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Transcript of 6505410 LUO Tianyi International Business Strategy II
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INTERNATIONAL BUSINESS STRATEGY ANALYSIS: BMW V.S. MERCEDES-BENZ 1
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Executive summary:
Trade liberalization creates growing opportunities for companies to enter foreign
markets. Different motivations, means and mentalities consist of the origin and
process of international expansion. Meanwhile, increasingly fierce competition pushes
many multinational enterprises to pursue efficiency, flexibility and learning capability
simultaneously through competitive sources of economies of scale, economies of
scope and national differences. Hence, this tendency has an enormous impact on the
selection of business strategies by multinational enterprises (MNEs). Both in the
transition to the transnational mentality, BMW and Mercedes-Benz attempt to gain
the leading position in the automobile industry through optimization of three
objectives. Therefore, this report will compare these two companies international
business strategies in their major markets in line with the transformation of three
goals priority, followed by the introduction of their evolving social responsibilities.
The benchmarking company will also be used to evaluate BMW and
Mercedes-Benzs strategic performancein the individual work.
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CONTENTS
Executive summary ------------------------------------------------------------------------1
1. Introduction ------------------------------------------------------------------------32. Goal Priority Transformation -----------------------------------------------------4
2.1. Efficiency ------------------------------------------------------------------------4
2.1.1. Centralized hub organizational structure -----------------------------------42.1.2. Globally coordinated management ------------------------------------------5
2.2. Flexibility ---------------------------------------------------------------------6
2.2.1. Localized management -----------------------------------------------------62.2.2. Cross-border collaboration ----------------------------------------------7
2.3. Learning and innovation -------------------------------------------------------------8
2.3.1. Learning ------------------------------------------------------------------------82.3.2. Innovation -----------------------------------------------------------------------9
3. Evolving global role ----------------------------------------------------------------104. Individual part -------------------------------------------------------------------------11
4.1.1 Efficiency: Toyota --------------------------------------------------------------11
4.1.2 Flexibility: Nestl ---------------------------------------------------------------12
4.1.3 Innovation and Learning: Haier ---------------------------------------------13
5. Conclusion -------------------------------------------------------------------------------15
Appendix --------------------------------------------------------------------------------------17
References ------------------------------------------------------------------------------------19
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1. Introduction
In the competitive landscape of automotive industry, BMW and Mercedes-Benz are
two recognized giants with different motivations, means and mentalities for
international expanding. Although most MNEs have general purposes of building
economies of scale, seeking markets, accessing cheap endowments, broadening global
insight, and developing learning capabilities (Hill, 2012), there is still slight difference.
Mercedes-Benz considers going further in efficiency bringing them some advantages
like low cost while BMW relatively emphasizes flexibility with local oriented.
The table below lists some basic comparative data of two companies.
However, to develop worldwide advantages, a successful company is supposed to
simultaneously pursue three strategic objectives including global-scale efficiency,
multinational flexibility and learning ability from international dynamic (Bartlett and
Beamish, 2011). Being traditional industry leaders, Mercedes-Benz and BMW have
been igniting their motors to set off on the road of transition to transnationality.
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Therefore, this essay will compare Mercedes-Benz and BMW mainly based on these
three goals from perspectives of organizational structure, human resource
management, cross-border collaboration, and technology sharing and innovation.
Corporate social responsibility of two companies is also included.
