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UNIVERSITY OF WALES

KENSINGTON COLLEGE OF BUSINESS


HOLBORN, LONDON

COURSE: MBA

MODULE NAME: MANAGING STRATEGY

TITLE: EVALUATION OF STRATEGIC CHOICES

ASSESSOR: KEVIN O’HARA


DATE: 14TH JUNE 2010

KCB ID: 11840, 11834, 12123

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TABLE OF CONTENTS

SL TOPICS PAGE
NO. NO.

1 EXECUTIVE OVERVIEW 3

2 4
CONCEPTS AND DEFINTIONS OF STRATEGY

3 MERGER AND ACQUISITION DOMINANT 5


MARKETING STRATEGY

4 STRATEGIC ALLAINCES AND JOINT VENTURES: 7


STRENGTH OF DIAMLER

5 IMPORTANCE OF EMERGING MARKETS 12

6 KEY THREAT FOR DIAMLER 14

7 STUDENT DIARY 15

8 REFERENCES 16

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EXECUTIVE OVERVIEW

Daimler AG is among the world’s largest and successful automobile organisations being
one of the biggest producers of the premium cars and world’s biggest manufacturer of
commercial vehicles with network all over the world. Daimler has the divisions range
from Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and
Daimler Financial Services (which provides finance services to Daimler customers right
from financing lease, insurance and fleet management).

In the year 1886 Daimler founders Gottlieb Daimler and Carl Benz invented first
automobile creating history and now being a pioneer in this field Daimler is continuing to
shape the future for mobile industry with remarkable innovations. Daimler is also
renowned for producing safe and superior vehicles, fascinating and delightful for its
customers. Daimler as an organisation is committed to achieve emission free mobility in
the future exhibiting its corporate social responsibility for that with the development of
alternative drive systems it is the only vehicle producer which invested in hybrid drive,
electric motors and fuel cell systems.

With the production plant spreading over five continents Daimler has its strong sales
service and distributions network spreading over all the countries has it has enviable
brand portfolios inclusive of world’s most exclusive brand, Mercedes-Benz, the brands
smart, Maybach, Freightliner, Western Star, Fuso, Setra, Orion and Thomas Built Buses.
The company is listed on the stock exchanges of Frankfurt, New York and Stuttgart
(stock exchange symbol DAI). Even in the worst market scenario company sold 1.6
million vehicles in the year 2009 and is having work force around 256,000 people with
total revenue of €78.9 billion.

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CONCEPTS AND DEFINTIONS OF STRATEGY

According to Porter (1996) strategy is all about achieving competitive advantage from
rest of the players in the business being different and delivering value addition to the
consumers with strongly positioned in the industry. Hambrick and Fedrickson (2001) say
that while discussing the business of an organisation the term strategy itself proliferates
and gives option of choosing it from various models and frameworks suitable to the
company. Daimler is an organisation which is always exceptional in strategic
management for fulfilling its organizational objectives and forming different strategies to
comprehensively achieve these objectives.

Business strategy

Business strategy is the foundation of successful business. But there are, of course,
different types of business strategy. The best business strategies must steer a course
between the inevitable internal pressure for business continuity and the demands of a
rapidly changing world for revolutionary business strategies.

Daimler has worked on resource based theory which is based on the economic
atmosphere and companies capabilities, this view of strategy is quite coherencies and
integrative which keeps the company way ahead of other competitors strategies. To
support its existing strategies and for their optimization Daimler Chrysler has developed
“Global excellence program” for its business, where it concentrates on the rigorous
reduction of material expenses and fixed costs, as well as on the optimization of global
processes and the increased flexibility of production plants which has the aim of
enhancing efficiency and exploiting economies of scale for the organisation.

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MERGER AND ACQUISITION DOMINANT MARKETING STRATEGY

Economic uncertainties over the decade tend to lead buy-outs and merger and
acquisitions. Few years back companies when the global economy was shining
companies were involved in M&A to expand them exponentially now in the time of
economic recession organizations are again midst of same pursuit for their survival. As
success rate of merger and acquisition is not healthy so companies are trying to eliminate
this problem being more vigilant towards pre-merger to operations and other
complexities for turning them into one.

