Submission coversheet- Individual’s work

AshridgeMBA Programme

Student Name: Rachael O’Bryan

Programme [part-time or full-time MBA]: Full-time MBA

Assignment: Managing Globally

Title of Assignment: Daimler Mercedes-Benz Automotive Industry Internationalization Strategy

Submission Due Date[DD/MM/YYYY]: 09/03/2015

Word Count: 2,044 words

(Excluding: table of contents, acknowledgements, bibliographies glossary and appendices)

(Including: main body of text, executive summary(ies), footnotes, captions for tables and figures, citations or similar)

I confirm that this assessment has been submitted to the Turnitin® Software

Yes No N/A

I have read and understood the Ashridge Academic Misconduct Guidelines and declare that this written assessment is all my own work except where I indicated otherwise by proper use of quotes and references, following the referencing guidelines in the Student Handbook.

By submitting this coversheet with your assessment you are confirming and declaring the above.

Rachael O’Bryan MBA 2014-2015 Managing Globally 1 | P a g e

Date Submitted [DD/MM/YYYY]: 10/03/2015

Managing Globally

Daimler Mercedes-Benz Automotive Industry Internationalization Strategy

March 2015

Rachael O’Bryan, Full-Time MBA Student 2014-2015

Managing Globally Module, Professor Marc Jones and Jean van Hoegaerden

Rachael O’Bryan MBA 2014-2015 Managing Globally 2 | P a g e

2,044 words (+/- 10%)

Table of Contents

1. Introduction to Daimler Pg.4

2. Mercedes-Benz Strategy- What is their winning aspiration?Pg.5

2.1 Daimler’s Stated Strategy

3. Strategy Context- Where will they play, & how will they win?Pg.5

3.1 Global Market for Automotive Industry3.2 Trends for the Automotive Industry3.3 Market Entry Modes of Daimler Mercedes Benz3.4 Drivers of Globalization 3.5 Strategic Sweet Spot

4. Strategy Context- Capabilities & what mgmt. systems are required?Pg.10

4.1 Resources & Capabilities4.2 Support Systems

5. Conclusion and RecommendationsPg.11

6. ReferencesPg.12

7. AppendicesPg.13

Rachael O’Bryan MBA 2014-2015 Managing Globally 3 | P a g e

1. Introduction to Daimler

Daimler is of the world’s most successful automotive companies. The company’s founders, Gottlieb Daimler and Carl Benz, made history with the invention of the automobile in the year 1886. With its divisions of Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services, the Daimler Group is one of the biggest producers of premium cars and the world’s biggest manufacturer of commercial vehicles with a global reach. Daimler sells its vehicles and services in nearly all the countries of the world and has production facilities on five continents. Its current brand portfolio includes, Mercedes-Benz, Smart, Freightliner, Western Star, BharatBenz, Fuso, Setra and Thomas Built Buses. The company is listed on the stock exchanges of Frankfurt and Stuttgart (stock exchange symbol DAI). In 2013, the Group sold 2.3 million vehicles and employed a workforce of 275,000 people; revenue totaled €118 billion and EBIT amounted to €10.8 billion (Daimler, 2015).

Below, in Figure 1.1, you will find Lafley & Martin’s Playing to Win Model. It is an integrated set of choices that uniquely positions the firm in its industry, so as to create sustainable advantage and superior value relative to the competition (Lafley & Martin, 2013). It starts with the purpose of the enterprise, its motivating aspiration. Secondly, it focuses on a playing field where you can achieve that position. Third, about the way you will win on the chosen playing field. Fourth, the set and configuration of capabilities required to win in the chosen way. And finally, the systems and measures that enable the capabilities and support the choices. The paper is positioned to answer these five key questions for Daimler.

Rachael O’Bryan MBA 2014-2015 Managing Globally 4 | P a g e

Figure 1.1 An Integrated Cascade of Choices (Lafley & Martin, 2013)

How will we win?

What capabilities must be in

place?What

management systems are required?

Where will we play?

What is our winning

aspiration?

