Germany, Inc.: The New German Juggernaut and Its Challenge to World Businessby Werner Meyer-Larsen, Meyer-Lars
As Japan's sun sinks slowly in the West, a formidable new competitor has risen to replace her as America's chief rival in the battle for global business leadership. Emboldened by reunification and its role as leader of the European Union, Germany is flexing its muscles. For the first time in history, a transatlantic global conglomerate is rapidly taking shape, its
As Japan's sun sinks slowly in the West, a formidable new competitor has risen to replace her as America's chief rival in the battle for global business leadership. Emboldened by reunification and its role as leader of the European Union, Germany is flexing its muscles. For the first time in history, a transatlantic global conglomerate is rapidly taking shape, its policies defined by a small band of German business elites. What are the economic, sociopolitical, and cultural forces driving the new German expansionism? What is the strategy behind it, and how threatening is it really? Who are the major players involved and what can we expect from them in the years ahead? How do Germany's plans fit with the ultimate unification of European economies under the euro? And perhaps most intriguing. to what extent has American post-cold war policy been deliberately skewed to encourage the hegemony of Germany, Inc., and why? Written by Werner Meyer-Larsen, a journalist who has closely covered the transatlantic business beat for over a decade, this book provides answers to these and other questions of crucial importance to every businessperson. While the merger of Daimler-Benz and Chrysler in March 1999 is popularly held to have been the opening shot in a new war of global attrition, it was, as Meyer-Larsen explains, in reality a major turning point in a German offensive that has been quietly gaining ground for some years. Since the late 1980s, a handful of Germany's most powerful industrial concerns has been steadily chipping away at America's lead in a range of sectors, including publishing, air travel, steel, insurance, and cars. Leading the attack is a new generation of ambitious young executives, unencumbered by the political restrictions (or sins) of their predecessors, and bolstered by a virtual banking cartel controlled by Deutsche Bank. Compelled as much by their anxiety over the post-cold war power vacuum as a desire to strut their stuff on a global scale, their battle cry is "Go West! Think big!" Meyer-Larsen traces the growth of these companies and the evolution of Germany, Inc. He takes us inside Daimler, Lufthansa, VW, Bertelsmann, Hoechst, Siemens, Allianz, and the other top players to reveal their strategies. And he provides vivid portraits of the men who control their reins-including Ferdinand "the Shark" Piech of VW; Bertelsmann's Thomas Middelhoff, a.k.a. "Mr. Spock"; "Mr. Stockmarket," Rolf E. Breuer of Deutsche Bank; and Gerhard Crommer of Krupp, the "Spider in the Web of Steel"-explaining, in each case, the likely impact of each leader's style on the future of his industry. A penetrating, fact-filled exploration of a development of paramount commercial, geopolitical, and cultural importance, Germany, Inc. is must reading for businesspeople, policymakers, and students of current affairs everywhere.
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GO WEST, GO GLOBAL
The New German Challenge
May 7, 1998, will go down as a milestone in the history of industry. On that day two men, Daimler-Benz chairman Jürgen E. Schrempp and Chrysler chairman Robert J. Eaton, signed a merger agreement, the biggest industrial deal of all time, to form the fifth-largest car company (by volume) in the world, DaimlerChrysler Inc. The announcement was considered by many to be the economic news of the year.
Competing headlines from the world of commerce that year included an economic crisis in Asia and Latin America and the announcement that Russia's economy had dwindled down to a trickle. Rivals of currency trader George Soros estimated he had squandered billions and billions of dollars. Between July and October, the industrial averages at the international stock exchanges had plummeted so low there was serious talk about a new worldwide economic crisis. Oskar Lafontaine, Germany's new minister of finance, irritated the international financial aristocracy by conjuring up the specter of a planned economy.
But only a few months later, the various industrial averages had regained the highs of the previous summer, and Lafontaine was out. In fact, most of the major economic news reports turned out to be rumblings. But not the merger between Daimler-Benz and Chrysler. A short six months after Schrempp and Eaton had signed their declaration of intent, their armies of lawyers finalized the deal. Unlike Lafontaine's prophesies, the Daimler-Benz and Chrysler merger was a true sign of a new era.
For the first time in history, a transatlantic globalconglomerate was in the making, one whose policies would be defined in Germany. Only 47 percent of the new company's shares were American; 53 percent were German. In terms of annual revenue, the joint concern has climbed to number three in the world's auto industry. When its internal strength is considered capital and business know-how it might even be number one.
It hardly need be said that the merger between Daimler-Benz and Chrysler would not be smooth sailing from beginning to end. But the potential for conflict between the two companies is less than for most other agreements of this kind. First, it was not a hostile takeover; it was a peaceful and voluntary agreement between two well-matched corporations. Unlike other arrangements of this sort, it was born out of prudence rather than of pressing necessity. In 1998, neither of the two conglomerates was so weak that it had to look for a strong partner; both had all the time in the world. Consequently, it came as a surprise that the American company so readily agreed to assume the role of junior partner and to submit to German business law with its stipulations regarding the supervisory board, the executive board, and worker participation. In short, there was little that was not unique about this merger.
Thus, DaimlerChrysler represents the model of a new challenge raised by Germany and confronting the United States. Economically, it is just as extraordinary as was Kaiser Wilhelm II's vast expansion of Germany's naval force to Great Britain's military strategists 100 years earlier. And there are some indications that the case of DaimlerChrysler marks not only the onset of a new wave, but constitutes its logical crest. It is hard to imagine that a transatlantic merger could be accomplished more resolutely, smoothly, or comprehensively. No doubt several major mergers will take place in DaimlerChrysler's wake, but the new conglomerate will be without equal for a long time.
That said, DaimlerChrysler found no shortage of business compatriots in America. After all, Frankfurt's Deutsche Bank, whose Fifth Avenue branch in Manhattan alone employed up to 700 at one point, had already taken over Bankers Trust in New York. Media conglomerate Bertelsmann, based in Gütersloh, Germany, had taken over Random House in New York, the largest book producer in the United States, thus becoming proprietor of such renowned imprints as Ballantine, Crown, Fawcett, Knopf, Pantheon, Times Books, and Villard. Already owner of two New York based publishing houses Bantam Doubleday Dell and Delacourt this move catapulted Bertelsmann to the number one place among American book publishers. Occupants of Bertelsmann's high-rise offices on Sixth Avenue include Bertelsmann's subsidiary, BMG Entertainment, owner of American music businesses Arista, RCA, and Windham Hill, with Whitney Houston, Toni Braxton, and Puff Daddy just three of many star clients.
Likewise, publishing syndicate Holtzbrinck, owner of major German newspapers such as Handelsblatt and Wirtschaftswoche, had established itself solidly on the American book market by buying publishers Henry Holt, St. Martin's Press, and Farrar, Straus & Giroux.
And back on the merger front, Frankfurt's chemicals giant Hoechst (now Aventis) had joined with its American competitor Marion Merril Dow and the French corporation Roussel Uclar to become Hoechst Marion Roussel. This was soon followed by Hoechst's merger with the French chemicals company Rhône-Poulenc, which created strong competition for America's leading pharmaceutical companies. In global passenger aircraft production, meanwhile, the European airbus industry (in which DaimlerChrysler's subsidiary DASA is a heavy-weight) inched ever closer to American market leader Boeing. In 1999, Airbus landed more commissions for new jet airplanes than the Seattle-based corporation.
