European Firms : Global Expansion Managing Across Borders:
Renault Nissan / Daimler Benz Chrysler / Transcultural Leadership
In the case study we are going to examine how two European automotive manufacturers broke out of the insulated European market and penetrated foreign markets by making acquisitions. The difficulties both acquirers face was how to manage the staff in the companies they acquired.
Lets take a look at how successful or unsuccessful they were:
The Main Acquirers:
Renault (France) and Daimler Benz (Mercedes-Benz) (Germany)
The Companies they purchased:
Nissan Motor (Japan) and Chrysler (US)
The Actors :
Renault (a company snap shot) :
Brought back from the brink of extinction largely due to the generous involvement of the French state which held a 44.2 per cent stake in the French automotive maker, Renault had, until the acquisition of Nissan, typically focused its attention on the European market place.
With the expiry of the seven year automotive Voluntary Restraint Agreement (VRA – 1992-1999) which held Japanese penetration of the European market to 16 % (dependent on market conditions), Renault knew that if it failed to `go global` it would struggle to compete within a newly liberal European marketplace or be acquired as the industry consolidated. An Asian research group had predicted that with the liberalisation of the European marketplace in 1999 at least one European generalist (auto producer) may go bankrupt. Renault was seen as a likely candidate.
The French auto manufacturer had two things going for it. The first was that it used the VRA to become competitive; the second was that it was relatively cash rich due to a popular product range.
Daimler Benz (a company snap shot):
More structurally diverse than Renault, Daimler-Benz AG was founded in 1895 and is one of Germany’s largest industrial corporations. The company comprises four divisions: the well known subsidiary Mercedes-Benz which produces motor vehicles and engines under its own brand name; Daimler-Benz Aerospace (DASA) is engaged in the production of aircraft, helicopters, space and defense systems as well as engines for the above; the electric engineering division provides energy systems technology, microelectronics, automation systems, rail systems (Adtrans) and diesel engines; and Daimler-Benz Inter Services (debis) provides financial services for the group as a whole. The company has worldwide subsidiaries but despite its diversified nature motor vehicles accounted for some 72% of the entire group’s 1997 revenues; with aerospace at 12%; services at 11% and other engineering service at 5% providing the rest.
The Nissan Team – Ghosn on the right
Nissan Motor:
The former president of Nissan once made a statement to the effect that by the end of the 20th Century there would be three main car manufacturers in the world (the assumption being that Nissan would be one of them). The reality was that by 1995 Nissan was in serious trouble. Unable to win domestic market share away from its arch rival in the Japanese market (Toyota), Nissan had become too dependent of volatile export markets. In the European context alone, Nissan – locked into the European VRA – had never made a profit. By 1996, Nissan was overstaffed, inefficient due to its keiretsu links and had a largely uninspiring product range. The combined debt of the group was unofficially estimated to be approximately $13 billion. Incredibly the Japanese firm began to actively look for a suitor to acquire it and what is of interest is that the suitor did not have to be Japanese.
Chrysler:
Chrysler has been formed by the amalgamation of American Motors (AMC) and the Chrysler Corporation. Bailed out by the Carter Administration in the 1980s, the company had been nursed back to financial good health under the leadership of a flamboyant CEO Lee Iacocca. Yet by the late 1990s, Chrysler had a number of problems. The first was that, in relation to General Motors and Ford, it was a marginal player in a consolidating and globalising automotive market. Secondly, Chrysler was locked into a long-running wrangle with one of its key share holders; the billionaire Kirk Kerkorian who made had repeated overtures to purchase the company. One thing did, however, stand in its favour: Chrysler was an innovator. Its product range was quite diverse and more importantly its products were exciting, fitting niche parts of the market.
Kirk Kerkorian Lee Iacocca
What happened:
In 1996, Daimler Benz approached Nissan with a view to acquiring the company. But once it had applied western accounting standards to Nissan’s books, it discovered the true extent of the group’s debt was much more than it had anticipated and walked away.
