Cross Border Mergers and Acquisitions and Human Resource Management Challenges and Opportunities - Article Example

Cross Border Mergers and Acquisitions and Human Resource Management Challenges and Opportunities [Institute Q2: Cross Border Mergers and Acquisitions and Human Resource Management Challenges and ‎Opportunities In firms, businesses and different organizations it is a common practice merging with another business or acquisitioning with other firms to take place. Acquisition alone means taking over another company (Shleifer and Vishney, 2003). While both the words together tend to mean the strategy of buying and selling different companies so growth can be achieved. Acquisition deals with the purchase of another business or company or organization. These purchases are usually of a 100% or close to 100% of the assets of a company. However less than 100% assets also suffice for integration. The integration can be amongst more than two firms as well so there is no hard and fast rule stating that M&As should take place only between two businesses (Thomas, 2007). Mergers and acquisitions take place a lot amongst firms and obviously there are many advantages and disadvantages linked to merging. Generally the acquisition process itself is a difficult one. And with mergers there has to be a long level of meetings and conversations plus a lot of capital needed. Mergers and acquisitions are of different types considering the types and the sizes of firms getting together (Seth, 1990). An example is the 1999 merger of Glaxo-Welcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. Mergers are differentiated from acquisitions by way of financing and the sizes. Moreover another example could be an example of this would be the takeover of Chrysler by Daimler BEnz in 1999 which was a merger of that time (Schwert, 2000). Whereas Human resource management (HRM) refers to the management of the workforce of an organization, known as human resources. Human resource management has the responsibility for the selection, training, rewarding, and assessment of employees. It also takes care of organizational leadership and ensures that laws are not violated. When it comes to ensuring that the workforce works properly, it is important for HRM to see that all is done well. It has become very important for the efficient running of an organization (Roll, 1996). Since mergers and acquisitions are common amongst businesses and firms, there are many advantages and disadvantages related to these. And obviously cross border mergers and acquisitions themselves have pros as well as cons. Due to an increase in globalization; cross border mergers and acquisitions have become more and more common than they were 100 years ago. However recent studies show that cross borders ones are not always successful and can tend to fail (Ravenscraft and Scherer, 1997). Generally HRM has a big role to play in mergers and acquisitions that are international. HRM manages personnel conflicts, reinforces a new human resource system and provides for a good leadership in business departments and a good level of communication between and amongst the different departments within a firm. A good HRM can reduce turnovers and improve the day to day workings of a firm. It is important for firms to realize the need for HR in acquisition strategy. Mergers and acquisitions in other countries are ways of absorbing expertise and new practices, however not many mergers lead to a successful result and this makes performance of organizations fall (Ruth and Janis, 2005). During cross border mergers it is important to convey messages regarding merging or acquiring companies to the employees so that goals and ideas can be understood and the philosophy of the foreign acquiring firm can also be understood. Moreover, the acquiring or merging company should understand the local workforce, working conditions, national and organizational rules and cultures and customs. All these factors are essential for managing the integration process more effectively. Hence in cross border mergers and acquisitions the HRM team has to make efforts to understand the new cultural issues and customs and incorporation of these in their new business. This is a disadvantage of cross border integration over HRM (Kothari et al, 2005). Since cross border mergers and acquisitions have become very common, in the long run successful integrations take place when both sides of firms are open to new responsibilities. Mergers and acquisitions define a unique set of challenges for the HRM in acquiring and acquired firms. This tends to have adverse effects on performance of the employees during the merger takes place (Mikael and Kinnunen, 2011). Certain key issues that human resources needs to see if the chances of success are to be effective are understanding situation on acquisition, the strategic rationale underpinning the deal, opportunities to identify the cultural differences before the deal, so that effective integration can be implemented immediately, the appointment of new management teams at all levels in the business, and being super careful in calculating both the timeframe and the potential cost of redundancies and of pragmatism are entered into the deal creating a flexible project management process, and making sure that it has the necessary time, resources and processes to manage the transition between the firms communicating consistently, truthfully and whenever necessary (Shortridge, 2004). Proper acquisition processes require thorough due diligence processes. This means that the acquisition process would be difficult considering the different institutional environments, cultures between the two firms. Moreover once a target firm has been selected and the due diligence process has been done; the firm that is going to acquire has to conclude the deal hence the negotiation process tends to be an important one. Finally, the integration process is the main process. This