ArticlePDF Available

Abstract and Figures

This article focuses on the DaimlerChrysler/Mitsubishi merger of 2000 and discusses the failed attempt by a European-American multinational firm to break into the Asian market, a region where previously it had an extremely limited presence. Having completed its 1998 merger with the US-based Chrysler Corporation, the newly formed DaimlerChrysler group turned its attention to the Asian market in 2000 in an attempt to become a truly global competitor. Partnership with the Japanese motor firm offered the possibility of economies of scale and scope, in particular in the sub-compact car market to enable DaimlerChrysler to become a full-scale producer. However, within four years the dream of large scale trans-national production was over. The failure to integrate with the Japanese company and the subsequent decision to cut Mitsubishi Motors adrift led to the dismissal of the DaimlerChrysler CEO Jürgen Schrempp. This paper will focus on outlining the motives behind the merger, why it failed, and why the Board of Daimler-Benz decided to end the relationship and extricate itself from Mitsubishi's problems. Coventry University Business School. His main area of research is the contemporary economic history of Ireland and the UK. He has worked on a wide range of projects and is participating in the UK Technology Strategy Board's project on alternative methods of propulsion in the automotive industry. Tom Donnelly is a Professor of Automotive Business and the Head of the Motor Industry Observatory at Coventry University Business School. His research interests lie in the international automotive industry, focusing on the UK, European and Chinese industries in particular. He, too, is currently involved in the UK Technology Strategy Board's project on electric and hybrid cars.
Content may be subject to copyright.
36 Int. J. Automotive Technology and Management, Vol. 11, No. 1, 2011
Copyright © 2011 Inderscience Enterprises Ltd.
The DaimlerChrysler Mitsubishi merger: a study in
Jason Begley and Tom Donnelly*
Motor Industry Observatory, SURGE,
Coventry University Business School,
Coventry University,
Priory St. Coventry CV1 5FB, UK
*Corresponding author
Abstract: This article focuses on the DaimlerChrysler/Mitsubishi merger of
2000 and discusses the failed attempt by a European-American multinational
firm to break into the Asian market, a region where previously it had
an extremely limited presence. Having completed its 1998 merger with the
US-based Chrysler Corporation, the newly formed DaimlerChrysler group
turned its attention to the Asian market in 2000 in an attempt to become a truly
global competitor. Partnership with the Japanese motor firm offered the
possibility of economies of scale and scope, in particular in the sub-compact
car market to enable DaimlerChrysler to become a full-scale producer.
However, within four years the dream of large scale trans-national production
was over. The failure to integrate with the Japanese company and the
subsequent decision to cut Mitsubishi Motors adrift led to the dismissal of the
DaimlerChrysler CEO Jürgen Schrempp. This paper will focus on outlining the
motives behind the merger, why it failed, and why the Board of Daimler-Benz
decided to end the relationship and extricate itself from Mitsubishi’s problems.
Keywords: globalisation mergers; consolidation; international markets; Jürgen
Schrempp; demerger; market exit.
Reference to this paper should be made as follows: Begley, J. and Donnelly, T.
(2011) ‘The DaimlerChrysler Mitsubishi merger: a study in failure’,
Int. J. Automotive Technology and Management, Vol. 11, No. 1, pp.36–48.
Biographical notes: Jason Begley is a Research Fellow in the Centre for
Sustainable Urban and Regional Regeneration (SURGE) in Coventry
University Business School. His main area of research is the contemporary
economic history of Ireland and the UK. He has worked on a wide range of
projects and is participating in the UK Technology Strategy Board’s project on
alternative methods of propulsion in the automotive industry.
Tom Donnelly is a Professor of Automotive Business and the Head of the
Motor Industry Observatory at Coventry University Business School. His
research interests lie in the international automotive industry, focusing on the
UK, European and Chinese industries in particular. He, too, is currently
involved in the UK Technology Strategy Board’s project on electric and hybrid
The DaimlerChrysler Mitsubishi merger 37
1 Introduction
Having completed its 1998 merger with the US-based Chrysler Corporation, the newly
formed DaimlerChrysler group turned its attention to the Asian market in 2000 and
merged with the Mitsubishi Motor Corporation of Japan in an attempt to become a global
competitor in an increasingly competitive market. Such a partnership offered the
possibilities of economies of scale and scope particularly in the sub-compact car market
where Daimler was weak. Important, too, was DaimlerChrysler’s aim to gain greater
access to the wider Asian market and produce a wide range of vehicles using the
expertise of their European, US and Asian arms. Within four years, however, the dream
of trans-national production on the scale of Ford, General Motors (GM) and Toyota had
fallen apart. Stock value had imploded, profits were dwindling and the group was heavily
in debt. The failure to integrate with the Japanese company and the subsequent decision
to cut Mitsubishi Motors adrift contributed heavily to the departure of the
DaimlerChrysler CEO Jürgen Schrempp.
Why then did DaimlerChrysler’s gambit prove unsuccessful? What factors led to the
downturn in profitability and the collapse of the partnership? This case study assesses the
DaimlerChrysler-Mitsubishi merger of 2000, outlining the motives behind the acquisition
from both a European and Asian corporate perspective. It attempts to place the problems
faced by the group after the merger in a global context. It also demonstrates the
consequences of the failure of Daimler-Benz’s management to deal effectively with the
twin difficulties of trying to make both Chrysler and Mitsubishi profitable. In turn this
drained Daimler’s managerial resource base to the extent that the very existence of
Daimler Benz seemed threatened and ultimately led to the Japanese firm being cut adrift,
heralding the end of Schrempp’s reign in Stuttgart
2 Literature review
A great deal has been expounded on mergers in manufacturing industry and the
automotive industry is no exception. In discussing mergers two key elements stand out:
the rationale behind mergers and the pre-and post-merger strategies of the acquiring firm.
Beginning with the first, it is generally agreed that the ultimate objective of a merger – or
in some cases a take-over – is survival in an increasingly competitive and yet fragmenting
global economy as firms seek to expand in size and scale to ensure their future.
It could be argued that mergers and acquisitions have become a key method of firm
growth and expansion as it is cheaper and quicker than organic growth. Mergers differ
from acquisitions in so far as they are the product of mutual consent between the
respective firms and often simply involve an exchange of shares. Acquisition involves
one firm taking over another following a successful bid for its shares. Such a move,
though often viewed as hostile, can in some cases be welcomed by troubled firms seeking
rescue to from impending failure (Capron, 1999).