Renault stepped in and spent US $5.4 billion for a stake in Nissan and its heavily indebted truck division Nissan Diesel. Having acquired a 36.8 % stake in Nissan, (this gave Renault effective control of the Japanese company) Renault then went on to implement the Nissan Revival Plan (NRP) which saw the closing of three of Nissan’s factories in Japan and the contraction of the Nissan keiretsu from 1,500 companies to just 600. The NRP was conducted under the watchful eye of Nissan’s new Chief Operating Officer Carlos Ghosn, drafted in from Renault. Since Renault’s acquisition of the ailing Japanese automotive manufacturer, Nissan’s fortunes have been revived. The severing of keiretsu ties has allowed the firm to source components in terms of cost rather than in terms of long standing group relations. Renault has introduced new design concepts to Nissan and the companies have also saved money by sharing platforms. Renault has subsequently increased its share in Nissan to 44 % in 2005.
Carlos Ghosn
After walking away from Nissan, Daimler Benz acquired Chrysler for some $36 billion in 1998. Interestingly enough, Daimler Benz sold the acquisition as a merger, an attempt to create the largest auto manufacturer in the World to surpass Toyota and GM. Led by the architect of Daimler Benz’s revival Jurgen Schrempp, for its first full-year of operations, Daimler Chrysler posted a 14 % increase in revenues, but after that things began to sour. In 2000, Chrysler posted a $512 million loss for third quarter and in the same year the American management team led by Jim Holden was replaced by an appointee from Mercedes-Benz. Wolfgang Bernhard also from Daimler Benz is appointed as Chrysler’s COO. The war with Kerkorian resumes when he sues DaimlerChrysler for $9 billion accusing the company of fraud.
In 2001 in an attempt to rectify its lackluster performance Daimler Chrysler announces it will cut 26,000 jobs or about one-fifth of the work force of financially troubled Chrysler Group, over next three years.
In the same year, Daimler Chrysler reports an 11 percent slump in operating profits for 2000, citing heavy losses by U.S. Chrysler arm.
Finally in 2006, Daimler Benz announces that Chrysler is up for sale. Naturally Kerkorian indicates his interest. But on May 14 2007, Daimler Chrysler sells an 80 percent stake in Chrysler to Cerberus Capital Management, a private equity investment firm that will pay $7.4 billion. Daimler Benz (rebranded Daimler AG) retains a 19% stake in Chrysler. In 2009 Fiat takes a stake in Chrysler which is now overseen seen by Frenchman Olivier Francois, who also runs Lancia. By 2014 Fiat gained control of Chrysler the overall cost to acquire Chrysler was a mere US$4.9billion, with an additional US$5.5 billion in pension liabilities.
Jurgen Schrempp
Working in your groups please look at the questions:
1: In the case of the Renault acquisition of Nissan, who saved whom by the acquisition? (Think carefully before you answer).
2: Why did the Renault acquisition of Nissan work?
Bear in mind the two companies were quite different and what the acquisition involved was the complete restructuring of the Nissan keiretsu and plant closures in Japan!
Do you think there are any similarities between French and Japanese business practice?
3: In the same sense why did the Daimler Benz Chrysler `merger` fail to produce the results that were hoped for? What do we mean by differing corporate cultures? How do you feel Daimler Benz and Chrysler were different? What does the inability to retain value mean? What about the companies approach to the management of risk?
Further group work:
Thinking about the experiences of the two companies mentioned think about your own experiences of working in or managing cross cultural teams. What experiences did you have, how were mistrust, misunderstandings resolved? What recommendations can you make to help overcome these in the future?
High context culture and the contrasting low context culture are terms presented by the anthropologist Edward T. Hall in his 1976 book Beyond Culture. Examples of low and high context cultures – particularly in communication are:
Low context: The German system
Rule oriented, people play by external rules
More knowledge is codified, public, external, and accessible.
Sequencing, separation–of time, of space, of activities, of relationships
More interpersonal connections of shorter duration
Knowledge is more often transferable
Task-centered. Decisions and activities focus around what needs to be done, division of responsibilities.
High context: The French system
Less verbally explicit communication, less written/formal information
More internalized understandings of what is communicated
Multiple cross-cutting ties and intersections with others
Long term relationships
Strong boundaries- who is accepted as belonging vs who is considered an “outsider”
Knowledge is situational, relational.
Decisions and activities focus around personal face-to-face relationships, often around a central person who has authority.
We know that the French means of communication typically falls into the low context model – but how about Japan?
Leadership:
Now think about the leadership styles of the two CEOs. Why did Ghosn succeed where Schrempp failed to deliver the results he had hoped for?
