. The management of the two companies achieved consensual labor relation, but severely tough restructuring as well as plants to cut jobs that had to be negotiated by the American United Autoworkers (UAW) as well as the German IG Metal Union. The representation of employee was organized hierarchically. According to Schuler and Jackson (2001, p.239), while mergers are increasingly utilized by firms with an aim of strengthening and maintaining their positions in the market and are viewed as fast and effective means of expanding into markets and integrate new technologies, a substantial failure is explained by the abandoned human resource problems and activities. Köhler (2009, p.321) notes that there was a backing by the president if UAW of the turnarounds of Zetsche at Chrysler that implied a striking severe losses of jobs as well as concessions in wages and costs of healthcare. Moreover, there were concerns in pension fund and health care cost issues which were made by the U.S. union. On the other hand, the German IG metal raised concerns regarding the inflexible regime of working time that permit adjustment in working shift to mandate needs in different plants over the year’s course. The two labor unions accepted the logic of capital to survive in a competitive international market by giving the first priority to profits as well as the value of the shareholder.
Although the two CEOs had declared that the merger was not going to cause the closure of any plant, as the companies did not compete directly in most of the markets, it caused widespread displacements, especially among the white collar as well as the technical workers as the new company moved to centralize administrative and operations in engineering. In 2004, there was the signing of an agreement in Germany referred to as “safeguarding the future 2012”, where wage moderation and flexibility concessions were made to have the assurance that there will be no dismissal of a German employee involuntarily. This meant that every job reduction program was to be organized through voluntary leave as well as timely retirement measures.
There was re-evaluation of work activities of about 125,000 workers happened in corporation with units of human resource, work councils and managers. The workforce that existed at locations in Germany received salaries ad wage guarantees and in 2006, the wages were minimized by 2.79%. There was also a reduction of variable compensation for managers in 2006 by 10% as well as the reduction of their monthly salaries. Generally, the enormous excess of productive capacity should be viewed as excess only from the capitalism standpoint as it meant that more cares would be produced. However, the productive capacity is hard to put into use in the framework of the profit system to address the needs of individuals in the entire world for transportation that is cheap and convenient. Instead, the production capacity loomed over the industry, insuring that the next downturn in the cycle of business will entail dire consequences for both the working class internationally and the auto workers (Editorial Board, 1998, p.1). The system of apprenticeship is among the cornerstones of the industrial relations in Germany, and as far as labor politics is concerned, the conflicts that ensued were seen in the context of a strategy by the union and work council to maintain Germany workers that were highly skilled, which was a lost battle in Chrysler, particularly in the job cut plans that mainly oriented to qualified salaried employees that were even older. Germans did not like the huge disparity in pay and there was no possibility they were going to accept steep revision on salaries of the top management. On the other hand, the American managers were handsomely awarded, and Chrysler would only cut pay at the risk of losing its managers that were talented.
Assessment of the strengths and weaknesses of Fiat’s takeover of Chrysler in terms of operation strategy and market strategy
The takeover of Chrysler by Fiat would result to a powerful multinational as these two companies have been very strong especially in their recent histories. The divorce from Daimler in 2008 almost put Chrysler into bankruptcy, and since it could not carry itself on its own, there was a need for an arranged marriage and since Fiat was almost facing its own battle to survive in the shaky markets in Europe, it was ready to take over Chrysler.
Chrysler had little disposable income in its markets and there were tightening regulations on the efficiency of the engines as well as on their size. Therefore, the entre strategic model that was adopted by Chrysler looked loomed as it was also probable that there was no amount of money that was sufficient to bring it to life again.
In terms of operation strategy and market strategy, taking over Chrysler by Fiat had its strengths. Fiat had excellence in the technology of efficient small engines, which was what was required by Chrysler to be at a position of revolutionizing its brand. The two companies massively produced a common element that enabled their processes of production, marketing and similar strategies. Firstly, Chrysler had the global appeal that was required by Fiat to expand internationally. In addition, the government of America was going to take all the debts by Chrysler, which served as a notable dowry that Fiat would receive as part of the marriage. Moreover, the deal would include a reduction in the labor costs by a third. The management of Fiat had a very good understanding of the American market, which demonstrated that there was a possibility that the takeover would be successful. In addition, it demonstrated that the company was willing to change direction (Profili 2014, p.1).
The major strengths were that there was a huge demand in South America, which indicated that the taking over of Chrysler by Fiat would make it possible to reach these markets with their products. Strength was the availability of market share around the world, which meant that there was a ready market for the companies. The companies would combine their technologies, thereby producing models that would be more unique and profitable. Moreover, there was an expectation that the taking over of Chrysler by Fiat could lead to an innovative culture that would ensure distinct production processes and penetration into new markets through unique marketing strategies. The major weaknesses that were envisioned in the taking over of Chrysler includes the outdated platforms that each of the companies operated in. to be able to survive in the market, there was also a possibility of increased debt burden that seemed very demanding to offset. Moreover, Chrysler had tried merging with Diamler Benz, which was a marriage that never became successful as it ended in a nasty separation, which in this case means that the taking over was subject to a tarnished reputation. The auto industry has been continuously facing main changes in technology, and as a result of expected competition the taking over of Chrysler would require Fiat to focus tactically on markets and segments for faster and certain returns.
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Fine, C.H., Golany, B. and Naseraldin, H., 2005. Modeling tradeoffs in three-dimensional concurrent engineering: a goal programming approach. Journal of Operations Management, 23(3), pp.389-403.
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Köhler, H.D., 2009. From the marriage in heaven to the divorce on earth: the DaimlerChrysler trajectory since the merger. In The Second Automobile Revolution (pp. 309-331). Palgrave Macmillan UK.
Profili, A., 2014. Fiat Chrysler Automobiles: The Success of an Arranged Marriage. [Online] (updated 1998) Available at: < https://themarketmogul.com/fiat-chrysler-automobiles-the-success-of-an-arranged-marriage-2/> [Accessed Dec. 13, 2017]
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Waehrens, B.V., Riis, J.O. and Johansen, J., 2011. Supply Chain Configuration Revisited–Challenges and Strategic Roles for Western Manufacturers. In Supply Chain Management-New Perspectives. InTech.
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