Among insurance companies, Munich's Allianz assumed the number one spot in the world, and it, too, gained a foothold in the United States when it acquired the American insurance company Fireman's Fund in 1990. Then there's Munich electronics firm Siemens, which publicly boasts of planning to allocate 6 billion euros some $7 billion in United States currency for acquisitions. Siemens chairman Heinrich von Pierer plans to invest the money mainly in the United States, if possible in the moneymaking branches of information and communications technologies. German pharmaceuticals company Merck KGaA in Darmstadt, a family business owned by the Langmann clan (until World War I, owner of the American pharmaceuticals giant of the same name), has earmarked almost $2 billion for purchases in the United States.
In short, as the end of the "American century" approached, German companies were flooding corporate America with bigger and better offers. Just as in the last century American oil baron John D. Rockefeller covered the globe with his corporate culture and as General Motors established footholds in the auto market all over the world (especially in Europe) since the 1920s, so German companies have begun to establish themselves in the United States and internationally. Only a small-town force until recently, today they are major competitors, which may strike some as "Teutonic furor." In the militant language of economic competitiveness, it has become a battle between Deutschland AG (Germany Inc.) and Corporate America. Is this an overstatement? Perhaps. It is, however, blatantly obvious that the collapse of the Soviet Union drastically changed the general conditions in the world's economic power centers. The global balance of power has shifted.
Not overnight, but step by step, the markets of the former power blocs, which used to be scrupulously separated, opened up. They became accessible and measurable entities; their potential could be appraised. And at times, alarm signals have gone off. The titillating but comfortable clubbiness between East and West, whose members all knew where the others stood and would ultimately protect the status quo, was over. Free markets here, an authoriarian economy there, bartering, supply quota, and fabulous currency exchange rates how comfy was this fairy-tale world of well-ordered structures. Inflexibility had been the motto and the goal and corruption and gray or black markets the quietly tolerated side effects of this arrangement. No one wanted to hurt the others, after all. Everyone was in the trenches. Sure, they all fired a few harrassing rounds now and then, but basically they enjoyed the phony war.
There is no doubt that the Cold War had rigidified the West's structures as well. Of course, there was always much to-do about the risks of free enterprise, particularly in Germany. Enterprise was free, albeit a little curbed by government regulations. But that didn't make life terribly risky (not even for the workforce, by the way). Everyone was safely cocooned in a nice and cozy society, dynamic within reason but hardly ready to dare being innovative. The general modus operandi that was set in place at the top was one of consensus, which everyone enjoyed. As long as you followed the rules, you wouldn't bite the dust. And the rules were safeguarded by NATO; politics were according to then-chancellor Helmut Kohl and Deutsche Bank.
An economy based on patronage corporatist, small-scale, and diligent, leisurely but solid was the rule of the day. Electronics firm Siemens was so protected that it even functioned as its own bank, though that was hardly necessary because the Federal Ministry of Research habitually assumed coverage of its risks. And when it seemed inappropriate to claim R& D subsidies, the company was happy to hand its inventions over to the competition for development. Take the basics of fax technology, for instance, which the Japanese developed until it was marketable, earning themselves vast rewards in the process. Almost every large German company selling to the general public was a kind of Siemens.
Before the new era, Daimler-Benz was an integral part of this system, and the company's then-chairman Edzard Reuter its most eloquent spokesman. Backed by Deutsche Bank, the system's "politburo," Reuter had wanted to safeguard Daimler's traditional business, the production of heavy trucks and luxury cars, by obtaining federal subsidies for entering the weapons, aircraft, and spacecraft industry. Even though he considered this idea to be novel and brilliant, in fact, it was hardly an example of entrepreneurial vision. Quite the contrary; it turned free enterprise into "bossdom," making it dependent on the public sector. In short, it became a mix between market economy and planned economy. Thus, it was two-faced, contradictory, and in constant need of subsidies. Everything about it ran counter to the concept of risk taking. But then, Reuter was confident that the Cold War would never end. At the same time, he trumpeted the technological synergy between his company's two production centers. Even then, Chrysler Chairman Robert Eaton, now Daimler's partner, confessed that he had his doubts about these synergies. Any technology one wanted, he contended, could be bought cheaply.
In 1989, the year of political change, the former West Germany's incestuous system had essentially created the ultimate idyll of general prosperity: full employment and comfortable ways of making a living. Germany had become the new Switzerland of Europe; all it was lacking was numbered accounts. By that time, however, it had become so sclerotic that a halt in economic growth and a devaluation of the deutsche mark that is to say, stagflation were imminent. Unfortunately, nobody noticed that the IOUs were defaulting. The reunification of Germany simply prolonged this rotten state of affairs. To be sure, the Kohl administration, remote-controlled by then U. S. president George Bush, accomplished a brilliant political feat with the reunification of Germany. Economically, however, it tried to muddle along as before. Globalization? Thanks, but no thanks. Germany's entrepreneurs preferred doing business in places that were closer to them geographically, intellectually, and in terms of tax laws: If they wanted to grow, they looked to East Germany which was helped along to the tune of 200 billion deutsche marks annually. Keynesian overkill literally.
Skeptics such as then BMW chairman Eberhard von Kuenheim immediately became worried that the convenient subsidy business with the former East Germany might keep businesspeople from meeting the true and immediate challenges of the new era. Not particularly interested in business ventures with the East, the British and the Americans had long since begun to adjust to the different reality. When the era of change actually turned into a new era, there was much wailing and whining. Politicians, the well-to-do, and bureaucrats committed to the modus operandi of consensus sought salvation by following the motto "what must not be true cannot be true."
From the catchword "globalization" was derived "globalization trap," a popular nonterm ideal for unauthorized use at home. A nostalgic book entitled Globalization Trap by Hans-Peter Martin and Harald Schumann (Rowohlt 1995) even became a best-seller. But reflections of that sort didn't really offer a path to bliss. Those who tried to avoid the trap of globalization were bound to get caught in the real trap let's call it the trap of time. Surprisingly, it was German managers, otherwise so glib, who recognized that danger just in time. Long before the political powers that be under the presidential leadership of a chancellor to whom economy was a foreign affair realized what was going on, management decided to pull the emergency brake.
It came as a shock to business leaders when they suddenly realized that German industry was doomed. Company size, productivity, return on revenue, wages, and work hours all were determined solely by patterns firmly established in four and a half decades of East-West policies. The Cold War had atrophied competition in the West not only politically, but also within its system of free enterprise. The West's market structures were obsolete, particularly in Europe and hence in Germany.
Now, suddenly, all markets outside of the Western bloc were wide open. That promised to be good for sales, but not in terms of costing. Not only did competition within Europe begin to increase on account of the euro and the European Union, but seemingly overnight, that market's internal walls, behind which it had always been possible to hide, had collapsed. Some 2 billion additional cheap laborers from countries as culturally diverse as Poland and China flooded the international job market just as quickly. Industry didn't have much time to respond to this challenge. It was forced to jump over its own shadow to make an instant switch from its provincial mode of thinking to an approach that employed global strategies.
