Globalization has opened the business market to the world. Organizations nowadays are constantly trying to become a market leader in that particular business and gain a competitive advantage. Thus, to monitor and employ control on their subsidiaries outside the home country, these multinational companies make use of National Business Systems (NBSs). The business world has witnessed cross border transactions and consolidations business transactions and companies since the early times. One such merger of the automobile industry came to light in the late 90s the car manufacturing company of Germany Daimler-Benz and Chrysler Corporation, another car manufacturing of America merged. The many cultural differences made the post integration period difficult. This report explains the term national business systems and also highlights the differences in the national business systems of countries like USA, Germany and Srilanka. The report also analyses the difference in the cultural factors of these countries. With these analyses, it becomes evident national business system and addressing the variations in cultural factors is very important for a company to operate across borders and attain its end goal.
Table of Contents
Case Study Analysis.
National Business Systems (NBSs)
Comparison of National Business System for Germany and USA..
Comparison of National Business System for USA and Srilanka.
Differences in the cultural factors of Germany and USA..
Differences in the cultural factors of Germany and Srilanka.
Management of organization or a business can be explained as process of planning, organizing and executing the company’s plans and strategies in accordance with company’s set goal and the policies of that company. Large organizations like multinational companies (MNCs) operate on big scale and hence require large number of workforces (Lundvall 1999).Companies use the of National Business Systems (NBS) for this purpose.
Thus, the aim of this report is to define the concept of National Business System (NBS). The report also aims to analyze the differences between the National Business Systems (NBSs) of Germany and USA. The report will also give on overview of the different NBS of USA and Srilanka.
Globalization is now an international dynamic and the whole world is engaged and affected by it. Businesses are compelled to adapt to the changing processes and form new strategies because of this internationalization of markets. The concepts like Mergers and Acquisitions (M&As) are a result of this globalization (King, Bauer and Schriber2019).
Mergers and Acquisitions (M&A) in simple terms can defined as a process of consolidation of two or more companies or their assets. Mergers and Acquisitions arise for the purpose of increasing market share, gaining competitive advantage, or stimulating growth. The concept of merger and acquisitions is not relatively new. Mergers and acquisitions started to take place in the world from very early years of 19th century (Warter and Warter 2017).
The presented report also looks at one such merger of Daimler-Benz, the German car manufacturer with Chrysler Corporation, the manufacturer of American passenger car,
This report critically analyzes the cultural factors between Germany and USA that attributed to the failure of DaimlerChrysler and their ability to merge their practices.Also, this report will analyze and discuss how things will be different due to different cultural factors between Germany and Srilanka.
The objective of this report is to examine the merger of the two companies Daimler-Benz and Chrysler Corporation. After short overview of the company history, the report will shed light on clash of cultures between the German and American car manufactures, which led to the failure of their merger and majorly these cultural factors attributed to this failure.
Globalization has effect on national and cross-border businesses as companies have to continuously adapt to increasing homogenization across the globe. This expansion makes it necessary for these companies to standardize their business practices and operating processes, those including human resource management as well, in order to exercise their control and gain competitive advantage (Chiang, Lemanskiand Birtch 2017).
Companies and businesses plan, organize and execute strategies to attain the end goal of profitability. The process of planning, organizing and executing involves the functions of many departments such as marketing department, operations department, human resource department, etc. All these departments are nothing but amalgamation of all the employees of the company with different skills. The success of a business or an organization depends on the effective and collective efforts of these employees or resources. Thus, it is an important function of an organization to effectively manage these resources, so as to maximize the employee performance(Fernerand Tempel2007).Human resource management hence in simple terms can be defined as the process of implementing a strategic approach for effective management of the people in a company (Saheem and Festing 2018). Multinational companies employ control on cross-border subsidiaries by transferring employment practices to their subsidiaries. It is important multinational companies (MNCs) to develop the globally integrated HR policies and at the same time adapt to the local pressures (Schroter 2014).
Employee related issues are becoming more common in the business industry. Companies are now reducing the number of home employees to foreign locations for extended periods (Giardini, Kabst and Camen2005).Often low performance is observed in these employees. Human resource management becomes difficult in such countries as employees face cultural isolation. Thus, companies employ use of National Business Systems (NBSs) for this purpose.
National business systems thus can be explained as stable and cohesive configurations or set of interlocking structures considering different economic, cultural and social factors that are created to achieve a standardized employee practices to optimize the business activities and maximize employee performance.
When an organization transfers work patterns from one country to another national patterns collide, and interpretations related to work and employee relations may not be easy to combine (Edward and Kuruvilla 2005). A human resource practice or approach which is effective in-home country for a multinational company, may not be useful in other host countries (Morgan 2007). The development of national business system is thus important to prevent this from happening.
One example which can explain the importance of national business system is of BMW. BMW a German car manufacturing company acquired Rover another automobile company in United Kingdom (Almond, Edward, and Clark, 2003). The German company promised of long-term job securities of the employees in United Kingdom. But the company failed to understand the cultural differences of the employees at United Kingdom. As result of this failure in understanding, the German company had to face resistance from employees and low level of cooperation. All this chaotic situation resulted in the rise of conflicts between the employee unions and the management in United Kingdom operations.
