Strategy and Structure Case: Mercedes-Benz

Topics: Automotive industry, Mercedes-Benz, Automobile Pages: 35 (4059 words) Published: May 25, 2012
Harvard Business School

November 30, 1993

Mercedes-Benz, world-renowned as a manufacturer of luxury automobiles, was the automotive division of Daimler-Benz AG, Germany’s largest industrial group. Daimler-Benz was created in 1926 by two of Germany’s automobile pioneers, Gottlieb Daimler and Karl Benz, each of whom had been active in early designs of motorized vehicles. Following World War I, with Germany’s economy in shambles and with Ford Motor Company establishing itself as a world leader in passenger automobiles, Daimler and Benz agreed to merge their firms. As the German economy revived during the 1930s, Daimler-Benz prospered. Over the next years, Mercedes-Benz established a reputation as an automobile manufacturer of high quality and superior engineering. Although most of Daimler-Benz’ factories were destroyed during World War II, strong demand for automobiles and trucks during Germany’s postwar recovery helped restore Daimler-Benz to health. During the 1960s and 1970s, Mercedes-Benz’s automobiles became synonymous with prestige and excellence. Even the oil crises of the 1970s could not dent the firm’s success, as its wealthy customer base was relatively insensitive to these downturns. Until the mid-1970s, all of the firm’s plants were located in Germany, from where it pursued an export strategy. In 1973, reacting to the growing strength of the German Mark (or Deutsche Mark, DM), it shifted the sourcing of its diesel trucks destined to the U.S. to Brazil,1 but production of automobiles remained in Germany. Although Mercedes-Benz continued to grow profitably into the 1980s, by 1985 the firm had concluded that superiority in automobiles would increasingly require expertise in electronics. Accordingly, it undertook the acquisition of the German electronics firm, AEG, and subsequently diversified into aerospace, acquiring Deutsche Aerospace. By 1991, Daimler-Benz was a diversified industrial corporation with revenues of DM 95 billion (roughly $63 billion at an exchange rate of $1 = DM 1.52) in four products groups: Mercedes-Benz, the automobile and commercial vehicles group, contributed 69% of 1991 revenues; AEG, the electronics group, added 14%; Deutsche Aerospace accounted for 13%; and Daimler-Benz InterServices, better known as debis, a service group with activities in software, financial services, and trading, added 4% of revenues. In terms of ownership, Daimler-Benz was owned by Deutsche Bank (28% of shares), Mercedes Holding (25%), and Kuwait

Professor Philip M. Rosenzweig prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is written from public sources only. Copyright © 1993 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

1. Shapiro, Alan C., Multinational Financial Management, New York: Simon & Schuster, p. 339. 1



Investment Office (14%), with many of the remaining shares owned by private investors. In 1991, the firm employed more than 300,000 German workers and more than 70,000 employees in foreign countries, for a total of 379,000. Daimler-Benz’s financial performance from 1982 to 1991 is summarized in Exhibit 1. Its legal structure, consisting of foreign subsidiaries and holding companies, is presented in Exhibit 2. Mercedes-Benz’ many foreign subsidiaries were responsible primarily for sales and service, with the vast majority of other value-added activities, including design and manufacturing, located in Germany.

The Changing Fortunes of a Luxury Automaker...
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