2. Goal Priority Transformation
2.1. Efficiency
2.1.1. Structural Integration
Both Mercedes-Benz and BMW are now in post-globalization stage, evolving from
centralized hub model to integrated network model. Mercedes-Benz applies the global
strategy, requiring high integration and low localization. While the main country of
manufacture is Germany, Mercedes-Benz Cars has overall 17 production sites, such as
the United States, China and South Africa (Daimler, 2013). The global strategy
guarantees high quality and standards for Mercedes-Benz, and Mercedes-Benz in turn
enjoys success because of the well-known quality and reliability of cars (Ireland et al.,
2008). Moreover, its company-wide specific production system and standard R&D
system jointly promote the achievement of global strategy. Corresponding to it,
Mercedes-Benz adapted a centralized hub organization model in which most key
assets and resource were centralized in headquarter, and so does decision making
process. National units were only regarded as delivery pipelines to global markets
(Bartlett and Beamish, 2011). Recently, Mercedes-Benz is trying to develop its
organization structure into more transnational-oriented. Headquarters are still
centralized, but top managerial staffs have been reduced from 500 to 300 to delegate
power to subsidiaries. Consequently, business units become more self-responsible
profit centers. Additionally, Mercedes-Benz goes further into integrated network
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model as procurement of materials develops into globally coordinated for each group
of materials (Morgan et al., 2003). In terms of BMW Group, it operates 24 production
and assembly facilities in 14 countries and has a global sales network in more than
140 countries, which aims to pursue global synergy and efficiency (ITS America,
2011). BMWs key knowledge was generally retained in center and strategies were
not quite distinct among subsidiaries (Bartlett and Beamish, 2011). Although, recent
decades, BMW is trying to be more flexible in some regions, such as China, by
delegating some responsibility, it is still a challenge for BMW to ensure both
efficiency and flexibility. To solve this problem, BMW is switching to integrated
network model to achieve more coordination. It establishes worldwide network of
production and development, ensuring that know-how can be consistently throughout
all plants. Subsidiaries now have increasing autonomy to adjust strategies and design
products based on local market conditions. Thus this integrated network allows BMW
to react quickly and flexibly to the changeable demands of customers (US Auto Parts
Network, Inc., 2007). Therefore, BMW seems go further on the way to transnational
MNEs than Mercedes-Benz.
2.1.2. Globally coordinated management
Generally, BMW and Mercedes-Benz use similar HR strategies, which retain the core
functions in headquarters and distribute some autonomy to subsidiaries. Since the
top-level managers have responsibilities to connect and harmonize global activities to
exploit potential benefits (Bartlett and Beamish, 2011), Mercedes-Benz spends
abundant time and money rationalizing HR structure, and obtains general control in
subsidiaries especially in China to achieve efficient management. For its HR structure,
the total control is made by the Daimler board of management (Daimler AG, 2011),
and the corporate HR department formulates and decides overall strategy and
guidelines to subsidiaries. The divisional HR departments usually have limited
autonomy to deal with the divisional and local activities. This clear and rational HR
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structure represents a relatively strict hierarchy and provides a theoretic evidence for
each level to check their responsibilities. In the Chinese market, Mercedes-Benzs
sales are decreasing in recent years, hence it changed the management structure to
obtain closer control for headquarter. Daimler board of supervisors assigned Troska to
become a member of board of directors in the Chinese subsidiary in 2012 (Daimler,
2012). It was the first seat for Daimler board of supervisors, which helped them to
convey and adjust the strategy implementations and business operation in China. With
regard to BMW, though it also implements a global approach to executing general
management and innovating teleworking technology to realize and convey technical
guidance, specialist surveillance and the common corporate culture in subsidiaries
(BMW Group, 2012), its conduct tends to be more elastic as explained in the next
section.
2.2. Flexibility
2.2.1. Localized management
The dynamic environment requires diversified HR strategies especially in the regional
level (Bartlett and Beamish, 2011). BMW applies different HR strategies across
different markets based on diversified market conditions. For example, German
subsidiaries use the ethnocentric HR strategy representing a significant level of
interdependence with headquarter (BMW Group, 2012) while in other markets
beyond the European areas, BMW pays more attention to maximize the localization
degree in subsidiaries. In China, distinct national culture urge BMW to reshuffle the
structure of management to get better understanding of consumer needs and
consolidate competitive position in local market. Thereforein Chinese subsidiary, the
talent localization strategy is applied by Stark-the CEO of Great China (Tong, 2011).