Daimler has successful history of merger and acquisition right from the inception of
company. In recent year to strengthen its core business and exploring new growth
potential company has taken various vital steps for expanding its business empire.

The various recent prolific M&A by Daimler are as follows:

a) Daimler AG signed a pact with Indian two wheeler specialist company Hero
Group for JV for a commercial vehicle, which is name as Daimler Hero
Commercial Vehicles Ltd., where Daimler will hold 60% of the stake. The
company will have production unit at Chennai, India and will have manufacturing
of light, medium and heavy duty commercial vehicles.

b) Daimler AG in the month June 2008 took 22.3% equity in Tognum company
which is among world’s leading firm for supplying off –highway engine from
EQT, which a Swedish financial investing firm and further strengthened its stake
in company by purchasing 6.1% of the shares. As both the companies share the
business of supplier and manufacturer before so this bonding can be very
successful.

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c) Daimler AG further signed an establishment of JV with Beiqi Foton Motros Ltd.
in August 2008 for producing medium and heavy truck technologies for the
Chinese market, keeping in mind the huge opportunities in the sub-continent
market outside China.
d) In December 2008, Daimler AG with Kamaz state-owned Russian company and
Troika Dialog signed a deal for an exclusive strategic alliance partnership at
Moscow, in which Daimler Trucks will be having 10% stake in Kamaz, the was
very strategic move for Daimler as Kamaz which is market leader for heavy duty
trucks market in Russia can provide big base for Daimler to enter into the BRIC
countries. Transfer of modern technologies and experience of various joint
projects would help both organisations immensely in future.

Merger and acquisitions always provide a substantial ground for the organisations to
expand themselves for a new horizon where they can grow more rapidly. The basic
reasons for companies to come across M&A are as follows:

• To expand the business/sales activities by acquiring new markets


• A quick “one –stop-shop” solution for the organization.
• To compete with more better financial and strategic aspects with competitors in
the industries.
• Identifying more prospective partners and suppliers, focusing on the knowledge
of their businesses and marketing.
• Capitalizing on the market strengthen with the merging partner and exploiting the
competitor’s weakness.
• Potential acquisitions are done after reviewing companies’ strategic, financial and
operational performances.

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Scope for merger and acquisitions

• Provides key knowledge for satisfying business intelligence needs.


• It gives the opportunity for the organization to not only analyze the weaknesses
and areas of progress for its merging partner but also allow them to consider the
financial, strategic and operational factors.
• The opportunities after acquiring other firm are valued and the growth potential is
assessed. Also the competitive and technological threats are searched out.
• Details review about critical company information like its business structure,
operations, its history, products and services it was handling, key competitions,
organizational structures.
• Financial strength like profitability, margins and returns are viewed and liquidity,
leverages, financial positions and efficiencies ratios are examines.

STRATEGIC ALLAINCES AND JOINT VENTURES: STRENGTH OF


DIAMLER

Since the globalization of economy more and more companies are venturing into the new
foreign markets with participating strategies which include exports, licensing, strategic
alliances, JV and M&A. Each of these strategies has its own risks, investments and
returns. With various domestic organization are now acquiring status of MNCs , strategic
alliances and joint ventures are the reasonable mode of marking the presence. If it is seen
in international scenario then strategic alliance is an “mutually signed agreement between
two or more firms from different countries to cooperate in any value-chain activity from
R&D to sales", Cullen (2002). Hitt (2001) also offered another definition which says,
"joint venture is when an independent firm is created by at least two other firms".

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Parameter for forming a strategic alliance

Forming a strategic alliance with another group require vast research and intensive study.
The firm faces many legal and economical parameters and choices which they have to
clear. Some of the parameters are discussed:

Selecting a partner

There are plenty of factors which are decisive for selecting a partner. Firstly it is
compatibility in management style; secondly it is the products and services which the
alliance partner offering. The success of the alliance is always successful when both the
partners involved never compete with each other but complement each other. Thirdly
there should be awareness of the potential risks which can occur of alliances.

Management decisions

There are always feud in the alliances which belongs to discretion power of management,
so based on the profiles of the organisations division of the management should be
cautiously planned. There are various medium and mechanism which can contribute for
the effective sharing of the management.