In the "golden age" of the Cold War, an extended market back home had always been sufficient to guarantee the survival of even weaker companies. Now, global markets formed overnight, markets in which oligopolistic competition developed quickly, at least for high-volume transactions (most of Germany's industrial companies were too small to be serious contenders). In oligopolies, nothing remains a secret. Everybody knows how good or competitive each player is, and each is also eager for additional market shares; cost management is tight and international marketing calculations are subtle; profit margins shrink; down-sizing and increasing productivity become number one priorities. "In the final analysis," Hermann Simon, a management consultant on both sides of the Atlantic, wrote in Hamburg's monthly Manager Magazine (November 1998, page 323), globalization means "being about equally strong in all the world's relevant markets." Management gurus offering expensive courses and conferences quickly realized that the solution was economies of scale. Conventional German managers found that hard to swallow at first. Size was not exactly what mattered most in their delicate, middle-class way of thinking. For a long time, the combination of sophistication in technological matters and leisureliness in business matters had been comforting in its own quiet way. Now perhaps this comfort zone was something to be missed, but in the global marketplace, there was no longer much use for it unless a company was the world's unchallenged market leader in certain specialized products such as cigarette-cutting machines (by Körber) or bottle-labeling machines (by Krone). In the mid-1990s, many German businesses realized that they were seriously lagging behind their foreign competitors.
American competitors were dealing with larger production units, for the simple reason that their internal market alone was the size of an entire continent. Conversely, huge conglomerates had developed in Europe for precisely the opposite reason: Their own market was way too small, so they had to acquire companies to grow big enough to compete on the international market.
Psychologically, globalization had started decades ago for, among others, Switzerland's pharmaceuticals industry, the Nestlé corporation, and the Dutch conglomerate Philips. Globalization had become the normal way of life. That's the reason these companies today find it much easier than German or French companies to take the steps necessary to achieve the next economic level.
As we have seen, however, their competitors' more highly developed internal structures were not the only threat German managers faced in the international industrial marketplace. The new global labor market an entity that had not existed since the beginning of World War I promised to be far more devastating. Europe, with its unique social structures, was intellectually not the least bit prepared for it. European society had over the past decades been lulled by the knowledge that a qualified minority, the so-called social partners (i. e., labor and management), had a monopoly on wage regulation. Because of these mechanisms, a real labor market no longer existed factually. By being injected from outside, as it were, it turned out to be a revolutionary change with which European society was at first utterly incapable of dealing. In contrast, German companies whose business routinely transcended borders, such as Lufthansa, soon realized that the new situation was an opportunity to significantly lower wages. In the meantime, those running the global oligopolistic companies no longer viewed the world solely through the eyes of a salesperson, but also through the eyes of a potential buyer. From there it was only a small step to the concept of shopping around on the international labor market. Very soon, Lufthansa chairman Jürgen Weber moved part of his airline's ticket sales operation to India, where highly competent computer experts make no more than one-tenth the salary their German counterparts typically command.
In the mid-1990s, when part of Germany's highbrow press, in a concerted action with the lowbrow press, merrily campaigned against the Maastricht Treaty, which laid the groundwork for the euro, the country's top managers were already forced to think far beyond Maastricht. From their Teutonic basis, they had to design a global company without a fatherland. Among those who recognized that early were Mark Wössner, then still head of Bertelsmann, and Deutsche Bank's Alfred Herrhausen, as well as his (sometimes misunderstood) successor Hilmar Kopper. Others, such as VW's Ferdinand Piech, a man obsessed with cars, simply had to follow their instincts to come to the same conclusion. In regard to the number of cars sold, Piech once said he wanted to get "on the three-tiered podium" that is, the place where the medal winners stand at the Olympics.
What a goal: being number three behind General Motors and Ford but ahead of Toyota, especially considering that only three and a half decades earlier, VW's annual turnover had been no greater than General Motors' annual profit margin! In 1998Ð 1999, VW did indeed sell some more cars than Toyota; and following these criteria, it now really is number three in the world. Though in terms of total revenue, Piech has not yet reached his goal, he does want to be among the automobile industry's Big Five in this respect as well. Who knows, perhaps there won't be many more than five large automobile companies 10 years from now. Lufthansa director Jürgen Weber had early on globalized his company's operations as well, but inconspicuously. While Wössner is analytical and Piech is intuitive, Weber is pragmatic. He may not have had any grand visions of the future, but he certainly had no illusions, either. His advantage was that he became familiar with the deregulation of air traffic early first in the United States and then in Europe. In 1991, Lufthansa, which had been refounded in 1955, had financial difficulties, but technologically it was in tip-top shape. When Weber took over the company that year, he began to assemble the industry's most comprehensive system of allies. No less a company than United Airlines, one of the U. S. air traffic industry's Big Three, is a member of his Star Alliance network.
Compared to Wössner, Piech, and Weber, then, Jürgen Schrempp was considered a late starter. A trained technician like Piech and Weber, the Daimler chief soon proved to be in a category of his own. When it comes to linking ambitious goals and brilliant strategy, he is virtually unsurpassable. A longtime protégé of his predecessor Edzard Reuter, Schrempp abruptly abandoned his mentor's management philosophy and developed his own strategic concept, which he then set out to realize by rolling up his sleeves and pragmatically pursuing his plan with staunch persistence. His image was not that of a particularly sophisticated, but rather of a straightforward man and that paid off nicely.
But before the payoff, Jürgen Schrempp suffered a number of serious setbacks in his career, all of his own making. For instance, he was personally responsible for a large portion of the losses Daimler-Benz suffered on account of Reuter's double-faced strategy. But Schrempp is not one for contrition, and Daimler is no monastery. Hardly had he settled into the chairman's office when Schrempp shifted gears to adjust to the new situation. He knew he had made mistakes, but now he was ready to do things right.
Part of his plan was to spread certain myths designed to create a personal aura for himself. Schrempp claimed that while sitting in front of the fireplace at his home in South Africa (which he purchased during his tenure with the company branch there), he suddenly realized that in order for Daimler to run smoothly again, everything had to be turned back. Each product line would have to show a minimum of 12 percent return on revenue. If it didn't, it was going to be strictly "fix it or sell it." However, what was most important, he said, was for Daimler to extend globally those core businesses it decided to keep. Daimler had to be among the world leaders in all branches of its business. If this sounds familiar, it is because esoteric Edzard Reuter had been replaced as Schrempp's spiritual foster parent by General Electric's Jack Welch, an American down-to-business type.
Welch had transformed the placid U. S. company General Electric into a flexible and enormously profitable corporation with many different product lines. Each of them, Welch decreed, had to advance to at least second place, and if possible to first place, within its field and yield accordingly large profits. GE's shares and its internal value soared so high that the company achieved the second-highest rating of all U. S. corporations, surpassed only by Coca-Cola. Wall Street analysts cheered. Welch pressed on and started preaching salvation through "shareholder values," that is, the highest possible dividends and share value the ultimate management objective. Schrempp liked all this a great deal. Every other word out of his mouth was "shareholder values" at least as long as he was abroad.
Schrempp soon realized that in Germany's society of consensus, this term was not considered politically correct. When at home, therefore, Schrempp talked about "business policies determined by values," which is just the song-and-dance term for shareholder values. The stockbrokers dug him, and it was their confidence that counted, after all. As far as labor was concerned, there was no outcry of indignation among the workers, much to the unions' dismay not even after Daimler cut almost 90,000 of its 380,000 jobs within a five-year period. Only when Schrempp tried to realize his merciless austerity plan (called Dolores, for "dollar low-rescue" program) to put DASA back on its feet was there trouble.