He requires all foreign national managers to speak Chinese and most key positions to
be occupied by the local talents. This deeper localization nurtures a harmonious
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relationship between Chinese and foreign employees, and creates better conditions for
subsidiary to grasp the market trend. This strategy is later imitated by Mercedes-Benz,
although the main strategy for Mercedes-Benz remains to maintain efficiency through
centralization. For instance, some key positions in Beijing Mercedes-Benz Sale and
Service co. are occupied by China now. However, the domestic top manager
proportion is still low compared to the German colleagues or people who have affinity
to Germany by 2000(Morgan et al., 2001), indicating a long way for Mercedes-Benz
to catch up with BMW in this aspect.
2.2.2. Cross-border collaboration
Although emerging countries attract foreign companies to stimulate local economy,
some of them still preclude foreign ownership to protect local industrial benefits.
Concerning about government policy, many foreign companies choose strategic
alliance as an alternative to enter these markets, including Mercedes-Benz and BMW.
These two companies also want to win the global competition in this way (Bartlett
and Beamish, 2011). In 2003, BMW cooperated with Brilliance Auto to found BMW
Brilliance Automotive Ltd (CBA) in China, which primarily supplied the local market
(BMW Brilliance Automotive Ltd, 2013). Considering the enlargement of mid-class
segments, CBA produces 3 series to cater to their demands. As a first mover, CBA has
established an outstanding brand name with relatively low price but high quality in
Chinese market. To compete with BMW and grab market share, in 2012,
Mercedes-Benz and Beijing Automotive Industry Corporation (BAIC) established a
50:50 joint venture-Beijing Mercedes-Benz Sales Service Co., and the joint venture
decided to establish plants to produce GLK series locally (Zhang, 2012).
Mercedes-Benz also deliberates culture differences. Comparing with westerners, most
local people prefer cars with larger size and luxurious automotive trim, which drives
Mercedes-Benz to generate S300L-class exclusively for Chinese market (Choose
Auto, 2012).
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2.3. Learning and innovation
2.3.1. Learning
During the 1990s, both BMW and Mercedes-Benz have shifted from the
center-for-global innovation model to the integration of locally leveraged and globally
linked innovation models based on worldwide differentiated production networks.
BMW initiated Greenfield production site in Spartanburg, US, which focuses on an
innovative hybrid production model by merging German product, quality and
technical standards with organization mechanism of Honda transplant and US
task-oriented management style (Pries, 2003). The goal of BMW is to use subsidiaries
for experimentation to test and expand its new organizational forms and production
methods. Consequently, completely new cars such as Z3 and X5 were made in
Spartanburg plants and spread out worldwide (Morgan et al., 2001). Furthermore,
BMWs globally linked innovation model emphasizes on managing businesses
corporately by pooling the resources and capabilities of different entities (Bartlett and
Beamish, 2011). For instance, important assembly components such as engine are
supplied directly by BMWs German plant, while other parts like exhaust system
majorly come from South Africa plants. It allows the intelligence developed in one
area to be shared by the whole group and eventually flow the finished products
internationally.
The Tuscaloosa plant of Mercedes-Benz was opened in 1994 with full responsibility
for producing the M-class SUV (Renschler, 1995). Comparing with BMW,
Tuscaloosa project relies on a mixture of German product technology and engineering
capacity, Toyota-style lean production system and US high weight on economies of
scale. It was based more on the application of Japanese production principle and less
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on experimental learning than BMW due to different corporate business strategy. Also,
referring to globally linked innovation, outsourcing has been dramatically increased in
Tuscaloosa where more than 70% of model components come from foreign suppliers
as a result of Mercedes-Benzs union-free site in the US (Morgan et al., 2001). Its key
locally leveraged innovation model encourages experience gained from the
Tuscaloosa to be summarized and extensively documented by the plant management
to be transferred to the whole consortium. Being a challenge to traditional
Mercedes-Benz operation principles, a proposal has been presented by Springer (1999)
if the Tuscaloosa plant could prove it was possible to combine a flexible production
style with a high standardization in the work processes, a type of backward learning
from the periphery to the center could be achieved.