There are different types of mergers: vertical, horizontal, lateral and conglomerate. Of
these the only one of direct relevance to the discussion is the second as all the companies
under immediate scrutiny were at the same stage of production, namely final automotive
assembly. The attractions of horizontal mergers, whether offensive or defensive, are
manifold. Firms may seek to acquire access to products and markets/segments through
the elimination of competitors; they may also desire access to new or different
38 J. Begley and T. Donnelly
technologies, skills, distribution channels and so increase their economies of scale, scope
and competitive power through increasing synergies, especially in times of increasing
industrial consolidation to enable them to fend off potential predators. In other words, the
key rationale fostering merger activity focuses primarily on strategic issues (Graebner
and Eisenhardt, 2004).
Mergers and takeovers have not by any means proved a panacea for solving industrial
problems as many fail to achieve the goals originally envisaged (Cartwright and
Shoenberg, 2006). Often the expected gains from expected synergies in finance,
technology, administration and research and development fail to emerge and share prices
languish below what they were at the time of the original merger for a number of years.
As Capron (1999), argues, it is probably easier to achieve synergies in marketing than in
innovatory capabilities in manufacturing and production due to products being at
different stages in the development cycles as Ford found in trying to manage its Premier
Automotive Group. Indeed it might take as long as a decade or more for real synergies
and benefits to emerge fully (Donnelly and Morris, 2003).
As history has shown, the merger process is often neither simple nor straightforward.
Howell (1970), however, advocates that there are three key stages: target identification
and selection; negotiation; and integration. At the pre-merger phase, care must be
exercised over the choice of partner in terms of organisational fit and, if a merger is to be
championed, then it must involve senior management and possibly key operational
managers, whether or not outside consultants/advisors are used, as operational managers
might well be better aware of the more mundane issues that might arise than professional
consultants. Additionally, a period of ‘courtship’ or ‘getting to know you’ as a
demonstration of respect might help firms to assess each other’s capabilities. This worked
particularly well for Renault-Nissan, but failed for Renault-Volvo in the early 1990s
when, after a two-year period of courtship, the Swedes called off the marriage (Donnelly
et al., 2004). Bound up with this is an evaluation of each firm’s strengths and weaknesses
not just in terms of products and capabilities but also of the management team of the firm
to be inherited. This can help an acquirer to arrive at a decision on what price to pay
rather than offer a premium price as Ford paid for Jaguar in an attempt to close the deal
quickly and fend off a possible rival bid from GM. Moreover, courtship can often assist
in clarifying how much investment might be required to improve a weaker firm as the
amount of investment needed might be underestimated and vitiate any post-merger
strategy (Gomes et al., 2007).
Of the two key phases, post-merger implementation strategy is the most difficult to
operate. No two mergers are alike and so implementation strategies vary accordingly, but
in theory should reflect the rationale behind the merger (Mitleton-Kelly, 2004). In
mergers enacted purely for financial reasons, it is likely that the firm acquired will be left
with a high degree of autonomy, but where there is the necessity to achieve gains from
manufacturing then a significant degree of integration is essential.
The ultimate responsibility for implementing post merger strategy lies with the senior
management of the acquiring firm, who have three choices: motivate the existing
management team, bring in an entirely new team or create a new management team
drawn from both firms. Whichever method is adopted it is essential that team members
play complementary roles to achieve change whether this be in culture, behavioural
patterns, human resource management practices, operating procedures and so forth. This
is vital if at the early stages decisions on plant closures, redundancies and new
The DaimlerChrysler Mitsubishi merger 39
relationships are in the offing. In other words what is to be done should be effected
quickly with clear communication and without ambiguity.
It is at this juncture that decisive leadership is essential, because as Prittchet et al.
(1996) argue, failure in post merger strategy implementation often leads to stress and
anxiety among the work force with key and talented figures in the management structure
leaving for other jobs and replacing these people may prove expensive. Instead, key
personnel should be offered attractive reward packages to ensure that they remain with
the firm (Aslinger and Copeland, 1996). Finally, there are often cultural difficulties to be
resolved and again this is down to the quality of leadership. Senior management must
show respect and sensitivity towards genuine differences and cultural practices and try to
avoid anything that might be construed as cultural imperialism by paying close attention
to legal systems, symbols and social norms (Ghosn, 2002).
3 The DaimlerChrysler Mitsubishi merger
Any understanding of the above merger needs to be contextualised within the major
trends in merger and consolidation that occurred in the global automotive industry from
the late 1980s onwards. In the search for a global presence, international cross border
mergers were a key feature of the major automotive companies. Additionally, as markets
became more competitive, consumers, who were increasingly both financially and
information rich, sought an increasing variety of vehicles to fit in with their lifestyles. In
consequence markets fragmented and this was aided by the advent of flexible production
methods which encouraged manufacturers to produce a variety of vehicles to meet ever
growing and diversified demand patterns through economies of scale and scope.
As a result the major firms searched for a presence not just in all major geographic
markets, but in each market segment from small volume models to their luxury
counterparts. Achieving this type of growth presented a choice: organic growth or growth
by acquisition and merger. The former, which was pursued by Toyota when it created
Lexus as a separate brand was slow and expensive, whereas the latter offered a cheaper
and quicker option. This pattern can be illustrated easily in the series of acquisitions
made by Ford, Volkswagen and GM. In the light of this growing trend Daimler-Benz
decided to follow suit by merging with Chrysler of America in 1998 and two years later
with Mitsubishi of Japan to avoid the possibility of becoming vulnerable to possible
predators (Dicken, 2007; Morris and Donnelly, 2006).
After five financially troubled years of partnership DaimlerChrysler finally
relinquished its remaining shares in the Mitsubishi Motor Corporation on 11 November
2005. In so doing, it effectively ended the company’s ambition to create a truly global car
company. The eventual collapse was not unexpected. At the time of the merger
contemporary analysts had expressed their misgivings, remaining undecided whether the
move was “shrewd or desperate” (Priddle, 2000). Regardless of optimistic views
expressed at the time by DaimlerChrysler, the venture proved a failure. It is primarily for
these reasons that this article explores the logic behind the merger in the first place, the
leadership role played by Schrempp and ultimately explaining why the merger failed.
