The Cultural Integration in the Process of Cross-Border Mergers and Acquisitions

Article excerpt

[Abstract]

Cross-border mergers and acquisitions (M&A) play an important part in foreign direct investment (FDI). In the process of cross-border M&A, the enterprises involved will encounter cultural differences and conflicts. How to integrate these cultural differences and eliminate the conflicts becomes an important issue for the enterprises. This paper discusses the necessity of carrying out cultural integration in the process of cross-border M&A. This paper also indicates that cross-cultural management is a feasible and practical way for cultural integration. Moreover, the four patterns of cross-cultural management are discussed in this paper.

[Keyword] Cross-border mergers & acquisitions; cultural integration; cross-cultural management; cultural difference

Introduction

Cross-border mergers and acquisitions have become more and more active in the international economy. M&A enterprises have to confront the different cultures during the process of integrating their operations. How to integrate these different cultures becomes a crucial subject for enterprises to research.

Literature Review

Company culture is very important, for it correlates to a company's strategy and employees' performance (O'Reilly, 1989). With the fast development of cross-border M&A and other kinds of foreign direct investment (FDI) (Note: Global FDI inflows rose modestly in 2004 following large declines in their value in 2001(41%), 2002 (13%) and 2003 (12%). (UNCTAD: World Investment Report 2005: Transnational Corporations and the Internationalization of R&D), crosscultural management becomes a key role in management process because of cultural differences and conflicts. More and more enterprises pay much attention to these differences and conflicts (Wang & Jiang, 1998). As a result of research, the concept of cultural integration of M&A was put forward (Gu & Xue, 2004). Some companies benefit from cultural integration in cross-border M&A, such as GE (Ni & Wang, 1999; Xu, Wang & jin, 2000; Jiao & Yang, 2002). Therefore, it is necessary to understand the mechanism of cultural integration of cross-border M&A.

In this paper, three major questions need to be answered. First, what is the meaning of cultural integration of cross-border M&A? Second, what content should be contained? Third, how is the cultural integration achieved?

Meaning of Cultural Integration of Cross-Border M&A

Cross-border M&A is defined as an activity in which an enterprise from one country buys the whole asset or controlling percentage of an enterprise in another country (Zhang & Wang, 2004). When the cross-border M&A happens, it becomes the prime task for the enterprise to integrate resources and operations. The enterprises have different cultures, values, and operating style due to their different backgrounds and external environment. The cultural differences arising from cross-border M&A are not limited to those on the company level, but also on the national level. The clash of cultures can arise from different countries, nationalities, or companies. Culture determines the communities' tendencies towards convergence into a thinking, a behaving, and an expressing model, etc., having similar values and individual pursuits. When different social groups and organizations (including enterprises) interact, their cultures inevitably meld. This melding of different cultures helps propel a company's development.

Cultural integration eliminates conflicts arising from cultural differences by organizing and amalgamating the values, psychological states, and behavior modes of different communities. The cross-border M&A cultural integration inherits and rectifies the psychological contract of the target company for minimizing the amount of cultural conflicts and forming the diversity and unity due to the cultural differences in multi-national enterprises (Gu & Xue, 2004). …