The document provides information on Mercedes-Benz and its parent company Daimler-Benz AG. It states that Mercedes-Benz is the luxury automobile division of Daimler-Benz AG, which is Germany's largest industrial conglomerate. It has diversified into other industries like aerospace, electronics, and financial services. Mercedes-Benz has two divisions: passenger cars and commercial vehicles. It is owned by Deutsche Bank, Mercedes Holding, and Kuwait Investment Office, with many remaining shares held by private investors.

1. Mercedes-Benz, the world's most renowned luxury automobile manufacturer, was the
automotive business of Daimler-Benz AG, Germany's largest industrial conglomerate.
Daimler-Benz started as a car manufacturing company but diversified into aerospace
(Deutsche Aerospace), electronics(AEG), debis (a service group with activities in software,
financial services, and trading). Deutsche Bank (28 percent of shares), Mercedes Holding (25
percent), and Kuwait Investment Office (14 percent) owned Daimler-Benz, with many of the
remaining shares held by private investors.
Mercedes-Benz was divided into two divisions: passenger cars and commercial vehicles
Core Issues Observed in the case
 From Exhibit 1 we can see that the per employee contribution to sales has decreased
from 0.4798 in 1982 to 0.398 in 1991 which shows that the productivity of employees
has gone down.
 In comparison to other countries, Germany has extremely high labour expenses
(before the active export strategy was adopted). The labour used in final assembly
accounted for 5% of the total cost of an automobile. Workers in Germany were
among the highest paid in the world, but they also had the shortest work week.
 Nissan and Toyota, Mercedes' competitors, have been pursuing the export strategy for
decades. Mercedes was a latecomer to the export strategy bandwagon. By that time,
the delay in making a choice had cost the company a lot of money.
 When the new S class series was introduced in 1992, it was criticised for being large
and out of line with demands for lean design and efficiency.
 Because of the strength of the DM against the US dollar, the US government imposed
a 10% import tax on automobiles costing more than $30,000, thereby rendering
German cars inaccessible to Americans.
Hemult's strategies included closing the manufacturing plant in Ahrens Dorf due to
worsening structural problems and overcapacity, focusing the manufacturing base away
from Germany to France or the Great Britain, where highly experienced and productive
workers are available, and Alabama, where government subsidies are large, introducing
product models at different prices, and reducing expenses on domestic employment in
favour of manufacturing overseas. Other macroeconomic issues, such as the ongoing
European recession and a rise in the value of the DM, also contributed to the performance
fall. The approach overlooked a major issue: Germany's chronic unemployment, which
has resulted in social tensions, which have a negative impact on the company's
operations.
Exhibit 3 shows a decrease in production units from 542160 in 1989 to 529428 in 1992.
In the same time span, there is a corresponding drop in sales and net income.
Exhibit 4 shows that Mercedes' performance has deteriorated, as evidenced by the 8.5
percent fall in unit production in 1992 compared to 1991, whereas its arch rival BMW

2. saw an 8.1 percent gain in unit production from 1991 to 1992. From the large number of
vehicles, it produced compared to Mercedes, one can see the tough competition from
global firms such as General Motors, Ford Motors, Toyota, Chrysler, Volkswagen, and
Nissan.
Exhibit 6 shows that labour prices in Germany increased dramatically from 3 dollars in
1970 to 26.5 dollars in 1993, compared to other countries such as France, Japan, and the
United States, where labour costs are comparatively low.
Exhibit 7 shows that the DM had lost value in relation to the US dollar when compared to
its neighbouring country, France. Because of the strength of the DM against the US
dollar, the US government imposed a 10% import tax on automobiles costing more than
30,000 dollars, thereby rendering German cars unaffordable to Americans.
Q.1 Evaluate the advisability of Mercedes Benz’s announced shift in strategy. How might
this shift in strategy improve Mercedes Benz’s competitiveness in the global auto industry?
What are the risks?
Answer:
Advisability of the shift to the new strategy
There are several reasons why switching to the new strategy is both beneficial and not
recommended.
Some of the reasons as to why it is advisable is as follows
 Mercedes Benz was constrained by high labour expenses, which were common in
Germany. These prices were over 33% more than those in western European
countries such as France, 40% higher than those in the United States, and ten
times higher than those in eastern European countries such as Czechoslovakia. As
a result, the new plan of relocating production outside of Germany would assist
them in lowering those costs.
 Because the German Mark was progressively appreciating, the cost of exporting
cars out of Germany increased. Mercedes-Benz was finding it increasingly
difficult to compete with major global automakers such as GM, Ford, Toyota, and
others. As a result, it was compelled to make the option to relocate production
facilities outside of Germany to offset exchange rate effects and increased
transportation expenses.
 Mercedes' aim of diversifying its product range by entering the small car,
minivan, and SUV segments after only being present in the luxury automobile
market was to spread the risk of the overall economic condition in Europe at the
time. It also underlined the importance of reducing overengineering, which may
have driven Mercedes' automobiles out of the market.
 Its decision to abandon the construction of a new manufacturing plant in
Ahrensdorf was entirely consistent with its cost-cutting approach. It already had