Schrempp’s rise from the position of mechanic at a Mercedes Branch in Southern
Germany to the head of Europe’s largest industrial enterprise is already well documented
and need not be recounted here (see Grässlin, 2000). In May 1995 Schrempp assumed
leadership of Daimler-Benz from Edzard Reuter and inherited a firm which was highly
40 J. Begley and T. Donnelly
diversified, but poorly integrated and afflicted by large, spiralling debts. A period of
restructuring, involving the sale of non-core businesses such as the firm’s aircraft
division, was overseen by Schrempp, and culminated in 1998 with the decision to
complete a merger with the US-based Chrysler Corporation. The deal, completed in
May 1998, was Schrempp’s brainchild and was in keeping with his desire to turn
Daimler-Benz into a global brand name by initially gaining a foothold in the
North American market. In a $38 billion stock deal Chrysler’s shareholders received
DaimlerChrysler stock at a rate of 0.6235 per share (approximately 42% of the company),
while Daimler-Benz’s shareholders received DaimlerChrysler shares at a rate of
one-to-one and a bonus of .005 of a share per share (Week in Germany, 1998).1
Though mooted as a merger of equals with a good product/market strategic fit, the
truth was that from the beginning the Germans were the dominant force in the new entity.
For example, the stock valuation of Daimler-Benz at almost twice that of Chrysler
demonstrated the superior partner status of the German company. Moreover, the decision
to locate the headquarters of the new group in Germany and the speedy marginalisation
of the Chrysler chairman, Robert Eaton, only served to underline this point. The
Americans soon realised that they were regarded as the junior partner. The driving force
behind the new company would instead be the Daimler-Benz chairman,
Jürgen Schrempp (Gomes et al., 2010 forthcoming).
DaimlerChrysler was now the world’s third largest automaker, trailing only GM and
Ford in output. Their respective products were for the most part not in direct competition,
but were complementary to each other, giving the firm a model in virtually every product
segment and in the key European and North American markets, Chrysler would
concentrate on the volume market and Daimler on the luxury. The combined
DaimlerChrysler work force numbered approximately 428,000, and was expected to
produce 4.4 million vehicles per annum (Business Week, 1999). Yet, Schrempp’s
ambitions for the new DaimlerChrysler group did not end here. Specifically, gaining a
foothold in the Asian market now became a priority. Without any internal opposition and
enjoying the support of his board, Schrempp was able to pursue an acquisition policy to
build a worldwide presence in the automotive market.
4 Towards a global brand; DaimlerChrysler and the Asian market
Penetration of the Asian market predated Schrempp’s leadership of Daimler-Benz. In the
mid 1990s Daimler’s board of management had expressed its aspirations for expansion
into China, Japan and other Asian countries. It was envisaged that by 2005 Daimler sales
would rise to $21 billion dollars in the region, but it was recognised that this would be
extremely difficult without taking over or forming a strategic alliance with an existing
Asian firm as Ford had done with Mazda and GM with Isuzu (Grässlin, 2000). In 1999
Schrempp openly speculated that DaimlerChrysler’s 1.3% of the Asian market would rise
to 10%, but did not offer a time-line on when this might happen (Ewing et al., 1999).
The horizontal acquisition of an Asian-based firm by DaimlerChrysler offered the
corporation definite advantages such as: the possibility of achieving a global market
presence; access to new markets or segments; the possession of an established brand
name which would facilitate deeper penetration of Far Eastern markets while at the same
time raising Mitsubishi’s profile in Europe. Envisaged, too, was cooperation in
technologies leading to new models and cost reductions through synergies and greater
The DaimlerChrysler Mitsubishi merger 41
economies of scale arising from shared assets (Paul, 2008). However, it should be
stressed that perhaps the lure of new technologies, techniques and processes, as well as
the benefit of even greater economies of scale and scope can often make the most
cautious and conservative of companies almost reckless. In the case of DaimlerChrysler
the temptation of achieving a market share in the Asian arena may have caused it to
over-extend itself in its dealings with Mitsubishi Motors and less than diligent in its
evaluation of the target company at a time when many of the difficulties in fusing
Mercedes and Chrysler had yet to be resolved.
The first move toward a business partnership with Mitsubishi had occurred under the
leadership of Schrempp’s immediate predecessor, Werner Reuter, who had begun a series
of negotiations with Mitsubishi Motor Corporation aimed at forging a closer alliance
between the two companies. However, by the mid 90s the Japanese market had entered
recession as automobile sales generally in the Far East fell by 7%, discouraging Daimler
from becoming further embroiled (Grässlin, 2000).
The attraction of merging with Mitsubishi Motors lay not only in market penetration,
but in the designing and development of medium sized and small car technologies that
would assist Daimler in an area where its own skills and expertise were weak, ably
illustrated by the early days of the Smart car, for example. The original concept – a small,
cheap, lightweight sub-compact car had proved an unpopular product and initial sales
disappointed. By 1999 DaimlerChrysler were looking to find a partner to provide
expertise in this type of small car technology and a new platform that would allow the car
to be revamped (Jennings, 1999). In this respect Mitsubishi’s knowledge in the field of
development, production and distribution of passenger cars and light commercial vehicles
made partnership with the Japanese firm even more attractive (Schmid, 2000). The
remaining question is why were the Japanese open to DaimlerChrysler’s overtures.
5 The Mitsubishi Motors Corporation
Mitsubishi’s involvement in the automotive industry dates back as far as 1917, when
Mitsubishi Shipbuilding Co. Ltd. first introduced the Mitsubishi Model A. However it
was not until the post-Second World War years, after the Mitsubishi Heavy Industries
conglomerate was divided into three regional companies by the occupying allied forces,
that major strides in motor vehicle development were made. The growth in commercial
vehicles and family motoring meant the company would enjoy particular success in the
sub-compact market with the Minica and Colt models. Following the success of the
Mitsubishi Galant in 1969 the company decided to create a single operation focusing
solely on the automotive industry under the name of Mitsubishi Motors in 1970. Success
in the domestic market led to a focus on exports and forging alliances with foreign firms
such as Chrysler which purchased 15% of the Mitsubishi Motor Corporation in 1971.
Chrysler now began selling Galants in the USA under the title of Dodge Colt. The net
result for Mitsubishi Motors was to increase annual motor production beyond 250,000
vehicles per annum. This alliance lasted until the late 1980s when growing competition
saw relations become strained between the two companies. Despite this tension,
cooperation continued until 1993 when in a mutual agreement Chrysler divested itself of
its Mitsubishi shares. The companies, however, retained close links and it was these that
were subsequently exploited by the DaimlerChrysler group when the merger with
Japanese company was first mooted (Schmid, 2001).
