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Obstacles In Cross Boundary Mergers And Acquisitions

Introduction

This review makes an attempt to research the road blocks associated with cross-border mergers and acquisitions (M&A). Companies have different known reasons for choosing whichever option, either merger or acquisition. The basic motives for both alternatives are highlighted in the study. As mentioned previously, there are several problems associated with growing through M&A even within the same ethnic environment. And in addition, the problems associated with cross-border M&A can be more difficult to beat. This research shows specific examples of the issues that occur in cross-border M&A.

Two specific examples of 'corporate marriages' that failed have been analysed in this research. In order to discuss in specificity the ethnical issues associated with cross-border M&A, this research capitalises on German and American working associations. The first example is of Wal-Mart's acquisition of Wertkauf and Interspar as the second example consists of the merger between Daimler-Benz and Chrysler. In both good examples, one can learn how cultural impediments have affected alliances that could have been without doubt very well known.

This research also features the nice working romantic relationship that some Japanese companies have been able to keep up with the France.

To conclude the research, an analysis using Geert Hofstede's social dimensions was done. This compares the both ethnicities in order to explain the behaviours of both the Americans and the Germans in the business context. The comparability compares both ethnicities up against the world average as well.

Brief Overview of M&A

The words merger and acquisition (M&A) are used interchangeably when talking about growth strategy of companies. M&A signify two different types of expansion strategies and theoretically, they both signify different things in terms of functions, allocation of resources, ownership etc. Nevertheless, the objective of both strategies is progress and increased performance of the new company. The purchasing company within an M&A usually recognizes the acquisition as a profitable investment opportunity (Pautler, 2003). Cross-border M&A have increased because the mid 1990s especially due to trade liberalisation, service sector deregulation and privatisation of state-owned projects (Chen and Findlay, 2003). Mergers and acquisitions symbolize a good ratio of Foreign Direct Investment (FDI) internationally as multinational firms use this as a rise strategy.

A merger is the amalgamation of two companies of similar size to create a fresh legal entity. The merger between Glaxo Wellcome and SmithKline Beecham is a significant example however; both companies are established within same ethnic environment. Mergers do not happen quite often, as companies consider so many factors before a merger is effectively established. Regardless of whether mergers are cross-border or not, they are actually very hard to sustain. Looking at the history of M&A it appears as though the successful ones are businesses of similar cultures. The renowned mergers which may have endured business hurdles inside our world today are usually of homogenous culture e. g. ExxonMobil, GlaxoSmithKline etc. The affect of culture on cross-border mergers can't be over-emphasised as culture is area of the greater institutional environment that impacts the transformation of mergers (Aguilera and Dencker, 2004).

An acquisition on the other hands, is a total buy-out of an smaller or less economically stable company by way of a wealthier one. Acquisitions are definitely more apt to arise as some businesses find themselves fighting capital requirements or customer's demands. Nevertheless, a greater company may still get a company that is steady if the entrant's conditions in the new market are not favourable, as observed in the situation of Wal-Mart and Asda. Asda at the time of the acquisition was a respected grocer in the UK while Wal-Mart had a need to penetrate the united kingdom grocery industry. The relationship between Asda and Wal-Mart is as a mutually beneficial one.

Motives for Mergers and Acquisitions

Before a firm becomes a target for M&A, the purpose for the purchaser is usually revealed. However, it is not always easy to anticipate which companies are goals for M&A. Matching to Gonzalez et al (1997), "it's very difficult to identify all the underlying takeover motives using publicly available information".

Investment Opportunity

The most frequent reason behind M&A is the fact that is it seen as good investment by the purchasing company (Pautler, 2003). The purchasing company views targets as having potentials they are able to funnel. M&A's are potential progress and investment opportunities for companies. For instance, Virgin Group has persisted to grow and broaden through some M&A with over 400 companies. The business (Virgin Group) identifies new business segments and then buys up existing businesses or partcipates in relationship. In Nigeria, Virgin collaborated with the countrywide flight 'Nigerian Airways' to create 'Virgin Nigeria'. Virgin Group includes unrelated and diversified sections including media, drinks, airlines, telecommunications etc. Perhaps, the only thing the various business units have as a common factor is the brand.

