ORGANIZATIONAL CULTURE – OFTEN INVALID?
CULTURAL BARRIERS:
A MAJOR OBSTACLE
TO THE CROSS-BORDER
M&A MARKET
An Economist Intelligence Unit study sponsored by
Baker McKenzie looked at current and emerging trends in the
cross-border M&A market, identifying success and risk factors
that can affect companies as they expand internationally. The
study was based on a survey of 357 senior executives in both
advanced and emerging markets. The study recommended that
while factors such as economic stability and profitability rank
higher as per their survey findings, cultural issues remain a key
factor for consideration in cross-border transactions.
Study Findings:
33%
Culture is the biggest obstacle to successful
cross‑border acquisitions.
In total, 33% of the companies surveyed identified cultural
barriers as the biggest challenge to the success of their
cross‑border acquisitions during a five-year period.
merger failures with cultural differences as its core. According
to Kwintessential, a British company that supports businesses
through the challenges of internationalization, the attitude
to hierarchy between the two companies was quite different.
While Daimler had a clear chain of command and respect
for authority, Chrysler adopted a team-oriented approach.
Meanwhile, where Daimler valued reliability and achieving the
best quality possible, Chrysler favored eye-catching designs
and being competitive on price.
Then there was the question of management. US and German
managers had different values which steered their work in
different directions, while the replacement of American man‑
agers with German executives created a lack of trust. Such
was the discord between the two firms, when Cerberus Capital
moved in to buy Chrysler in 2007, the deal was sealed for just
US$7.4 billion—US$30.6 billion less than Daimler shelled out
nine years earlier.
The Primacy of National Culture
and Nation-State Traits
This summarized survey of just two non-Anglo cultures shows
deep-rooted core beliefs which form the basis of mindsets that
diverge sharply. If unaddressed, this divergence can be a key
factor in the failure of cross-border M&A deals.
Many Japanese and Chinese are convinced of their intellectual
and cultural superiority and the Germans are not far behind.
Then there are El Mundo Español and O Mundo Lusitano, whose
adherents number 500 million in South America alone. These
powerhouses of culture demonstrate little or no inclination to
be Americanized, Anglicized or organized by anybody else.
Indeed, while international mergers and acquisitions abound,
few acquired entities surrender their corporate culture.
Take Tata’s acquisition of Jaguar Land Rover: the Indian
conglomerate opted to leave the management structure at
the UK firm in place and worked with the existing cultural
dynamics, rather than against them. The result has been near
seamless success for the firm.
In another example, cultural differences between Russia’s
Lukoil and the US’ ConocoPhillips were addressed from the
outset, which facilitated smooth integration between the two
companies as they embarked on a joint venture. In the Middle
East, too, Abu Dhabi has succeeded in the nuclear industry by
undergoing cross-cultural instruction for a diverse group of
Emirati, Korean and expatriate executives and employees.
35.7%
Concern over culture is even higher for fragile
state investors.
On the same topic, 35.7% of fragile state investors identified
cultural barriers as the biggest challenge to the success of their
cross-border acquisitions during the same five-year period.
23%
Cultural barriers put future success at risk.
Responding in 2013, 23% of survey participants cited cultural
barriers as the main threat to the success of their cross‑border
acquisitions over the next two years, outside of non-legal/
regulatory issues.
Source: 'Opportunities Across High-Growth Markets: Trends in Cross-Border M&A',
Baker McKenzie & The Economist Intelligence Unit.
82 Emerging Markets Business Summer 2016 • Issue No. 1
Dealing with cross-cultural issues, however, is not a simple
exercise and the writers of books on organizational culture
have a worthy aim in trying to create a model for modern,
smoothly-running companies. Re organization is obviously
imperative in the case of M&As, but where two cultures are
involved, no meaningful organization can be achieved without
first attending to the problem of conflicting national traits. Let’s
not forget, organizational culture procedure is a two-phase
operation involving the analysis and attempted alignment
of cultures. The order of the two phases cannot be reversed,
otherwise planners are whistling in the dark.
Richard Lewis. A respected cross-cultural communication consultant, and author. He founded the
Berlitz School of Languages in Finland in 1955, and was knighted by President Ahtisaari of Finland in
1997. He speaks multiple languages and is currently Chairman of Richard Lewis Communications Ltd.