Academic journal article Multinational Business Review

The Role of HR in Cross-Border Mergers and Acquisitions: The Case of Indian Pharmaceutical Firms

Academic journal article Multinational Business Review

The Role of HR in Cross-Border Mergers and Acquisitions: The Case of Indian Pharmaceutical Firms

Article excerpt

Abstract:

Mergers and acquisitions (M&As) are increasingly becoming a strategy of choice for companies attempting to achieve and sustain competitive advantage. However, not all M&As are a success. In this paper, we examine the three main reasons highlighted in the literature as major causes of M&A failure (clashing corporate cultures, absence of clear communication, and employee involvement) in three Indian pharmaceutical companies, and we analyze the role played by the HR function in addressing them. Also, we discuss the importance of gaining the commitment and focus of the workforce during the acquisition process through employee involvement.

Keywords: Human resource management, mergers and acquisitions (M&As), cross-border, India

INTRODUCTION

Over the last two decades or so, mergers and acquisitions (M&As) have become an increasingly popular strategic choice for numerous organizations (Galpin and Hemdon 1999; Lodorfos and Boateng 2006; Schüler 2001), perhaps because organizational leaders believe that M&As have the unique potential to help rejuvenate companies and to contribute to business restoration (Angwin 2001; Salama, Holland, andVirten 2003). Indeed, organizations realize very clearly that rapid growth, flexibility, and efficiency are critical for them to be competitive in the global economy (Schüler and Jackson 2001), and M&As can provide them with these attributes. However, it should be noted that a significant number of M&As fail, and depending on the industry, the reported failure rates vary anywhere from 50 to 80 percent (Tetenbaum 1999; Bryson 2003; Erez-Rein, Erez, and Maital 2004; Lodorfos and Boateng 2006). The history of M&A activity shows that, for the most part, M&As fail to live up to the expectations (The Economist 1999). At the third annual M&A summit (China Summit 2006), it was reported that at least 50 percent of the M&As fail to achieve their original objectives, and over 80 percent of mergers are unsuccessful one year after the completion of the deal. Despite this, M&As continue to find favor with organizational leaders (Bryson 2003), often with the specific purpose of achieving competitive advantage (Porter 1985) through achieving synergy between the involved companies (Cartwright and Cooper 1995). Also, the M&As initiated by firms from emerging markets like India (e.g., acquisition of Land Rover and Jaguar by Tata) and China (e.g., acquisition of part of IBM by Lenovo) is on the increase (Pillania 2009). Since this is an evolving phenomenon, there is, consequently, very little literature on what contributes to the success of M&As pursued by multinational companies from emerging markets. This paper makes an attempt to fill this gap.

In this connection, lack of "strategic fit" and inappropriate management during the integration process are often cited as the primary reasons for poor performance in most M&As (Chatterjee, Lubatkin, Schweiger, and Weber 1992; Schüler and Jackson 2001; Lodorfos and Boateng 2006). Further, many authors argue that incompatible cultures, loss of key talent, poor communication, and reduced involvement of employees during the M&A process are the primary reasons for the failure of M&As (Daniel and Metcalf 2001; Evans and Mendenhall 2004). It is then clear that the management of people and people-related processes during the M&A is a critical determinant of the success or failure of M&As (Buono and Bowditch 1989; Bijlsma-Frankema 2001; Evans et al. 2002). Experience of successful M&As suggests that ideally HR should be involved from the very beginning (i.e., from the due diligence stage) until the closing of the deal. Nevertheless, many times HR issues are neglected during M&As for a number of reasons. For example, decision makers are not aware about the importance of HR during M&As, HR is not the priority during M&As, perhaps HR is not represented at the top management level to highlight its importance, and the absence of a robust framework to utilize HR (see Evans et al. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.