Cross Cultural Management

1. Introduction

In the current global economic environment, firms frequently use mergers and acquisitions (M&A) to broaden their reach and increase their competitiveness (Shah, 2019, p.136). In corporate transactions known as mergers and acquisitions (M&A), two or more firms combine their operations to accomplish strategic business objectives. An acquisition happens when one company buys another and takes over its assets, obligations, and activities, whereas a merger happens when two or more businesses combine to form a new entity (Bruner and Rynbrandt, 2017, p.22). M&A can be used to expand into new areas, increase market share, acquire new skills or technology, or gain economies of scale (Appelbaum et al., 2017, p.14). Nevertheless, for mergers and acquisitions to be successful, more factors than just money need to be considered. Understanding the cultural differences between the involved firms is also essential. Cross-cultural management offers a framework for handling and utilizing cultural differences in a corporate context, where it comes into play (Rebner and Yeganeh, 2019, p.12). People’s communication styles, decision-making processes, and perspectives on business possibilities and risks are all influenced by culture. This essay evaluates the academic literature on cross-cultural management and investigates how it may be applied to create successful M&A strategies for businesses with various cultural origins. The final goal of the essay is to offer actionable recommendations that companies can utilize to handle the difficulties of cross-cultural M&A deals.

2. Cross Cultural management

Cross-cultural management involves the study and practice of managing cultural differences between individuals and groups in a business context. It encompasses various aspects of managing cultural diversity, such as communication, negotiation, decision-making, leadership, and organizational culture (Rebner and Yeganeh, 2019, p. 14). Cross-cultural management recognizes that different cultures have different values, beliefs, attitudes, and behaviours that influence how people interact and work together. Cross-cultural management aims to develop strategies that leverage cultural differences to achieve common business goals while minimizing cultural misunderstandings and conflicts (Cao et al., 2019).

2.1 Communication

Communication is critical in any M&A transaction, and cultural differences can cause communication issues that might derail the process. Understanding how cultural differences affect communication styles, preferences, and norms is fundamental to cross-cultural communication (Mikami and Bird, 2022). Hall’s high-context and low-context communication styles are a significant foundation for understanding the influence of cross-cultural communication in M&A. According to Hall & Hall (2001, p.200), nonverbal clues, shared experiences, and social ties are heavily used to transmit meaning in high-context communication. It is widespread in collectivist cultures where connections and social cohesion are valued, according to Hofstede (Li et al., 2018, p.82). Low-context communication, on the other hand, is more widespread in individualistic cultures and depends mainly on words to communicate meaning. Different languages can also lead to misunderstandings and breakdowns in communication (Alizadeh Afrouzi, 2021. p.3). These discrepancies can make it challenging for employees in M&A organizations to collaborate and share knowledge. As a result, the collaboration fails.

Thus, in mergers and acquisitions, it may be necessary to provide language training to key employees to improve communication and facilitate integration. They can also consider the assimilation, separation, and integration strategies to ensure cross-cultural communication (Shah, 2019, p.136). Communication in an assimilation strategy requires a common language and cultural norms that both companies can agree on. In contrast, communication in a separation strategy requires respecting cultural differences and creating channels of communication that allow for effective collaboration (Saleh and Moalla, 2020, p.62). However, one of the most approaches in cross-cultural communication is the integration strategy, which involves finding common ground where both companies can communicate effectively while respecting their cultures (Saleh and Moalla, 2020, p.62).

However, this approach requires significant effort and may be challenging to implement effectively. For example, in 2011, the merger between French carmaker Renault and Japanese automaker Nissan faced challenges due to cultural differences. The companies had different communication styles, with Renault favoring a top-down approach and Nissan preferring a more collaborative approach (Li et al., 2018, p.82). Additionally, Nissan strongly emphasized teamwork and consensus-building, while Renault was more hierarchical. These cultural differences led to conflicts and a lack of trust between the two companies, resulting in difficulties in decision-making and implementation (Mikami and Bird, 2022).