The above illustration thus highlights the importance for the multinationals companies to develop and implement a National Business system to its cross-border operations to ensure human resource management so as to fulfill their end goal and gain competitive advantage.
The national business system differs greatly between Germany and USA. The multinational companies in these countries have to face various cultural and institutional pressures (Oliveira, et.al 2018). The consumer taste of Germany differs from that of USA, the work patterns of the employees of Germany and USA also differ. The management styles of Germany and USA also are quite different from each other. The companies in these countries have to face pressure of global integration. The US national business system has a parochial or an inward-looking human resource system for its MNCs. The diversity policy here is driven with an ethnocentric approach and driven as a global policy and disseminated in a standardized form. However, the German national business system has an outward looking approach, which drives the diversity policy using relativism, and standardizes its processes accordingly (Dekocker, et.al. 2012).
Also, multinational companies of the USA have a much greater domestic orientation, as compared to the MNCs of Germany. The US multinational companies are also employee oriented and believe in employee empowerment. The MNCs of the have a strong human resource management system. These foreign employees of such US multinational companies working across borders are paid handsomely and also awarded employee benefits similar to those at home country. With such a standardized personnel management system in place, higher rates of the performance of the employees is observed in these companies. However, the German multinational companies are usually not in the favor of high salaries. These German MNCs do not take interest in employee empowerment, and usually favor authority and bureaucracy. Thus, the employees of such companies tend to resist and do not exhibit maximum performance. Thus, the two different national business systems have their different effects on the employees of the companies and their performance.
Similarly, the business systems vary between that of USA and Srilanka. The companies of Srilanka usually have a bureaucratic or an authoritarian approach towards its employees. However, as seen above the companies of USA believe in employee empowerment. The employees of the Srilankan multinational companies tend to be inflexible to any change in business practices. Since, the USA MNCs have a strong human resource system for its employees, the retention rates of the US employees is since to be higher. The human resource management system of the Srilankan companies is comparatively, week and the skilled employees are forced to migrate to other regions. Thus, developing a strong and standardized business systems becomes very important in such countries to maximize an employee’s performance.
Due to technological advancement, in recent times globalization has shown a rapid and steady growth. This globalization also affects the world economy. Companies have now moved further from their home countries to newer markets across their borders, with a goal of increasing their market share and more and more market capitalization. The term Mergers and Acquisitions (M&A) was coined for this concept of consolidation.Businesses and organizations face more competition and rising cost pressures due to this globalization. One such merger in the late 90s when the automobile industry was facing difficult times, surprised the business world when a German car manufacturing Daimler-Benz and Chrysler Corporation, another car manufacturing of Americaannounced their merger in the year 1998. This merger was claimed to be a ‘merger of equals’ and of the largest merger of its kind during that period. However, soon it was realized that there existed many cultural and institutional differences between the two companiesand created obstacles in the daily business operations post-merger.Soon, these cultural and institutional discrepancies attributed to the failure of merger. The presented report on case study of DaimlerChrysler merge, analyzes such factors that led to the failure of merger.
The German car manufacture Daimler-Benz was founded in 1926, when Benz and Cie. Rheinische Gasmotorenfabrik merged with Daimler Motoren Gesellschaft.Daimler-Benz was a well-established name in the German and European market, and was known to deliver high quality products and represent cars of luxury sector. Despite, its success in Germany and Europe Daimler-Benz was unable to compete in the American market. In the 90s, the car industry was facing hard time, and car manufacturing companies were looking for strategies to retain their position in the market. Thus, these two companies merged in the year 1998 to survive in that difficult market. The two companies of shared the common goal of becoming the leader in the car industry, and this merger was considered to be ‘merger of equals’, as they two companies never wished to take over another one, but be stronger together. This merger made DaimlerChrysler the third largest automobile company with large market capitalization and high market revenues. Even though the merger, sought a third rank for the company in the automobile industry, the analysts felt the need to address various issues to retain this merger. One such issue was the difference in the organizational culture of these two companies.
According to Ciobanu and Bahna (2015), the integration of different organizational structures is difficult and can create obstacles to achieve the integration benefit, in the so called ‘merger of equals’, as in the presented case.
The management styles of German and American companies differed sharply from each other. This difference in the cultural and institutional factors made the post-merger integration process difficult and as a result the merger faced failure. The two organizational structures were based on fundamentally different values and morals which came to be observed in daily operation of the company. For Daimler-Benz used methodological approachfor decision making, while Chrysler Corporation’s used a creative approach for decision making. Efficiency, empowerment of employees and equal rights amongst all staff was valued by Chrysler more (Almond and Ferner 2006), whereas Daimler-Benz’s culture was more based on centralized decision making, authority and bureaucracy. The different compensation cultures of the two companies also created conflicts post-merger. The Germans opposed the huge pay disparities, while the American top management was paid huge sums.The employees of the company also had different working styles and this created obstacles in business operations.