42 J. Begley and T. Donnelly
That the Mitsubishi Motors Corporation would prove receptive to the
DaimlerChrysler overtures by the end of the millennium can largely be explained by the
economic recession in South-East Asian from the middle of the 1990s onwards. The
downturn in the Asian market was felt by other Japanese automotive firms such as
Toyota and Honda (Toyo Keizai, 2000). Their losses, however, were offset by their
significant presence in foreign markets. Mitsubishi, in comparison, focused to a greater
extent on Asian markets and suffered in consequence. In 1997 the company posted a debt
of Y1.7 trillion yen ($14.2 bn), the worst losses in its history, and was forced to close
indefinitely its Thai truck plant, which normally produced 8,700 vehicles annually. A
severe restructuring plan aimed at cutting costs by Y350 billion yen ($3bn) as well as
trimming the workforce by 1,400 workers, failed to arrest the slide and the
company suffered a net loss of Y101,846 million yen ($855 mn) in March 1998
(Mitsubishi Motors, 1998).
It became clear that the only way for Mitsubishi to survive the deepening economic
recession and ensure its future was either to seek out new markets abroad or forge a
relationship with a foreign partner. Of the two options, the latter was considered the more
feasible in the short term. It was suggested that the company offer itself as a take-over
target, but this was rejected by company chairman, Katsuhio Kawaose, who preferred to
see the company as an equal to others rather than one requiring rescue. In this context,
and despite the enormous losses, the possibility of a tie-up with Mitsubishi Motors made
good business sense from the perspective of a Western investor like DaimlerChrysler as it
pushed open the doors to the Far East even further with an established and respected
Japanese firm (Nikkei, 1998; Diamond 2000).
What was significant was that while the Japanese were posting heavy losses, sales in
the US market proved relatively buoyant and it may well have been this factor, along
with the relatively close relations with Chrysler that encouraged DaimlerChrysler to
purchase a 34% stake ($2.1 billion) in the Japanese firm in May 2000. The cost though
was offset by the sale of a 50.1% stake in Debis Systemhaus GmbH to Deutsche Telekom
AG. Yet the deal still represented a risk to Daimler-Chrysler so soon after their recent
merger, Chrysler’s operating losses of €1.1 million at the start of the Millenium and the
subsequent slow pace of inter-company restructuring and integration due to serious
tension created by cultural and behavioural differences. Indeed, this latter fact caused
several Daimler Board members to harbour misgivings about investing in Mitsubishi,
seeing it as too much of a potential risk due to its secretive culture and the derogatory
attitude exhibited by some management cadres towards female employees, which on
occasions spilled over into sexual harassment (Wilmsen, 1998). However, in explaining
the strategic rationale for the new relationship, board member Professor Juergen Hubbert
“We have the product for all worldwide markets, in all worldwide segments, if
we do it right. Then we can build a portfolio of products from entry to upper
luxury. The capacity they have in Asia, combined with some of the Koreans, in
whom they have a stake, and (Malaysia’s) Proton, this offers us a lot of
opportunities if we do things right.” (Eisenstein, 2005)
While Hubbert accepted that the takeover of Mitsubishi was not without its challenges,
the possibility of creating a global brand remained a tempting prize, particularly with
potential of acquiring small car technology and the lucrative markets this would open.
Indeed, to augment this, Daimler Chrysler also took a 10% interest in Hyundai,
The DaimlerChrysler Mitsubishi merger 43
Mitsubishi’s Korean partner, with a view towards developing small trucks and cars.
However, almost immediately the new enterprise was put to the test even before any
implementation strategy could begin.
6 From merger to demerger
The merger between DaimlerChrysler and Mitsubishi failed and the reasons for this
cannot be disentangled from the Chrysler’s problems in the USA and Daimler’s problems
in its heartland. From the outset Mitsubishi’s weaknesses were considerable. In addition
to its poor financial performance (Table 1) it suffered from a excessive product range, too
many models in each segment, a weak market image and from serious deficiencies in the
quality of its manufacturing facilities. The official relationship between the two firms had
barely been instigated when problems began to reveal themselves. Between July and
August a million vehicles had to be recalled due to faults being exposed, causing the
firm’s share price to drop by 30%. The following month CEO Katsuhiko Kawasoe was
forced to resign after Mitsubishi admitted publicly to covering up defect problems in its
cars (Diamond, 2000).
As far back as 1977 the firm had been secretly repairing its cars instead of reporting
the problems to the Japanese Transport Ministry. The failure to make the ministry aware
of customer complaints prompted the Transport Minister, Hajime Morita, to publicly
chastise the group (BBC, 2000). The response to the scandal from the DaimlerChrysler
management board was to renegotiate the financial terms of the merger downwards. The
cost of the 34% stake in the Japanese firm was reduced from $2.1 billion to just
$1.9 billion.
Table 1 Profit and loss account Mitsubishi Motor Corporation: (billion yen)
Year Profit loss
2000 (278)
2001 11.2
2002 37
2003 (215)
2004 (474.8)
2005 (92.2)
Source: Adapted from Paul (2008)
It was recognised that Mitsubishi stood in need of turnaround strategy and to this end,
Rolf Eckrodt, a senior Daimler manager who had been instrumental in turning around
Daimler’s Adtranz rail technology subsidiary, was quickly appointed as chief operating
officer at Mitsubishi Motors and dispatched to Japan to effect a turnaround via crisis
management, improve the company’s image and transform its position through new
model development in the small car segments. Eckrodt, however was disadvantaged in
that his powers were limited. DaimlerChrysler were only minority shareholders in
Mitsubishi as its main board membership was limited to three. Moreover, Eckrodt had to
report to a Japanese Chairman and so did not have full operational control. Aware of the
depth of the problems, Eckrodt, nevertheless, succeeded in reducing costs by: reducing
the headcount by 9,500 from a total of 65,000; closing one factory to reduce capacity
44 J. Begley and T. Donnelly
under-utilisation by 20%; by initiating a programme to cut material costs by 15% by
2003; and reducing the number of platforms by 50% (Paul, 2008).
Eckrodt’s policy was based on encouraging Mitsubishi to move away from a culture
of engineering dominance to one of being market led in developing new models to be
shared with Chrysler. Efforts were made at integration through the planned development
of a new plant at Kolleda in Germany. Additionally plans were put in place with Hyundai
to establish The Global Manufacturing Alliance in five factories across the globe with a
total capacity to turn out two million power trains per annum to complement anticipated
platform sharing and cross supply agreements. Little of this came to fruition as
Mitsubishi’s profits continued to slide downwards and generally post merger integration
strategy failed (Schmid, 2001). However, the plight of the Asian wing of the
conglomerate was not the only concern for German management.
