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International Business and Policy
Mercedes goes global
When Daimler-Benz AG unveiled the new Mercedes Benz CLK Coupe in Detroit in March 1997, American critics called it "in your face" foreign competition. However, the company's chairman, Jurgen E. Schrempp, purposely introduced the new car line in the heart of the U.S. auto industry, not as an affront to domestic manufacturers but to emphasize the place of Mercedes within the U.S. auto industry, making cars in the United States for North American sales. The Daimler-Benz Group, Germany's biggest industrial company, won the coveted 1997 North America Car of the Year award with its CLK Coupe, but that, Schrempp noted, was only the tip of the iceberg. He said:
“The American Mercedes, the M-Class, has set new standards in the sport utility vehicle segment around the world, yet it is being manufactured in Tuscaloosa, Alabama. The company is the world's leading manufacturer of heavy trucks through our U.S. Freightliner subsidiary, based in Portland, and Daimler-Benz is number one in railroad systems through a global joint venture, Acltranz, with U.S., Swiss, Swedish, and German interests. And although the company is identified primarily with automobiles, our aerospace unit is active in space, defence, and aircraft manufacturing, including a major shareholder in Airbus. Ironically, Airbus is considered a major European competitor counterpoised to the giant Boeing/McDonnell Douglas company following its recent merger, yet Airbus is an international consortium with major American interests and huge U.S. procurement contracts.”
The automotive sector within Daimler-Benz directly employs more than 20,000 U.S. workers, and it indirectly supports 80,000 additional jobs through alliance contracts or procurement arrangements. Adding Freightliner employment, the company's combined truck and car interests in North America represent more than 90,000 workers with asset strength that ranks in the top half of the Fortune 500 list. In addition, Daimler-Benz directly purchases in excess of $5 billion in U.S. goods annually, and that figure is expected to more than double with the new M-class production. Further, 500 U.S. suppliers support Airbus aircraft manufacturing, and their combined work share is estimated at about one-third of every airplane the European consortium assembles.
During the unveiling of the Mercedes CLK Coupe, Schrempp emphasized Daimler-Benz's role as a principal sponsor of the Trans Atlantic Business Dialogue, a forum that mobilizes North American and European business to promote free trade. The forum was created to minimize political barriers to open trade while encouraging intercultural exchanges and global communications. As a good corporate citizen, Schrempp noted that Daimler-Benz had been sponsoring community exchanges between employees, children, and citizens in Tuscaloosa, Alabama, and Stuttgart, Germany. For example, through a high school youth awareness program called "The Daimler-Benz Award of Excellence," the company has reached more than 1 million American teenagers with educational projects and cultural exchange sponsorships to build friendships between American youngsters and their counterparts in Germany.
This program is just one aspect of a major effort by Daimler-Benz to meld together American and German interests. The Alabama plant's executive team consists of four Germans and four Americans working together as a top management cadre. When the plant was initially planned in 1993, Mercedes executives brought in consultants with experience in Japan and Detroit to help form an international management approach for the new facility. Today, the plant is a prototype of international cooperation with a substantial European contingent of expatriate families, mainly Germans but many with experience in South America and Asia. Still, most workers are Americans, many with no backgrounds working for foreign companies.
The Alabama plant is only one part of Schrempp's plan to remodel Daimler-Benz as a "world company," not a German, European, or American one. The M-class Mercedes is, to a large extent, a German-engineered car, yet Daimler-Benz has major technological R&D centers in Paio Alto, California; Portland, Oregon; Shanghai, PRC; and Bangalore, India. Innovation and knowledge-based technology observe no national boundaries or proprietary interests. At the same time, the company is building a new class of smaller cars called the A-Class and a "Smart Car" designed for city commuters. The company is building these and several other Mercedes models at facilities in Brazil, Mexico, Malaysia, and India. On a global scale, parts, assemblies, and components flow between 60 countries and 140 facilities within the company's group operations, and the grand scheme incorporates a staggering number of contractors, vendors, and support activities. Daimler-Benz also holds equity interests in Japanese and Scandinavian automotive manufacturing, and a recent initiative has pondered a partnership with competitor GM to make a substantial investment in Korea's Ssangyong Motor Company. In Schrempp's view, Daimler-Benz retains its core German technology and its historic commitment to quality engineering, yet it is rapidly becoming a global, transnational enterprise through alliances, distribution agreements, and consortia.
Although Daimler-Benz has been historically considered a "very German" company, Schrempp says that it is being completely restructured to respond to the reality of global commerce. He emphasizes that nearly all major industries and services are entering an era of regionalism prompting redefinition of markets, alliances, capital flows, and social systems themselves through the European Union, NAFTA, ASEAN, and APEC. Competition for resources and markets is intensifying as more and more companies scour the world for low-cost areas in which to relocate production and for opportunities to network optimal cross-border systems of activities. To keep up with fast-paced global economic change, Schrempp says, business leaders must benchmark their operations against the best in the world in efficiency, quality, and financial performance. Most important, however, management must accept the challenge of operating in an international community that allows no room for parochialism, protectionism, or political ethnocentricism. Managers must learn to act as global citizens, not Germans, Americans, or Brazilians, while still honouring their cultural identities and the richness of their histories. Becoming a global organization is not about worldwide assets or activities, and it is not about organizational complexities or alliances. It is about people, and the transformation to a global company focuses on a fundamental change in management thought and behaviour.
Brull, Steven V. "The Ice Just Keeps Getting Thinner." Business Week, April 7, 1997, p. 54.
Martin, Justin. "Mercedes: Made in Alabarna." Fortune, July 7, 1997, pp. 150-158.
Mitchener, Brandon. "Mercedes's Werner Resigns as Chairman: Executive Felt Left out of Operations in Wake of Big Restructuring." Wall Street Journal, January 17, 1997, p. A10.
Schrempp, Jurgen E. "Thriving on Global Economic Changes: A European View." Vital Speeches of the Day 63, no. 10 (March 1997): 306-309.
Questions to be answered:
- The Daimler-Benz CEO characterizes the company as a developing transnational global organization. Do you agree, or would you describe the company differently? Critically evaluate how you view the corporation, describing the pattern of transition for many international organisations.
- How would you analyse the rationale by which Mercedes Benz locates assembly plants and activities in places such as Mexico, Brazil, and India? Evaluate what advantages the company gains in these facilities. Rationalise what risks might Daimler-Benz be taking.
- Why would Mercedes invest in a major new U.S. manufacturing facility for a top-line automobile? Evaluate what problems you would anticipate when the firm brings together German and American managers with local American workers in a U.S. plant. Critically analyse how culture and social influences affect labour relations.