New Market Entrant Strategy

When companies plan to enter into cross-cultural markets, they may face some level of resistance by other opponents and even consumers. In this case, the best option for the company is to combine with a preexisting company for the reason that industry. It also helps when the foreign company takes on the identification of the local people as regarding Tesco in Thailand known as Tesco Lotus.

Gaining Cost-Efficiency

When two companies opt to merge, they incorporate their resources and take good thing about their features. In terms of development or purchasing, the new company can take part in scale economies. Very often, smaller companies welcome M&A due to the cost-efficiency that they gain using their company alliance. When companies purchase in large amounts, they have significantly more power to influence their suppliers by traveling the price down.

Problems of Mergers and Acquisitions

A amount of issues can prove to be obstacles in the form of cross-border M&A including terms barriers, staff and management associations, currency variations etc. The social dimensions of Geert Hofstede is used to analyse the consequences of culture on businesses in cross-border M&A. Individualistic as against collectivist civilizations, long-term romantic relationship orientations versus short-term romantic relationship orientations; all these impact on M&A and one ethnic group would almost never back off for the other.

The price to cover acquiring another business is also a concern in M&A as the prospective companies often expect a payout that is surpasses the company's market value. This is issues for the acquirer because business consultants make predictions for profitability nonetheless; business does not always align with the predictions.

Apart from the owners of the business enterprise, mergers and acquisitions also have an impact on other stakeholders such as employees. Employees tend to be apprehensive of M&A as regards how it impacts their job security (Agami, 2001). Decisions of M&A also affect mature management and power those to retire. The company may need to spend large sums as redundancy payments or early old age benefits.

In the next research study, we will discover how companies have tried out to control M&A in a cross-cultural situation.

CASE Research 1

Brief Summary of Wal-Mart

Wal-Mart first exposed in 1962 alongside Aim for and K-mart; however, neither has been quite as successful as Wal-Mart (Fisherman, 2006). The 40-year background of Wal-Mart has experienced sporadic development on the market including through acquisitions of complete companies as in the case of Woolco in Canada or, part acquisition of Walmex in Mexico with 31% show of the company.

The company has become one of the biggest privately owned or operated companies on the planet. Wal-Mart is continuing to grow by acquiring companies in countries where it packages to expand. Additionally, the company has searched for world dominance by other cross-border M&A in countries within America as well as in Asia including Japan and China. Although not all of its cross-border M&A have been successful, the company still looks for to develop in many more countries on earth. Wal-Mart opens shop in India in '09 2009 albeit under a different brand name.

As part of its cross-border growth strategy, Wal-Mart in the later 1990s decided to remain competitive in Germany by acquiring two smaller retail chains Wertkauf and Interspar. The 'corporate and business marriage' didn't workout well for Wal-Mart and it eventually acquired to market off its German subsidiaries.

Wal-Mart acquires Wertkauf and Interspar

Wal-Mart's acquisition of Wertkauf and Interspar was a strategic alliance to penetrate the Western european retail industry. Wal-Mart that were only available in america already acquired chains of stores in Canada and parts of South America including Mexico, Brazil and Argentina. It's possible for culture to truly have a negative influence on business if two ethnicities do not properly assimilate especially at the beginning of cross-border M&A (Antila, 2006).

Wal-Mart that obtained two retail chains in Germany, Wertkauf in 1997 and Interspar in 1998 didn't sustain business and was eventually forced to liquidate baffled of $1b (Grose, 2006). The business possessed around 85 stores around Germany yet didn't gain the expected foothold. The business having been successful in America was facing imminent problems in European countries. The management of Wal-Mart underestimated the importance of the integration process in influencing performance of cross-border M&A. Ignorance of important internationalisation strategies and cross-cultural management marked the failure of Wal-Mart in Germany.

Many critiques have argued that two of the reasons for the failure of Wal-Mart in European countries were

The professionals, super-imposed American management strategy on the Germans without account of their ethnical differences.

The entrance of Wal-Mart into Germany by 'acquisition' was flawed.

American Management Strategy on Germans

Cross-border M&A is usually frustrated when consideration is not directed at cultural differences in management and procedure style. When companies do not completely appreciate specific distinctions in conditions in other countries, a 'clash of civilizations' is usually the result.