The second simultaneous problem threatening the new DaimlerChrysler group was
the poor performance of its American unit, whose shortcomings were creating headaches
for its German partner. When the DaimlerChrysler merger had been broached in 1998 the
US firm was at the top of the US market. Within two years, however, it had spiraled
deeply into crisis, racking up $4.7 billion in operating losses by 2001 as a result of fierce
domestic and foreign competition in the light truck and sports utility vehicle (SUV)
market on which it was over dependent, a situation that was not helped by heavy price
discounting. In 2000 a Daimler veteran Dieter Zetsch was dispatched to USA with a
remit to turn Chrysler around. Immediately Zetsch attacked the problem of excessive
costs by cutting 25,000 operatives and idling six plants to improve capacity utilisation
(Gomes et al., 2010 forthcoming) As Juergen Pieper, an auto analyst with Metzler Bank
in Frankfurt, noted:
“Chrysler had done almost everything right for a couple of years, and they were
simply too slow in reacting to the competition that moved into their markets.”
(quoted in Greimel, 2000)
In addition to their slow reaction to encroaching competition from both indigenous and
US produced Japanese products, particularly in the area of minivans and SUVs, the
company had reached a plateau in its truck sales. However, competition alone did not
account for the decline in Chrysler’s fortunes. Chrysler products also had a reputation for
poor quality build and excessive fuel consumption that made them increasingly
unpopular and market share fell (Gomes et al., 2010 forthcoming).
The result was that German management, faced with both its Western and Eastern
divisions in difficulties, was now forced to divert its attention to its US-based Chrysler
arm with less attention being devoted to Mitsubishi and so over stretched its managerial
resources. This was not helped by Schrempp’s ill-judged comment in 2000, admitting he
had lied in 1998 to get Chrysler to agree to a business combination with Daimler-Benz.
He admitted that it had always been his intention to control Chrysler and operate it as a
division. This prompted DaimlerChrysler’s third largest shareholder, Kirk Kerkorian, to
bring a federal lawsuit against DaimlerChrysler and senior company executives for
fraudulently inducing the 1998 vote of Chrysler shareholders (Millet, 2000) In January of
the following year a disgruntled Kerkorian sold ten million shares in Daimler-Chrysler.
(Goodman, 2001) The outcome was that the stock price of the DaimlerChrysler that had
been steadily declining from its 1998 high of $108 dollars now plummeted to $47 dollars
far below its price at the time of merger, which shook German shareholder confidence
seriously as all three divisions of the company appeared to be suffering.2
The DaimlerChrysler Mitsubishi merger 45
In response to what was tantamount to a near crisis situation, Schrempp announced
plans to restructure both the Chrysler and Mitsubishi units in February of 2001. The
proposed new strategy involved eliminating thousands of white-collar jobs, cancelling the
development of marginally profitable vehicles and sharing auto parts between Chrysler
and Mitsubishi. On 16th March DaimlerChrysler let go about 2,700 salaried workers
while another 2,285 opted for early retirement. Another 1,800 contract workers were also
released, bringing the total German cutback to 6,785 (DaimlerChrysler, Annual reports
and accounts, 1998–2007).
This recovery plan accepted that DaimlerChrysler would record losses of $2.5 billion
in 2001 and would take a restructuring charge of $2.8 billion. The plan expected the
group to break even in 2002 and earn a profit of $2 billion in 2003.3 However, the impact
of declining profits and high profile court cases had damaged DaimlerChrysler’s image
resulting in two of the largest US rating agencies, Standard & Poor’s and Moody’s
Investors Service, cutting their long-term ratings for DaimlerChrysler. Schrempp’s
$3.64 billion, three-year recovery plan was put in grave danger of derailment (Paul, 2008)
The seriousness and depth of the three companies’ problems were further
compounded when Mitsubishi incurred a $454 million provision cost against its 2003
accounts as a result of default payments on its zero-zero-zero finance offer instigated at
the beginning of the millennium (Mitsubishi Motors, 2004). The corporate and financial
difficulties encountered in both the US and Asian arms of the organisation at the cost of
product rationalisation and new model development, also impacted negatively on
Daimler’s own domestic operations. As early as 2000, German shareholders voiced their
concern that Daimler was more or less subsidising Chrysler which by that time was
already viewed by many German shareholders as a failing enterprise. Daimler’s situation
was not helped by the fact that BMW had overtaken it in volume of production, while in
the US market its sales figures had been exceeded by those of Toyota’s Lexus as the best
selling luxury brand (Power and Boudette, 2005). Forced to squeeze costs to achieve
greater profits from the group, by July 2003 due to severe competition in Europe,
Mercedes had fallen to the lower levels of J.D. Power & Associates’ reliability survey as
a result of corner-cutting on quality and concomitant failures in new hi-tech technology
applications in its vehicles (Business Week, 2005). The culmination of this was a series of
recalls of sedans in the Mercedes e-class segment – 680,000 in 2004 and a further
1.3 million in 2005 which proved highly embarrassing for a luxury premium class
producer. Finally, problems arose with the Smart. Launched in 1998 in an attempt to raise
Daimler’s profile in the small city-car segment, the project lost money almost
continuously. For example, in 2004 on sales of 160,000 units, the company sustained
losses of over $400,000 (Taylor, 2005).
The situation for Schrempp and Daimler had become difficult. Having lost $60 billion
in stock market value in six years and with the company’s net profit for 2003 down 91%
from the preceding year, the CEO in April 2004 was forced to face down angry
shareholders who felt that the existence of Daimler itself was being eroded. The
shareholders and the German media voiced the opinion that the problems in the USA and
Japan were endangering the very survival of Daimler itself and it was this that heralded
the beginning of the end for Schrempp’s attempts to create a global firm. Schrempp
though steadfastly stuck with the view that a global company could be created and argued
the case for a financial restructuring of Mitsubishi. The Board, however, refused his
request for a $1.5 billion cash injection for Mitsubishi and took the decision to extricate
DaimlerChrysler from its Asian holdings by selling off its shares in both Mitsubishi and
46 J. Begley and T. Donnelly
Hyundai and so abandoned them. This decision opened the route to preserving the
integrity of Mercedes and ensures its survival as a viable entity. In so doing it ended
Schrempp’s ambitions; he was left with little alternative but to resign in early 2005
(Paul, 2008). News of the resignation sent Daimler Benz’s share price soaring by 9%
adding $4 billion to its market value (Gomes et al., 2010 forthcoming). The Asian
adventure had ended in a debacle, the dream of a global enterprise ended ignominiously
and probably paved the way for the subsequent demerger with Chrysler in 2007.