2.3.2. Innovation
Convincingly, a one-size-fit-all approach to capture the benefits of innovation will
cease efficiency in large MNEs. The most effective way to exploit the innovation
depends on the complexity of the technology itself and the understanding of focal
market and customer preferences (Bartlett and Beamish, 2011). In practice, BMW
pays more attention on market knowledge based on its consumer-centric approach
while Mercedes-Benz moves information to where the technology is (Santos et al.,
2005). The slogan BMW---Sheer driving pleasure delivers a message of
concentrating on customers fun-oriented cars like Mini Cooper (Giebier, 2004).
BMWs customer innovation lab provides a structured multi-media environment for
participants to share their ideas about future innovative telematics, online services and
driver assistance systems (BMW Group, 2003). In contrast to BMW, Mercedes-Benz
is a pioneer using advanced technology in realizing efficiency improving objective. It
supports green fleet management with blue efficiency, which places emphasis on
sustainability and low emissions. The approach of optimizing vehicles with the
up-to-date combustion engine technology has already been implemented successfully
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INTERNATIONAL BUSINESS STRATEGY ANALYSIS: BMW V.S. MERCEDES-BENZ
in the S400 HYBRID and later the E200 CGI and E260 CGI. Moreover,
Mercedes-Benz cooperated with its joint venture Beijing-Benz to expand a green
luxury lineup in China, including the E-class Cabriolet and the C-Class Estate withpurpose of contributing to a clean transportation mode (China Daily, 2010).
3. Evolving Global Role
There are four typical postures when MNEs responses to their responsibilities in
developing world: exploitive, transactional, responsive and transformative.
As BMW and Mercedes-Benz both established their first joint ventures in China in 21
century, the social environment forces two companies to seek a sustainable way of
doing business instead of exploiting cheap production factors to maximize profit
(Bartlett and Beamish, 2011), so two MNEs directly step to the latter two models in
China. BMW uses its own financial resources to response to the problems in Chinese
society making it a transformative MNE. For example, BMW devotes itself to socialcontribution program as providing funds and materials to the panic stations in China
like disaster-affected regions, and encouraging its employees to return to the
community (BMW China, 2013). Moreover, BMW has made significant investments
in developing advanced environment-friendly technology such as intelligent
lightweight construction and BMW Hydrogen 7 to diminish oil consumption and
greenhouse gas emissions. In contrast, Mercedes-Benz is more likely a responsive
MNE. The corporate focuses on satisfying Chinese customers needs by offering
diversified products and international standard services. For instance, Mercedes-Benz
designed Chinese-style cars like E300L by lengthening its wheelbase to cater to the
preference of large vehicles (Choose Auto, 2012). Additionally, it gone further to be a
responsible corporate citizen as it developed safety systems to ensure security for both
drivers and pedestrians, and cooperated with the Road Traffic Safety Association of
China to educate the public of traffic rules. Recently, Mercedes-Benz is also shifting
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towards a transformative MNE by denoting funds to protect Chinese nature like
effluent treatment and cultural heritage research and restoration (Mercedes-Benz
China, 2013).
4. Individual part
In this part, three benchmarks will be introduced in terms of three goals respectively,
and be compared with Mercedes-Benz and BMW to assess their effectiveness of
strategies.
4.1.1. Efficiency: Toyota
Mercedes-Benz and BMW both think highly of efficiency as global companies.
However, they are not the best players of this strategy in automobile industry, but
Toyota is. Toyota, the Japanese automaker, ranked the first in unit production globally,
and its profit margin was 8.3 times higher than industry average in 2003(OICA, 2011).
Its success should mainly attribute to Toyota Production System (TPS) which is
primarily concerned with making profits, and satisfying the customer with the highest
quality at the lowest cost in the shortest lead-time, while developing the talents of its
workforce through strict improvement routines and problem solving disciplines.
