Case Study

1. Mercedes Benz Case Analysis
Presented By:
Name: Avanish Anil Chippalkatti
PGDM Number: 21129
Presented To:
Prof. Chandan Palaksha
Assignment Questions
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?
Beginning in 1992 Benz has taken many steps that shaped into shifts in strategy. We
will check one by one and provide opinion on how this shift in strategy improve
Mercedes Benz’s competitiveness in the global auto industry:
A. In 1992 November Benz said that they are not going to continue with new
truck plant at Ahrensdorf in eastern Germany. The plant had been intended to
be Europe’s modern truck plant with more than 4000 employees and more
than 4000000 vehicles a year starting in 1994.Because of the sharply
worsening structural problems in the European truck industry and even
because of the over capacity at existing plants.
 According to me this was the right decision to drop the plan because
US market was having a good business in trucks and Mercedes was
having a plant in U.S. Here in Germany if they were planning for a
new plant then they should have that demand if there is no demand
why a company will invest so much. This will simply bring lots of
troubles to the company in terms of cost and labor and not going to add
any advantage to the company in terms of competition.
 Rather they can focus on current plants and try to innovate the product
and create some demand in the market.
 If they get some demand, they can manufacture I current plants and
export or if the demand is more then plan for the new plant near the
sales.

2. B. In 1993 January newly appointed chairman Helmut Werner announced that the
firm would transform itself from a luxury cars automaker into manufacturer of
high-quality vehicles in all segments of the market.
 This was a good move by Benz because they were facing competition
by Japanese auto makers and other competitors who were selling
almost similar cars at cheaper price.
 As Benz was not at all having manufacturing units in other countries
their price was also high because of which their sales came down.
 Rather than only focusing on luxury cars if they provide high quality
vehicles in all segments, they can get more market share and attract
customers.
C. Continuation to the previous announcement to improve the portfolio and
compete in the market Benz developed several new automobiles. 1. Small cars
for mid-market and lifestyle vehicles which had become popular, SUV and
minivan.
 After this the plan of global exposure was right and they planned this
to manufacture minivan in Spain and were searching for a new plant
for small cars.
 In October 1993 they announced the new plant as Alabama which is a
very small town in Vance US. I think many people would say that this
was a wrong decision because that place was not having any facilities,
but I am sure in the long run it’s good strategic move. Because now
they got the place in very cheap price and even the subsidies worth 200
million from the government.
 Cheap labor.
 Other infrastructure, water, and electricity they can plan and
implement. The city will be developed in coming days.
There were lots of risk in these new strategies as well:
 Competition was the biggest risk.
 Labor cost in other developed countries will be more.
 Choosing Alabama as new plant where they don’t have any facilities. Building
everything from scratch is a real challenge.
 They decided to add more products into their portfolio but adding new products is not
an easy job.
 Research and development.
 Consumer Analysis.
 Pricing.
Conclusion: Even though company was not able to perform the way it wanted I think still the
new strategies will yield good results in long run.

3. Q2. 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?
The structure of an organization that allows it to carry out its strategic plan and achieve its
goals is referred to as organizational design.
From the Exhibit 2 we can clearly see that there are some units which are doing good, but
some are not performing well, their Net income is in negative and not making good number
of sales as well. They must focus more on such units to improve by either providing more
support to them or combining them with others, or they can try to drop them and focus on
units which are providing profit.
As Benz has number of products under its portfolio, they can go for below organization
designs:
Divisional Design:
 As Benz began to add a variety of new goods, acquire other firms, or grow into other
geographical areas, they divided into divisions. Each division has its own profit and
loss statement as well as a division leader.
 The division clarifies the performance of each division for everyone, including
investors. It also implies that if a division fails, it has no effect on the rest of the
organization.
 One distinction between a division and a wholly owned subsidiary is that employees
in a subsidiary are not members of the parent organization.
 Divisional structures can take many different shapes. Businesses identify them by
market, product, or geography, or they can be part of a matrix of functions and other
business units.
Divisions of Geography:
 Operating geographical business units allows a firm to tailor its products and services
to the culture, requirements, and tastes of the host place.
 Coordination and control can be difficult to handle. Nonetheless, decision-makers
who are a part of or extremely familiar with the population's culture and tastes can
overcome this.
 The benefit is that the firm may extend its worldwide brand presence while still
serving consumers and suppliers in the host nation.
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.

