1. JACOBS UNIVERSITY BREMEN
The role of cultures in
international mergers
Exploring the reasons for Daimler-Chrysler’s
failure
Mariya Arnaudova
1/17/2011
Intercultural Competencies for Leaders in Business Fall 2010: Prof. Dr. Anja Zimmermann

2. Contents
I. Introduction.......................................................................................................................................... 2
II. Conceptual Framework for Culture: Hofstede’s Cultural Constraints in Management
Theories ....................................................................................................................................................... 2
III. Daimler-Benz and Chrysler Corporation Merger ....................................................................... 4
1. Business background and reasons for the merger ................................................................... 4
2. Reasons for the Merger’s Failure: Culture Clash ...................................................................... 5
IV. Critical Reflections: Making International Mergers Successful ............................................... 6
Bibliography .................................................................................................................................................. 7
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3. I. Introduction
International mergers’ success correlates directly with the level and quality of the planning involved. It is
common for companies to forego an objective analysis of their strengths, weaknesses, opportunities and
threats (Nguyen, Kleiner, 2003, p. 447).
However, a majority of corporate mergers fail in various aspects: fall of stock prices after merging
activities, lower profitability compared to pre-merger period or little business synergies compared to
expected ones.
One major reason pointed out in research is the insuficient attention paid on the integration phase of
the merging companies with respect to culture differences that exist (Nguyen, Kleiner, 2003, p. 400).
The incompatibility between the merging oirganizations’ cultural norms, beliefs, and values turn out to
be underestimated and then lead to merger’s failure (Clemente, Greenspan, 1999, p. 12).
Consequently, this paper will critically analyse the role of culture as a factor for success in international
mergers. First, the paper will provide a brief summary of theoretical concepts (e.g. Hofstede’s model of
culture) which will later be applied to a case study of a famous international merger between American
and German companies. As a vivid example, the paper will review briefly the business reasons that lead
to the merger of two giants in the international automobile industry – the German-based Daimler-Benz
and the American-based Chrysler Corporation (Darling, Seristö, Gabrielsson, 2005, p. 343) and critically
analyse the reasons which led to the merger’s failure. Finally, the paper will provide critical reflections
on the importance of awareness of cultural differences and give brief recommendations for the
realization of international mergers.
II. Conceptual Framework for Culture: Hofstede’s Cultural
Constraints in Management Theories
Globalized markets for goods and financial services, global media structures and migrant flows have led
to an exponential increase in the processes of cultural exchange. Local cultures are changing and are
combining with others in new and unusual ways. The boundaries between what is known and what is
foreign are becoming increasingly blurred. Moreover, social forms around the globe have become
culturally heterogeneous: what once was foreign can now be found next door (Deardorff, 2006, p. 6).
Therefore, “culture is perceived not as a static, hermetically sealed system, but as a current of meanings
that continually dissolves old relationships while establishing new ones” (Zukrigl, Breidenbach, 2000).
The word “management” is an American invention but in other parts of the world not only the practices
but the entire concept of management may differ, and the theories needed to understand it, may
deviate considerably from what is considered normal and desirable in the USA (Hofstede, 1993, p. 81).
In order to explain the differences in management, Hofstede develops a model in which worldwide
differences in national cultures are categorized according to five independent dimensions. The position
of a country on these dimensions allows scientists to make some predictions on the way their society
operates, including their management processes and the kind of theories applicable to their
management. Table 1 gives more details about Hofstede’s model:
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4. Table 1: Hofstede's Model of Culture
1. Power distance: Degree of inequality among people which the population of a country
considers as normal.
Relatively equal (small power distance) Extremely unequal (large power distance)
2. Individualism: Degree to which people in a country prefer to act as individuals rather as
members of a group.
Collectivism: low individualism; societies where Individualism: children learn very early to think of
children learn to respect the group to which they themselves as "I" instead of as part of "we". They
belong (usually the family) and to differentiate expect one day to have to stand on their own feet
between in-group members and out-group and not to get protection from their group; and
members. When children grow up they remain therefore they also do not feel a need for strong
members of their group, and they expect the loyalty.
group to protect them when they are in trouble. In
return, they have to remain loyal to their group
throughout life.
3. Masculinity vs. Femininity
Masculinity: tough values like assertiveness, Femininity: tender values like the quality of life,
performance, success and competition which in maintaining warm personal relationships, service,
nearly all societies are associated with the role of care for the weak, and solidarity, which in nearly
men, prevail over tender values all societies are more associated with women's
roles
4. Uncertainty Avoidance: degree to which people in a country prefer structured over
unstructured situations.