Aiming Future

In international businesses joint ventures and alliances have become mandatory


nowadays. They provide new dimension to business like access of markets, risks and
expense sharing, synergistic effects of shared knowledge and expertise, and competitive
advantages in the marketplace. Though there might be enormous risks and obstruction
when a firm exercises strategic alliance but for optimization of business, these alliances
will continue to be major tool for the firms’ involvement.

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Joint Venture and alliances of Daimler

To intensify its endeavors for generating further consolidating its positions and achieving
economies of scale, particularly planning to increase its business units and further
embedding its products in an intelligent sharing strategy Daimler has joint ventures and
alliances with major groups globally. These strategies have not only provided Daimler an
impetus for its initiative of operational excellence but also make it successful for global
growth strategy. Some Joint Ventures and Strategic alliances are as listed:

Evonik and Daimler establish strategic alliance for the Development and Production
of Lithium-Ion Batteries

In December 2008 Daimler took 49.9% of Li-Tec a subsidiary of Evonik industries to get
expertise in electrical and electronic systems integration. This joint venture was also
established focusing to develop and manufacture batteries and its systems for automobile
applications. This Joint venture would provide them entry into multi billion market
imminently.

Strategic alliance between Renault and Daimler Renault

With the intention of entering into the small car market Daimler had joint venture with
Renault- Nissan on 7th April 2010. All three automakers agreed for collaboration on
future products and for exchanging shares in other companies. According to this
alliance Daimler will hold certain percentage of stake in Renault and Nissan and
similarly these companies would also have identical stake in Daimler group. This
alliance will definitely provide a platform for Daimler for fulfilling its long cherished
dream of developing next generation cars.

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Daimler AG and Uzavtosanoat new bus joint-venture in Usbekistan

Daimler group adding to its vast portfolio of alliances had joint venture with Uzbek based
group Uzavtosanoat for manufacturing bus units for central Asia on 7 th mat 2010. The
Daimler group will have equity share of 51% in this venture which will allow the group
for assembling, selling coaches, buses and middle buses for Uzbek and other nearby
markets.

BYD and Daimler establish joint venture to produce electric-cars in China

In another breakthrough Daimler group had established a joint venture with BYD
Company limited of China for production of electric vehicles. There will be investment
of 600 million Euros for this joint venture this will access Daimler to capitalize on it’s
knowledge of electric vehicle architecture. This will also extend Daimler excellence in
battery and e-drive systems. The vehicle which will be in production will be jointly
created and marketed by Daimler and BYD.

Advantages of Strategic alliances and Joint Ventures

Strategic alliances and Joint ventures are always depending on the business requirements
and goals of the organisations involved. There are lots of mutual benefits which
organisations seek before entering into the JV or strategic alliances with another group,
Daimler group which has been involved in series of such alliances in the past and recent
also being benefitted exclusively. Some basic advantages of alliances and JV experienced
by the group are as follows:

Market Entry

Strategic alliance provides an opportunity to the firm for easy entry into the foreign
markets. As the local firm with which it is associating can have the knowledge of
markets, customer preferences, distribution networks and suppliers which can always
give a competitive edge to the company.

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Sharing risks and expenses

The major benefits for strategic alliances are the organisations which are involved in it
can always share uncertain risks. This also give a platform for them share expenses for
development of new technology or product.

Synergistic effects of shared knowledge and expertise

There is always roam for knowledge and expertise sharing in strategic alliances. There is
always synergistic effect between the partners for contribution of skills, market
knowledge, brand image and resources.

Gaining competitive advantage

Strategic alliance or joint venture helps organisations for forming competitive advantage.
In the alliance the partner can always take the benefit of favorable brand image which
been established in the market since years by one of the partners.

Risk management of Daimler

Daimler group has composed risk management system which is commensurate with
company vision for global operations and position. The risk management of Daimler is
the one which gives the impetus to the organization for to plan, control and evaluate. Its
goal is enabling company’s management for recognizing significant risks when the firm
goes for merger and acquisitions and JV’s and strategic alliances. It also indicates the
prospects of failures at initial stages and initiates the appropriate countermeasures timely
so that they can be eliminated. Risk management discusses the timely issues with
chairman of supervisory board about the group’s business strategies and development
planning and most importantly the issues related with risk management.