4. The Alabama facility should be on the lookout for an experienced local who is having all the
details about that geographical region and local culture and having experience in operations,
supervisor to assist in the development and implementation of appropriate processes
throughout the Alabama production plant in order to facilitate business growth. He should
also evaluate the plant's operating processes and provide recommendations for how to
enhance them. He should be able to handle projects well and communicate effectively. In
order to excel in this capacity, he must be a competent problem-solver with acute, analytical
thinking. If he is goal-oriented and has strong organisational abilities, he would be an ideal
candidate to lead a new plant.
Requirements
Organizational abilities
Time-management abilities include the capacity to define goals, prioritise work, and develop
schedules—all of which are required for someone to control the daily operations of a
manufacturing facility. Individuals must also have decision-making abilities to make
decisions on plant objectives, resources, and recruiting. Because they frequently work alone,
they must be self-motivated and able to focus. A person must also be organised to keep
records and establish an atmosphere that fosters productivity.
Leadership abilities
You must be able to motivate people, promote employee self-esteem and confidence, and
create a favourable work atmosphere. Communication abilities, such as making presentations
or public speaking, are also necessary.
Technical abilities
This category covers computer skills, math skills, design skills, financial skills, and
operations skills. You must have a thorough grasp of financial principles and accounting to
generate budgets and evaluate detailed financial data for a manufacturing unit.
Interpersonal abilities
He must be able to communicate effectively to provide employees and supervisors with
precise and explicit instructions. To comprehend how a message is received, they must
practise active listening and be able to read nonverbal signs such as facial expressions and
body language.
Other Requirements:
 Previous experience as an operations supervisor or similar role
 Hands-on experience implementing operational processes
 Excellent project management skills
 Knowledge of operational principles and policies
 A degree in operations management or business administration

5. Responsibilities:
 Active participation in business strategy planning and decision-making setting for
multiple business functions.
 Research strategies to continue improving operations and cut costs.
 Screen and document on divisional performance.
 Monitoring and supervising and develop staff.
 Provide assistance and support.
 Ensuring adherence to management policies and regulations
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?
The primary reason for our decision to export the work is to ensure our worldwide survival in
the automobile industry. The competitiveness in the vehicle industry has grown throughout
the years. Japanese and European enterprises are gaining market share. Our revenue comes
from passenger cars and commercial vehicles. If we look at our recent sales (1993), our
passenger vehicle sales have declined by 39 percent in terms of units from 153738 in 1992 to
94500, and commercial vehicle sales have decreased by 27 percent. Toyota's Lexus, Nissan's
Infiniti, and Honda's Acura are gaining market share by offering comparable quality vehicles
at cheaper rates than we do. These businesses have reduced production costs.
1. Labor expense: When compared to nations in Europe, Asia, and the United States, our
country has the highest hourly labor cost. Furthermore, the overall weekly working hours are
lower than in other countries. This drastically raises our production costs.
2. Car Import Tax: - In the United States, the government imposes a 10% tax on automobiles
imported from other nations that cost more than $30,000. This added expense raises the price
of our vehicles, making them unaffordable.

6. 3. If we produce our automobiles in Germany, we will not have a global footprint and will be
unable to grow our business. As a result, income generation would be constrained as
production costs rise and taxes on exporting and importing rise.
4. If we decide to build factories in Germany to increase production since we already have
many rivals and our sales are declining, we may incur a loss, and the only way to balance this
is to lay off employees. This causes unemployment and has an influence on our economy.
5. By expanding our worldwide footprint, we will not only be able to cut our automobile
production costs, but we will also be able to tap into diverse markets in other nations,
resulting in increased sales. Then we might reconsider the Ahrensdorf assembly factory in the
country's east.