Nevertheless, the Daimler workforce and its representatives realized that the new era called unmistakably for new measures. Schrempp then quickly dropped everything from the company that was in danger of losing money, and once again put all his stakes in the auto business. Still, he didn't plan to restructure the company from inside, as Ferdinand Piech had done; he intended to turn it into a company capable of merging with an attractive partner. The head of Daimler's automobile division, Helmut Werner, who had salvaged his product line in a tour de force and internally restructured his division, was ousted.
Schrempp pursued a simpler and, at the same time, grander design, in which there was no room for consideration of individual lives. He viewed himself as a more qualified leader than Werner, and that was all that mattered. Plus, he was the younger of the two, which was a factor taken into account by Daimler's supervisory board, including labor representatives, who share the seats with shareholder's representatives. And so this little detour contributed to the happy union between the myth of Schrempp and the reality of Schrempp: In record time, Daimler-Benz regained its preeminence as German industry's most distinguished name.
As so often happens, hindsight seems to justify everything, for without his about-face, Schrempp hardly could have pulled off his "mission impossible" with Chrysler. That deal, in fact, comprised chapter two of the Schrempp myth: During a casual conversation at the Automobile Salon in Detroit in early 1998, it is said, the idea of a merger between Daimler and Chrysler first occurred to Schrempp and Bob Eaton. But as is usually the case with tales told over and over again by the campfire, this story, too, has a few slightly different versions. Whether or not one believes any of this, it does seem suspicious that Daimler's chairman was so remarkably well prepared for this "coincidence." In connection with this matter, he had read strategic studies, one of them by the American consulting firm Arthur D. Little in Cambridge, Massachusetts, which looked at the possibilities of an "ambition-given strategy." What could and what should a conglomerate such as Daimler-Benz do in an atmosphere of increasing globalization? Go with an overseas competitor. Period.
Schrempp, with his instinct for grand schemes, saw a green light to continue on his personal mission. This entire business could well propel him overnight to the position of a cult figure within the auto industry. Before the man from Stuttgart "spontaneously" talked things over with Bob Eaton, he had already checked with market leader General Motors and with Englishman Alex Trotman, then head of the Ford Motor Company. Trotman, too, it soon turned out, was looking for a major fix for his corporation. Remember, at the beginning of his tenure he had vowed that by the year 2000, Ford would be number one in the auto industry ahead of General Motors, the perennial number one for the past 70 years.
For Schrempp to go so far as to make these suggestions in the first place, the coordinates in world politics first had to shift. Put simply, Japan's image had waned, while Germany's had become more favorable. The Federal Republic of Germany had done an excellent job in the 50 years since it was founded. Outside of the country's borders, this was often more clearly recognized than at home, especially by the movers and shakers in the United States. After reunification, Germany had become America's most important partner in Europe. Previously "the world's greatest powerlessness" (as Deutsche Bank's Hermann Josef Abs put it), Germany was no longer restrained by occupation law. It once again had regained complete independence, within the framework of the European Union.
Japan, on the other hand, whose cockiness had thoroughly irritated the United States more than once, now seemed to be quaking. Its economic crisis was also a social crisis. That Japan was not ready to relax its rigid structures and build a truly modern society more often confused the Americans, to whom it seemed that the cultural gap between the two countries was wider than it had been in a long time. Concomitantly, Americans were pleased that Japan's industry had lost much of its bite. Japan was no longer intimidating.
Only a few years earlier even the renowned American economist Lester Thurow had referred to Japan as the most dynamic power of the so-called economic triad, insisting that any industrial superpower had to cooperate with Japan at nearly all costs even if it had to grit its teeth because the sons of Nippon were so difficult, because they were more interested in an economic war than in partnership, and because they were more concerned with increasing exports than with free trade. Once the Americans realized that the economic triad and Japan's dynamic strength were not all they were cracked up to be, their willingness to cooperate quickly began to evaporate. Freed of the Japanese nemesis, America started to turn its sharp focus away from the Pacific. Germany became close again, and with it, all of Europe.
This was a natural turn of events. It is hardly necessary to point out that despite their differences, the Americans understand the European mind-set better than they do the Asian mind-set. After all, the foundation of American culture and the basic concept of American institutions is in the Old World (though more so in England and France than in Germany). And the Europeans had largely been following the advice America had been giving them since World War II.
Consequently, as a huge bloc with its own unified currency, and perhaps even as a semipolitical union, Europe became much more important to the United States than it had been before.
The United States wants to be Europe's partner in many respects, without necessarily playing the lead. The prospect of establishing, along with the Europeans, an industrial position that is superior to that of the Far East is enticing enough. The more conventional rules of geopolitics for instance, that neighbors on opposite sides of the ocean are all the more interesting the closer their shores are are making a sort of comeback. The principal power on the other side of the Atlantic is once again Germany, now transformed by NATO and the European Union from its role as troublemaker into the great integrator.
The United States wants to take advantage of this transformation. With England's impact on the continent waning, the United States can exert its influence on the European Union's economic style only via Germany. Exerting its influence is an old political principle in Washington, one that serves to protect its political system at home. No one followed that principle more clearly than Franklin D. Roosevelt (from 1933 to 1945) in his crusade against German führer Adolf Hitler and his Axis powers. America, Roosevelt argued, could not defend its political system, which rested firmly on the freedom of its citizens, unless a large part of the developed world supported the same concept of liberty.
The present situation isn't nearly as dramatic as it was then, but the United States wants to nip in the bud any hints of a closed European economic fortress. For the United States, it is a matter of course that the more fully German-American and American-German concepts and values develop, the better it is for both sides. All of this understood, Washington simply could not oppose the DaimlerChrysler deal. The times of a tough "buy American" cross-country movement (with Chrysler being one of its main inspirations!) are over. So are the days of open or even subliminal antipathy toward Germany and the Germans. Admittedly, many prejudices against the Germans remain inextinguishable especially since the Hitler era. At the same time, there also exists a tradition of positive feelings, and these are more deep-seated, more profoundly rooted in the American people than the country's media would have us believe. In politics, it was mainly Republican presidents who dared exhibit support for Germany: Theodore Roosevelt (1901-1909), Herbert Hoover (1929-1933), and George Bush (1989-1993) each maintained a basic pro-German attitude, though one tempered by skepticism the atmosphere was just a little overcast, and there was a slight northwesterly wind.
The reason for American support albeit from a critical distance for the Germans can perhaps be traced to the fact that, historically, many U. S. immigrants came from Germany, and as an ethnic group, they were distinct only during the first generation of settlers. They assimilated more completely and quickly into the Anglo-Saxon world than almost any other group. With the exception of the legendary Carl Schurz, they were not influential in politics. Among the 42 U. S. presidents to date, only Dwight D. Eisenhower (1953-1961) had a name clearly of German origin though he didn't consider that an asset in gaining public viability.
Still, in a semianonymous way, the Germans exercised tremendous influence on the development of agriculture and the processing industries. It is fair to say that America's former main industrial area around the Great Lakes and in parts of New England was "German," a fact that was largely suppressed because of the world wars and Hitler. Against this backdrop, the Germans became respected as perfectionists and professionals, but that didn't win people's hearts, which were reserved for others. For instance, Americans love the French like good, albeit eccentric, friends; they love the English like cousins, family factotums whose whimsical behavior they have gotten used to.
The fact is, the Germans tested Americans repeatedly, and still do. In the twentieth century, the Americans had to confront them again and again, with the kind of intensity they were otherwise not forced to engage in. Throughout the entire century which, following a statement by New York publisher Henry Luce, has been dubbed the "American century" the Germans were the main concern of America's Western policies. (It would be worth analyzing whether the twentieth century has been a German-American century.)