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IMPORTANCE OF EMERGING MARKETS

As the economy of the developing nations have by most saturated and car manufacturer
like Daimler does not have much to explore in these markets but the emerging markets of
developing country where the economy is growing with rapid pace is envisaged as
booming market. With regard to first population, it is obvious that materializing market
nations are home to greater than half of the population of the world. Plenty of the
emerging markets are confronted with swift urbanization and enormous migrations to
cities from rural areas due to the influence of profound economic impact. Due to this
reason current cities are transforming into larger size as part of this expansion.

Economic importance: macro and micro evidence

Despite the startling figures of the growing population, there is an increasing certainty in
the economic growth and steadiness. Around the entire markets taken into account, 40%
of the world GDP is that of the emerging markets at purchasing power parity. Therefore,
the emerging markets have turned out to be the key factor for the world’s development,
with an expected contribution of more than half in the current year. This resilience and
dynamic growth in the emerging markets has fascinated Daimler to divert its profound
attention to these countries. The classic examples are opening of Joint Ventures in India
and China and starting its production units in some of the developing countries as well

Long-term economic outlook


Even though the economic signs of the current emerging markets look promising, there
are even brighter prospects for the emerging markets in the future. Based on the
demographic models and trends of productivity and capital growth, Daimler has invested
hugely in developing countries by having production units sales and marketing offices
eyeing the long term development predictions in future than today in case of the
emerging markets. Certainly the long term predictions are moreover speculative but it
throws light on the chances of secular developments.

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Cultural and scientific importance

The scientific overall level of a particular society and the economic figures are very much
associated with the each other whereas the cultural developments and influence are
strongly related with the economic success. The rapid growth in the economy of the
emerging countries is therefore not a revelation and most importantly it is not only the
economic growth but also cultural growth. Looking at the current scenario, it is apparent
that there is an enormous collection of indicators that underline the developing influence
of the modern science and culture of the developing economies in general.

Euro area perspective

Prior to looking at the consequences of the rising significance of emerging countries in


the control of the global economy in financial and macroeconomic matters, The dynamic
developments especially in emerging markets raise the requirement for those tradable
services and goods where euro has relative advantages. The rising competition in market
also intensifies the incentives to make progress in future with respect to the terms of
structural reform in the economy. Since the beginning of European league, it has become
a big market for imports and exports of services and goods. In view of this Daimler
which is basically a German company has worked around its policies to find more
markets for it in the emerging markets of Euro zone. As these places are now attractive
destinations for foreign investments so Daimler been involved in strategic alliances and
merger with several companies in the Europe to strengthen its presence.

The bottom line for review about the emerging markets is that these countries markets are
crucially important global players in all the dimensions for the organisations to explore
themselves economically financially, culturally or scientifically. The emerging markets
are welcome systemic development for the world economy in the recent years giving the
implications for the global economic and financial system.

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KEY THREAT FOR DIAMLER

Every business and organisation whatever vast it is, has to face stiff challenges to survive
and when it achieved an optimum level of success then it face another challenge to
sustain the success. Daimler is world’s renowned name in the automobile industry having
prolific fleet of products prevailing all over the world. As manufacturer of luxury
automobiles Daimler was less vulnerable than other car makers earlier even during the
recession time earlier as most customers of Mercedes- Benz were wealthy enough to rise
above the concerns of finance rates, inflation, tax breaks and gasoline prices but now the
scenario has totally changed, company has its own down time when the nine years highly
successful joint venture between Daimler and Chrysler boomed in the year 2007. It was
not only horrifying for the company but for the whole industry. Eventually company
found its path and was on the road of success until the worst economic slump of the
century put a halt in its progress and it has hit very hard on the luxury car manufacture
like Daimler. The automobile industry is worst affected by the economic crisis and the
sedan car market has shrunk substantially.