7 Conclusions
Several conclusions can be drawn from the failure of the DaimlerChrysler merger with
Mitsubishi. Intense competition in the car manufacturing sector globally, combined with
the need for scale and scope, had left Daimler-Benz with few real alternatives to
Schrempp’s plans for expansion overseas through merger and acquisition and so forestall
any would-be predators. The two mergers in questions did not happen in isolation.
German firms generally had been heavily engaged in foreign investment throughout the
1990s and equally, Schrempp’s global vision was also matched by other automotive
manufacturers with firms like Ford, Renault, Volkswagen and GM, eschewing organic
growth and expanding via merger and take-overs.
Theoretically, therefore, Schrempp’s ambitions for Daimler-Benz made good
business sense, but specifically in the case of Mitsubishi there does not appear to have
been a clear post-merger integration strategy, save that the Japanese venture would
perhaps improve Mercedes prospects in the market of the Far East and that Daimler-Benz
would benefit from access to small car technology. It could, however, be argued,
nevertheless, that the decision to enter partnership with an ailing Mitsubishi in 2000, a
group whose management culture stood in sharp contrast to that of Daimler was a serious
error of judgement in terms of timing due to the long running recession in the Japanese
economy. Had Daimler to deal solely with an underperforming Chrysler, the
haemorrhage of capital and managerial talent from Daimler-Benz to its partners may not
have proven so serious as the German managerial resource base became seriously
overstretched. The dual challenge of both a troubled US operation in conjunction with a
failing Mitsubishi Motors Corporation proved too much. In essence it is legitimate to ask
whether or not a full evaluation of Mitsubishi had been carried out prior to the merger to
establish its strengths and weaknesses? Perhaps proof of this can be evidenced by the
failure to develop an appropriate series of vehicles.
Perhaps part of the reasoning behind DaimlerChrysler’s decision to acquire
Mitsubishi can be found outside broad market theories on mergers. Both Vermeulen and
Barkema (2001) and Seth et al. (2001) have independently posited the idea that mergers
may also take place when controlling managers are focused on growing their businesses
rather than on profit maximisation. In this instance the motive for the merger appears to
lie not just in growth maximisation, but also in augmenting managerial status. The charge
that Schrempp was acting in this vein would appear somewhat inconclusive. The basic
rationale behind the deal was sound, even if the timing was poor. Yet, it is difficult to
escape the suggestion that Schrempp’s force of personality and his desire to achieve his
ambitions for the group did much to gloss over the potential problems in the deal in 2000.
The ultimate lessons flowing from this case are the dangers in not having fully thought
out post integration strategies, the importance of timing and the consequences of
The DaimlerChrysler Mitsubishi merger 47
stretching resources too thinly in times of economic crisis, especially when the very
existence of the dominant partner could be threatened.
Aslinger, P.L. and Copeland, T.E. (1996) ‘Growth through acquisitions: a fresh look’,
Harvard Business Review, Vol. 74, pp.126–135.
BBC (2000) ‘Cover-up forces Mitsubishi boss out’, 8 September, available at
Business Week (1999) ‘Dangerous liaisons’, 24 March, p.48.
Business Week (2005) ‘Dark days at Daimler’, 15 August.
Capron, L. (1999) ‘The long term performance of horizontal acquisitions’, Strategic Management
Journal, Vol. 20, pp.987–1018.
Cartwright, R. and Schoenberg, S. (2006) ‘Thirty years of mergers and acquisitions research: recent
advances and future opportunities’, British Journal of Management, March, Vol. 17,
DaimlerChrysler (1998–2007) ‘Annual reports and accounts (online)’.
Diamond (2000) ‘Foreign investors have gobbled up Japan’, 13 May.
Dicken, P. (2007) Global Shift: Transforming the World Economy for the 21st Century, Sage,
Donnelly, T. and Morris, D. (2003) ‘The Ford Premier automotive group: in search of strategy’,
CLED, Working paper, Coventry University Business School.
Donnelly, T., Morris, D. and Donnelly, T. (2004) ‘Renault: from bankruptcy to profit’, Centre
Innovation Marche Entreprise, Cahier No. 30, IAE, University of Caen.
Eisenstein, P. (2005) ‘Interview with Juergen Hubbert’, Car Connection, 29 May, available at
Ewing, J., Thornton, E. and Kunii, I. (1999) ‘DaimlerChrysler desperately seeking an ally’,
Business Week, 13 December, available at
Ghosn, P. (2002) ‘Saving the business without losing the company’, Harvard Business Review,
Vol. 80, pp.37–45.
Gomes, E., Donnelly, T., Collis, C. and Morris, D. (2010 forthcoming) Mergers and Acquisition as
Strategy Method of Business Development in the World Automotive Industry, Edwin Mellen
Press, New York.
Gomes, E., Donnelly, T., Morris, D. and Collis, C. (2007) ‘Improving merger process management
skills over time: a comparison between the acquisition processes of Jaguar and Land Rover by
Ford’, Irish Journal of Management, Vol. 28, No. 1, pp.31–47.
Goodman, D. (2001) ‘Kerkorian dumps 10 million DaimlerChrysler shares’, Associated Press,
25 January.
Graebner, M.E. and Eisenhardt, K.M. (2004) ‘The sellers side of the story: acquisition as courtship
and governance as syndicate in entrepreneurial firms’, Administrative Science Quarterly,
Vol. 49, pp.366–403.
Grässlin, J. (2000) Jürgen Schrempp and the Making of an Auto Dynasty, McGraw-Hill, London.
Greimel, H. (2000) ‘Schrempp digs in as criticism grows’, Associated Press, 4 December.
Howell, R. (1970) ‘Plan to integrate your acquisitions’, Harvard Business Review, Vol. 48, No. 6,
Jennings, B. (1999) ‘Sharp moves to keep Smart running’, Drive, September.
Millet, M. (2000) ‘Captain Kirk calls in the cleaners’, Drive, 29 November.