3. other plants that were not being utilised to their full potential and did not require
the addition of a new plant at that time.
Mercedes-Benz is shifting its focus from being an exporter to having production sites
in close proximity to its markets. The justification for this was that the cost of
production in Germany is extremely high, rendering Mercedes Benz unprofitable.
However, it has been found that even after the introduction of facilities outside, they
are not doing well.
Some of the risks involved is as follows.
 Mercedes-Benz lacks enough expertise in manufacturing and dealing with the
different factors associated with working in a foreign country will be difficult.
 Mercedes Benz does not compete on price with most Japanese manufacturers.
Rather, it concentrates on giving extremely high levels of quality and luxury.
They may end up sacrificing on their fundamental benefits in order to cut
costs.
 Unlike other companies, Mercedes Benz has avoided joint ventures, alliances,
and other forms of partnership. This means it won't be flexible enough to
adjust to changes in the environment.
 Mercedes-Benz is making the wrong decisions because it is overly focused on
cost-cutting. This is demonstrated by their selection of Alabama as the
location for their factory.
Q.2 The legal structure of Mercedes Benz’s worldwide organization is presented on Exhibit
2. For managerial purposes (as opposed to legal purposes) what organization design would
you recommend for Mercedes Benz’s passenger cars Division? What are the implications for
the global distribution of activities and decision-making processes?
Answer:
 The optimum organisational design for the passenger automobile division,
based on the case study, would be to distribute its manufacturing as well as
its sales unit across the globe.
 Service-related operations can be limited to one plant.
 Restricting hiring that is solely based on forecasts.
 Budgeting is a crucial factor to consider before taking action.
 Eliminating subsidiaries that generate greater negative income, such as the
Brazil and Italy branches.
 Aerospace should be cut because it is causing a big financial loss, or there
should be a plan to enhance that industry.
 In the organisation, there should be a system in place that allows the
headquarters to communicate with different corporate divisions. As a
result, the headquarters will be able to learn about each corporate unit's

4. limitations and strengths, assisting the organisation in making the
appropriate decisions.
 The car designs can be tailored to meet the needs of the location.
 The distribution procedure would be more efficient as a result of global
manufacturing which would also timely delivery of vehicles to the market.
 A customer centric production method can be adopted to enhance the
sales.
 Units that are non-profitable or which are in loss can be temporarily
suspended.
 Units that generate large amount of revenues should focus more on
production so that company as a whole benefits.
Q3. Consider the person in charge of Mercedes-Benz’s new SUV activities in Alabama.
What job description would you propose for that person? By what measures.
Answer:
Job Description of person who is to lead activities in Alabama
Essential functions: -
 Should be a market expert with previous experience growing into new markets.
 A solid awareness of new innovations and technology employed in global
automotive manufacturing.
 Consults with all internal departments as well as component suppliers on
telematic component development issues.
 Support change management (supplier support, release preparation, and
documentation maintenance/checking).
 Communication with relevant development departments and other overseas plants
in real time, if needed.
 Support the Quality Operations and "Service & Parts" departments by
investigating and resolving problems at the Dealership / Customer level.
 Using precision measurement and testing instruments, devices, and equipment,
examines, measures, inspects, or tests defective parts for compliance to
engineering design drawings or blueprint specifications.
 Analyse specific developmental problems and devise long- and short-term
solutions, including cross-functional coordination. Organize cross-functional
problem-solving sessions.
Preferences
 A member from Germany would have a better understanding of the company
and hence be a better match to oversee a new factory.

5. Q4. Assume the role of Mercedes-Benz’s new chairman, Helmut Werner. Suppose that
following your recent announcements you have come under vocal criticism by several
elements of German society. One critic argues that Mercedes-Benz’s leadership in the world
automotive industry has been due in large measure to the German educational system
(supported by German taxpayers), the German transportation and communication
infrastructure (also paid for by public funds), as well as by the enduring loyalty of German
workers. A firm which has benefitted from these public goods, he maintains ought a
reciprocal obligation to include ways to contribute to a high national standard of living, rather
than to export jobs, since the export of jobs will inevitably lead to an erosion of the social
system that Germans have worked hard to build. How would you reply?
Answer:
Our company is finding it difficult to compete in the market due to high assembly costs and
losing our market share to Japanese countries who were able to provide automobiles at a
lower price with innovative features and breakthroughs.
The company has been suffering in the market for quite a time due to the expensive wage
structure in Germany in comparison to countries like UK and France.Because the global
automobile industry is growing more competitive, the decisions were necessary for the
company's long-term viability and competitiveness. Due to Germany's substantially higher
labour costs than the rest of the world, it was unable to produce products at a competitive
price. We are a German brand, and we would welcome the opportunity to re-establish
operations here if the government acts and takes steps to make wages reasonable for
automobile manufacturing.