Since the days of Theodore Roosevelt, there has been an ongoing dialectical process of thesis, antithesis, and synthesis between the two countries. Until 1945, Germany was a Mephistophelian contributor to the United States' emergence as a world power in Goethe's words, it was "part of that force that always wants to achieve evil and always creates good." Incited and challenged by Germany's aggressive impatience, the deep-down somewhat isolationist United States found itself more directly involved in world politics, mostly in opposition to its natural impulses. That said, America sometimes liked it a bit: Theodore Roosevelt versus Kaiser Wilhelm II; Erich Ludendorff versus Woodrow Wilson; finally, Adolf Hitler versus Franklin D. Roosevelt in World War II.
Germany always wanted everything and the United States always gained everything. Between 1945 and 1990, Germany geographically speaking, the principal dividing line in the Cold War was newly created, shaped, and tamed by America. It became America's star pupil, its continental warrior, and eventually, even its defender of Atlantic values. Perhaps things wouldn't have gone that well if the United States hadn't found such a kindred spirit in West Germany's first chancellor. Konrad Adenauer, staunch anti-Prussian haut bourgeois from the Rhineland, tied Germany to the West for what must have been the first time since the decline of the Karolingian empire in the early Middle Ages, the Holy German Empire of the German nation. Adenauer had accomplished this by being tough, persistent, and clever and it looks as if the bond has been forged for good. But not until 1990 did America release West Germany into "adult-hood."
Reunification and the euro a package deal from the get-go turned Germany from America's main vassal into its partner, for better or for worse. Germany has not become a friend, as the French, nor a cousin, as the English; it has become a partner only, but in that role it is determined to be more important than anyone else. This relationship represents the synthesis between the two countries; it constitutes what today is considered normal.
Few understood and described this change in the geopolitical environment better than Zbigniew Brzezinski, a native of Poland who later served as security adviser (1977Ð 1981) to President Jimmy Carter. "Germany's reunification," Brzezinski writes in his book The Grand Chess-board (Basic Books, 1998), "dramatically changed the real parameters of European politics. It was simultaneously a geopolitical defeat for Russia and for France."
Germany, Brzezinski maintains, has become a major European power and, in some respects, again a world power. It may seem hard to believe, but, as Brzezinski argues, Germany now serves as America's democratic bridge to the Eurasian continent. These are strong words. Too strong, really, for this book, though they precisely illuminate the political backdrop for the psychological bond that developed between the two countries and that now serves someone like Schrempp so well.
At the same time, Brzezinski provides the political explanation for how globalization came about; what's more, he analyzes lucidly the United States' future concerns. Brzezinski views the Federal Republic, with its key position in the united Europe, as a critical mass enabling America to successfully maintain its role as a superpower, however that role may be played. He sees Germany's part in this in an entirely positive light.
If Brzezinski is right, the United States will do favors for Germany in return which gives the heads of German companies a great deal more room to operate than they could have ever gained for themselves during the first five decades after the Nazi era. Jürgen Schrempp, doubtless unfamiliar with Brzezinski's analysis, was the first to take full advantage of this new constellation. He neither wasted any time nor did he start a moment too soon; simply, his timing was perfect. Had he acted only months sooner, the American public probably would not have accepted quite so readily the takeover of its third-largest auto company by an even more reputable German car manufacturer. Subsequently, when Deutsche Bank took over Bankers Trust a short while later, the event did not create so much as a stir.
Really, though, who could protest, since apart from an embargo, the United States had no other option, specifically none involving Japan. Mergers such as Daimler-Nissan or Toyota-Chrysler may have looked promising just a few years ago, but whether they also would have been realistic is a different matter. Both Daimler-Benz and Chrysler already had experience with Japan both of them, incidentally, with set pieces of the widely ramified Mitsubishi Corporation. But that was now history.
Today, Jürgen Schrempp, the trendsetter, is able to point out the stringent logic behind the DaimlerChrysler merger. There is virtually no overlap in the two companies' lines of business, so no part of production needs to be eliminated. This merger was close, bipolar, and dramatic simply put, sensational. In addition, it makes it easier for all European especially all German companies to follow in Daimler's footsteps. And so mergermania (which originated in the United States) has only just begun. There will doubtless be new surprises perhaps not quite as smooth and perfect, but comparable in size.
Needless to say, the mere hunger for size alone is not the only reason for these mergers and acquisitions (M& As). Part of it is also the need to play the traditional game of being present in other markets. But now the markets are bigger; in some cases, the whole world is the market. And where money is to be invested, you usually find sources of capital. Combining all the advantages of these various sources alone can be a major incentive for megamergers. It doesn't take a visionary to realize that the core region for movements of this kind, certainly in the not-too-distant future, will be North America and Europe.
At least psychologically, a generational issue also factors into this current German-American trend. The new generation of German managers those between 45 and 55 years of age clearly has grown up much more on Anglicisms, American management models, and private travels to the United States than have their predecessors. The "new Germans" typically speak English with only a slight accent. The corporate language of a German-American company can switch to English without much difficulty which is a great convenience.
Another important difference between the generations is that the new Germans are less self-conscious of Germany's more recent history because they were not yet born during the reign of the Nazis; and in many cases, their parents were too young to be held responsible for involvement in it. The new generation knows neither the victims nor the perpetrators. Neither does it have to suppress anything: It can simply pass judgment. This also makes them more understanding when it comes to Nazi victims' financial demands made against their own companies.
Finally, the new generation of managers understands better than their emotionally charged predecessors that the point is no longer to answer for guilt, real or perceived; the focus is on identity and image of the company in other words, a tangible value in the international competition. This value is linked to the name of the company they represent, even though the company may no longer necessarily be the direct legal successor of the company carrying that name during the Nazi years.
Thus, Volkswagen (VW) has long since ceased to be the company of the "strength-through-joy" car; Deutsche Bank is no longer the sponsor of a repressive regime; and Lufthansa is no longer a cover organization for the clandestine education of air force pilots. Between then and now, there were years in which Lufthansa and Deutsche Bank didn't exist at all and in which VW was owned by the British occupation forces. The companies' names, however, didn't disappear; they returned, or were resurrected, for well-considered reasons. There is a die-hard value connected with them that can't simply be separated from the past. Managers like Schrempp, von Pierer, Schulte-Noelle (Allianz), and Middelhoff (Bertelsmann) are in a position to see these things in their proper perspective, much more so than their predecessors and their predecessors' predecessors.
Most German companies now setting sail in the direction of America have troubled pasts. The larger and more important they were then, the more it is assumed they were involved in the corporate system of the Nazi regime. Not that this necessarily happened against their business interests. Only companies such as Hamburg's Otto Versand the world's leading mail-order business founded after the war do not have to carry the burden of the past. The founder of that company, Werner Otto, had been incarcerated by the Nazis for several years for his opposition to the regime. Today's media conglomerate Bertelsmann, on the other hand, was too insignificant at the time to have played a major role in the Hitler movement. Yet it did align itself with the Nazis.
Now, more than half a century later, it is essentially the same companies that form the inner circle of Deutschland AG. Again it is their sheer weight and power that drive companies like Daimler-Benz, Deutsche Bank, Allianz, Siemens, Bayer, BASF, Hoechst, Lufthansa, Thyssen, Mannesmann, Volkswagen, and BMW in the same direction, gathering like lemmings to seek their ultimate union with Corporate America.