48 J. Begley and T. Donnelly
Mitelton-Kelly, E. (2004) ‘Co-evolutionary integration: a complexity perspective on mergers and
acquisitions’, EGOS Conference, University of Slovenia, Slovenia, July.
Mitsubishi Motors (1998–2004) Internet repository, Consolidated annual financial results, available
Morris, D. and Donnelly, T. (2006) ‘Are there market limits to modularization?’, International
Journal of Automotive Technology and Management, Vol. 6, No. 3, pp.262–275.
Nikkei (1998) ‘Chrysler Merger raises eyebrows’, 7 May.
Paul, H. (2008) ‘Daimler Chrysler, lessons in post-merger integration’, Wirtschaft FH Mainz,
European Case Clearing House, Cranfied, Casez Reference, 308-295-1.
Power, S. and Boudette, N. (2005) ‘DaimlerChrysler fixes a unit while another stumbles: fuel for
merger critics’, The Wall St Journal, 9 February.
Priddle, A. (2000) ‘Daimler Chrysler/Mitsubishi: a marriage of convenience’, Ward’s Auto World,
Prittchett, P., Robinson, D. and Clarkson, R. (1996) After the Merger: the Authoritative Guide for
Integration Success, McGraw Hill, New York.
Schmid, J. (2000) ‘Daimler Gets Closer To Mitsubishi Deal’, International Herald Tribune,
23 April.
Schmid, J. (2001) ‘The Daimler Puzzle: Is Mitsubishi the Key?’, International Herald Tribune,
23 February.
Seth, A., Song, K. and Petit, R. (2001) ‘Synergy, managerialism or hubris? An examination of
motives for foreign acquisitions of US firms’, Journal of International Business Studies,
Vol. 31, pp.387–398.
Taylor, A. (2005) ‘The nine lives of Jürgen Schrempp’, Fortune, 10 January.
Toyo Keizai (2000) ‘The challenges facing the Honda way’, 13 May.
Vermeulen, F. and Barkema, H. (2001) ‘Learning through acquisitions’, Academy of Management
Journal, Vol. 44, No. 3, pp.457–476.
Week in Germany (1998) ‘Daimler-Benz begins stock transfer to complete merger with Chrysler’,
25 September.
Wilmsen, S. (1998) ‘Mitsubishi to pay $3.4 million in harass suit’, The Boston Globe, 6 December.
1 Grässlin quotes the Chrysler figure at 0.547, while the German journal Week in Germany
quotes the figure used above. Both agree that Chrysler was the loser.
2 Kerkorian sought more than $2 billion in actual damages (including the acquisition premium
denied it by the pretense of a merger of equals) and $1 billion in rescissory damages
(representing the drop in value of the DaimlerChrysler shares exchanged for Tracinda’s
Chrysler stock). On top of this Kerkorian wanted punitive damages of at least $6 billion to
punish the defendants for defrauding all Chrysler shareholders and the investing public at
3 ‘Nothing down, no interest, no payment for the first year’ had proven a successful campaign in
the sale of Mitsubishi vehicles. However, when the time came for the first series of
repayments, defaults on repayment were higher than had been anticipated by the company.
... The ultimate responsibility lies with the acquiring firm that has three choices: motivate the existing management team, bring in an entirely new team or create a new management team drawn from both firms. Whichever method is adopted it is essential that team members play complementary roles to achieve change whether this be in culture, behavioural patterns, human resource management practices, operating procedures and so forth (Begley and Donnelly, 2011). It is at this juncture that decisive leadership is essential, because as Prittchet et al. (1996) argue, failure in post merger strategy implementation often leads to stress and anxiety among the work force at each level. ...
... With regards to past trends, the novelty for carmakers regards less geographic integration and more the presence in each market segment by organic growth or acquisition and merger. Theoretically, the former, which was pursued by Toyota when it created Lexus as a separate brand, is slow and expensive, whereas the latter, followed in series of acquisitions made by Ford, Volkswagen and General Motors, offers a cheaper and quicker option (Begley and Donnelly, 2011). ...
... In 1998, the US firm was at the top of the US market. Within two years it had spiralled deeply into crisis, racking up $4.7 billion in operating losses by 2001 as a result of fierce domestic and foreign competition in the light truck and SUV market on which it was overly dependent, a situation that was not helped by heavy price discounting (Begley and Donnelly, 2011). ...
Full-text available
In the automotive and, more generally, in the industrial arena Fiat Group Automobiles (Fiat) and Chrysler Group LLC (Chrysler) can be considered two permanent case studies. In particular, now that they are joining their trajectories. Both companies have gone through many crises, long histories and strong company cultures. In particular, Chrysler in the last 15 years has been characterised by three acquisitions/mergers; each can be considered a good research field. The paper describes the trends occurred by Fiat and Chrysler before the alliance and the targets to make Fiat-Chrysler a viable carmaker. Development and Innovation. His works concern the multinational corporations and the dynamics of global industry, with special attention to emerging markets.
... DaimlerChrysler turned out to be equally unsuccessful with the merger with Mitsubishi in Japan in 2000. Here it took only four years, and the dream of trans-national production on the scale of Ford, General Motors (GM) and Toyota had fallen apart (Begley and Donnelly, 2011). It can be presumed that cross-cultural differences provided one reason for the failure of the mergers. ...
Full-text available
Companies are very often confronted with external and internal cultural diversity to which they have to respond adequately. We need a deeper understanding of whether national cultures remain divergent in countries such as Japan and the Czech Republic following the pressures of globalization. One can argue that as cultures evolve they should constantly be assessed e.g., with respect to each of Hofstede‟s dimensions. By collecting data from one Eastern-European culture, the Czech Republic, and one Eastern culture, Japan, this study has re-examined Hofstede‟s (1984; 2001) cultural dimensions in these two cultures. Results suggest interesting changes have occurred in these cultures; a trend towards convergence may be derived. Explanations as well as implications are discussed.
