The Impact Of Culture On Mergers And Acquisitions - Research Paper Example

The Impact Of Culture On Mergers And Acquisitions The movie Gung Ho addresses the cultural dilemmas of international mergers. Many times corporations, managers, and workers only consider the monetarily benefits or aspects, not the human or cultural aspects. Minds start working at how a corporation, manager, or worker will benefit, not how much work and cooperation the merger will take. Five mergers will be examined in relation to Gung Ho. Three of the case studies detail three large mergers dealing with the European steel manufacturing, the chemical fiber trade, and an aerospace business. The merger between the Daimler-Benz AG and Chrysler Corporation will be examined. The final case study will deal with Coca Cola in partnership with a bottler from Costa Rica. Introduction The mergers and acquisitions around the world have been increasing since the post-WWII era. Unfortunately, “according to a KPMG study, ‘83% of all mergers and acquisitions (M&As) failed to produce any benefit for the shareholders and over half actually destroyed value’" (Gitelson, Bing, and Laroche). The reason after “interviews of over 100 senior executives involved in these 700 deals over a two-year period revealed that the overwhelming cause for failure ‘is the people and the cultural differences’” (Gitelson, Bing, and Laroche). Unlike in the movie, Gung Ho, the people and cultural differences are not worked out in the end. Compromises and deals are not found in the real world; due to the fact corporations do not take cultural differences seriously. The corporation mangers and CEOs look at mergers and acquisitions on paper, but fail to take into account the human factors. All of the case studies being examined are international mergers or acquisitions, but a culture shock can exist in the same country. In Germany, the Deutsche Bank's acquisition of Postbank caused a great controversy (Seith). The Deutsche Bank had a more international base, whereas the Postbank was more in tune with the average customer (Seith). The problem comes when the two banks with such different policies toward customers merge. Will the two banks have two separate policies? Will they end up with one or the other’s policies, or will they meet in the middle. These questions are always important when dealing with an acquisition or merger. In Gung Ho, the mixture of policies helped save the factor. Only time will tell if the two banks in Germany will work out their differences, since the merger is still in the early stages. Five cases will be compared to the movie Gung Ho. Three of the case studies detail three large mergers dealing with the European steel manufacturing, the chemical fiber manufacturing, an aerospace business, the Daimler-Benz AG and Chrysler Corporation, and the Coca Cola partnership with a bottler in Costa Rica. Unlike the fictional Gung Ho, these five case studies do not always have the happy ending. The difference between fiction, even based on reality, and the real world is enormous. The Fiber Merger In this case study “for fibre merger we interviewed 16 people (11 Germans and 5 Dutch)” were interviewed (Olie). This merger was also between a German and Dutch company. This merger occurred in the chemical fiber manufacturing between a German and Dutch company that produced industrial and textile fibers, along with other related products. The merger took place in May 1969, after a seventy-year relationship (Olie). The Dutch company had been a majority shareholder of the German company since the end of WWII, but both companies operated totally independently of each other (Olie). After the merger, both companies divided chairmen, corporate positions, and other employee positions equally between the Dutch and German employees. The board meetings were held alternatively in the Netherlands and Germany. Industrial fibers were based in Holland, while textile fibers were based in West Germany (Olie). The balance of Dutch and German employees was nothing like in Gung Ho. In Gung Ho, the Japanese were the managers of the auto plant in Pennsylvania. The workers were American. Michael Keaton played the liaison between the Japanese manager and American workers. While the Dutch and German sides in the case study were perceived to be equals, the Americans and Japanese in Gung Ho both felt they were superior to the other culture. The fiber merger was not all cooperation between the Dutch and Germans. The sales personnel were very competitive. The Dutch liked to sell internationally, while the Germans liked to sell to their own home developed market. The Dutch had a relaxed attitude toward work and business, but the Germans were more rigid about their work practices. The equality among the board led to differences in opinion and did not prove effective. Another contention came after the oil and recession of the 1970’s: “As early as 1972, the binational management had devised a rationalization programme which envisaged the closure of five factories located in the Netherlands, Germany, Belgium and Switzerland. The announcement of these plans, however, met fierce resistance in the Netherlands” (Olie). Obviously the Dutch did not want to suffer the economic