2.2 Organisational Structure

Cross-cultural management of organizational culture is vital for effective mergers and acquisitions. The organisational structure affects how power is distributed, and decisions are made (Williamson, 2000, p.598). One approach after the merger or acquisition is to adopt a hybrid organizational structure that blends the best practices of both companies. For example, when Daimler-Benz acquired Chrysler in the late 1990s, they established a matrix structure that combined elements of both companies’ organizational structures (Begley and Donnelly, 2011). Alternatively, research suggests that a decentralized organizational structure is more effective in cross-cultural mergers and acquisitions than a centralized one (Appelbaum et al., 2017). A decentralized structure allows for greater autonomy and flexibility in decision-making, which is particularly important in cultural differences and power distance (Rodríguez-Sánchez et al., 2019, p.645).

Another approach is implementing a decentralized structure allowing local autonomy while maintaining centralized control over crucial decisions. This can help to balance the competing demands of global standardization and local adaptation (Cuypers et al., 2017). For example, when French oil company Total acquired the American oil company Fina, they established a decentralized structure that gave local managers significant autonomy while maintaining centralized control over critical decisions (Cuypers et al., 2017). However, according to Hofstede, power distance can challenge M&A. For instance, in some cultures, such as those in Asia, power distance is high, and hierarchies are respected. In other cultures, such as those in the United States, power distance is low, and there is a more egalitarian approach to management (Finkelstein and Cooper, eds., 2020, p.12). Thus, using the EPRG model, the new organization must adopt the ethnocentric approach and implement an organisational structure that aligns with the local culture after the merger or acquisition.

2.3 Negotiation

Furthermore, cross-cultural management of negotiation strategies is crucial to ensure successful mergers or acquisitions for firms in varying cultural backgrounds. According to Saleh and Moalla (2020, p.60), in cross-cultural negotiations, the negotiating styles, behaviors, and attitudes of the parties involved can significantly impact the negotiation outcome. Cultural differences often influence these factors, making it challenging to find common ground and reach a mutually beneficial agreement. For instance, different cultures may have different negotiating styles, such as objective, subjective, or axiomatic (Saleh and Moalla, 2020, p.66). The objective style is focused on facts and figures, the subjective style is more relationship-oriented, and the axiomatic style is based on principles and rules (Ahmed et al., 2022).

Moreover, negotiating behaviour can also vary significantly across cultures. Some cultures may prioritize defence, while others may prefer an attacking approach. Similarly, attitudes toward trust, deception, pressure, and concessions vary widely. In addition to verbal and nonverbal behaviour, attitudes toward time and scheduling can also be crucial in cross-cultural negotiations (Lee, 2018, 2996). Some cultures may place a high value on punctuality and strict schedule adherence, while others may be more flexible and prioritize relationships over time management. To ensure successful mergers or acquisitions across different cultural backgrounds, conducting cross-cultural due diligence on negotiation styles is crucial to understanding the cultural differences that may impact the negotiation process and taking steps to address them proactively. For example, building trust, addressing cultural biases, and adapting negotiation strategies to the cultural context can help to overcome these challenges (Finkelstein. and Cooper eds., 2020). However, failing to manage and develop more culturally appropriate negotiation approaches will result in unsuccessful negotiations and, consequently, failed mergers or acquisitions. For instance, the unsuccessful 1998 merger attempt between Daimler-Benz and Chrysler illustrates the necessity of cross-cultural negotiation management. Finding common ground was difficult because the two organizations’ organizational cultures and negotiating techniques were dissimilar (Appelbaum et al., 2017). Language and communication problems made the negotiation process even more complicated, resulting in miscommunications and the dissolution of the merger.

2.4 Organisational cultures

In addition, organisational cultures are very influential in successful mergers or acquisitions for firms from varying cultural backgrounds. According to Schein’s (2009) organizational culture model, culture may be divided into three levels: artifacts and behaviors, values and beliefs, and fundamental presumptions. Each level influences how people feel, think, and act inside a business and can significantly impact how well a merger or acquisition goes (Amenta and Ramsey, 2010, p.21). As a result, businesses must consider how well the various enterprises engaged in the transaction get along culturally. Hence, a thorough grasp of each organization’s culture at all three levels is necessary to successfully integrate various corporate cultures during mergers or acquisitions.