process requires lot of research but usually this is not the case and not much research is done (Aharon et al, 2010). There are different methods or approaches towards integration. HR in mergers and acquisitions are of three phases: The pre M&A phase, M&A and the Post M&A phase. The first stage is a preparatory phase and the second stage is integration phase. The preparation phase explains merger or acquisitions, which are the companies objectives. There are many HR issues as well as other issues in the first phase. The preparation phase requires valuation of the cultural and organizational differences, which includes organizational cultures, leaders’ roles in the organization, life cycle of the organization, and the management styles. The M&A often prove to be adverse for employees of acquired firms and their impacts can be anger to depression. Whereas the Transaction phase requires searching for a target firm, valuation, and legal and financial negotiations. The last and final phase is the main phase which is Integration which deals with two businesses fusing together. The second approach is the multistage approach which deals with factors affecting the pre merging stuff and how to implement the processes of integration. Then the multidisciplinary studies influence the strategic factors and deals with organizational behaviors and international management, psychology, sociology etc. And finally the multilevel approach explains the influence of the strategic factors such as turnover in cross border M&A (Joshua and Joshua, 2009). When two companies are merging with each other, a mismatch between them can at times lead to serious problems such as when one firm invests a lot on the labor and workers and another firm focuses on share holders and customers. In cross border M&A, these issues tend to happen because of cultural and legal differences. In situations where such differences occur, the HR professionals of merging companies should deal with the differences and identify the issues between them and build an organization with a single set of ethical rules and standards (Harwood, 2006). An earlier research shows that up to 65% of mergers and acquisitions fail due to the human resources which lead to poor productivity. It is important for HR managers to deal with these ethical issues properly. Cultural and legal differences in cross border firm integrations could and should be solved by an effective human resource management. The role of human resources in M&A can have many types of impacts. Factors such as the success and failure rates of M&A, motives of merging and merger types provide proper insight into the role for the HR in M&A deals. A study by the London School of Business shows that HR functions are a theory to have a minimum role to play in M&A processes. HRM is becoming more and more difficult when compared to other businesses and business departments. HR functions have become very common when it comes to M&A. The key towards managing integration issues successfully is an effective communication (Susan and Richard, 2006). As seen there are many advantages and disadvantages dealing with how cross border mergers and acquisitions tend to relate to human resource management. As far as HRM is concerned, the aims of HRM are to enable an organization to get a skilled, motivated and committed workforce, it enhances and develops the capacities of people, their potentials and contributions increase and there are more development opportunities. HRM develops high performance work systems and a good training and management system for employees. This all helps in integration as that the new combined business benefits. HRM tends to develop good management that requires a great level of commitment by the work force. This management helps develop the organization and provides for a mutual trust and cooperation amongst departments. Moreover HRM creates a productive and harmonious climate which creates good relationships between management and employees and two firms that have integrated together.HRM creates an environment of good teamwork and flexibility of workers. This benefits the new combined firm’s workers. Moreover HRM helps to balance an organization’s needs and ensures that people are rewarded for the worth of their work. Hence the diversities of cultures will not cause a problem in integration as people get what they deserve, not more or less. Furthermore HRM manages workforces. SO a new merged business will not be a problem considering their HRM department has a good management. HRM takes into account individual and group differences in employment needs, and work styles. HRM moreover ensures that equal opportunities are available to all. SO if an American business merges with a UK business, there would not be discrimination or a feeling to one person that they are being treated not well (Donald, 2008). Hence as far as Human resource management is concerned, the HRM department deals with problems and issues well. SO there are challenges that the department faces when there are cross border mergers and acquisitions but these challenges are only in the short run. In the long run, the benefits outweigh the costs as we saw above how advantageous the HRM is and if the department does its work as best as possible than those advantages are true and will not allow for the disadvantages to take over. In the long run, the human resource management allows cross border mergers and acquisitions to take place without many problems taking place. Moreover as the world is becoming more and more globalized, so nowadays we see less problems concerning with mergers and acquisitions for the HRM than we could see back in history. References Aharon, D.Y., Gavious, I. and Yosef, R. (2010). "Stock market bubble effects on mergers and acquisitions". 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Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitäts-Verlag (DUV), Gabler Edition Wissenschaft Read More