Structured situations: clear rules as how one In countries which score low uncertainty
should behave exist. These rules can be written avoidance, people are more easy-going and
down, but they can also be unwritten and imposed flexible. The feeling that prevails is "what is
by tradition  people tend to show more nervous different, is curious."
energy; A (national) society with strong
uncertainty avoidance can be called rigid;
The feeling that prevails is "what is different, is
dangerous."
5. Long-term vs. Short-term Orientation
Long-term orientation: one finds values oriented Short-term orientation: one finds values rather
towards the future, like thrift (saving) and oriented towards the past and present, like
persistence respect for tradition and fulfilling social obligations
Source: (Hofstede, 1993, pp. 88-90)
Table 2 lists the scores on all five dimensions for the following ten countries. The table shows that each
country has its own configuration on the five dimensions. The scores illustrate that people in other
countries may think, feel, and act very differently when confronted with basic problems of society.
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5. Table 2: Culture Dimension Scores for Ten Countries
Source: (Hofstede, 1993, p. 90)
III. Daimler-Benz and Chrysler Corporation Merger
The DaimlerChrysler merger, as will be shown in this analysis, was not an ordinary merger. This merger
had embedded within it the existence of two very strong yet different organizational cultures that were
expected to become integrated to facilitate achievement of the goals and objectives of the merged
cross-cultural global enterprise. Failure to successfully integrate the two cultures gave rise to a crisis that
ended the existence of DaimlerChrysler (Darling, Seristö, Gabrielsson, 2005, p. 345).
1. Business background and reasons for the merger
On 6 May 1998, the German car maker Daimler-Benz AG and America’s third largest automobile
company Chrysler Corporation signed a merger agreement to build the world’s fifth biggest automaker.
Juergen Schrempp, CEO of Daimler-Benz, and Robert Eaton, Chrysler’s then boss, saw a logical fit
between the European luxury car producer and the American maker of sporty-utility vehicules, minivans
and medium-sized vehicles. The complementing product and geographical match seemed to prepare the
merged DaimlerCrysler AG for the future competition in the automotive industry (Wolf, 2005, p. 2).
The merger marked the beginning of the ambitious goal of mering two styles of auto-making, two
approaches to business and the proud but distinct cultures of two nations. The opportunities for
significant synergies given by a combination based on factors such as shared technologies, distribution,
purchasing and know-how. Daimler’s engineering skills and technological advances could be
complemented with Crysler’s skills for innovation, speed in product development and bold marketing
style (Johann, 2006, p. 3).
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6. Three years later DaimlerChrysler's market capitalization stands at $44 billion, roughly equal to the value
of Daimler-Benz before the merger. Its stock has been banished from the S&P 500 index, and Chrysler
Group's share value has declined by one-third relative to pre-merger values.
2. Reasons for the Merger’s Failure: Culture Clash
Although DaimlerChrysler's Post-Merger Integration Team spent several million dollars on cultural
sensitivity workshops for its employees on topics such as "Sexual Harassment in the American
workplace" and "German Dining Etiquette," the larger rifts in business practice and management
sentiment remain unchanged.
James Holden, Chrysler president from 1999 until 2000, described what he saw as the "marrying up,
marrying down" phenomenon. "Mercedes [was] universally perceived as the fancy, special brand, while
Chrysler, Dodge, Plymouth and Jeep [were] the poorer, blue collar relations" (Grässlin, 2000, p. 162).
The dislike and distrust ran deep, with some Daimler-Benz executives publicly declaring that they "would
never drive a Chrysler" (Oldag, 2001, p. 12).
With such words flying across public news channels, it seemed quite apparent that culture clash has
been eroding the anticipated synergy savings. Much of this clash was intrinsic to a union between two
companies which had such different wage structures, corporate hierarchies and values. At a deeper
level, the problem was specific to this union: Chrysler and Daimler-Benz's brand images were founded
upon diametrically opposite premises. Chrysler's image was one of American excess, and its brand value
lay in its assertiveness and risk-taking cowboy aura, all produced within a cost-controlled atmosphere.
Mercedes-Benz, in contrast, exuded disciplined German engineering coupled with uncompromising
quality. These two sets of brands, were they ever to share platforms or features, would have lost their
intrinsic value. Thus the culture clash seemed to exist as much between products as it did among
employees (Tuck School of Business, 2002, p. 5).
