Cultural Aspects of International Merger and Acquisitions (china – Usa Pair)

Cultural aspects of international merger and acquisitions (China –USA pair).

                                                                   Number of words        4312

Abstract.

       With continuous globalization of the world we could observe more international mergers and acquisitions (M&A). Cultural issue is one of the main factors of their success or failure but at the same time the least quantitative, studied, and used in practice. Cultural issues occur not only in international M&A but also in national ones. The distinguishing point between them is that in international M&A managers have to deal with national and organizational culture whether in national M&A only with latter one. During cross-border M&A cultural differences that arise could lead from one side to problems in merged company efficiency but from another to increase in synergy effect while properly facilitated.  In order to demonstrate cultural issues USA and China were chosen as countries which due to their role in economy from one side could be future leading partners in M&A and at the same time due to their cultural differences M&A between them should require special attention to mitigating the cultural differences.  The main cultural issues on which I focused are differences in: management styles, role of hierarchy in society, long-term vs short term orientation, approaches to negotiation and decision-making process. Also in this report I considered application of factors of general integration strategy to cultural integration in order to successfully deal with cultural issues in merged company.

Introduction

         In globalized world level of international mergers and acquisitions (M&A) is continuously increasing.  And now international M&A one of the biggest components of global foreign direct investments (FDI). According to (UNCTAD, 2010) in 2008 international M&A were $707 billion out of $1.7 trillion FDI, accounting more than 40% of them. Such large number of the international M&A is explained by the fact that many companies decided to use M&A as a method of growth.       Choosing M&A as growth strategy instrument most companies could achieve simultaneously several goals. First goal for company is to enter the new market that without acquiring foreign company could be either prohibited or could take much longer time to enter. Second goal which could be complementary to the first is to increase shareholder value using synergy effect.  

       Despite the popularity of international M&A large percent of them couldn’t create any value for shareholders. For example, according to study by Erez-Rein et. al. (2004) from 55 to 70 percent of M&A are failed. There could be a lot of reasons for failures starting from poorly articulated strategy, poorly suited business models, technology, law system differences, financing problems. All of the stated issues often tried to be taken into account during due diligence process and often are reflected in notes to management which are preceding to M&A agreement. Moreover such issues are among the first ones which are typically considered after companies start to operate as one entity.  But very often managers lose from their sight another important issue which could be crucial in M&A success or failure.