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GLOBAL STRATEGY AND POLICY – MAN 4720: SCHWARTZ

COURSE INFORMATION HANDOUT NUMBER 4.2

A SAMPLE STUDENT PAPER

MAN 4720-015 Global Strategy and Policy

Fall 2014

Prepared for Professor Harry Schwartz, November 6, by the following students:

Arnol Calderon Z0000 Finance

Diane Laird Z0000 Accounting

Leah Partyka Z0000 Accounting and Marketing

Gary Piazza Z0000 Management

Leroy Sinkfield Z0000 Accounting

Daniel Wagner Z0000 Accounting

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CRITICAL CASE ISSUES

(CI #1) Socio-Cultural (Marketing; Research & Development; Operations):

Fiat Chrysler is lacking a strong international presence.

(CI #2) Economical (Financial; Reasearch & Development):

Fiat Chrysler’s market share and investor support is unstable.

(CI #3) Technological (Research & Development; Operations):

Fiat Chrysler is having trouble developing the design and quality control that is involved with

establishing new vehicles and making an impact in the industry of hybrid technology.

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I. CURRENT SITUATION

Fiat S.p.A., an Italian automaker, has envisioned the concept of merging with another automaker

for several years now in order to compete more closely with the market’s leaders, such as

Toyota, General Motors, and Volkswagen. In 2009, Chrysler Group, an American automaker,

was critically suffering during the recession after a failed attempt to merge with Daimler-Benz, a

German automaker. As part of a government and labor-union bailout, Fiat began accumulating

shares of Chrysler stock. Providing effective management experience and innovative technology

(CI #3), Fiat strived to help Chrysler turn around and meet their performance goals. In late

January 2014, Fiat bought the remaining shares of Chrysler and has now completely acquired the

fellow corporation. As of August 1, 2014, the merging process of the two corporations into what

will be known as Fiat Chrysler Automobiles is underway after first receiving approval from its

shareholders. The merging process is expected to be completed by the end of 2014. Currently, it

is expected that this newly formed company will hold the position of the seventh-largest

automaker globally (CI #1 and #2). Legally, this company will be housed in the Netherlands,

however, for tax purposes, will sport a British address.

A. CURRENT PERFORMANCE

According to Fiat’s annual report, the net revenues of Fiat including its shares in Chrysler were

€86,816 million as of December 31, 2013. This is an increase in net revenue of about €3 million

from 2012 and easily doubles the net revenue of the company three years prior in 2010. Fiat’s net

revenues of 2013 not including its Chrysler shares were €35,593 million, meaning that Fiat’s

solitary net revenues in Chrysler were €51,223 million. In 2013, Fiat’s net industrial debt was

€6,649 million, which was only slightly higher than its 2012 debt amount of €6,545 million.

Overall, Fiat, including Chrysler, had a profit of €1,951 million in 2013 and Fiat, not including

Chrysler, had a loss of €441 million. Looking exclusively at Chrysler’s annual report, the net

revenues of Chrysler were $72,144 million in 2013, which is an increase over its 2012 $65,784

million net revenues.

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B. STRATEGIC POSTURE

1. MISSION

“The [Fiat] Group designs, engineers, manufactures, distributes, and sells vehicles for the mass

market under the Fiat, Alfa Romeo, Lancia, Abarth, and Fiat Professional brands and Chrysler

brands such as Chrysler, Jeep, Dodge, and Ram brand vehicles and vehicles with the SRT

vehicle performance designation, as well as luxury cars under the Ferrari and Maserati brands.

Fiat also operates in the components sector, through Magnetti Marelli and Teksid, and in the

production systems sector, through Comau and in after-sales services and products under Mopar

brand name.”

2. OBJECTIVES

The objective of the merger between Fiat and Chrysler is “to create an efficient, competitive

global automaker through the sharing of industrial and technological know-how, resources,

projects, targets and ambitions”. The core values of integrity, commitment to maintain promises,

transparency, respect, rigor, reliability, and passion are to be present in this newly integrated

corporation’s culture.

3. STRATEGIES

Prior to Fiat’s acquisition of Chrysler, Chrysler had adopted a cooperative business strategy by

agreeing to a strategic alliance with Fiat. Since then, Chrysler has become completely acquired

by Fiat. The business strategy Fiat has always implemented and continues to implement is a

competitive differentiation strategy by offering vehicles that are substantially different and

innovative in comparison to what has previously been offered by competing automakers. From a

corporate standpoint, Fiat is practicing a parenting strategy as it strives to create a synergy

between the Fiat and Chrysler operations. Functionally, the Fiat corporation primarily practices a

push marketing strategy, meaning that the company focuses heavily on product research and

development, creates unique automobile concepts, and markets these inventive vehicles to

consumers and thus, pushes the products through the distribution channels.