2. Daimler Mercedes-Benz Strategy-What is the winning Aspiration?

2.1 Daimler’s stated strategy

There are 4 elements to Daimler and Daimler Mercedes-Benz stated strategy (Daimler Annual Report, 2013):

1) Further strengthen the core business2) Grow in new markets3) Take the lead with “green” technologies and safety4) Lead the way with the development of new mobility concepts and services

Figure 2.1.1 Daimler's Strategic Pillars of Growth (Daimler, 2013)

3. Strategic Context- Where will we play & how will we win?

3.1 The Global Market for the Automotive Industry

IHS Automotive, part of IHS Inc. (NYSE: IHS), forecasts global automotive sales for 2015 to reach 88.6 million, an increase of 2.4 percent over 2014, continuing an unbroken five-year run of sales recovery and growth from the low point set in the depth of the Great Recession in 2009. The 2 countries that will see the biggest growth in 2015 are the United States and China. China will lead the sector’s volume growth with light vehicle sales to grow by 7 percent in 2015 to 25.2 million units, aided with increased auto finance penetration, fast dealership expansion and government vehicle scrappage programs. IHS expects premium vehicles in China to top two million units in 2015 with year-over-year growth of 15 percent. Since 2007, China is the country with the largest manufacturing of automobiles in the world and since 2010 it is also the country with the largest manufacturing of passenger cars. The figures show that global

Rachael O’Bryan MBA 2014-2015 Managing Globally 5 | P a g e

demand for premium cars remains healthy as the U.S. economy recovers and more people in China can afford to buy high-end products (Culver, 2015).

In December 2014, car sales increased in all major regions of the world with growth fastest in China, India and the USA. Europe had a positive year with the market in the EU expanding for the first time in seven years. In 2014, Mercedes Benz had it fourth consecutive record year with worldwide sales increasing by 12.9% to 1,650,010 deliveries. In December 2014, Mercedes Benz sold 163,171 cars – its highest single month total ever. The USA remained the most important single-country market for Mercedes Benz. Sales in the US increased by 5.7% in 2014 with 330,391 deliveries. In China, Mercedes Benz enjoyed the strongest growth of the German luxury carmakers with sales increasing by 29.1% to 281,588 deliveries. In 2014, China overtook Germany as the second most-important market for Mercedes Benz car sales. (Bekker, 2015).

Figure 3.1.1 and 3.1.2 below represents the premium vehicle segment, in terms of units expected to be sold, and where they’re expected to be sold. As noticed, China will be leading the way.

Figure 3.1.1 Global Insight to Worldwide Premium Segment (Fatprophet, 2013)

Rachael O’Bryan MBA 2014-2015 Managing Globally 6 | P a g eFigure 3.1.2 World’s Largest Premium Car Markets (Financial Times, 2013)

3.2 Trends for the Automotive Industry

The trends today for the automotive industry are critical factors for driving growth and development in this sector. Shifts in demographics, economic power, climate change, urbanization, and innovations in technology are the main key factors that the automotive industry is focusing on. Global spending power and population growth is occurring in the emerging markets (Dixon, 2015).

Table 3.2.1 lists past, present, and future trends in the automotive industry. A further analysis is depicted in Appendix 1.

Five-Ten Years Ago Today Five-Ten Years from Now Higher prices for

consumer electronics More expensive oil

prices Cost cutting (ex.

identifying waste in fleet operations) due to the recession, where people were keeping their cars longer

(Dixon, 2015)

Global Urbanization (integrated mobility solutions such as car sharing, etc.)

Highest focus on investments for innovation of new technologies in vehicles

Decline of new “Green” vehicle sales due to decrease in oil prices

Governments giving huge incentives to electric car buyers. Ex. Denmark & Israel

Focus on China & BRIKT

Increase in engines & vehicle fuel efficiency using petrol & diesel (will cut 1/3 emissions by 2020)

Diesel powered cars equal 50% of all cars on the road by 2020

Battery powered vehicles to equal 10% of the market by 2020

Giant leap in efficiency of new trucks (currently use 12% of all oil consumed in the U.S.)

Autonomous Cars in 2020

3.3. Market Entry Modes

Rachael O’Bryan MBA 2014-2015 Managing Globally 7 | P a g e

Table 3.2.1 (Author, template from Bartlett, Christopher 1998)

3.3.1 Market Entry Modes (Jones, 2015)

Daimler Mercedes-Benz is spread across the board. They happen to be engaged in wholly-owned subsidiaries, joint ventures, and franchising throughout China, USA, South America, South Africa, & Europe to name a few.

In In February 2013, Daimler acquired a 12% stake in Beijing Automotive Industry Holding Co Ltd (BAIC) becoming the first western car manufacturer to own a stake in a Chinese company. Beijing Benz Automotive Co., Ltd. (BBAC), a joint venture between Daimler and its Chinese partner BAIC, commenced local production of Mercedes-Benz passenger cars in Beijing. Since 2013, the engine plant production, and launch of the E-Class and C-Class cars for the Chinese Market have been produced in China (Daimler worldwide, 2015).

