Cross-border Post-Merger Integration

INTEGRATION... SERVICES

We Transcultural Synergy, assist businesses involved in cross-border acquisitions, joint ventures or strategic alliances with their post merger integration challenges that arise from the differing organisational and national cultures. Our aim is to maximise human potential in transnational collaboration.

We also assist companies solve cross-cultural challenges in international transfers, expatriation and general global mobility issues, as well as in multi-national marketing and business development. Our particular strengths are working with European and Asian companies seeking a better understanding of their clients & staff arising from corporate and national cultural differences.

INTEGRATION

There are many consultancies specialising in mergers, acquisitions and other forms of alliances. Most focus on the pre-merger deals, while others focus on the mechanics of integration (financial, losgistic, systems). It is increasingly understood, however, that what ultimately makes mergers or alliances work are the people, and, collectively, the cultures of the companies merging or cooperating. As a result many consultancies, often from an organisational development background, concentrate on managing corporate culture, aligning sometimes completely different cultures to a new common vision. History shows that this is difficult enough, but when different mindsets from different national cultures and languages exist on top of the differing corporate cultures, then the task becomes a mamoth one.

Because the task of "combining" companies of different countries is so daunting, we concentrate on cross-border post-merger integration assignments only. International mergers and alliances, although containing the same elements of difficulty as domestic ones, are doubly complex, because the differences in culture (management style, decision-making, expression etc) and language make it difficult to even have a common framework within which to work and work out the corporate culture differences. Many models, including corporate culture models, work well in the country they were developed, i.e. they work well for domestic alliances, but are inappropriate or insufficient in an international framework, simply because working models themselves are culturally biased.

From this point of view international mergers and alliances are fundamentally different from domestic ones, and have to be looked in a slightly different manner. They require the fundamental knowledge of cross-cultural communication and business anthropology. This is our area of expertise. With the globalisation of the economy the likelihood of cross-border mergers and alliances increasing is high. This will create an increased demand on the ability to manage cross-border merger integration well.

There are various ways businesses can develop and grow business internationally:

1. Exports: This is the simplest level, using agents and distributors as a selling arm of domestic sales and marketing activities.

2. Expatriation: Transferring businesses, technology, administration and personnel abroad, in branches, overseas plants, subsidiaries etc. This often involves a lot of physical mobility, moving people around, hence 'expatriation', and requires a select number of international competent experts.

3. Transnational Alliances, mergers and collaboration: This normally involves different corporate cultures from different national cultures working together. While some movement is still required, this type often involves less mobility (esp. nowadays with virtual teams able to work through the internet) but more often involves far more people needing to work in an internationally rich context; often everyone in the merging cross-border companies are affected by national differences in one way or another.

We assist companies in this third area. We also think the needs for this type of assistance will increase as international mergers and alliances become regarded as a more economically viable route, even if also more complex.

The above illustration also reflects a trend in international business over the last 50 years: From exporters flogging their wares around the world (the mentality of valuing the 'strong' salesman successfully selling sand to the Arabs and ice to the Eskimos), to companies bringing their business to the world (transplanting of offices, branches) to transnational networked alliances working virtually. Increasingly globalisation of business brings with it a highly intricate web of cross-relationships, closely resembling TRANSNATIONAL organisations and networks (see Transnational Model).

HOWEVER, while everything points to an expansion of mergers, alliances and Joint Ventures, statistically 50 - 80% (depending on statistics) of them so far, historically, have failed (depending on definition). According to the Global Workshop Group, "research evidence going back to the 1970s demonstrates that mergers and acquisitions have an unfavourable impact on profitability. They are strongly associated with lowered productivity, labour unrest, higher absenteeism, and poorer accident rates. Depending on the study referred to 50% to 80% of all mergers and acquisitions turn out to be financially unsuccessful. And we need to keep in mind that most research studies have investigated combinations in which the two firms were rooted originally in the same national culture."