cuts backs that were necessary. The Germans also did not want to suffer, but seen the necessity of the plan. These cultural differences threatened to tear the company apart. In Gung Ho, the two cultures also clashed. The Japanese management had a stricter work ethic than the Americans. The pay was not as good under Japanese management as under American management. Another contention was the switching of job descriptions among the American employees. No unions were allowed under Japanese management. These differences almost led to the closing of the plant after the workers went on a strike after misleading statements from Michael Keaton. Gung Ho shows the workers striking. As a result the American liaison and Japanese manager go into the auto plant and began working toward the monthly quota. The workers come back after seeing the cooperation. Unlike the movie, the Dutch and German fiber merger work due to the separation of workers due to their culture. “Despite the initial measures taken to facilitate the exchange of personnel and so achieve greater cooperation, this has not resulted in a permanent exchange of Dutch and German managers. Departments in both countries are mainly uninational” (Olie). When the company decided to keep Dutch workers in the Netherlands and Germans in Germany, with board members chosen by skill rather than culture, the merger began working. The merged company still exists today. The Aviation Merger In this case study “for the aviation merger 24 people (12 Germans and 12 Dutch)” were interviewed” (Olie). This merger was also between a German and Dutch company. The two companies did not have the same amount of working relationship as the fiber merger, but had worked together for several ventures (Olie). The Dutch company was relatively small. However, the German company was well established and larger. “The Dutch company had a strong position in the civil market with its successful turbo-prop aircraft and had recently launched a second, jet aircraft. The German company was mainly involved in military projects and was largely dependent upon public funds” (Olie). This seemed like the perfect merger for both companies to expand in different markets. The companies merged under a new central company with each owing fifty percent of the shares (Olie). The board consisted of three Dutch and three Germans (Olie). Resources were only merged in the sales department. The cultural differences mentioned in the fiber merger existed here as well. The competition between the two products, German and Dutch, also hurt the merger. Germans were upset that the Dutch side only promoted the Dutch products. This resulted in a German side failure and a Dutch side with success. When the Dutch refused to send work after receiving an American contract, all the talks fell through. The merger was finally dissolved in 1980 due to lack of cooperation. This merger failed, unlike the acquisition in Gung Ho. The difference was the Americans need the auto plant for their town to survive, and the Japanese manager had to make the auto plant produce to retain his job. Both parties had an interest in keeping the auto plan going. The Germans and Dutch did not have the same interests or needs. Since these interest and needs were not met, the company merger ended in failure. The European Steel Manufacturing In this case study “for the steel merger 23 people (8 Germans and 11 Dutch)” were interviewed (Olie). The merger was between a German and Dutch company. This company was between Holland’s major national steel enterprise and a Ruhr steel company (Olie). At first look these companies looked like a good match. The Dutch steel company had a large supply of raw materials and possibility to ship around the world (Olie). The German company was “located in the heart of an industrial region and…was well situated to meet the demands of the large German market for finished products” (Olie). This merger would create a large steel company. In fact, this merger would create the second largest steel company on the European continent (Olie). The problems began with the common holding company created in the Netherlands. This holding company held the original shares of both companies (Olie). Worker representation was a major contention. The Germans have a personal director to overlook worker issues, however Dutch law forbade a worker representation person on their boards. This created two companies under a central company that: “With regard to the central holding company in the Netherlands, a compromise formula with regard to worker representation embodying elements of both German and Dutch law was found” (Olie). The same problems facing the aviation merger faced the steel merger. Once again one company had more success than another, except vise versa. The German company had more success than the Dutch company. Another problem was the management of the steel factories. The Germans and Dutch traded managers, but due to the different laws in the different countries, illegal factories came about. This was a major problem. This led to the dissolution in 1982 (Olie). This merger failed, unlike the acquisition in Gung Ho. Once again the difference was the Americans need the auto plant for their town to