Firstly, Wal-Mart appointed an North american CEO in Germany who was not ready to learn German and demonstrated plenty of ignorance of the construction of the German retail market. This reflected too little admiration of the German culture and was offensive to the employees. Another CEO who didn't assimilate Interspar into Wal-Mart then replaced him. This created many upheavals between the two civilizations.

Secondly, the business culture that forbade an employee from dating influential colleagues was presented (Schaefer, 2006) in Germany. Hitherto, this was a recognized culture in German business. Ultimately, the HR professionals at Wal-Mart must have analysed the cross-cultural business variations of the German concentrate on companies (Antila, 2006). In situations where there are extreme dissimilarities running a business culture, top management must find a middle earth for compromise. Regarding to Antila (2006), in order to make a perfect fusion, HR managers must understand their ethnicities first before trying to comprehend the cultures of aim for acquisition.

Flawed Access by Acquisition

Wal-Mart's acquisition of Interspar continues to be broadly criticised, as the supermarket was the weakest among leading supermarket chains in Germany. The company spent huge amounts in restoration of the dilapidated branches around Germany yet results created from sales were not impressive and did not match the bills. When companies decide to acquire targets, it's important, that the business's strategic goal is clear and this stakeholders benefit from the M&A. The chance of doubt is low in M&A by the initial strategic research (Angwin, 2001). With Wal-Mart's acquisition of Interspar, the strategic purpose had not been quite clear as the business was struggling and did not seem to own any potential.

Perhaps Wal-Mart didn't quite understand the German market before they made a decision to enter (Business Europe, 2003). The main strategy of Wal-Mart that acquired previously prevailed in its other acquisitions was 'constantly minimizing prices'. Inside the German market however, the consumers already experienced lots of cost-leaders to choose from like Lidl and Aldi, so the 'Wal-Mart Effect' was not specifically special.

Again the business flawed by attempting some pricing policies that the German federal government considered unlawful. Wal-Mart tried an insurance plan of refunding customers that found the same items bought at lower prices in other places. This was an infringement of some important German laws and regulations (Dess et al, 2008). The business also never proven good romantic relationship with the labour unions in Germany (Dess et al, 2008).

The next research study shows how a partnership can fail if one group attempts to dominate the other. The progress strategy is merger, this means both companies are supposedly of equal size.

CASE STUDY 2

Daimler-Chrysler Merger

The merger between German automaker Daimler-Benz and North american automaker Chrysler was one of the primary transnational mergers ever before. In 1998, the offer was signed in London and the merged net value of both companies was $132b. The CEOs of both companies accepted in their press seminar that both companies relied on the merger for an chance to compete on a worldwide scale (Neubauer et al, 2000). The purpose of the Daimler-Chrysler merger was to take advantage of a growth opportunity and increase geographically. The plan was use to create a situation whereby both companies could reveal capacities, infrastructure and facilities (Blasko et al, 2000). Ultimately, mergers should create better business condition where both companies mutually benefit from one another.

However, one of the major obstacles that stood in the way of the Daimler-Chrysler merger was more of ethnic differences between your Germans and the People in america. In this case, it was not a 'merger of equals' as analysts like Farkas-DiNardo et al (2006) claimed. The merger observed a superiority of the Germans ensuring that the American top management employees were either sacked or required to retire in the period of only 2 yrs.

Prior to the merger between German established Daimler-Benz and US structured Chrysler, the auto industry hadn't observed a merger of such magnitude. Part of the problem of the particular merger was that the Daimler merger team gone into the contract with the aim of being more advanced than the Americans thus, creating challenging for leadership. Alternatively, the North american team strived for equality between both companies rather than dominance of only 1 company. There is evidently a misunderstanding between your management of both companies regarding the terms of engagement.

Conflicts within Daimler-Chrysler

The management of both companies were probably not very detailed in their research before lunging in to the merger which reflected in every the conflicts that the business experienced. The positioning for the business was a problem for both companies as do not require was eager to compromise. The head of Daimler stated he could never move the business out of Germany somewhat he'd welcome the idea of integrating Chrysler into Germany (Badrtalei and Bates, 2007). In addition, the naming of the new company was a reason behind disagreement as the Germans refused to bargain. The Americans suggested "ChryslerDaimler-Benz" but their German counterpart refused, detailing that the name "Daimler-Benz" experienced a long background and as such cannot be subject to such change.