"75% of Mergers and Acquisitions are outright failures" (Business Week study)

"85% of failed/troubled mergers are due to differences in management style and practices" (Coopers & Lybrand)

Other statistics from KPMG, Accenture and McKinsey:

"50% drop off in productivity in the first 6-8 months"

"47% of top management leave within the first year"

"62% show zero growth over three year period"

"Research also indicates that senior executives rate the lack of 'understanding the importance and difficulty of integrating cultures' as a major cause of integration failure." (www.globalworkshop.com).

Should that mean, despite obvious advantages and globalisation trends, we should stop such collaborative activities?

We think not. What is required is to refine the way we manage the post merger integration process.

Fundamentally we need an approach that looks beyond the pure mechanics (i.e. beyond the finances, technolology and marketing). People are paramount, and collectively, culture is the key.

Recently the Conference Board has done extensive research and interviews on the issue of post-merger integration, focussing on a number of factors (stress, anxiety, power, politics, knowledge sharing, ...), including culture. Here are some quotations from the research findings: "In view of difficulties with personal and cultural issues, it is perhaps not surprising that over 90% of surveyed executives felt that CEOs and other top leaders could benefit from special coaching or mentoring in preparation for a deal; nearly half agreed strongly. Human Resources respondents perceived this need to a greater extent than executives in other functions.... The CEO's close associates are also seen as requiring consciousness-raising.

According to the Executive Vice President of HR in an asset-based lending company: "All of us in senior management downplayed the cultural differences between the organisations. We all certainly recognised them and felt that 'well it's one more thing to check off the list - they're now our company and they're going to change what they do and how they think and act in line with us.' Doesn't work like that. Not enough attention was paid in due diligence to the people side. We need to buy in to the recognition that cultural differences are major impediments to doing business. Top management, possibly helped by HR people or by consultants, really neeeds to get a good grasp how cultural differences can be detrimental to the deal. It's like saying that paying their people differently is no big deal as long as there is no big financial smoking gun." (From the Conference Board, Managing Culture in Mergers and Acquisitions, 2001, click www.conference-board.org for more information).

The challenges facing mergers and alliances include consistency of strategy, capability to integrate, learning capacity, quality of match and most importantly the ability to blend different corporate and national cultures. Yet statistically (Lotze) it has been found that only 46% attention is given to organisational culture in the due diligence process, 49% to workforce potential and 56% to HR issues, while 90% attention is devoted to hard assets, 86% to market share, 78% to technology competence, 75% to financial aspects and 71% to management capabilities.

This points clearly that attention is given to what shareholders might be interested in at the point of the deal, but far less on the factors that could make or break the merger longer term after the deal, i.e. the people issues. RM Kantor has conducted other studies showing average M&A priorities:

26% Strategic business development

22% Operations

15% Marketing / Sales

13% Finance

8% Customer Service

8% Human Resources Management

4% Communications

4% Management Information Systems

It is interesting to note that far less weight (24%) is currently given to the bottom four issues, the people aspects, which in fact are the very aspects that are going to determine whether the top four aspects (76%) work or not. Especially in cross-border mergers and alliances there is a need to focus far more on the people and cultural aspects.

The cultural aspects include: values, beliefs, norms, perceptions, vision and direction, oranisational practices, business drivers, expectations, leadership, management practices, and communication styles. Our focus is to help companies involved in cross-border mergers or alliances come to terms with these issues, find common ground and help bridge the cultural divide that exist in transnational cooperation. Our aim is to address some the issues learned from previous 'failures', focus on the people and incorporate the conditions that will help internationally merging or collaborating businesses succeed.

Our focus is on people, externally customers, internally employees

Without customers there is no business - without employees there is no company.

PEOPLE ARE A COMPANY'S MOST IMPORTANT ASSET.

Those companies that are able to look after their customers through the dedicated and localised empowerment of their staff in the context of a "globalised" and networked environment will be those who will lead and contribute to the new lifestyles of the 21st century.

Our aim is to assist those daring to look beyond mere beads, seeking more adaptable and humane forms of wealth creation.

Presentation Download:

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Transcultural Synergy

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