Function and Major Human Resource Implications of International Mergers - Essay Example

Function and Major Human Resource Implications of International Mergers In cross border mergers, companies from different countries merge to form a new corporate entity. Cross border mergers entail greater complexity, in comparison to domestic mergers. Some of the reasons for this are the foreign language and culture involved in cross border mergers, which result in communication problems and cultural differences. This constitutes a cultural conflict, which could be due to national and cultural differences. (Piekkari, Vaara, Tienari, & Sdntti 2005: 332). It is natural for people to feel apprehensive, when required to interact with and adopt some other culture. The acquiring company, in general, implements a different management strategy in the newly formed entity. Moreover, it is the common practice for newly formed corporations to adopt rationalization programs, such as abolishing duplicate operations and enhancing expectations from employees, to improve productivity. However, cross border mergers have to deal with the previous employment practices (Edwards, Coller, Ortiz, Rees, & Wortmann 2006: 70). The effect of national limitations is generally perceived to be at their greatest level, during and after the process of cross border mergers and acquisitions. This is due to the fact that the guidelines pertaining to mergers and acquisitions increase the influence of industrial relations institutions; which in turn, reduces the freedom available to the management (Edwards, Coller, Ortiz, Rees, & Wortmann 2006: 72). Language is an essential component of the employee employer relationship. Consequently, if a foreign language is employed in employee communication, then substantial insecurity and suspicion is generated, in respect of mergers. In the initial stages, the corporate language selected during the merger process, will serve to convey the situation regarding eh division of power between the parties to the merger (Piekkari, Vaara, Tienari, & Sdntti 2005: 331). Moreover, during the implementation stage, the language chosen could exacerbate the difficulties associated with transition and integration. Furthermore, the language chosen could also introduce human resource management challenges (Piekkari, Vaara, Tienari, & Sdntti 2005: 331). Multinational Companies are uniquely situated, with regard to cross border activities; and they generate different options, in respect of functioning in the international arena. Selecting an appropriate internationalisation strategy constitutes the first strategic decision. There are different strategies; and under the ethnocentric global strategy, control is centralized and the subsidiary companies resemble the parent company (Farndale & Paauwe 2007: 356). Moreover, in the polycentric or multi domestic strategy, control is distributed and the subsidiaries follow their local practices. On the other hand, the geocentric strategy or transnational strategy requires the subsidiaries and the headquarters to adhere to the same standards. These standards can be either that of a particular region or global(Farndale & Paauwe 2007: 356). Thus, corporate strategies vary, in accordance with the extent to which a corporation is compelled or desires to change its procedures to suit local conditions. In addition,MNCs have the choice to adopt strategies that assure them higher returns and productivity, irrespective of the location of their subsidiaries. Thus, the Human Resource practices of a company, have universal application at the global level, and this facilitates cross – border equity and comparability. Such universality brings about the global configuration of systems, so as to assist an internal labour market (Farndale & Paauwe 2007: 356). International mergers and acquisitions provide a number of opportunities to HR professionals, to acquire a greater understanding of the underlying issues. The merger can be used as an indicator of a company’s HR management strategy. In international mergers, HR can be employed to achieve a change in direction. In this manner, international mergers and acquisitions, have the capacity to engender a drastic change from the extant practices and strategies (Rees & Edwards 2009: 37). Merger processes are muddled and any attempt to significantly modify strategy can at best hope for partial success. Moreover, international mergers have the capacity to formulate rationalizations that ensure the improved efficiency of the combined firm. This is a sanguine view, which fails to take into consideration the different obstacles posed to rationalisations by the institutional constraints. In addition, these constraints result in ambiguities, which can be taken advantage of, by entities that seek to protect their positions. Thus, the opportunities presented by mergers and acquisitions entail several limitations. Consequently, HR has to take cognisance of the fact that constraints and dangers, accompany the opportunities provided by international mergers and acquisitions (Rees & Edwards 2009: 37). The success of cross border mergers depends on the importance attached to personnel and cultural issues. Therefore, cultural diversity is of great significance in preparing the cross border merger strategies. A McKinsey study on international mergers and acquisitions the success of acquisitions, depends on four factors. These are retention of essential talent, effective communication, executive retention, and cultural integration. Any acquisition entails issues relating to people (Harzing & Ruysseveldt, International human resource management 2004: 97). The process of establishing a geographic presence, invariably involves judicious management of cross cultural issues, and language and communication concerns. The retention of technical staff or account managers is the principal challenge, while aiming to acquire new technologies or to buy market share (Harzing & Ruysseveldt, International human resource management 2004: 97). The process of acquisition comprises of initial planning, finalising the deal and integration after the completion of the process. Despite the fact that ignoring HR, results in a number of merger problems, the general tendency is to set it aside. Furthermore, a significant number of