Generally, TPS has twin production principles of Just in Time and Jidoka, as well as
the notion of Kaizen, continuous improvement to gain competitiveness in the global
market. Lean manufacture is the production control technique for eliminating the
waste from manufacturing, which is derived mostly from the TPS (Asprova, 2008). It
is estimated that, after applying lean manufacturing, overhead-operating costs could
reduce 30%, and sales would double as well as profits would increase 4 times
(Process Quality Associates, 2006). As mentioned above, Mercedes-Benz has already
applied it and implemented well. Its lean production would create $300 million in cost
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INTERNATIONAL BUSINESS STRATEGY ANALYSIS: BMW V.S. MERCEDES-BENZ
savings, which is more efficient than before (Automotive Intelligence, 2000).
However, TPS or lean manufacturing is based on economies of scale, which would be
difficult to implement customer order flexibility. Thus, BMW did not choose TPS orlean manufacturing, for they believe the future belongs to flexibility (WDS Group,
2011). Comparing their profit margin to some extent could be a way to assess their
comparative efficiency. In 2010, Toyota owned 15.72% gross profit margin (Trinity
University, 2011), while BMW had only 8.1% operating profit margin and
Mercedes-Benz arrived 9.5% (Corrigan, 2010). In other words, Mercedes-Benz may
be 80% as good as Toyota while BMW has lagged behind.
4.1.2. Flexibility: Nestl
Since Mercedes-Benz and BMW are trying to be more transnational, it is more
essential for both to respond quickly to the increasingly sophisticated customer needs.
However, many global companies may have the concern that flexibility will offset the
advantage of efficiency. Nestl, a multinational food company, is trying to eliminate
the drawbacks of localization strategy, which could be the benchmark for
Mercedes-Benz and BMW in flexibility. The key to Nestls success is local
responsiveness. In addition to customize products, Nestle also focusing on improving
well-being in local society, foe example, enhancing the transportation system in
Nigeria. Importantly, It knows how to tailor products to local niches while leveraging
its size, which called "glocal" approach for combining global and local (Kowitt,
2010). Additionally, Nestl applies the matrix structure to integrate the activities
under product groups and country-bases, rather than simple global-area structure they
used before. Regional managers still have the authority to make business level
decisions to some degree, but they should discuss with product-group executives on a
global basis as well (Jones & Hill, 2009). AlsoNestl has two organizations GLOBE
and GNBS to help the company leverage scale of operations to enable complexities in
products and geographies across the globe (Nestle, 2006). Furthermore, Nestl notices
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the increasing convergence of tastes and national regulations in many regions, and has
developed coordinating mechanisms between its subsidiaries for some product groups
based on regions. Therefore, it keeps valuing local responsiveness, while adaptingwhere appropriate to the needs of globalization forces (Segal-Horn &Faulkner
1999). Compared to Nestle, BMW is weak in leverage its flexibility with efficiency,
and ignores necessity in generating local support. In contrast, Mercedes-Benz may be
only 30% good as Nestl, for it contributes little efforts in pursuing this goal.
4.1.3. Innovation and Learning: Haier
As explained above, Mercedes-Benz and BMW both highly value the importance of
learning and innovation in the way of pursuing sustainable competitive advantage. In
a range of MNEs, innovative managerial strategies have been put in priority, such as
Haier, a Chinese multinational company with the largest market share in white goods
industry over the world (Li & Chang, 2004). Haier has currently obtained 6,189
patented technology certificates (819 for inventions) and 589 software intellectual
property rights (CCCME, 2010). Zhang Ruimin, the CEO of Haier, emphasizes that
the continuous innovation and learning is the success formula. With the motto Every
one is an innovator, everyone in Haier, from top managers to ordinary employees,
should be innovative-minded (Liang, Zheng& Cu, 2006). A shining paradigm is the
way Haier entered the US market. To enter into international market, Haier preferred
to make new cakes with marketing innovation, rather than grabbing cakes with
those giant enterprises (Liang et al., 2006). At the initial stage, Haier was unknown to
fame with a limited sales volume in the USA. Nevertheless, after market analysis,
they found most users of compact refrigerators were students who lived in dormitories
and small apartments. Because of their limited living area, Haier designed a new
smaller compact refrigerator with two wooden flaps on the sides that can be a
computer table if folded out. The innovative and practical design was so popular
among the Internet Generation that helped Haier improve their visibility with a 45
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percent market share of compact refrigerators (Wu, 2003). Likewise, BMW
emphasize the marketing innovation in China like the slogan BMW---Sheer driving
pleasure, which is more cost saving than technology innovation with probably morereturn. Regarding to learning, Haier established Haier University in 1999 for
employees from all subsidiaries to share and learn knowledge. Outstanding
management and practical failures would be researched as cases in university. In this
way, the learning capacity would emerge throughout the whole organization as the
figure shows (Covin and Slevin, 2002).
