With the advent of globalization, it has become common for western multinationals to indulge in mergers and acquisitions with companies in the emerging markets. The process of entering those markets is usually through the Greenfield route that entails huge investments and takes time as the plants and factories have to setup from scratch. The other route is through a merger with a local partner through joint ventures and other methods. Apart from this, acquisition of local companies is the third option that multinationals have.
In this context, it is important to remember that because of the differences in culture between the countries to which the western companies belong and the cultures of the countries that they are entering, the cultural aspects must be handled with care and caution. For instance, it is common in many emerging markets to have labor and other policies that are specific to those countries that preclude hiring and firing workers at will. This means that the western multinationals have to ensure that they tailor their global policies to local conditions and adapt to the local cultures by Glocalizing or the process of merging global outlook with local execution.
The next aspect about the cultural aspects of cross border mergers and acquisitions is that because of the different working cultures, each partner in the venture has to understand the culture of the other and adapt accordingly. For instance, the differing attitudes to gender, minorities, and diversity are issues that can cause potential conflicts between the partners. Apart from this, the cultural dimensions of democratic style of management in the west is different from the patriarchic and authoritarian dimension of management in the east means that both partners have to adapt their working culture according to the conditions on the ground. Further, the western companies operate in structured and methodical manner where there is very little ambiguity and everything is spelled out and written clearly. In contrast, in many emerging markets, the working environment is characterized by uncertainties to do with infrastructure, culture, and local conditions that induce a sort of hazy working environment. Indeed, this is a culture shock that many western companies face in South Asian and South East Asian countries where the working environment operates in a laissez faire approach, which means that we shall get the work done somehow, is the dominating attitude compared to the west where each milestone in the project is carefully planned for and tracked.
The point to understand about cross border mergers and acquisitions is that they are akin to marriages between individuals from different countries and hence, without empathy and a sense of understanding, these ventures cannot and will not work. Further, cross border mergers and acquisitions can work only if the cultural differences are bridged between the partners. In recent years, there have been several high profile cross border mergers and acquisitions that have failed mainly because of cultural differences. This is more the reason for both the partners to engage each other and conduct due diligence about each other before they venture into the deal. Moreover, differences in perceptions about how individualistic the working environment will be in contrast to how communitarian it would be are other reasons for failure. In addition, it is common for easterners to deal with red tape and bureaucracy in a different manner which when contrasted with the same in the west leads to totally different working cultures. All these aspects attest to the fact that despite globalization, cultural differences are a reality that global companies and their local partners cannot ignore and avoid at any cost.
Finally, as mentioned earlier, it would be better for the western companies to engage business consultancies, investment banks to assess how the post deal venture would be run, and the potential causes of conflict that can manifest in the venture after the deal is done.
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