The Germans plainly dominated most of the areas of the new company with the People in america constantly obligated to make compromise. The technique of decision-making within the company was another source of issue as both companies possessed different backgrounds. Inside the Americans, mid-level professionals were empowered to make certain decisions whereas with the Germans, they were not. Even the work patterns of both cultures were clearly completely different. The Americans are usually more casual favouring dress-down style to work and conferences while their German co-workers were always formal adhering totally to the suit-and-tie dress code of the business (Badrtalei and Bates, 2007).

Another important source of disagreement between your two companies was the technique of financial reporting which differed significantly in both countries. The styles of reporting financial information in the US was on a competent quarterly basis as the Germans on the other palm reported based on full-year reports. It was very obvious that the differences between the two civilizations were an enormous obstacle in the form of what could have been undoubtedly, the largest merger in the auto industry.

To worsen the already bad working romantic relationship between your Germans and the Americans, Jurgen Schrempp the CEO of Daimler-Benz had an autocratic design of leadership to the dominance of the auto world. He constantly overrode the decisions of his North american co-chairman Bob Eaton.

Benefits of Mergers and Acquisitions

It is difficult to generalise when deciding the huge benefits M&A as much fail to produce the required benefits. Frequently, both companies record losses and the collaboration leads to a 'corporate and business divorce'. More often than not, one company benefits much more than the other will. Matching to Hakanson (1995), an important question that arises in M&A is 'when, how also to whom does acquisition create or destroy value?' The fact remains that the failures of mergers and acquisitions are unpredictable and even the slightest friction triggered by variations in backgrounds can create problem and could eventually lead to a 'deal-breaker'.

For Wal-Mart, there were almost no benefits whatsoever in establishing shop in Germany as its experienced financial setbacks of various sorts that eventually led to providing its subsidiaries off baffled of $1b. The business, which had done so well in order countries like Brazil, Argentina, Mexico etc as the most notable retail chain could not get find the menu for success in Germany.

In the second case study on Daimler-Chrysler, it was clear right away that the merger will be rough to perform given the many conflicts that lurked. The challenge perhaps would be that the Germans and the People in the usa have still not perfected the skill of working seamlessly without creating 'hubris'.

Comparing German y and america Using Hofstede's Cultural Dimensions Model

Comparing the German and the American culture using Geert Hofstede's style of cultural dimensions shows little difference in conditions of ability distance, masculinity and long-term orientation. The little variations are in individualism and doubt avoidance where the United States rates higher in the previous while Germany rates higher in the second option.

Bothe countries rank higher that the world average in terms of masculinity and this perhaps is one of the reasons that they never seem to come quickly to a cultural bargain. In the case of Wal-Mart, the People in america displayed a higher degree of masculinity by forcing their culture on the German colleagues. This may be more understandable since it was an 'acquisition' not a 'merger' and normally, the 'acquiring company' desires to confirm their control by using management or business ethics. Alternatively, however, it is difficult to understand why Daimler-Benz became alternatively domineering with Chrysler as it was at first tagged a 'merger of equals'. Although Germany has an increased masculinity degree of about 65%, the United States does not fall much behind with a masculinity degree of about 62% (Hofstede).

Perhaps, the France and japan have found an improved way to work seamlessly despite their great cultural variances. The alliance between Nissan the Japanese automaker and their French counterpart Renault has recently come to its tenth calendar year. Other proper cross-border alliances in the auto industry japan and the People from france are also place to occur between Peugeot and Mitsubishi.

Conclusion

In conclusion, it is important to notice that culture will usually play an important role in cross-border M&A however; companies need to discover a way to compromise on certain issues. From circumstance studies of Wal-Mart's flawed admittance into Germany and Daimler-Benz's dominance of a supposed 'equal merger', one may conclude that both People in the usa as well as the Germans have quite strong cultural values plus they never seem to have the ability to compromise when participating in M&A.

Human resource managers need to consider issues involving culture as it pertains to M&A as people are barely ready for acculturation in a culture mindful world. The culture surprise that occurs within company perhaps strikes the employees that hardest as they experience first-hand the changes that have resulted from integrating a new culture.

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