Similarly, BMW had such institution in Tuscaloosa. As giant companies in automobile,
Mercedes-Benz and BMW do well in innovation and learning, and both of them could
be marked as 85%, compared to Haier. However, the innovative corporate culture in
Haier is what these two companies lack, but important to develop sustainable
innovation.
Summary of Benchmark comparison
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5. Conclusion
Overall, this essay expounds Mercedes-Benz and BMW by classifying their strategies
into three goals: efficiency, flexibility, and innovation and learning. They are both
trying to develop into transnational model, and the goals of strategies will be changing
along their development. Generally, BMW is becoming more flexible whileMercedes-Benz still insists efficiency as primary. In addition, benchmarks are
provided for further comparison and suggestion.
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Appendix
The exclusive car specially designed for the Chinese market: Benz E300L
Mercedes-Benz E300L is an exclusive car designed for the Chinese market. Its longer
wheelbase is designed to meet the needs of domestic users, and its local
manufacturing price will be more competitive than the imported version.
The tail logo on Mercedes-Benz E300L is the proof of new style. After the breakup
of the partnership between Daimler and Chrysler, the logo on the tail of new
generation of E-Class model changed from "Beijing Benz DaimlerChrysler" to
"Beijing Benz". And E300L logo clearly shows that the new car is a lengthened model.
Other parts of the car body are very close to the imported model.
On March 23th 2012, Beijing Benz launched Mercedes-Benz E-Class 2012 model and
changed original 6 models to 5 models, turning MSRP down. According to different
model configuration and displacement, the Price of Mercedes-Benz E-Class 2012
model is range from the original RMB 465,000 to RMB 710,000 adjusted to RMB
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INTERNATIONAL BUSINESS STRATEGY ANALYSIS: BMW V.S. MERCEDES-BENZ
438,000 to 749,000. The MSRP of the E200L and E260L models dropped biggest
with RMB 42,000.
Mercedes-Benz E-Class 2012 model adopted a whole system with a 7-speed, which is
no difference to those plan to purchase E300L model but good to those want to buy
E200L and E260L. the 7 speed automated manual transmission with more gear will
not only shift the ride better, lower fuel consumption but also improve the
acceleration of the vehicle. As for the 4 cm longer rear seat, it is useful for those often
drive long distances and like to sit on back.
Dark gray interior with brown seat shows a feeling of luxury and young. The center of
console is the large size GPS navigation screen, which makes the car look respectable.
The middle part is the audio control buttons and the bottom part is the air conditioning
control button.
The back seat of the car is as long as SUV, which is a forceful response of Benz to the
Audi and BMWs extended war. The man as tall as 1.8 meters sitting in the back
could easily cross legs and enjoy space on the head. The advantage of 5 meter
wheelbase is obvious.
Mercedes-Benz E-Class 2012 model upgrade a lot of details, such as system-wide
new SD card slot and USB interface, the dashboard screen from original monochrome
screen display changes to the color stereoscopic display, the roof glasses box and rear
windows black glass, etc.. In short, in terms of convenience, it is significantly
improved.
As the main model of Mercedes-Benz, Mercedes-Benz E300L performs as luxury car
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either for vehicle quality or for driving experience. Mercedes-Benz E-Class is popular
for its luxurious feel, comfortable space and higher equipment.
Source from Chinese website:
http://auto.163.com/07/0727/15/3KDTOPSR000816HJ.html
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