According to Capron (1999), 70 per cent of cross-border acquisitions failed to produce the intended results. Due to the process of Mergers and Acquisitions selection decisions are dominated by financial and strategic factors, the analysis of merger failure tended to adopt a similar focal point. This is because Mergers and Acquisitions are considered to fail for rational economic and financial reasons. Some examples are that the level of economy of scale was not the magnitude anticipated, that there were unexpected changes in market conditions or exchange rates, there were problems in terms of strategic market entry choice (Hennart and Park, 1993), market valuations (Jensen and Ruback, 1983), value creation (Haspeslagh and Jemison, 1991) and firm perfomiance (Galbraith and Stiles, 1984; Chatterjee, 1986; Blackburn and Lang, 1989). However, although financial and strategic studies provided reference, this research is incomplete, in large measure due to a failure to account for personnel issues. (Aguilera and Dencker, 2004: 1355)
Mergers and Acquisitions are associated with large-scale and often sudden organisational changes. Company logos and the organisational chart are revamped. There are management changes in the shifting of the style of work organisation, managerial systems, and procedures which means altering its people and their organisational culture. The sudden and major changes generate employee uncertainty. This uncertainty is considered to be associated with lowered morale job dissatisfaction and unproductive behaviour. The personnel conflicts of Mergers and Acquisitions may cause the employees to waste their time on unofficial job hunting. As time goes by, higher staff turnover and absenteeism rates, poor accident and safety records, increased recruitment and training costs, and the rising of customer complaints will gradually occur and the cumulative financial costs will eventually impact upon the balance sheet. (1996: 4) claimed that ‘The growing trend towards related combinations has had important implications for Mergers and Acquisitions management in that the successful outcomes of such combinations have increasingly become dependent on the wide-scale integration of people, as well as the imposition of external financial control and accounting systems’. suggested that ‘a strong coherent and unitary culture injects stability into the workforce and reduces labor turnover’. Moreover, Aguilera and Jackson (2003: 1356) stated that ‘it is important to consider not only the fit between Mergers and Acquisitions strategy and human resource management strategy, but also the contingencies at the national level in the merger process’. One such contingency is cultural.
The important role of National Culture of the participants in M&A
As noted by (1996: 2), ‘Mergers and Acquisitions are something which happens to people in organisations rather than to organisations in any abstract sense’. There appears to be no doubt that the ‘people’, the participants of Mergers and Acquisitions are the key to the ventually outcome. In ’s view, Culture is considered to be a powerful, enduring and pervasive influence on human behaviour’. Culture is defined as a system of shared assumptions that has developed over time to solve problems of environmental adaptation and internal integration (Schein, 1985). Hence, culture could influence the organisation’s strategy formulation, transforming process, the approach to innovation and technological change which are the core context of integration.
During the process of Mergers and Acquisitions, whether it is the pre-merger stage, post merger stage, or the integration stage, the culture of participants will influence the knowledge transforming and new organisational value building. Cartwright (1996: 6). pointed out that the type of culture of the combining organisations and the extent to which a unitary and coherent culture emerge, will play critical roles in determining the eventual outcome of any inter-organisational combination or joint venture. As Fons Trompenaars (1993) observed, ‘people tend automatically to equate something different with something wrong’. That means it cannot be right if their way is clearly different from ours. Therefore, cultural differences and the concept of cultural distance can inhibit management’s attempts to create a coherent organisational entity. However, International M & As require certain groups of key individuals to work together, not only by understanding how issues are perceived by the other party differently, but also by establishing a mutually formulated future business strategies. In the context of international combinations, the integration issue is further complicated by national cultural differences which will influence the type of culture and style of work organisation companies will adopt.
When culture comes to a business level, it can be considered to be national and organisational. National culture is a shared value that is deeply ingrained, while organisational culture stems more from practices than from individual values. National culture is shaped by tradition, and reflects economic and social history as well as climate and other demographic conditions. Different nations have different cultures. For example, in Japan, people keep separate their business and personal lives. So that it is considered taboo to talk about a colleague’s family during working hours. On the other hand, discussion of these matters in the USA is often used as a means of ‘breaking the ice’ and establishing relationship (, 1996: 59). National ideologies are reflected in the relationship between business and government, the orientation of the economy and financial institutions, and trade union influence. By understanding the cultural difference between Japan and USA, the following examples explain how national culture affects approaches to innovation and technological change. For instance, quoted a survey of European, American, and Japanese firms which found that there are contrasting incremental or radical approaches to manufacturing. Different time orientations were also found to affect the priority given to product quality vs. delivery goals by Ferdows et al., (1985).
Furthermore, Schneider (1989: 149) had shown some evidence that ‘national culture could play an important role in strategy formulation and influences the nature of the relationship of an organisation with its environment as well as relationships among people within an organisation’. It also influences how much room for transformation that merging firms have (Aguilera and Dencker, 2004: 360). For example, in associative cultures, such as Japan, China, Greece and Spain, information processing is dependent on the context and it occurs amongst individuals who share a great deal of common information and common ways of thinking, this reflects an affective-intuitive approach. In abstractive cultures such as Germany, UK and USA, information processing adopts a factual inductive approach which is context independent (Bhagat, 1990). Moreover, the Americans emphasize standardization of output, while the Germans emphasize standardization of skills. While the French emphasize standardization of processes and Japanese emphasize standardization of values (McGaughey and De Cieri, 1999. Bhagat(1990) concluded that ‘the main point which would seem to emerge is that different cultures hold different assumptions about the nature of ‘truth and reality’ and the way it is determined’.