4. POLICIES

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“The Fiat Group conducts its business, and requires all its directors, officers, and other

employees and other persons to whom the Code [of Conduct] is addressed to behave on the basis

of and consistent with its business conduct values. All its directors, officers, and other employees

and other persons to whom the Code is addressed must be aware that they represent Fiat Group

and that their acts will influence the reputation of the Group and its internal culture. Therefore,

they must pursue the Fiat Group’s business in compliance with the following policies:

● No director, officer, or other employee or any other recipient of the Code shall ever make

use (or disclose to unauthorized third parties) of information not in the public domain and

obtained as a result of his/her position in the Fiat Group or because of the fact that he/she

enjoys a business relationship with the Fiat Group, in order to trade, directly or indirectly,

shares a company of the Fiat Group or other companies or in any case to obtain a

personal advantage or to favor third parties.

● All directors, officers, and other employees, and other persons to whom the Code is

addressed, are bound not to reveal to third parties any information regarding the

technical, technological, and commercial know-how of the Fiat Group, nor any other

information regarding the Fiat Group that is not in the public domain, except cases in

which such disclosure is required by law or by other regulatory directives, or where it is

expressly provided by specific contractual agreements whereby the parties have

committed themselves to using such information exclusively for the purpose for which it

was transmitted and to maintain its confidentiality.

● The Fiat Group and its directors, officers, and other employees will not be engaged or

involved in any activity which may imply the laundering (i.e. the acceptance or

processing) of proceed of criminal activities in any form or manner whatsoever.

● Fiat Group directors, officers, and employees are expected to abide by the Code around

the clock.

● The Fiat Group is committed to ensuring that its business activities do not violate

applicable domestic or international embargo and export control laws established within

or applied by the countries where it operates.

The following principles, in compliance with the UN Declaration of Human Rights, and the

relevant ILO Conventions confirm the importance of respect of the individual, ensure equality of

treatment and exclude any form of discrimination. The Fiat Group supports the protection of

fundamental human rights.

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● The Fiat Group does not employ any form of forced, mandatory or child labor, namely it

does not employ people younger than the permissible age for working established in the

legislation of the place in which the work is carried out and, in any case, younger than

fifteen, unless an exception is expressly provided by international conventions and by

local legislation.

● Harassment of any kind, such as racial or sexual harassment or harassment related to

other personal characteristics which has the purpose or the effect of violating the dignity

of the person who is the victim of such harassment is totally unacceptable to the Fiat

Group whether it takes place inside or outside the workplace.

● All Fiat Group employees shall not work while under the influence of alcohol or drugs,

shall be sensitive to the needs of those who will physically suffer from the effects of

“passive smoke” in their place of work where smoking is not already prohibited by the

law, and shall avoid behavior that might create an intimidating or offensive climate with

respect to colleagues or subordinates for the purpose of marginalizing or discrediting

them in the workplace.

● All Fiat Group officers and employees may not serve on the boards of companies without

Fiat Group’s approval and may not engage in recurring private business activities that

interfere with their Fiat Group related duties.

Critique: From an outsider’s viewpoint, the aforementioned policies seem to have been created

with purely good intentions. However, while these policies are very thorough and appropriate for

the corporation, it is likely that not all employees actually oblige with them. Top management

needs to ensure that all employees, including themselves, are actually following such policies in

order for them to be truly effective.

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II. CORPORATE GOVERNANCE

Executive Directors:

● Sergio Marchionne

● Reid Bigland

● Giorgio Fossati

● Michael J. Keegan

● Robert G. Liberatore

● Michael Manley

● Richard Palmer

Non-executive Directors:

● Leo W. Houle

● John B. Lanaway

● Ronald L. Thompson

● Ruth J. Simmons

● Stephen M. Wolf

● Hermann Waldemer

A. BOARD OF DIRECTORS

Sergio Marchionne

● Chairman and CEO, Chrysler Group LLC 2011-Present

● Chairman, CNH Industrial N.V. 2013-Present

● CEO, GEC, Fiat S.p.A. 2011-Present

● COO-NAFTA Regional Operation Group, GEC, Fiat S.p.A. 2011-Present

● Chairman, SGS Group of Geneva 2006-Present

● Member of the Board, Fiat S.p.A. 2003-Present

Sergio Marchionne may have a possible conflict in regards to marketing Chrysler and Fiat in the

European market while attempting to purchase Ferrari.

Reid Bigland

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● Board of Directors, Chrysler Group LLC 2014-Present

● President and CEO, Alfa Romeo Brand, NAFTA Region 2014-Present

● President and CEO, Ram Truck Brand 2013-2014

● Head of U.S. Sales Chrysler Group LLC 2011-Present

● Member of Fiat S.p.A. Group Executive Council (GEC) 2011-Present

● Chairman, President and CEO Chrysler Canada Inc. 2006-Present

Giorgio Fossati

● Board of Directors, Chrysler Group LLC 2014-Present

● General Counsel, Fiat S.p.A. 2011-Present

● General Counsel, Fiat EMEA Region 2011-Present

● Fiat Group Automobiles S.p.A. 2002

Leo W. Houle

● Board of Directors, CNH Global N.V. (CNH Industrial) 2013

● Board of Directors, Chrysler Group LLC 2011

● Director, CNH 2006

Michael J. Keegan

● Board of Directors, Chrysler Group LLC 2014-Current