Additionally, the EPRG model provides a framework for firms to devise strategies for mergers or acquisitions with consideration of organizational culture. Firms can use the EPRG model to determine the level of cultural adaptation necessary for a successful transaction (Barmeyer et al., 2021). For example, suppose the organizations involved significantly differ in cultural background. In that case, firms may need to adopt an ethnocentric approach, where the acquiring firm imposes its own culture on the acquired firm (Cao et al., 2019). Alternatively, a geocentric approach may be more appropriate, where the firms work together to develop a new, shared culture that incorporates aspects of both organizations.

However, failing to consider organizational culture in mergers or acquisitions can lead to negative implications such as conflicts, low employee morale, and decreased productivity. Such a failure due to organizational culture was observed in the merger between AOL and Time Warner in 2000 (Kumar and Amboy, 2019). The two companies came from vastly different organizational cultures, with AOL being a relatively young and dynamic tech company and Time Warner being a more traditional media conglomerate. The merger was initially heralded as a significant success, but the two companies struggled to integrate their cultures and work together effectively. AOL employees reportedly found Time Warner’s culture bureaucratic and slow-moving, while Time Warner employees found AOL’s culture chaotic and disorganized. The cultural clashes between the two companies ultimately led to the failure of the merger, with Time Warner spinning off AOL as a separate entity just a few years later (Vedd and Liu, 2017, p.87). This example underscores the importance of considering organizational culture in mergers and acquisitions and highlights the potential negative consequences of failing to do so.

2.5 Leadership

Finally, leadership is a vital aspect of cross-cultural management that can impact effective leadership and management. Effective leadership is vital in such situations to develop a comprehensive understanding of each culture’s values, beliefs, and practices and to devise strategies that promote cooperation and collaboration between the new partnerships between culturally different countries (Khan et al., 2021, p.67). Using Hofstede’s power distance dimension, cross-cultural management principle dictates that for effective mergers or acquisitions, the emergent organization should incorporate a leadership structure and styles that align with the local culture. Thus, the polycentric approach in leadership is considered more appropriate. For instance, in high power distance cultures like many Asian countries, people tend to respect and obey authority figures without question (Khan et al., 2021, p.67). In contrast, people expect to be treated equally regardless of their position in low power distance cultures like the United States. So, leaders must be aware of these cultural differences and modify their leadership style to guarantee the new collaboration is effective. For instance, while managing staff from a high-power distance culture, a leader from a low-power distance culture may need to change their strategy. They may need to be more directive and provide clear instructions, whereas a more collaborative approach may better suit a low power distance culture (Shah, B., 2019, p.13).

However, if cross-cultural considerations in leadership are ignored during mergers or acquisitions, it can have a negative impact on the success of the process. For example, cultural clashes can lead to misunderstandings, lack of trust, and decreased employee motivation. Moreover, the failure to address cultural differences can result in lost opportunities for synergy and collaboration (Mahajan, 2021, p.55).

3.0 Conclusion

In today’s international business environment, mergers and acquisitions (M&A) have emerged as a common strategy for businesses to increase their reach and boost their competitiveness. The success of M&A demands a thorough awareness of the cultural variations between the organizations involved in addition to financial factors. Businesses functioning in a globalized economy must adopt effective cross-cultural management methods to operate in various markets and work settings. Cross-cultural management provides a framework for managing and harnessing cultural differences in a business context. The essay has examined several cross-cultural management issues, including joint ventures, organizational culture, communication, and negotiation.

4.0 Recommendations

To navigate the complexities of cross-cultural M&A transactions, businesses should consider practical recommendations such as providing language training (Khan et al., 2021, p.67). They should also consider implementing a hybrid or decentralized organizational structure and adopting negotiation strategies that respect cultural differences. It is also vital to conduct cultural assessments and establish clear communication protocols to overcome cultural differences and ensure the merger’s success. The companies should also consider adopting a polycentric approach to managing the new firms from the merger or the acquisition to avoid cultural shock (Li et al., 2018, p.89). Businesses that recognize and leverage cultural differences in M&A transactions are more likely to achieve common business goals while minimizing cultural misunderstandings and conflicts (Cao et al., 2019).

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