Notably, one of the most influential studies on the difference of national culture was undertaken by Hofstede (1980). By conducting an attitude questionnaire survey of 117,000 employees of IBM in over forty different countries, Hofstede found four key dimensions to compare cultures. They are ‘Individualism/collectivism’, ‘Power distance’, ‘Masculinity/feminznity’, and ‘Uncertainty avoidance’. Individualism pertains to societies in which ties between individuals are loose and where everyone is expected to look after himself or herself and their own immediate family. Countries such as USA and UK value Individualism. Collectivism is the opposite and pertains to societies in which individuals from birth onwards are integrated into strong cohesive in groups which, throughout their lives, continue to protect them in exchange for loyalty as demonstrated in Japan and Spain. The individualism-collectivism dimension appears to be a significant factor in influencing managerial perceptions (, 1996: 101). According to Coopers and Lybrand (1989), when he analysed the structural and technical barriers to M & As in the European Community, he found that the high individualism inherent in the UK culture comparative to other European cultures is a factor affecting cross-border Mergers and Acquisitions activity.
Historically, there were many failure Mergers and Acquisitions case because of the failure to manage culture. The merger of Connecticut General and Insurance Company of North America into CIGNA in March 1982 is an extensively quoted example. The merger involved two organisations in which the people held very different cultural values and expectations. It resulted in low morale, poor work quality and declining financial performance as the operating income of company decreased by 18 per cent from 1982 to 1983 (, 1996: 28).
International Mergers and Acquisitions activity has become more prevalent nowadays. According to Dealogic, a pre eminent provider of Global Investment Banking analysis and systems, cross-border deals accounted for 36% of M&A activity in the first half of 2011. In the same period, there were more than 2,700 cross-border deals involving European companies. Throughout the history of M&As, national culture remains a chief factor. A survey conducted by the British Institute of Management (1986) concluded that managerial underestimation of the difficulties of merging two cultures was a major contributory factor to merger and acquisition failure (, 1996: 6). In Malaysian Mergers and Acquisitions Conference 2007, Hewitt Associates' Southeast Asia lead global sourcing senior consultant Taranjeet Singh citied that ‘Cultural misunderstandings cause the implementation of corporate people programmes undertaken overseas to fail’. He said that ‘both national culture and organisational culture need to be considered during the Mergers and Acquisitions integration process.’ At the Merger market M&As in Israel Conference in Tel Aviv, the panelists noted that mergers between Israeli and foreign companies included culture clashes. They said that ‘the human factor is the important thing for a successful integration, so learning the culture is the key to success.’ It is reinforced by KPMG Somekh Chaikin head of corporate finance Hillel Schuster. He said that ‘Israel is infamous for a lack of discipline during the sale process, if executives want to meet executives of a German company, you first send a letter, and after receiving a reply, call the assistant to the deputy of the executive. Conversely, in Israel, you call and set a date’.
To deal with the difference in national culture, Hewitt Associates' Southeast Asia lead global sourcing senior consultant Taranjeet Singh suggested that ‘in periods of uncertainty created during Mergers and Acquisitions, employees would revert to their own sets of beliefs and cultural values. It takes 24 to 36 months before management can actually see cultural changes within a new organization, but this depends on the size of the organisation and how the message is filtered through the organisation's hierarchy’. He said that ‘Regular interventions by management and acclimatising the employees to the desired culture will help them adopt it’. An acquirer’s HRM policies can have a strong effect on its ability to get the best results from its new subsidiary. The way it treats its employees will affect their motivation and the attitude that employees bring to their work (Schneider, 1989: 106).
Conclusion
National cultural differences are one of the major reasons for failed Mergers and Acquisitions. It is placed among other contributing factors such as leadership styles, risk mitigating factors and the type of employees within an organisation. Different national culture of participants is predominated by different value. Consequently, the organisation from top to bottom, those who have different approaches and business strategies will have to work together to affect the success of the Mergers and Acquisitions.
In the Harvard Business Review, Davis (1968) suggested that ‘A successful combination depends at least on compatibility of business styles’ (, 1996: 57). It is important for international Mergers and Acquisitions to transfer management practice, and organisation value to establish a unitary culture. In fact, the external factors such as economic environment, market, organisation structure or technology are less important to determine the success or failure of M&A, since they are easier to solve. The ‘soft’ factor, such as culture and people, especially the national culture of participants should be a significant factor to consider for the success of M&As. Hodgetts and Luthans (1990) remarked that, ‘the greater the cultural diversity between one country and another, the more likely it is that most HRM practices cannot be literally transferred, the “hard” factors being easier to transfer than the “soft”.’ (Faulkner, Pitkethly and Child, 2002: 109).
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