They are indeed a flock of lemmings, for they are not following some grand design. Rather, they seem to be driven by inner necessity and, no doubt, are propelled by fear of what the future might bring. Mergers and acquisitions remain a tricky business, especially with American companies. Difficulties begin with financing. Those companies that have invested in the United States, such as Bertelsmann or Hoechst, have paid in a good German manner, with real money that is to say, cash. The same goes for Deutsche Bank's takeover of Bankers Trust. Daimler-Chrysler was the first German-American megamerger that was transacted with the much more convenient payment method of stocks.
Stocks are Wall Street's tools, used to finance hundreds of American mergers and acquisitions, either by paying stockholders who already hold stocks in the takeover company or by trading stocks. Ideally, no cash is involved in these transactions aside from commissions paid to brokers and lawyers. The parties involved do not have to spend cash. But in the pre-DaimlerChrysler era, no German corporation that wanted to take over an American company was able to use its own stocks as a currency. It simply wouldn't have worked because of Wall Street.
It is a fact of life that, until now, stock in German corporations has been valued far too low and that in American companies usually too high. This discrepancy is due, on the one hand, to the differences in social security and fringe benefits offered by European companies and, on the other, to America's rigorously capitalist entrepreneurial culture. In other words, until recently, the inner stability of European specifically, German firms has been ignored; when the value of that stability was acknowledged at all, it was as a social, but certainly not an economic value. Conversely, the rigorous capitalism of an American company, with all of its concomitant intrinsic instability, has been glorified.
In terms of numbers, this means that on the stock market, a European company's return on revenue is posted as lower than that of an American company, and that the market rate is still lower in relation to profit. Double jeopardy for German companies, so to speak. Because market rates determine a company's net worth, Europeans are doomed to do miserably when a merger is financed through stocks. Experts such as Hermann Simon can cite examples that are simply grotesque. On September 23, 1998, for instance a day chosen at random the Siemens corporation was worth 54.4 billion deutsche marks on the stock market according to the criteria, yet the U. S. company General Electric by no means a bigger company$ 441.8 billion. "If the two companies merged on this basis," Simon stated in Manager Magazine, "going strictly by numbers, current Siemens shareholders would get less than 11 percent of the new company GE Siemens. That's a joke."
Or take Bill Gates's Microsoft. While its turnover was only one-fifth that of Siemens, on the stock market it was worth eight and a half times as much as the German electrical company. The market value of BASF, Bayer, and Hoechst the German chemical industry's Big Three is fluctuating somewhere between 40 and 50 billion deutsche marks, while the much smaller U. S. pharmaceuticals company Merck is worth a whopping $288 billion.
Only the German auto industry could compare to its American competitors on the stock market and only because German automobile shares were unusually high in 1998 and America's were particularly low at the same time. In this respect, too, circumstances worked in Daimler-Benz's favor. What was really significant, however, was that, since 1993, Daimler's stocks have been posted on the New York Stock Exchange alongside those of Chrysler. Thus, both companies have been assessed according to the same criteria.
It was Schrempp's much-maligned predecessor, Edzard Reuter, who introduced Daimler-Benz's shares on Wall Street, Germany's only stocks there at the time. This one move made up (almost) for Reuter's numerous blunders as a manager, which ultimately earned him the reputation as the worst squanderer of capital in the history of German corporations. Schrempp got all the credit for this brilliant maneuver. In all fairness, it is necessary to add that Schrempp's shareholder-values campaign was a tremendous boost to Daimler-Benz's market value and return on revenue. Both soared so high that, in the end, Schrempp's company was worth more than Chrysler on the stock exchange.
With this feat, Schrempp managed to eliminate for Daimler-Benz what constitutes any German company's worst handicap in the international game: the relatively low return on revenue. Those hopeful for future German-American megadeals still have some preliminary work to do, however. In 1997, for instance, Siemens just managed to get a 2.4 percent return on revenue, whereas General Electric got 9 percent. As already mentioned, Schrempp set the target at a straight 12 percent. The targets of modernized corporations such as Mannesmann are even higher (and, incidentally, are often met thanks to U. S. subsidiaries). Month after month, and very discreetly, Mannesmann as well as Krupp/ Thyssen buy small but nicely profitable companies abroad, particularly in the United States. To avoid culture shock, they keep them on a long leash.
This represents another obstacle for progress-oriented strategist Jürgen Schrempp. He cannot keep DaimlerChysler on a long leash which, incidentally, wouldn't be in keeping with his personality anyway. Instead, he has to streamline the new dinosaur. And finalizing a merger legally is not all there is to be done, even though the experts on the scene the investment bankers routinely leave the place of action as soon as that has been accomplished; once the legal finishing touches have been made, they're done with their job. But it is precisely at that point that the company's managers, suddenly abandoned, need serious, in-depth advice. After all, that is when newly enlarged, merged companies such as DaimlerChrysler really start growing together. Management is confronted with an overwhelmingly chaotic situation. During mergers, all participants are again and again forced to acknowledge that one plus one never exactly equals two. It might equal one and a half or even less, such as when the aerospace company Boeing took over the weapons manufacturer McDonnell Douglas, or when auto manufacturer BMW acquired its competitor Rover. On the other hand, it might equal three, as with the loose alliance between Lufthansa and United Airlines. The reason for this mathematical disparity can be accounted for by the difference in corporate cultures.
Though fitting the various assets thrown together during a merger into a comprehensive business plan is an academic exercise in bookkeeping, not even remotely is it a realistic undertaking. Anyone moving in and around the new structures runs into incompatible ways of "how things were always done" sometimes due to regional or even national habits ways that are ultimately incomprehensible to the newcomer. The previously computed synergistic effects, which often tipped the scale in favor of the merger, are sometimes quickly canceled out by the costs incurred on account of cultural obstacles on both sides.
The merged company's management has to choose between three different ways of approaching this problem. One, the principle of laissez-faire, wherein different cultures compete against one another until they ultimately blend; two, the department principle, in which the various divisions of the company that was taken over at first continue to work within their old cultural context; three, the Stalinist principle, according to which the stronger partner strictly forces its own culture onto the weaker one. Each principle has a huge potential for mistakes. Since it is almost a law of nature that emotions of jealousy and fear of being patronized arise in the new company, the problem is virtually unsolvable without sensitive outside consultation. Ironically, however, many don't want any advice. As "born victors," they prefer passing through this phase like an army.
The question of the cultural bridges that might be built during German-American megamergers is thrilling to ponder. Even though the basic setup seems promising for DaimlerChrysler, that company, too, will have to grapple with some serious internal differences. Let us not forget that, according to many sources, some 70 percent of all mergers don't make good on the promise they initially held. In other words, most of them turn out to be much more complicated and expensive than expected.
American business culture is very different from German business culture, for clearly discernible reasons. America has its shareholder values, and the New York Stock Exchange forces companies to post a profit every three months. Other important factors include the greater mobility of American society and its radically different education and vocational training systems. In Europe especially in Germany there are rigorous obligatory training programs, even for mechanics; students must pass them and get a diploma in order to land a well-paid job. A future plumber, carpenter, or electrician has to train as a modestly paid apprentice for three years while attending vocational school before he or she can graduate to become a journeyman or -woman.
