The culture factor in M&As

2010

The falling dollar and Euro combined with an ever-increasing globalized economy makes international mergers and acquisitions more attractive now than ever before. The emerging business opportunities in places like Brazil, Viet Nam, and Ghana provide many local companies with the chance to negotiate multi-million dollar transactions with other international firms. And today's technology platforms synergize cross-border possibilities more than ever.

Yet more than half of mergers and acquisitions fail. And that number rises exponentially when it occurs across borders. Why is this?

As with any management issue, culture plays a critical role in everything from motivating personnel, economic outcomes, strategy, and negotiation techniques. But in cross-border mergers, culture plays out most in how the combined firm will be able to lower costs and/or increase revenues. These financial outcomes are deeply embedded in national cultural values and assumptions. And while the same issues play out with different values in organizational cultures, national culture is a much stronger influence.

We could examine any number of cultural values and their impact upon international mergers and acquisitions but here are three of the most important ones that impact economic decision-making in cross-border negotiations:

1. Trust
Trust facilitates trade. In economic transactions characterized by uncertainty, trust is the confidence that the other party will fulfill its side of the deal. Some distinguish certain cultures as being more trusting than others but what's most notable is understanding the differences in how trust is built and sustained.

For example, explicit communication, adhering to deadlines, and following written-policy is one approach to trust-building (e.g. many Western cultures) whereas building relationship, saving face, and demonstrating a commitment to one's society is another approach (e.g. many Asian cultures). You quickly see that trust-building relates to several other cultural values like how a culture approaches time (schedules vs. relationships) and communication (direct versus indirect).

2. Power Distance
The use and distribution of power and authority is another a seminal consideration in mergers and acquisitions. Low power/distance cultures tend to see people equally rather than following rigid hierarchical structures of power and status. These cultures (e.g. Australia and Israel) still have a "boss" and "subordinates" but subordinates will freely argue with their boss even in the midst of a negotiation.

In these cultures, bargaining power is case-specific rather than something one automatically has due to status and position. In contrast, High power/distance cultures place the decision-making and power in the hands of a few people who are in charge.

I've been working with a U.S. company that has recently joined efforts with a smaller business from Israel. The U.S. company calls it an acquisition. The Israeli company calls it a merger. The Israelis see themselves as equals in strategic planning and decision-making. This is largely due to an underlying difference in how they view authority and power.

3. Individualism
Individualism, a commitment to the interests, goals and accomplishments of the individual, also plays a powerful role in how executives negotiate a merger and acquisition. In individualist cultures, it's expected that the individuals involved will maximize their self-interest with little regard to the well being of society at large. Their counter parts in more collectivist cultures are expected to sacrifice personal self-interest for the benefit of the group.

Mergers of more collectivist firms are likely to use stock as payment rather than cash in order to share risk. They're more likely to sacrifice personal, short-term gains for the benefit of more long-term, overall gains. This becomes very frustrating to the executives and shareholders of individualist companies who have different expectations and vise versa.

Firms with wide variance in how they approach trust, power distance, and individualism have a much more difficult time merging. But when approached intentionally, differences in these areas need not derail the deal. In fact, they can become a strategic strength of the combined effort but that won't happen by default.

The Need for Assessment and Training
All this highlights the need for more intercultural assessment and training before, during, and after a merger and acquisition. Pay attention to intercultural differences during the evaluation and negotiation stages of a merger. Don't assume you know what the other party sees as a "win".

If you pursue the combined effort, develop a strategy for integration that factors in the cultural differences. Don't try to diminish them. Leverage them while working toward a unifying corporate culture.

The real work begins once the contract is complete. The real difference between long-term success and failure lies in an intentional effort to assess and train individuals all throughout the organization who are impacted by the cross-border collaboration.

Mergers and acquisitions offer a great deal of promise to companies everywhere. But to be successful, companies must intentionally design and implement cultural intelligence assessment and training into the all stages of the process.

This effort doesn't need to be viewed as simply damage control. Instead, it's a way of tapping into some of the greatest opportunities available by combining efforts with a company 12 time zones away.

And that's not all. Your personnel may discover a number of personal benefits that come with the insights and relationships forged by working with coworkers from another part of the world. So make the most of your mergers and acquisitions by accounting for the culture factor.

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About The Author

David Livermore
David Livermore

David Livermore is a thought leader in cultural intelligence (CQ) and global leadership and the author of "Leading with Cultural Intelligence". He is president and partner at the Cultural Intelligence Center in East Lansing, Michigan and a visiting research fellow at Nanyang Technological University in Singapore.