Culture refers to the expectations, experiences, values, beliefs, and norms that guide the actions of members of an organization or a nation. Culture determines organizational performance by influencing employees’ behavior. International mergers and acquisitions often fail because of cultural differences.
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Specifically, cultural differences hinder effective communication, control of employees, and developing shared objectives after a merger or acquisition. Thus, companies usually focus on cultural integration through cross-cultural communication and conducting cultural due diligence.
Culture is an important element of every organization because it determines the way employees think, communicate, work, and make decisions. International companies face difficulties in establishing a unified organizational culture since their employees are from different cultural backgrounds.
This report will discuss the significance of culture in the context of international mergers and acquisitions. It will discuss various national culture frameworks and the approaches used by companies to integrate their employees after a merger or acquisition. The methodology of the report will be based on a critical analysis of existing literature on organizational and national culture.
Definition of Culture
Culture refers to the “collective programming of the mind that distinguishes the members of one group or category of people from another” (Cameron and Quinn 13). In this context, the category may refer to organizations, nations, or ethnicities. This definition implies that members of a particular culture have a uniform and predictable pattern of behavior.
Culture also refers to the complex whole that encompasses knowledge, beliefs, law, and capabilities that people acquire through their membership in the society. This definition implies that culture is not innate (Cameron and Quinn, 15). Thus, it can be acquired through learning.
In the context of an organization, culture can be defined as the system of values, beliefs, art, and behaviors that sustain order, continuity, and commitment. According to this definition, culture can be perceived as the glue that holds the members of the organization together (Schein 23).
National Culture Frameworks
Hofstede’s Cultural Framework
According to Hofstede’s framework, national cultures have four main dimensions. These include power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity.
Power distance indicates the “extent to which members of a society can accept the unequal distribution of power” (Cameron and Quinn 71). The level of power distance in a country or an organization depends on the members’ power values (Schein 53).
In most Asian countries such as China and Singapore, where power distance is high, employees and citizens accept and expect unequal sharing of power. By contrast, most western countries, such as the US and the UK, have low power distance. Thus, employees expect the equitable distribution of power in their organizations.
Uncertainty avoidance refers to the degree to which people from a given culture can put up with vague or unclear circumstances. A society with a high uncertainty avoidance index often uses laws, rules, and regulations to minimize ambiguity (Cameron and Quinn 72). By contrast, a country with low uncertainty avoidance index such as Jamaica is less concerned about ambiguity.
Masculinity indicates the extent to which masculine values such as wealth acquisition are preferred to feminine values such as building relationships. People from masculine societies value assertive and aggressive traits, whereas those from feminine cultures value characteristics such as caring and building relationships.
Individualism versus collectivism illustrates the strength of social ties within a country. In countries such as the US where individualism is high, individual rights and needs are considered to be more important than those of the society (Schein 66). By contrast, in Indonesia, where collectivism is high group cohesion is very strong since people focus on collective rather than individual success.
Trompenaars’ and Turner’s Cultural Framework
According to Trompenaars’ and Turner’s framework, culture has seven dimensions. These include universalism versus particularism, individualism versus collectivism, achievement versus ascription, neutral versus affective, specific versus diffuse, internal versus external, and time orientation.
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People from universalistic societies such as Germany believe that rules, laws, and regulations apply to everyone and must be used to distinguish between right and wrong (Cameron and Quinn 86). By contrast, members of pluralistic societies such as Russia value personal relationships and friendships rather than formal rules and laws.
In individualistic cultures, the interest of the individual is more important than that of the group. However, collectivist societies give preference to group objectives rather than individual interests. In achievement-oriented cultures, people earn their status based on their accomplishments (Schein 78). By contrast, in ascription-oriented cultures, status is derived from social factors such as age, gender, position, and wealth.
A neutral society, such as Japan, values controls over one’s feelings and emotions. However, people from affective societies such as Mexico prefer the verbal display of their thoughts to release tensions. In a highly specific society such as the US, people clearly separate their personal and work life. By contrast, members of diffuse-oriented societies such as China integrate their work with personal activities.
Members of an internal-oriented culture believe that they can always control their environments, whereas members of outer-oriented cultures prefer to live in harmony with nature rather than trying to control it (Schein 91). People from sequential societies believe in doing one thing at a time. By contrast, people from synchronic societies believe that time is flexible. Thus, several activities can be undertaken simultaneously without following schedules.
According to Hall’s framework, national culture is closely related to communication style (Cameron and Quinn 109). National cultures can be classified as either high context or low context.
A high context culture uses an implicit communication style. This involves searching for implied meaning rather than the literal meaning of what is said (Cameron and Quinn 110). Moreover, members of high context societies tend to prefer non-verbal to verbal communication. They value collective initiative and making group decisions.
In low context cultures such as the US, people prefer explicit messages to avoid confusion. People prefer verbal to non-verbal communication. Moreover, they tend to separate their work from personal relationships. Low context cultures value individual rather than group initiatives and decisions.
International Mergers and Acquisitions
An international merger is a market entry strategy in which businesses from different countries or regions collaborate by consolidating their assets and operations (Garbade 48). An international acquisition, on the other hand, is a market entry strategy where a business purchases a company that operates in a foreign country.