Graduation doesn't necessarily translate into getting a job, but once found, a job does guarantee relatively high hourly wages, negotiated and protected by the union. Those who aspire to even higher orders must pass a Meister test, which often requires more academic knowledge than for an American bachelor's degree. Only a Meister certificate entitles someone to open his or her own business in the field of choice. The requirements for technical perfection are so high that journeymen and -women are reluctant to sell their prentice work, and more so their Meister pieces even when they would earn top prices on the free market. If sold, such pieces by German carpenters are so exquisite that they would fall in the price range only someone like Bill Gates could afford.
For employees in trade companies, banks, and insurance companies, training lasts almost as long as that for mechanics. They, too, need a diploma to get a job. For this reason, it's very difficult for German managers to get used to the American principles of "hire and fire" and "learn by doing." Germans value constancy and professional competence. They are used to employees staying with the same company for many years sometimes even in the same position for several decades. With the exception of postgraduates, managers, people in the military, top-ranking civil servants, and social climbers, a German with a job, no matter how cosmopolitan he or she may want to appear, would rarely consider relocating for a job.
On the other hand, because training for Germans in their respective fields is so rounded, they understand precisely what's going on in other departments of a large company, what the boss is doing, and what the company's profit and loss calculations are. This applies even to industrial workers, who also often undergo vocational training. Take the job of air-craft mechanic, for example. For a high-tech company such as Airbus, the thought of untrained or informally trained mechanics working in its highly sophisticated airplane production department is anathema. Such workers probably would not be allowed to count screws there. At competitor Boeing's plant, on the other hand, on-the-job training now is standard. New employees need only to watch an experienced worker long enough to learn by doing before taking over his or her job. In terms of quality, the results of the two methods differ much less than the methods themselves would suggest, yet they constitute different approaches between the two cultures.
Thus, assimilating European and American companies successfully is a time-consuming and costly process. German buyers have often seriously underestimated costs of purchasing American companies. After taking over the U. S. supermarket chain A& P, for example, the privately owned Tengelmann chain spent 10 long years pumping millions and millions into the enterprise. Grilled-chicken restaurant chain Wienerwald went bankrupt largely because of its acquisition of American restaurant chains such as International House of Pancakes.
The good fortune of Siemens and Germany's three large chemicals companies in regard to their acquisitions in the New World was likewise limited. A major reason was the casual manner in which they invested in the United States. For instance, they might base their decision to invest on certain advantages that existed only temporarily say, currency exchange rates that were unrealistically favorable and therefore bound to change very quickly, or the acquisition of technology at what only appeared to be very good terms. Too often, these terms soon turned out to be much less favorable than they appeared. Very rarely were these investments part of a larger business plan. Even if it looked that way, it often proved to be an optical illusion.
As early as the 1970s, under its then-CEO Toni Schmücker, VW had acquired an old Chrysler manufacturing plant in Pennsylvania. That factory's purpose was to produce the U. S. version of the VW Rabbit. VW's managers had the brilliant idea of manufacturing the popular Beetle's successor near its customer base, for the sole reason that the deutsche mark had become prohibitively expensive. Due to the high exchange rate, production costs back home went sky-high, which made it impossible to export the cars at a profit. Therefore, the idea of producing them more inexpensively in the United States seemed to make perfect sense. But the advantage was canceled out when VW's managers decided to produce the Rabbit cheaply not only in terms of cost but also of quality. Rather than offering American car lovers a high-quality product made in Germany, VW surprised its potential customers with a crummy tin box, somehow convinced that this was what people really wanted.
This turned the entire operation into a disaster, and VW is still paying the consequences. With the factory operating at only a fraction of its capacity, VW sold the plant at exactly the point it should have been buying it. The deutsche mark had become so strong that VWs could be imported from Germany only at a significant loss. Soon the cars disappeared almost entirely from the American market. Not even the Beetle produced in VW's Mexican factory could salvage this situation, because the U. S. government had introduced stricter environmental policies and, consequently, it had become impossible to sell the Beetle there. At that time, Honda and Toyota were building large plants in the United States, and their products have since become market leaders in America within their category.
Other German-American companies also resulted from haphazard decisions, or at least decisions that often followed no discernible logic and sometimes seemed to be made in a haze. After the fact, it sometimes looked as though they were the result of grander schemes. This is true even for such industry icons as media giant Bertelsmann and insurance conglomerate Allianz. Even Lufthansa and VW's new managers, whom Ferdinand Piech had gotten to move forward, based their decisions to go global less on careful analyses and more because it seemed prudent from a strategic point of view. Only the airbus industry, which was established for political reasons as a mutually supportive club made up of French, German, English, and Spanish members, was designed from the start as a counterconglomerate. Hefty subsidies vouchsafed its survival during the long incubation period. Only now is it supposed to turn into a real company. From this early, archaic way of dealing with Corporate America has evolved a sort of typology of Deutschland AG. Distinguished by varying degrees of density, intensity, and hegemony, there are three basic types: Transatlantic World Inc., the Pivot Strategy, and the Global Counterconglomerate.
Let's look at type one. "World Inc." was the term DaimlerChrysler decided on from the get-go. Ever since, there is no way to circumvent this term, and so we comply, at least in part. But DaimlerChrysler, with its cosmopolitan air, has so far been only a Transatlantic Inc., serving as an umbrella for additional companies expected to be acquired from the Far East, for example. Other binational companies such as Asea Brown Bovery, Unilever, and Royal Dutch Shell are just as entitled to call themselves World Inc. as are all members of Big Oil, Exxon, Shell, and the like, when you come right down to it. After all, even the network of Standard Oil founder John D. Rockefeller extended across the entire globe.
To please the teachers of logic as well as DaimlerChrysler, we'll call the new structure Transatlantic World Inc. This term is also applicable to the second German-American megamerger, that of Deutsche Bank and Bankers Trust, and to the Bertelsmann conglomerate as well. No doubt the concept of the Transatlantic World Inc., which entails the full integration of forces, best satisfies the need to grow to a size befitting an American company and its interests. However, there can be no doubt that the new partnership cannot grow indefinitely. The above-mentioned snares in financing megadeals can hardly be solved overnight. A strategy focusing on a company's location is both more popular and logistically easier to accomplish than the formation of entirely self-contained German-American units. It is a strategy whereby German companies are present on the United States' internal market, thus making sure they are among the global players. This can be accomplished via U. S.-based manufacturing plants and/ or management offices. These also give companies a certain access to America's more flexible financial market and greater product variety, and they often reduce labor and management-relocation costs as well. In addition, the currency exchange rates tended to favor the dollar, and thus one's investment.
Early on, German chemical companies in particular pursued type two, the Pivot Strategy. Sometimes, they simply wished to acquire locations where large-volume production in, say, synthetic materials (Hoechst/ Celanese) was cheaper. Other times, the main advantage was that the new location brought the company closer to its customers. On still other occasions, the reasons had to do with advanced strategies which, one must add, might come in the wake of sheer panic. For instance, being present in the United States could simply mean having access to American R& D in areas of genetic engineering that were considered highly sensitive, if not politically incorrect, back home.
The Pivot Strategy is pursued with great finesse outside the chemical industry as well for instance, in finance (the insurance company Allianz), publishing (Holtzbrinck), the processing industries (BMW, Mannesmann, Krupp/ Thyssen), and commerce (Otto Versand). A number of German firms have already extended their Pivot Strategy to large parts of the world. This qualifies them for our third category, that of the Global Counterconglomerate.