The American organization culture was of trial and error, which was thought to be very chaotic by the German company as they used a structured and précised plan to reach a solution. Another important difference between the corporate cultures of the two companies was the management they followed. Daimler-Benz culture followed a top-down approach of management whereas the Chrysler relied on flat hierarchy management. The authoritarian management of Germans proved to be uncomfortable to the employees of non-hierarchical Chrysler organization, making the merger difficult. The employees of Chrysler had a work style of identifying opportunities and immediately acting on. However, the Germans work style involved the analytical planning and research approach. These cultural factors led to the failure of the DaimlerChrysler merger. Several, attempts were made to curb these cultural and intuitional differences by both the companies. But soon it was realized that this was not ‘merger of equals, as Daimler-Benz attempted to run the operations of Chrysler with dominating approach and the way they did at Germany. The two companies opposed working with each other. Thus, under such circumstances the merger of DaimlerChrysler doomed to be a failure.
Different regions vary in the cultural factors and these different cultural factors affect the businesses and the merges of the businesses (Ansah, Louw and Martinez 2019). Such cultural differences also exist between countries like Srilanka and Germany, and have an impact on any merger or business transaction between these countries. A merger between these two countries may witness clash of cultures. For example,the average wages for employees is relatively low in Srilanka as compared. Thus, migration of skilled workers out of Srilanka causes shortage of labor. Personnel or human resource management also faces a host of challenges due to cultural differences. Every country has people with unique norms, behavior, beliefs and working styles. This clash employee behavior and working style creates a difficult environment for merged companies to survive. Communication and language barrier between these two countries can also create obstacles in the process of merger. Employees of Srilanka often inflexible to work and resist change in work pattern. Also, business management style differs from country to country. The management approach of Srilanka differs from the one in Germany, and hence creates a cultural gap (Athukorala, et. Al2017). The economic development of Srilanka also varies with the economic development of Germany which creates gaps in business operations. Thus, these cultural factors should be examined and looked at for a successful merger.
Globalization and internationalization of markets affect the national and across border businesses of companies as companies have to constantly face the pressure to adapt to the local and global needs of the markets. To adapt to these global differences, it is important for the companies to make changes to the business practices and processes. But, it is observed that the employees of these multinational companies often tend to resist this change. Also, employees of multinational companies working outside their home countries have often are subject to cultural shock. All these factors hinder the employee performance and creates obstacles for the companies to gain competitive advantage. Thus, building and developing national business systems for these companies is an essential part of the human resource management function.
Many cross-border mergers and acquisitions fail due to many factors. And so, did the merger of between the two car manufacturing countries Daimler-Benz and Chrysler Corporation fail. This merger of equals failed due to the clash of cultures and intuitional factors between the two companies. The discrepancies between the corporate culture and organizational models could not be bridged and led to failure. These differences created hindrances for the merger to realize the synergies. The merger was claimed to be merger of equals, but from the very start of the merger Daimler-Benz tried to operate and administer Chrysler Corporation like it was a German company. Companies must understand with cross border mergers and acquisitions the cultural differences are inherited, and one company cannot suppress and replace the corporate culture of another company. In case of DaimlerChrysler, these two companies never completely accepted these cultural differences and compromised with the changes to make the merger successful. It can be summed up that DaimlerChysler the merger was thought to be a good business strategy and was not foredoomed to be a failure from the beginning, but the merger was unable to survive due to wrong management decisions and different cultural factors.
There exist cultural and institutional variance home companies and its subsidiaries outside the home country. These variations are national specific. It is important to conquer these variations for successful operation. Thus, it is recommended for the companies to make use of national business system that are coordination mechanisms to mediate the transfer of business and human resources management practices to companies across nations to make optimum use of human resource and gain competitive advantage.
Also, it can be seen above that the DaimlerChrysler was a promising merger, but the cultural and institutional factors attributed to it failure. This failure could be avoided, if the two companies from the very beginning worked in coordination and accepted the two unique cultures. If Daimler-Benz and Chrysler Corporation strengthened each other, combined their strengths to achieve their common goal, if the management made appropriate use of the new synergy effects, paid attention to the cultural differences, compromised on working styles of each other and gained competitive advantage over the competitors, the merger would make Daimler-Chrysler a leading automobile company in the world’s car industry.
Thus, it is recommended that, to avoid failure of mergers and acquisitions of companies between different nations, it is important for those entities to consider the major important even before the merger actually happens. It is becoming mandatory for the two merging companies pay attention at which areas of the businesses will be affected by the cultural and institutional discrepancies and hope will these discrepancies affect the day to day operations of the business activities(King, Bauer and Schriber2019). The organizations need to examine the barriers like of communication and language which may cause hindrance to the merger and look solutions to solve this. To make the merger successful it is advised that the companies entering into merger must share a common goal of interest and clearly lay down the required regulations and norms for the business process of this common goal from the very beginning. Both the merging organizations should understand the cultural diversity of the employees from both the company and formulate norms accordingly to provide equal opportunities to employees in both the companies.
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