Cultural Integration in Mergers and Acquisitions

Managing the cultural element is one of the key issues that may help explain the success or failure of Mergers and Acquisitions. Yet what needs to be done to improve cultural in order to enhance the success of Cross border M &As’ has received relatively less attention. It is very important for multinational enterprises to recognize cultural differences and conflicts in order to integrate the different cultures of merged companies. This study examines the importance of carrying out cultural integration and suggests ways for doing the same in the process of Cross border Mergers and Acquisitions.

Culture refers to a shared and deeply held set of norms, values, beliefs and attitudes that influence individual and group behavior within an organization (Miller, 2000) Every group, corporate or otherwise, has a unique culture that is shaped by its members’ shared history and experiences (Schien, 1985). Culture is regarded as a social construction, comprising networks of shared meaning which are deeply ingrained in members taken-for-granted and common-sense ways of thinking, [Bate, 1994; Brooks and Bate, 1994].

Organizational culture tends to be unique to a particular organization. Cartwright and Cooper (1993) suggest that culture is to an organization what identity is to an individual. According to Hosfstede (1997), it is the collective programming of the mind which distinguishes the members of one organization from another.

Cross Border Mergers and Acquisitions and Culture

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 (Zhu & Huang, 2007). Each organization has its own norms, customs, roles, rituals, ceremonies, dress code, symbols, and hierarchy and reporting lines. These are all essential building blocks of culture, which are usually specific and unique to each organization.

When two organizations combine as a result of merger or acquisition, employees are exposed to a different culture of doing things. Degree of interaction between employees from both sides and the level of change introduced depends upon the type of merger (Buono & Bowditch, 1989). If the merger is between similar firms, level of interaction is high and differences in cultures of combining organizations may result in emotional/cultural conflicts known as cultural clashes wherein employees from both the sides try to preserve the symbols, attitudes, values and beliefs associated with their culture (Nahavandi & Malekzadeh, 1988). According to Bajaj (2009), to avoid or lessen the conflict of cultural clashes, two aspects need to be considered. One, whether cultural differences should be considered before the decision to acquire/merge is taken. Two, once the decision to acquire or merge is taken, are there any interventions that concerned organizations need to make to facilitate cultural integration, and what is the right time to start these interventions .Interventions like timely communication have been suggested by Schweiger (2001) to facilitate HR integration. Bijlsma-Frankema (1997) argues that culture plays a major part in the way employees react to the new structure of their work environment, ranging from quick adaptation and commitment to the new expectations, to resistance, withdrawal and other forms of unproductive behavior.

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Cultural Integration

Successful integration is essential to realize the business potential of acquisitions, whether domestic or cross-border (Child et al., 2001). Cross-border M&A cultural integration seeks to reduce cultural differences as much as possible in the acquired company. Therefore, whether the cultural integration is successful or not is critical to the success or failure of a cross-border M&A. According to Zhu & Huang, 2007), the following problems should be solved in cultural integration of cross-border M&A. First, it should coordinate the cultural differences of peoples to promote understanding and communicating between the different communities in one enterprise and to avoid the negative influence arising from the different thinking models, behaviors, and values. Second, it should coordinate the different company cultures to eliminate the barriers in leadership styles, communication models, personnel system, performance appraisals, and social security benefits. Third, it should establish the company’s core values by integrating diverse cultures to improve the company’s creativity and competitiveness. Fourth, the effective integration of the companies’ cultures could provide conditions beneficial for the integration of operations.

Cultural differences of nations are found in attitudes toward nature, rules, status and power, ideas of individual and group, time, the modes of communicating and thinking, and interpersonal relations (Zhu & Huang, 2007). Different corporate cultures will cause employees of different companies to make different decisions about such issues as their attitudes towards risk, corporate planning, and employees’ freedom to decide how to do their jobs, preferences for completing a task individually or on a team, management concerns about their subordinates, and so on. European scholars have compared Chinese corporate culture with Western corporate culture and found several differences (Li, 1999). For instance, the Chinese tend to pay more attention to social status, care more for “person” than “thing,” make concrete analysis under concrete conditions when they face the problems, act passively and weigh the collective over the individual. However, the West, prefers to cooperate, care more for “thing” than “person,” is more proactive, stays loyal to principle, and values the individual over the collective.

Cultural differences between enterprises are found in the way they operate, direct, communicate, and motivate. It is the core content of cross border M&A cultural integration to integrate cultural differences of nations and those of enterprise, which are interdependent, not separate. Cross-border M&A creates a situation of cultural diversity in the enterprise, which leads to the development of cultural character in the process of integration. Therefore, it is necessary for the multinational enterprises to carry out cross-cultural management to integrate the cultural differences and resources effectively.

Basic principles of cross-cultural management lie in respecting and understanding the cultures of others, placing importance on communication, and making adaptive changes. Communicating with each other effectively and understanding each others’ culture is the most effective way to eliminate cultural conflicts. Establishing a new culture after M&A is the amalgamation of different cultures (Zhu & Huang, 2007).