The Global Counterconglomerate also has a strong foothold in the United States perhaps even its strongest one. In this respect, it is also transatlantic. However, its concerns far transcend transatlantic limits, and this places it in dimensions that are not strictly pivot, or German American, but give it a downright universal presence. The Global Counterconglomerate views itself as the European mirror image of the American industry giant. Among German companies, auto conglomerate Volkswagen and electronics giant Siemens belong in this category.
Aside from these standard representatives of the Global Counterconglomerate, there are some more exotic cases. These include major strategic alliances such as Lufthansa's. Then there is the still somewhat nebulous Europa Inc., of which Airbus is a good example. Finally, there are certain producers of specialty products that operate globally, yet at the same time in an almost middle-class sort of way. The best example is Heidelberger Druckmaschinen AG, which is trying to become the world's market leader in the manufacture of printing presses. In all companies, whether Transatlantic World Inc., Pivotal Strategy, or Global Counterconglomerate, decisions for or against something are closely connected with who is running the company. How closely the character of the top manager and his or her company match one another is really a phenomenon that should intrigue all those interested in social psychology. A company's annual report and press releases would have you believe it is facts, and nothing but facts, that determine the direction in which the company is going. But in practice, it is remarkable how often that decision is determined by chance or, more often, by the top manager's personal disposition, including most certainly his or her ego. Thus, facts become chance and chance becomes the rule.
The same holds true for those companies whose profiles were selected for the following chapters. No doubt there are dozens of other companies that exemplify the desire of German corporations to settle in the United States and the global market. Listing them here would be like trying to put together an encyclopedia and a useless one at that, as companies are bought and sold every single day. "Every month I get a list of several dozen companies we have purchased," says the head of a foreign branch of Mannesmann, "and most of them are in the United States."
As mentioned, it is surprising the degree to which the character of most conglomerates continues to be molded by their top manager's personality type. Boss and company resemble one another like a dog and its owner. There are, however, exceptions to this rule. The airbus industry, for instance, would not have evolved as it did as a product of some central management with one single leader; and it wouldn't even have been conceivable that way. The reason lies in Airbus being a political entity behind whose facade strong individualities quickly disappear. They exist, but they're barely visible. Still, some stand out a few of them Germans. Their personalities have broken through the general anonymity in the company.
In comparison, other leading figures of large companies have the image of lone combatants, very different from everybody else. And the same can be said for their companies. Ferdinand Piech, for one, is often considered a shark, and his reign as VW's sovereign has been very tough, whereas Lufthansa chief Jürgen Weber cultivates Lufthansa's Star Alliance reliably and methodically, like a son-in-law from a good family. Hoechst's Jürgen Dormann is considered a door knocker sitting in the director's chair and not just because of his name. Gerhard Cromme of Krupp is the spider in the web of steel, the man who brought the former cannonsmiths together with the significantly more powerful Thyssen corporation and subsequently became the strongman of the merged enterprise.
Rolf E. Breuer of Deutsche Bank has been ever present for years as Mr. Stockmarket in Frankfurt. And since last year, Bertelsmann has been led by the young electronics enthusiast Thomas Middelhoff, a Mr. Spock who would love to have invented the spaceship if it didn't exist already. Jürgen Schrempp is more the contrast of him not that sophisticated, more the Terminator type. Ten strong egos, three different strategies, and one major target. Enter Deutschland AG: Volkswagen versus Ford; Bertelsmann versus Time Warner; Hoechst versus Merck; Allianz versus Metropolitan Life; Lufthansa versus American Airlines; Airbus versus Boeing; and so forth. The contest is thrilling, intoxicating even.
Let's be clear that nothing like a systematic plan exists for an offensive by Deutschland AG on Corporate America. Virtually nothing in Germany's thrust toward America is reminiscent of Japan's global expeditions in the areas of shipbuilding, electronics, and auto manufacturing expeditions that were directed by the political powers at the time. The Federal Republic of Germany does not act like a country that follows military concepts or even strategies issued by an imaginary central planning office. A mighty steamroller such as Japan's once-omnipotent MITI would be inconceivable in Germany, and in fact would have been inconceivable since the end of World War II. What makes German managers tick is neither mercantilism nor imperialism; rather, it is a defensive motive, regardless of the fact that pressure is put on American domains more unabashedly than before. Perhaps the Olympic spirit is playing some part here after all, and the whole thing can be seen as a sports event.
The transformation of the typical German industrialist from Mr. Moneybags to Citizen of the World will not only change the structures of Germany's society of consensus as we know it; it also implies the liberation of the large companies themselves from the tough but secure grip of the politburo of Germany's economic culture. Everyone is familiar with that culture; it is firmly established, and it is self-contained, even incestuous, so to speak. It will not simply disappear at the drop of a hat, for many potentates from the world of economics are enmeshed in it. The top of the pyramid consists of a few large financial institutions, most notably Deutsche Bank, the insurance conglomerate Allianz-Versicherung, and the the reinsurance firm Münchner Rückversicherung. Surely the names of these institutions alone couldn't conceivably exude a greater sense of security.
These institutions are connected not only through shared holdings; their closest circle consists of some 50 companies and 200 top managers. With few exceptions, the companies in this elite club are owned either directly or indirectly by the financial institutions just mentioned, which have always been joined by the second most important group, made up of the Dresdner Bank, the Commerzbank, the HypoVereinsbank, and the Westdeutsche Landesbank. Corporations and financial institutions have been intertwined to such a degree that they have been able to fend off any outside attack and regulate any internal disaster. Financially, self-regulation was made possible through mutual shared holdings, or because the large banks had an oligopoly in loans that was, in fact, a monopoly. In terms of human resources, it was accomplished through labor representatives who served as board members of this closed society.
This power structure has been fortified by the banks' exercising their right to vote by proxy, which is always certain to give them a majority at a shareholders' meeting (which by law is called a general meeting). This enables the network of banks to wield all the power in stock corporations in which the banks themselves don't own a single share. Needless to say, whenever necessary, via recommendations through their employees, banks can also influence the fate of stocks that are interesting to them. What is done separately in the United States by investment and commercial banks and usually separated by geographic region is all done on a national scale in Germany by its universal banks. This was and in part still is the classic Deutschland AG, where nothing could go wrong, even when everything did go wrong. It was in keeping with its gilded self-image that the company wasn't very active beyond Germany's borders. Therefore, the opening of the global market is bound to diminish its influence. For financial operations, global companies such as Schrempp/ Eaton's DaimlerChrysler AG, in which Deutsche Bank has a good 12.7 percent share, will probably use their international resources. Conglomerates that want to acquire other companies will only rarely do this via Germany's present banking system, opting instead to use Wall Street's investment banks. This puts considerable competitive pressure on Germany's universal bank, which has to embrace the outside world, cultivate contact with its shareholders, and streamline its business. Sitting on its share of holdings and acting like Deutschland AG's director of human resources is not part of its job description.
Now Deutschland AG is turning into Germany Inc. It is no longer aiming at the old, firmly established home base, but at the United States. To repeat, it is aiming at it, not combating it. Germany goes West.
Meet the Author
WERNER MEYER-LARSEN is a former editor and columnist on business and economic affairs for Germany's leading news magazine, Der Spiegel. He headed its New York office from 1985 to 1991. From 1991 until 1996, he served as the magazine's international business columnist. Since 1996 he has worked as a freelance journalist based in the United States and Germany.
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