Appendix 2 further lists other entry modes that Daimler Mercedes-Benz is a part of.

3.4 Drivers of Globalization

Jeannet identifies six ‘global logic’ dimensions as the drivers of globalization for an industry or sector: customer, purchasing, information, competitive, industry, size or scale and regulatory logic (Jeannet, Jean-Pierre 2000). Figure 3.4.1 outlines Daimler Mercedes-Benz scale on global logic dimensions.

Customer

Competition

Industry

Global Scale Economies Regulatory

Purchasing

Information

0

5

10

Global Logics Spiderweb

Global Logics Spiderweb

Customers are placed as a 6 on the scale because customers from around the world have similar needs, particularly in the premium market, but where it differentiates is in cultural specificities and climate. The quality of the road infrastructure is different. For example, the prestige of the brand and the Mercedes-Benz build is similar around the world, and appeals to similar people. Smaller cars dominate the market in Europe, whereas in the U.S.A. and Middle East, SUV’s and other larger vehicles are more popular.

Information is placed as a 10 because information about the car market, technology, and emerging trends is available globally. Mercedes-Benz is very well known for getting the recognition of the brand out there, and making it available around the world.

Rachael O’Bryan MBA 2014-2015 Managing Globally 8 | P a g e

3.4.1 Global Logics Spiderweb (Jeannet, 2000)

Global scale economies are placed a 7. Recently, Daimler chose Mexico as the fifth country outside Germany to manufacture Mercedes Benz models. Economies of scale is one of the attributes that the company found in the country to raise the profit margin of its sales in America. The strategy was then added production of their models with the brand Infiniti to generate a volume of 300 thousand units per year so they can cut costs (Romero, 2014).

Industry logic is placed as a 9 because the success factors of Mercedes Benz’s brand values and products are the same globally. The rationale for this would be that success worldwide depends on delivering on cost, delivery, and product quality.

Competitors are a 9 because Mercedes Benz runs up against the same competitors in almost all territories worldwide. Mercedes-Benz has always been known to have two major competitors, who are BMW and Audi.

3.5 Strategic Sweet Spot- Daimler’s Capabilities

The strategic sweet spot of a company is where it meets customer’s needs in a way that rival’s cant, given the context in which it competes (Collis & Rukstad, 2008). If first focusing on customer’s needs and wants for Mercedes-Benz, one thing is for certain, it’s luxury, class, precision, and exceptionalism that they’re looking for.

Mercedes-Benz capabilities seem endless. Mercedes Benz has a strong brand value and global leader in premium cars. The company has a lack of capital constraints, a leader in innovation with more than $12 billion allocated for R&D to build the brand image even further, and is manufactured and assembled in over 20 countries across the world (Zetsche, 2013).

In terms of Mercedes-Benz top competitor’s offerings, BMW and Audi both demonstrate the same dedication to German engineering, precision & exceptionalism, I believe their contrast is most evident per the audience the brands target. BMW is known as the ultimate driving machine, with their focus clearly on performance. BMW appeals to more of the aggressive, and dynamic driver. Audi is “sporty,

Rachael O’Bryan MBA 2014-2015 Managing Globally 9 | P a g e

Context (technology, industry, demographics, regulation, and so on)

SWEET SPOT

COMPANY’S

Capabilities

CUSTOMERS

Needs

COMPETITORS

Offerings

Strategic Sweet Spot (Jones, 2015)

sophisticated, & progressive” and is a technology leader. BMW and Audi, in my opinion, are in more of a direct competition with each other than Mercedes-Benz.

The ultimate sweet-spot for Mercedes Benz would be the fact that Mercedes presents itself as the luxury model for those less interested in bite, but more so in class. There is still an element of prestige and exclusivity in Mercedes. For example - When I stop to profile the average Benz driver, I envision an older business owner cruising down the street and enjoying the luxury that is MB. Mercedes Motto – Das beste oder nichts = the best or nothing. Another sweet spot for Mercedes-Benz is the fact that it’s cheaper to fix and maintain than Audi and BMW. Audi consistently came out on top, at an average 31% higher than for Mercedes maintenance and repairs. BMW sat a little above Mercedes, but still 19% below Audi (Mirror Online, 2014).