survive, and the Japanese manager had to make the auto plant produce to retain his job. Both parties had an interest in keeping the auto plan going. Like above, the Germans and Dutch did not have the same interests or needs. Yet again, since these interest and needs were not met, the company merger ended in failure. Daimler-Benz AG and Chrysler Corporation This case study was taken from common knowledge, since it was reported on widely. This merger was between a German and American company. Americans have also been successful in selling autos. Germans are masters of efficiency. This merger in 1998 was thought to be a perfect match. However, once again like in Gung Ho, the work ethics did not match. The quotas fell short like in Gung Ho. Thus DaimlerChrysler sold out to the Cererus Company in May 2007. Unlike the happy ending of the movie, the reality was a failure of the merger. The Coca Cola Costa Rica This case study was between “Coca-Cola Interamerican Corporation — the Coca-Cola Company’s Costa Rican subsidiary — and its bottler, Panamco Tica” (Costa Rica Case Study). This merger was between an American and Costa Rican company. When Coca Cola entered the market, their massive amount of assets enabled the Panamco Tic bottling company to surge to the front of competition in Costa Rica. This created a lawsuit against them for breaking Costa Rican anti-trust laws (Costa Rica Case Study). The Costa Rican government found that not including “all non-alcoholic beverages, Panamco Tica had a lesser, though still significant portion of the local market, at 74 percent” (Costa Rica Case Study). As a result, the Panamco Tica bottler was fined around 80,000 American dollars (Costa Rica Case Study). Although scaled back, the merger still exists and thrives in Costa Rica. This merger is like the acquisition in Gung Ho. It is successful due to an influx of money by one party. The cultural differences are not like in Gung Ho, but more like that in the fiber merger. The Costa Ricans ran their side of the business, while Americans kept up their sides. This made the merger a success. The cultural aspects were not problems, because Americans stuck with what they knew as did the Costa Rican bottling company. Conclusion and Recommendations These examples show that a mixture of employees is not best with International mergers. Gitelson, Bing, and Laroche point out seven things need to be considered for mergers and acquisitions internationally to avoid cultural and general pitfalls: 1. “Pitfall #1: Preoccupation 2. Pitfall #2: List-making 3. Pitfall #3: Organizational Proliferation 4. Pitfall #4: Infrequent and irrelevant communication 5. Pitfall #5: Triangulation 6. Pitfall #6: The relatives 7. Pitfall #7: The guiding light” Preoccupation is when each side only thinks only about their immediate future. The cure is to speed up the merger to assuage nervousness on both sides. List making is a list of everything that must be done. It can seem overwhelming. Focus on the task at hand is the answer to this problem. Organizational Proliferation can occur by having too many employees working on the new structure of the company in various commitees. The answer to this problem is speed up the process, focus, and adjustment. Infrequent and irrelevant communication is the fear and a lack of answers that can create a panic. Once again the answer is speed up the process, focus, and adjustment. Triangulation can also be a problem. Without clear lines of authority and clear understanding of where they fit in, employees and managers are caught in a web of conflicting objectives and old loyalties. Focusing and adjusting is the answer to this pitfall. The relatives can be the forces of time and space which can harm a merger or acquisition. Adjustment is the answer for this pitfall. The guiding light is both institutions’ leaders. Lack of leadership can cause mergers or acquisitions to fail. Leaders must be the first to adjust to their new situations. All of these pitfalls are caused by the uncertainty of the future. It is especially hard when working with another culture, where employees are unsure of a different culture. Adjustment, education, and focusing are essential in making all mergers and acquisitions work, especially those including cultural differences. Bibliography “Case Study, Costa Rica.” Accessed 24 Apr. 2009 from http://www.idrc.ca/en/ev-123829-201- 1-DO_TOPIC.html Gitelson, Gene, Bing, John W. Bing, Ed.D., and Laroche, Ph.D, P.E. “The Imact of Culture on Mergers and Acuquistions.” ITAP, International. Accessed 24 Apr. 2009 from http://www.itapintl.com/facultyandresources/articlelibrarymain/the-impact-of-culture-on-mergers-a-acquisitions.html Gung Ho. Director Ron Howard. Performers Michael Keaton, Gedde Watanabe, George Wendt and Mimi Rogers. Paramount Pictures, 1986. Olie, Rene. “Shades of culture and institutions in international mergers - Special Issue on Cross-National Organization Culture.” BNET. 1994. Accessed 24 Apr. 2009 from http://findarticles.com/p/articles/mi_m4339/is_n3_v15/ai_15687865/ Seith, Anne. “Deutsche and Postbank Face Culture Clash.” Spiegel ONLINE International. 2008. Accessed 27 Apr. 2009 from http://www.spiegel.de/international/business/0,1518,577862,00.html Read More