companies ignore the importance of HR, during mergers; chiefly due to a paucity of resources and knowledge (Harzing & Ruysseveldt, International human resource management 2004: 98). However, when it comes to cross border mergers, the degree of success is greater; because the challenges relating to integration and people are clearly discernible, and are therefore addressed in an appropriate manner. The main areas that determine the success or failure of a merger or acquisition are cultural evaluation, human capital audit, management team selection, communication, retention of employees, creativity, and the management of the transition (Harzing & Ruysseveldt, International human resource management 2004: 98). The human resources management issues that arise in an alien nation acquire relevancy, only if the company manages and recruits people in that place. Employee management in such companies is independent of the operational areas of the company; such as import, export, franchising, licensing, and portfolio investment (Tayeb 2005: 96). If a company is involved with the internal affairs of a wholly owned subsidiary or joint venture, then it has direct interaction with the local people, who will constitute its employees. In such instances, it is essential for the company to implement HRM strategies, policies and practices (Tayeb 2005: 97). The policy arrived at regarding the merger and acquisition has to be communicated to all the companies involved. This is indispensable for a successful merger and acquisition. It has to be conceded that differences will arise; but these disparities have to be overcome by combining complementary skills. The effective management of conflict is essential for the success of a merger (Stahl & Mendenhall 2005: 48). As such, the most efficient way to resolve conflict is by collaboration, and not by attacking or circumventing it. The HR control systems of the merging companies have to be correctly evaluated, if the merger is to prove a success. Some of the principal control system to be assessed, in this regard, are rules and guidelines, salary structure, and work schedules. Thereafter, a new set of rules and regulations have to formulated and followed. This new controlling system should be transparent and accessible to all the member of the new company. In addition, crucial personnel should be given their due importance; because of the greater possibility of attrition among such people. The effective management of such personnel is a very important issue, in the management of mergers and acquisitions. Thus, this activity should be accorded the highest priority by the human resources department of the merger and acquisition process (Stahl & Mendenhall 2005: 49). Mergers are friendly arrangements between companies of similar size and strength. The shareholders of the merging companies would hold the stock of the newly formed company. This is not the position in the case of acquisitions. In acquisitions, the dominant company holds sufficient stock of another company to controls the decisions taken by the latter. Acquisitions can occur on friendly terms. For example, the owners of a small company may liquidate their capital. On many an occasion, acquisitions, result in pitched battles between the target and acquiring companies; and even between rival bidders(Child, Faulkner, & Pitkethly 2001: 7). The resulting animosity makes acquisitions difficult to manage. Pay for performance systems are, constitute practices that are common to the various market economy genres. Nevertheless, these systems consist of tangible differences that HRM is required to administer. For example, in the BP Amoco merger, the compensation systems had to be redesigned, because the two concerned firms differed to a substantial extent. Moreover, some other HRM processes had to be altered, such as the creation of a new system, in respect of job structure. Therefore, even firms located in similar market economies; undergo some localisation, in the context of HRM practices and policies(Aguilera & Dencker 2004: 1367). This could necessitate a suitable adjustment in the role of HRM. Companies increase in size and operations through acquisitions. However, they may lack effective human resource skills to manage the unions and to control issues relating to salaries. They may allocate insufficient resources for training their staff and fail to communicate adequately with their workforce. (Edwards, Budjanovcanin, & Woollard 2007: 3). Through acquisitions companies acquire expertise and new practices. However, many companies do not avail themselves of the variegated practice that are attendant upon international mergers. List of References Aguilera, R. V., & Dencker, J. C. (2004 ). The role of human resource management in cross-border mergers and acquisitions. International Journal of Human Resource Management , 15(8), 1355 – 1370. Child, J., Faulkner, D., & Pitkethly, R. (2001). The management of international acquisitions. Oxford University Press. Edwards, T., Budjanovcanin, A., & Woollard, S. (2007). HR in international mergers and acquisitions. London: Chartered Institute of Personnel and Development. Edwards, T., Coller, X., Ortiz, L., Rees, C., & Wortmann, M. (2006). National Industrial Relations Systems and Cross-border Restructuring. European Journal of Industrial Relations , 12(1), 69 – 87. Farndale, E., & Paauwe, J. (2007). Uncovering competitive and institutional drivers of HRM practices in multinational corporations. Human Resource Management Journal , 17(4), 355 – 375. Harzing, A.-W., & Ruysseveldt, J. v. (2004). International human resource management. SAGE. Piekkari, R., Vaara, E., Tienari, J., & Sdntti, R. (2005). Integration or disintegration? Human resource implications of a common corporate language decision in a crossborder merger. International Journal of Human Resource Management , 16(3), 330 – 344. Rees, C., & Edwards, T. (2009). Management strategy and HR in international mergers: choice, constraint and pragmatism. Human Resource Management Journal , 19(1), 24 – 39. Stahl, G. K., & Mendenhall, M. E. (2005). Mergers and acquisitions: managing culture and human resources. Stanford University Press. Tayeb, M. H. (2005). International human resource management: a multinational company perspective. Oxford University Press. Read More