4. Strategy Context- What capabilities must be in place?

4.1 Daimler’s Resources & Capabilities

In figure 4.1.1 is Mercedes-Benz Target System from its Annual Report 2013. In 2010, sustainability was incorporated into the strategic target system, thereby formally confirming its great importance for Daimler’s business operations. The Daimler target system brings together six strategic dimensions which are considered to be of key importance for achieving their overarching goal: to post profitable growth and sustainably increase to the company’s value. These efforts are based on four values: Passion, Respect, Integrity, and Discipline, and this forms the basis of their actions and helps the company to achieve its goals (Zetsche, 2013). This competitive architecture is rooted in their values through to their competitive position, which all enables them to achieve profitable growth.

Rachael O’Bryan MBA 2014-2015 Managing Globally 10 | P a g e

Figure 4.1.1 Daimler Mercedes Benz Target System (Daimler Annual Report, 2013)

4.2 Support Systems

Because Daimler Mercedes-Benz has such a big, global presence, the systems in place must first start out on their corporate HQ level, and then funnel down to the rest of the world. Daimler is particularly interested in aligning the Daimler Corporate Governance system internationally and making it transparent (Daimler, 2015). According to the 2013 Daimler Annual Global Report, figure 4.1.1 Daimler Mercedes Target System is the structure used to follow their deeply rooted values to profitable success.

5. Conclusion and Recommendations

On the basis of the analysis, Daimler Mercedes-Benz has an appropriate strategy. The company is effectively developing their brands, and taking measures to increase efficiency and competitiveness in the market. They also focused on emerging markets in China and the BRIC countries, and were the first ever Western car manufacturer to enter the market in China. The company is only continuing to grow.

Daimler should continue to focus on protecting and building its reputation. To build on this strategy and mitigate risks going forward, Daimler should continue to build local presence and relationships with emerging markets to capitalize on the increase in premium car sales over the next 5 years in those markets.

Rachael O’Bryan MBA 2014-2015 Managing Globally 11 | P a g e

References

AK, S. (2014). Connected car market to surpass US$131.9 billion by 2019: Transparency market research. Retrieved 03/06, 2015, from http://www.prnewswire.com/news-releases/connected-car-market-to-surpass-us1319-billion-by-2019-transparency-market-research-279934152.html

Bartlett, C.A., & Ghoshal, S. (1998). Managing Across Borders: The Transnational Solution (2nd Ed.) London: random House Business Books.

Bekker, H. (2015). 2015 (January) international: Worldwide car sales. Retrieved 03/06, 2015, from http://www.best-selling-cars.com/

Booz&Company. (2015). Automotive perspective 2015.http://www.strategyand.pwc.com/media/file/Automotive-perspective-2015.pdf

Collis, David J., & Rukstad, Michael. (2008). Can You Say What Your Strategy Is? (1st ed., page 89) Harvard Business Review

Culver, M. (2015). Slower, not lower: IHS automotive forecasting 88.6 million unit global light vehicle market in 2015. Retrieved 03/06, 2015, from http://www.businesswire.com/news/home/20150202005123/en/Slower-IHS-Automotive-Forecasting-88.6-Million-Unit#.VPnIxS6jBnB

Dixon, P. (2015). Future of the automotive industry (auto trends). Retrieved 03/06, 2015, from http://www.globalchange.com/future-of-the-automotive-industry-auto-trends.htm

FatProphets. (2013). The Worldwide Premium Car Segment is Expected to Grow. Retrieved 03/06, 2015

Hanna, R., Unfried, A. & Ostermann, D. (2015). Megatrends driving the automotive industry. Retrieved 03/06, 2015, from http://www.pwc.com/gx/en/automotive/issues-trends/megatrends-driving-the-automotive-industry.jhtml

Jeannet, J. (2000). Managing with a global mindset. In Harlow: Financial Times Prentice Hall (Ed.), (pp. pg.70-74)

Jones, M. Strategic Sweet Spot Model; MBS-MT Eliza Executive Education.

Jones, M. Globalisation Strategies: Market Entry Modes Model

Lafey, A. G., & Martin, R. (2013). What strategy is (and isn't). Playing to win: How strategy really works (1st ed., pp. pg.14-16). Boston, MA: Harvard Business School Publishing.