Big Challenge in Luxury Car Segment

Taking the advantage from the unprecedented circumstances market leader like Toyota
(overall sale) has managed to sneak into the luxury car segment by introducing Lexus
with high end luxury sedans and coupes. It is gradually overtaking the market share of
Mercedes-Benz, Where it is offering a substitute to Mercedes- Benz and its competitors.
Mercedes-Benz is a brand name for Daimler which has given its prestige over the years,
though the market is still upbeat for Mercedes but lot of brands are trying to break the
dominance of the brand and stealing away customers. Luxury car segment is quite
competitive segment as very few brands are involved and buyers continuously upgrade
them with latest improvements and changes in the cars, so manufactures must have to
keep eye on the competitors as far as the products price and features are concern. Like
Toyota and Honda, BMW is also competing directly with them in this segment with
intense focus on its 5 and 7 series models, so the rivalry and challengers are stiff for

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Daimler therefore it would be definitely imperative for Daimler to find a firm strategy
regarding price and positioning for Mercedes in order to scan companies like Honda and
Toyota, who are ready to pose challenges which could be possible threats in the future to
save its market share and brand image.

Recommendations for minimizing threat

• Focus on the untouched market for the luxury segment as still this segment
belongs to the customer who are rarely influence by the price and marketing
though quality and class is the main status symbol for them
• As other competitors are also touching the quality excellence precedence by the
Mercedes-Benz, Daimler has to improve the quality standard more, compromising
on the profits
• As company has already started outsourcing the parts from the best in business so
that it can primarily focus on its core business and improving the technology and
providing excellence.

STUDENT DIARY
11840:
I have contributed for the strategic alliances and Joint ventures part of the assignment.
Daimler is the group which set the benchmark in the automobile industry and now
passionate for shaping the future. Being pioneer in the automotive engineering Daimler
group is always inspired and obliged to present groundbreaking technologies and high
quality products to the world. To sustain the momentum of innovation Daimler group has
quite significant strategic alliances and joint ventures with the different organisations
related with automobile field. Even at the economic downfall company has alliances with
major companies all across the globe to strengthens its presence and expand its market
share and customer base.

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11834:
My contribution for the assignment is about the new emerging markets for the Daimler’s
business expansion. Daimler group which is world leader for automobile industry is also
focusing relentlessly to explore the huge market potential in the new emerging markets of
the developing nations. Due to globalization and paradigm in economy countries like
India, Brazil, and China are now becoming a recognizing force which cannot be
neglected because of their huge markets. Daimler has also analyzed it and initiated a re-
organisation in their strategy where it has started expanding business to these countries
by establishing production units, joint ventures and acquisition of the local units at there
so that they can strategically place themselves at there and appeal to the new generation
buyers from these nations through radically local marketing flair and culture and
developing more of the smaller cars, SUV’s, buses and minivans.

12123:
I have contributed for Merger and acquisition part of the assignment. In last decade there
were very major M&As were witnessed by the business world and more importantly
automobile industry which is propelling force for the rest of the economy have scene
numerous M&As for either to snub the competition or to expand the business to the
different zone and emerging markets. Daimler has earlier conservative look where it
follows the strategy of gradual growth and always used to concentrate on the areas of
expertise and was willing to sacrifice the short term profit and had the foresight on long
term benefits but with the change in business atmosphere around company also changed
its face and invested in many profitable organisations and their subsidiaries and
simultaneously cut the unprofitable businesses to emerge as the top car companies in the
world.

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REFERENCES

Cartwright, Susan; Schoenberg, Richard (2006). "Thirty Years of Mergers and


Acquisitions Research: Recent Advances and Future Opportunities". British Journal of
Management 17(S1): S1–S5. doi:10.1111/j.1467-8551.2006.00475.

"Daimler, Nissan, Renault Set Small-Car Cooperation". Wall Street Journal. 7 April
2010. Retrieved 2010-04-07.

David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and


Interfirm Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special
Issue: Knowledge and the Firm (Winter, 1996), pp. 77-91

DePamphilis, Donald (2008). Mergers, Acquisitions, and Other Restructuring Activities.


New York: Elsevier, Academic Press. pp. 740. ISBN 978-0-12-374012-0.

Yoshino and Rangan, Michael Y. and U. Srinivasa (1995). Strategic Alliances – An


entrepreneurial approach to globalization, First Edition. Library of Congress Cataloging-
in Publication Data. ISBN 0-87584-584-3.

Websites

http://germancarscene.com

http://gb2009.daimler.com

http://www.pr-inside.com

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