Purpose The purpose of this paper is to revisit the disastrous DaimlerChrysler AG takeover episode from 1998 to 2007 in order to arrive at a more comprehensive explanation of this and other merger and takeover failures based on institutional theory. Design/methodology/approach The case study is based on various secondary sources of information and on the insights that one of the authors gained from working for 14 years in various positions for Daimler-Benz and DaimlerChrysler. Findings DaimlerChrysler failed because top management made mistakes in trying to globalize the company. They were unable to realize possible synergies between the two companies, which brought complementary resources into the merger. Furthermore, they did not account for the institutional embeddedness of strategies when they adopted lean production globally, diffused the production system developed in Germany to other parts of the world and tried to implement a global stock enlisted in New York and Frankfurt. The underlying theoretical framework is relevant for other merger and acquisition cases. It features institutional embeddedness, path dependency and institutional arbitrage. Originality/value The paper develops an institutional perspective on DaimlerChrysler and on cross-border merger and acquisition failure more generally. The perspective is organized around the varieties-of-capitalism approach. This contribution is important because there is increasing dissatisfaction with the dominant explanation of cross-border merger and acquisition failure, which is based on the allegedly failed management of culture “clashes.”
The Italian automotive industry highlights particular characteristics compared to other countries. In Italy, there is only one important assembler, Fiat Chrysler Automobiles, which is one of the most important European automotive supply chain, characterised by a clear predominance of SMEs (Small Medium Enterprises) that were once dependent on the national producer.
Full-text available
Research on acquisitions has typically focused on acquisitions per se, examining issues such as performance and implementation problems. This study moves beyond that perspective and studies the influence on a firm's later expansions. We argue that exploitation of a firm's knowledge base through "greenfields" eventually makes a firm simple and inert. In contrast, acquisitions may broaden a firm's knowledge base and decrease inertia, enhancing the viability of its later ventures. Over time, firms strike a balance between the use of greenfields and acquisitions. Various implications of this theory-tested with survival analysis and "logit" models-were strongly corroborated.
Full-text available
Despite an apparently thorough 'due diligence' process, many mergers and acquisitions (M&A) still fail to meet pre-merger objectives. One of the main contributing factors is insufficient emphasis on post-merger relationships, and the development of an emergent culture to support the new organisational form. Two examples of M&A will be used to illustrate a successful and a dysfunctional application of post-merger integration, seen from a complexity theory perspective. An ideal post-merger integration, according to complexity, would resemble the creation of a child. It has some characteristics inherited from both parents but it has its own unique personality and identity. Yet in most cases the more dominant partner tries to impose its own culture, ways of working and procedures. It expects the dependent partner to adapt to these conditions, instead of facilitating reciprocal learning and co-evolution between the partners. The paper will explore the differences in attitude of the two companies and identify some of the key contributing factors to successful co-evolutionary integration from a complexity theory perspective. It will do so by outlining the relevant characteristics to M&A, of organisations as complex evolving systems. It will finally propose that co-evolutionary integration may be facilitated by using the logic of complexity and the co-creation of an enabling infrastructure.
Modularisation is the predominant approach used in the modern automotive industry to widen the variety of products available in the market place at affordable prices. Modularisation has taken place in the context of increased global competition in the industry, a trend towards greater outsourcing of both module manufacture and development and greater volatility in consumer demand at the model level. Modularisation is both a strategy and a process. Like all shifts in the organisation of production in the industry there are potential limits to what can be achieved through modularisation. This paper explores some the extent to which the market itself may impose limitations on what can be achieved via modularisation.
In contrast to the prior acquisitions literature, which has emphasized the buyer's perspective, we examine the seller's perspective. This has important implications for understanding both the acquisition process and, more broadly, corporate governance in successful firms. Using a multiple-case, inductive study of 12 technology-based ventures, we find that acquisition occurs when sellers are pushed toward acquisition by difficult, albeit natural strategic hurdles, such as a chief executive search or funding round, and by strong personal motivations for sale, such as past failures and investments by friends. Sellers are also more likely to be pulled toward acquisition by attractive buyers that offer synergistic combination potential and organizational rapport, factors usually associated with the long-term interests of buyers. We reframe acquisition as courtship and corporate governance as a syndicate, indicating joint decision making with some common goals, and explore the generalizability of these views for private versus public firms and other contingencies. Together, courtship and syndicate suggest a behaviorally informed account of organization that belies the rhetoric of price and self-interest.
This paper examines how value is created in horizontal mergers and acquisitions. More specifically, it examines the impact of post-acquisition asset divestiture and resource redeployment on the long-term performance of horizontal acquisitions. The data come from a detailed survey of acquiring firm managers and cover 253 horizontal mergers and acquisitions that were initiated by European and U.S. firms in manufacturing industries for the period 1988–1992. This study incorporates insights from the cost efficiency and resource-based theories to propose a model of the effects of asset divestiture and resource redeployment on long-term acquisition performance. Overall, our results show that both asset divestiture and resource redeployment can contribute to acquisition performance, with, however, a significant risk of damaging acquisition performance when the divested assets and redeployed resources are those of the target. Copyright © 1999 John Wiley & Sons, Ltd.
The complex phenomenon that mergers and acquisitions (M&As) represent has attracted substantial interest from a variety of management disciplines over the past 30 years. Three primary streams of enquiry can be identified within the strategic and behavioural literature, which focus on the issues of strategic fit, organizational fit and the acquisition process itself. The recent achievements within each of these research streams are briefly reviewed. However, in parallel to these research advances, the failure rates of mergers and acquisitions have remained consistently high. Possible reasons for this dichotomy are discussed, which in turn highlight the significant opportunities that remain for future M&A research.
When Renault and Nissan entered into a strategic alliance in March 1999, Nissan was in trouble. The Japanese automaker had been struggling for eight years to turn a profit. its margins were notoriously low, and purchasing costs were 15% to 25% higher at Nissan than at Renault. Adding to the cost burden was a plant capacity far in excess of the company's needs: The Japanese factories alone could produce almost a million more cars a year than the company sold. And the company's debts, even after the Renault investment, amounted to more than Sri billion. This was, quite literally, a do-or-die situation: Either Nissan would turn the business around, or it would cease to exist. A veteran of turnarounds at Renault and Michelin, Carlos Ghosn was asked by Renault's CEO to go to Tokyo to save Nissan. He faced an uphill battle as a non-Japanese, non-Nissan outsider - and he knew it. in this first-person account, Ghosn tells the story of Nissan's turnaround. He explains how he relied on cross-functional teams and how they became a powerful toot for getting line managers to see beyond functional and regional boundaries. Ghosn also contends that success is not simply a matter of making fundamental changes to a company's organization and operations; the company's identity and the self-esteem of its people must also be protected. Those two goals-making changes and safeguarding identity - can easily come into conflict; pursuing them both requires a difficult and sometimes precarious balancing act. The key, he says, is to nurture a strong corporate culture that taps into the productive aspects of a country's culture.