Table 3 shows the main points of conflict between the two cultures:
Table 3: Sources of Conflict
Daimler Crysler
Corporate Structure
Hierarchical Structure Tem-oriented
Corporate Culture
Management processes of planning, organizing and Setting goals, directing and monitoring implementation.
controlling. More conservative, efficient and safe Known as the risk-taking underdog
Corporate Proposition
The driving image and experience associated with the Attractive, eye-catching design at a very competitive
highest quality available in the market price
Value Chain
Emphasis on engineering, design, quality and after High volume, low cost manufacturing and distribution
sales service
Leadership
Jürgen Schrempp - with independent personality and Robert Eaton - broke the Chrysler tradition of
South African overlay commanders
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7. When applying Hofstede’s model of culture to the DaimlerCrysler merger, it could be observed how
national culture can form organizational one: more Individualistic Americans, with much higher Power
Distance than in Germany, with less Uncertainty Avoidance formed organizational culture with image of
“assertive cowboy with strong accent on efficiency” at Crysler. This did not correspond to the style of
Daimler-Benz which was known for its methodical, centralized decision making and high regard for
tradition and hierarchy; its philosophy was “quality at any cost.”
IV. Critical Reflections: Making International Mergers Successful
The reality of merger and acquisition transactions in today’s global business world is that they are
always complex and made more difficult by the fact that each party has unique behavioral patterns that
define its culture reflected in Hofstede’s model of culture.
For a business transaction to achieve the outcomes expected it is necessary to acknowledge the impact
that behavior patterns have on the probability of the transaction’s success – but this is only the starting
point. Mitigating the negative impact of culture on a deal, or accelerating the development of the
culture necessary for success, requires adhering to a structured process. Moreover, it’s very important
to those who will be in charge either of whole merger or acquisition or particularly of the cultural
integration, to be aware of national culture pattern. Understanding of how national culture affects
organizational one is critical skill for managers, as well as understanding of impact of organizational
culture on mergers or acquisition transactions.
In the case of DaimlerCrysler shareholders and top-managers of both companies paid a lot of attention
to rationality and strategic goals, they understood clearly what they wanted in financial and market
terms, but they did almost nothing with culture aspect after acquisition and they hadn’t defined “culture
acquirer” before the deal was done.
Therefore, it might be of advantage to perform a cultural analysis of the companies involved in the
merger to see where their compatibilities and differences lie. The cultural analysis is a tool for
identification and overcoming of cultural differences between partners in mergers. A detailed analysis
shows differences and common grounds between the people of both organizations. Thus, it allows
improving interaction and communication. Moreover, it is vital to harmonize and communicate all other
elements that influence culture, such as reward systems and systems for performance appraisal. . If this
is done carefully mergers can become very successful and can actually be the best way to enter a foreign
market at the foreign company can benefit from the cultural knowledge and fit of the host company and
thus avoid the typical common ‘newcomer’ mistakes.
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8. Bibliography
Clemente, M.N., Greenspan, D.S. (1999). Culture Clashes. Executive Excellence, 1-34.
Darling, J., Seristö, H., Gabrielsson, M. (2005). Anatomy of Crisis Management : a Case Focusing on a
Major Cross-Cultural Clash within DaimlerChrysler. Helsinki: Liiketaloudellinen aikakauskirja.
Deardorff, D. (2006). Bertelsmann Stiftung Theses. Retrieved January 16, 2011, from Bertelsmann
Stiftung: http://www.bertelsmann-
stiftung.de/bst/de/media/xcms_bst_dms_18255_18256_2.pdf
Grässlin, J. (2000). Jürgen Schrempp and the Making of an Auto Dynasty. New York: McGraw-Hill.
Hofstede, G. (1993). Cultural Constraints in Management Theories. Academy of Management Executive,
81-94.
Johann, R. (2006). Cross-Cultural Management: The Case of the DaimlerCrysler Merger. Norderstedt:
Grin Verlag.
Nguyen, H., Kleiner, B. (2003). The Effective Management of Mergers. Leadership & Organization
Development Journal, 447-454.
Oldag, A. (2001, March 17). Spiel mit dem Feuer. Sueddeutsche Zeitung, p. 12.
Tuck School of Business. (2002). Tuck School of Business: DamilerCrysler Merger. Retrieved January 17,
2011, from Tuck School of Business at Dartmouth: http://mba.tuck.dartmouth.edu/pdf/2002-1-
0071.pdf
Wolf, T. (2005). The DaimlerCrysler Merger - One Company, Two Cultures. Norderstedt: Grin Verlag.
Zukrigl, I., Breidenbach, J. (2000, March). : Parallele Modernen. Kampf der Kulturen oder McWorld.
Deutschland. Auslandszeitschrift der Bundesrepublik Deutschland.
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