Mercedes-Benz Case

1. From exhibits - analyse issues

• Based on a sales display (1991 & 1992)

o Production is down, but profits are up slightly (due to increase of DM against USD)

o There was no growth in profits as a percentage of revenue in 1992 aa as compared to the previous

year. o Exhibit 5 shows the ever-increasing labour incomes in Germany as compared to the rest of the

world. The United States has the lowest income and wage inflation rates.

2. Problem is with Merc or extraneous factors

• Overcapacity at a number of its German factories.

• The European economic downturn.

• The increase in the value of the DM made export goods more costly.

• Japanese manufacturers gained a larger share of the market by manufacturing high-quality premium

cars at a cheaper cost.

• Germany's relatively high labour rates have resulted in unemployment. (These are certain issues –

mostly problem may be due to extraneous factors)

3. What are the options for Merc?

 • South Carolina has a new factory. • Acquire an existing GM truck manufacturing facility

that was scheduled to close anyway. It saves both time and money.

 Keep an eye out for new production facilities in Europe (England or Czech Republic) outside

of Germany, where labour is cheaper.New plant in Vance, Alabama, for manufacturing sports

vehicles. Will give foothold in a new market segment. Good growth prospects. New product

range (Sports vehicles).

4. Org. structure of Merc.

5. Who should head Alabama? (Skills / Nationality / Evaluation)

 Skills

 o It should be led by an industry specialist with experience expanding into new markets.

 o A thorough understanding of emerging developments and technologies used in automotive

production around the world

 • Appointing someone from inside the company who understands the firm's vision will be a

good fit for the role.

 Nationality

o A member from Germany would know the company better, hence a better fit to run a

new plant.

o Market information can be shared by existing plants in US.

 Evaluation

o o R&D that is currently available.

o o Capabilities of technology and innovation

o o Human resources (Workforce).

o o International and regional trade rules.

o o Institutional structures (Govt regulations and laws).

o o Resource availability and long-term viability.

o o Consistent consumer demand (Market potential).

o airways, and so forth

o •Diversity of consumer base and propensity to invest or indulge in new products.

o Potential logistic challenges due to lack of connectivity with ports, airways, etc.