Companies expand through international mergers and acquisitions due to the following reasons. First, international mergers and acquisitions enable companies to access growth opportunities. They enable companies to grow through access to established production facilities, brands, technology, and employees.
Second, international mergers and acquisitions enable companies to achieve financial synergies. These include cost reduction, growth in revenue, and improved corporate governance (Garbade 54). Third, companies use international mergers and acquisitions as a mechanism for achieving diversification. Companies can achieve horizontal integration by merging with or acquiring their rivals to expand their market shares.
Although international mergers and acquisitions provide great growth opportunities, the cultural risks that are associated with them are immense. First, international mergers and acquisitions often face serious communication challenges (Garbade, 62).
This problem arises from the fact that companies from different countries are likely to have employees that use different communication styles. For instance, a company from the US, where people use a direct communication style is likely to face communication challenges in China, where indirect and non-verbal communication is commonplace.
Second, management and control of employees are usually difficult in international mergers and acquisitions. Companies from high power distance countries are likely to use hierarchical organizational structures and a top-down decision-making process.
By contrast, companies from low power distance countries are likely to use flat organizational structures that promote seamless interactions between employees and the management (Garbade 67). Thus, an acquisition or a merger that combines companies with different perspectives on power is likely to face difficulties in identifying the right organizational structure to use.
Finally, maintaining consistent organizational values and objectives is often difficult after an international merger or acquisition. People from different cultures usually have different value systems that influence their choice of business objectives.
Employees from individualistic societies are likely to focus on pursuing their personal interests rather than those of the company. By contrast, employees from collectivist cultures are likely to sacrifice their personal interests for the sake of the company. These differences reduce managers’ ability to set shared corporate objectives after a merger of acquisition.
Integration Approaches/ Mechanisms
Cultural integration is a “process characterized by structural assimilation of two cultures that preserves the cultures and identifies of the acquired and acquirer or the two companies that have merged” (Cameron and Quinn 113). Integration can be achieved through the following mechanisms.
First, integration can be achieved by conducting adequate cultural due diligence before the merger or acquisition. This involves determining the extent to which the cultures of the companies are compatible. This enables companies to determine whether they will be able to establish a unified organizational culture after their merger.
Second, companies use cross-cultural communication to integrate their employees after the merger or acquisition. One of the factors that often cause the failure of mergers and acquisitions is that employees from different companies often develop negative stereotypes, prejudices, and attitudes towards each other (Messner 76-100). Thus, companies normally use cross-cultural communication to enhance harmony among their employees.
This involves promoting two-way communication between the employees and the management of the companies that are involved in the merger or acquisition. The two-way communication enables the management and employees to articulate their concerns, thereby improving the success of the merger.
Third, integration can be achieved through effective connection structures. In this context, connection refers to “the structural and relational social ties and networks between the organizations involved in international acquisition or merger” (Garbade 117). An effective connection structure is characterized by official communication and reporting systems that enable members of the merged companies to interact in harmony.
Justification of the Integration Mechanisms
First, conducting cultural due diligence is justified by the fact that some cultural values, beliefs, and norms are difficult to change. This means that cultural integration cannot be achieved if the organizations that intend to merge their operations are not willing to change their values and norms (Messner 76-100). In this regard, cultural due diligence will enable the companies to identify the aspects of their cultures that are likely to cause failure in order to take timely remedial actions.
Second, the use of cross-cultural communication is based on the fact that language barriers and the use of different communication styles can lead to misunderstandings after the acquisition or merger (Messner 76-100). Misunderstandings can lead to hostilities among employees, which eventually cause failure. Thus, engaging employees from the two companies in conversations using the right language and communication style is required to enhance harmony.
Third, an effective connection structure has to be established because employees from different countries are likely to have different perceptions concerning power. An effective connection structure helps in distributing power appropriately, thereby averting the tensions or power struggles that might arise after the acquisition.
Conclusion and Recommendations
Culture is an important determinant of the success of international acquisitions and mergers because it influences the relationships among employees and their ability to work effectively. Cultural differences usually lead to failure of international mergers and acquisitions by limiting managers’ abilities to communicate and to control employees effectively. Companies can consider the following recommendations to improve the success of their mergers or acquisitions.
First, companies should only merge with or acquire foreign firms that can adapt their cultures. This will facilitate seamless cultural integration after the merger or acquisition. Second, companies should acknowledge and appreciate the cultures of their foreign partners through joint development of shared values, objectives, and vision after the acquisition or merger. Finally, staff development and training programs should be used to sensitize employees on the importance of tolerating foreign cultures.
Cameron, Samwel, and R. Quinn. Diganosing and Changing Organizational Culture, London: Palgrave, 2011. Print.
Garbade, Michael. International Mergers and Acquisitions, New York: John Wiley and Sons, 2009. Print.
Messner, Wolfgang. “Effect of Organizational Culture on Employee Commitment in the Indian IT Services Sourcing Industry.” Journal of Indian Business Research 5.2 (2013): 76-100. Print.
Schein, Edgar. Organizational Culture and Leadership, New York: McGraw-Hill, 2010. Print.