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Importance of cultural integration

Upon merger it is suggested that integration takes place at three levels; the physical, the procedural and the socio-cultural [Shrivastara, 1986]. Although the physical and procedural processes are likely to be managed rapidly, the latter process is thought to take between three to five years [Walter, 1985] or even longer. Research shows that most organizations develop merger plans without formulating any ‘human’ merger preparations [Schweiger and Ivancevich, 1985] despite estimates that between one third and one half of merger failures are due to `employee problems’ [Davy et al., 1988].

Upon merger two distinct and dynamic cultures collide creating differences at all levels of culture from conflicting management styles to radically different organizational routines and rituals, from dress codes to attitudes towards business variables, such as risk, and from tangible artefacts to fundamental assumptions about the characteristics of the business environment ( Brooks & Dawes, 1999). Additionally, both merging organizations will already contain conflicting values, assumptions, perceptions and interests [Buraway, 1979; Edwards, 1979]. The resultant managerial task, that of building a new culture is immense and should not be underestimated.

Ways to successfully merge cultures

While integrating the two cultures, it is necessary to pay attention to the national culture as well as the distinctive organizational culture (Schuler and Rogovsky, 1998). Employees’ representation and participation during the pre-merger stage can lead to high levels of trust between key stakeholders, and consequently reduce dissatisfaction, resistance to change and the risks associated with culture clashes. Managers should evaluate the compatibility of the two cultures, to highlight the positive and negative attributes of each of the cultures and then decide the level of integration and/or independence necessary for a successful co-existence.

Integration of corporate cultures in an M & A environment is not an easy task. According to Miller (2000), Managers need to formulate the strategy of the new enterprise early on, communicate the values, beliefs and goals of the new enterprise to the employees in the period leading up to and following closure of the deal. Also important cultural differences must be identified and resolved early by having clear policies and procedures in place.

The following suggestions have been given by Lodorfos & Boateng (2006) to avoid cultural clashes during M & As. Managers can form merger and acquisition integration teams with representatives from all the merging partners as well as experts in change management and organizational psychology and in some cases, even hire external consultants to integrate the two companies’ processes and systems. Another way is to implement a job rotation system among the key managers in both the acquired and acquirer firms to bridge the gaps between the two organizations, identify areas of best practice and plan the change process. Thus key managers of both companies should work closely to appreciate the practices of each organization with the view of adopting the best code of practice during the integration. Furthermore, due to the communication problems and related conflicts highlighted during the interviews it is necessary for the managers to gear up the merging organizations’ communication and information flow processes and systems to reduce the levels of stress and uncertainty of the employees and help the implementation process of the integration strategies. As culture is a shared phenomenon, it is essential to involve as many staff as possible in the decision-making and discussion processes as these will help mould the resultant culture (Brooks & Dawes, 1999)

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Lodorfos and Boateng (2006) also proposed a four staged approach for managing cultural integration process in M&As.

Pre-merger and Pre-planning stage: This phase involves information gathering and developing trust through one-to-one interaction between members of both companies and identifying culture gaps.

Planning stage: This stage aims to produce the action plan to facilitate the cultural integration process by deciding on the extent of cultural integration, assessing potential risks, setting integration goals.

Zhu & Huang (2000) have suggested four models of cross cultural management:

The first model is localization strategy where the management policy is made according to the local conditions. The second model is transplanting the culture of the parent company where the buyer can transplant its culture into the target company and gradually get the local staff to accept its culture. The third model is the cultural innovation by integration in which a new culture and management pattern are formed through the integration of the two cultures. The fourth pattern uses evasion tactics where the third party shall be asked to bridge the gap between cultures.

Implementation stage: This stage is designed to integrate structure and control systems by communication, staff training, and reorganization.

Evaluation, review and reflection


Creating a cohesive culture from two distinctive entities is a challenge (Miller, 2000).The integration of culture should be an active and gradual process in which the two organizations learn to work and do things in the same way or understand why they should do things in a different way. During this stage of the process more attention must be given to the levels of integration between the two cultures and the creation of an atmosphere that can support cultural changes. [37] Haspeslagh and Jamison (1991) argued that, in order to create that atmosphere, organizations should understand each other’s culture and people in both organizations should be willing to work together after the merger, something that could only be achieved with socio-cultural integration and communication between the two organizations’ employees. In the post merger phase it is necessary for companies to maintain that atmosphere and also introduce processes and systems to measure and evaluate the effectiveness of the new organizational culture to organizations performance and to the employees moral and respond accordingly.

Organizational cultures and the way they are combined throughout the merger are also crucial to its outcome. More attention and efforts should be spent to properly evaluate the organizational culture fit before going ahead with the merger in order to increase its rate of success (Appelbaum et al., 2007).

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