Romero, E. (2015) Mercedes-Benz Manufacturing Moves to Mexico. Retrieved 03/09, 2015, from http://www.global-recruiters.com/mercedes-benz-manufacturing-moves-to-mexico/

Waldmeir, P. (2013). Luxury carmakers in china digital drive. Retrieved 03/06, 2015, from http://www.ft.com/cms/s/0/4446fd74-8c5b-11e2-b001-00144feabdc0.html#axzz3Qnc0KUpZ

Zetsche, D. (2014). Daimler annual report 2013. Retrieved 03/06, 2015, from http://ar2013.daimler.com/to-our-shareholders/objectives-and-strategy

Rachael O’Bryan MBA 2014-2015 Managing Globally 12 | P a g e

Appendix 1- Trends in the Automotive Industry

Five-Ten Years Ago Today Five-Ten Years from Now Higher prices for

consumer electronics More expensive oil

prices Cost cutting (ex.

identifying waste in fleet operations) due to the recession, where people were keeping their cars longer

(Dixon, 2015)

Global Urbanization (integrated mobility solutions such as car sharing, etc.)

Highest focus on investments for innovation of new technologies in vehicles

Decline of new “Green” vehicle sales due to decrease in oil prices

Governments giving huge incentives to electric car buyers. Ex. Denmark & Israel

Focus on China & BRIKT

Increase in engines & vehicle fuel efficiency using petrol & diesel (will cut 1/3 emissions by 2020)

Diesel powered cars equal 50% of all cars on the road by 2020

Battery powered vehicles to equal 10% of the market by 2020

Giant leap in efficiency of new trucks (currently use 12% of all oil consumed in the U.S.)

Autonomous Cars in 2020

Today, almost half of the world’s population lives in cities. Current estimates suggest that world carbon emissions from burning fossil fuels – coal, oil and gas – will rise by 16% between now and 2030. Over the same period, the average global temperature will increase by between 0.5°C and 1.5°C (Hanna; Unfried; Oysterman, 2015).

The cost of electronics are down 20% from just 10 years ago. Electronics contribute over 90% of innovations and new features (Booz&Company, 2014). Electric vehicles are one of the most important ways to reduce motoring costs, reduce carbon use in transport, improve air quality and reduce global warming.  Expect battery-powered vehicles to be 10% of the market by 2020. Much of government economic stimulus packages for the auto industry have been linked to green tech, of which a huge proportion is things like battery technology (Dixon, 2015).

Regulation is a major driver of the industry. In many countries, government has imposed strict environmental regulations, such as fuel economy and emissions standards. There is also a consolidation of suppliers, meaning there are smaller numbers of larger global players. OEMs are increasing model choice while decreasing vehicle architecture. Finally, there are a greater number of customers utilizing online. In summary, these key trends indicate what the automotive industry focuses on (Dixon, 2015).

Rachael O’Bryan MBA 2014-2015 Managing Globally 13 | P a g e

Appendix 2- Further Market Entry Modes

Because of the need for greater production capacity in the U.S, Mercedes-Benz is moving production of the R-Class from its Tuscaloosa, Ala. plant to AM General's Commercial Assembly Plant in Indiana.  Just in January of 2015, Mercedes-Benz has selected AM General to manufacture the Mercedes-Benz R-Class luxury vehicle. Under the multi-year agreement, AM General becomes Mercedes-Benz's first and only contract manufacturing operator in the U.S. (Adams, 2015). http://www.prnewswire.com/news-releases/am-general-selected-as-mercedes-benz-first-and-only-contract-manufacturer-of-vehicles-in-the-united-states-300026208.html

Daimler has had a permanent presence in Brazil with its wholly-owned subsidiary Mercedes-Benz do Brasil since 1956 and has established itself as a leading commercial vehicle manufacturer in Latin America. Also, Mercedes-Benz South Africa (MBSA) is a wholly-owned subsidiary of the global company, Daimler AG. The company acquired a manufacturing plant in East London which has been building vehicles in South Africa for over 60 years. Today MBSA manufactures Mercedes-Benz C-Class cars, commercial vehicles and buses, as well as assembly of Freightliner trucks, a leading American brand. MBSA`s headquarters, marketing and support divisions are located in Zwartkop, Gauteng, from where the Mercedes-Benz, smart, Freightliner, Western Star and FUSO products are marketed and financed (Daimler Mercedes-Benz, 2014). Below, in chart 3.3.2, details the wholly-owned subsidiary group structure.  http://www.mercedes-benzsa.co.za/corporate-structure/mercedes-benz-south-africa/

Rachael O’Bryan MBA 2014-2015 Managing Globally 14 | P a g e

3.3.2 Daimler Mercedes-Benz South Africa Wholly-Owned subsidiary Group Structure (Daimler Mercedes-Benz, 2014)