CROSS CULTURAL DIFFERENCES IN MERGERS AND ACQUISITIONS

Abstract

It is known that 50% of the Merger & Acquisition (M&A) fails, no matter how the success is measured and a recent Harvard Business Review report between 70-90% of all mergers and acquisitions fail. 30% of the failures were due to cultural differences. It is not easy for companies with different cultures to make decisions quickly and correctly. The failure rate for cross-border acquisitions is ever higher. It would appear that the acquisition vehicle continues to be the preferred method of internalization for companies, due to the ease of access to a particular market or for other similar reasons. The importance of cultural dimension for the development and implementation of strategic goals is widely accepted and tested. Management often underestimates the impact that culture has on the deal. Culture has emerged as one of the dominant barriers to effective integrations and more than half of the mergers fail due to lack of cultural integration. If the acquirer is from a traditional oriented culture the occurrence of Cross- cultural acquisitions is less. Cross- cultural acquisition deals are more when it is done by acquirers from people oriented culture. Culture is not something that is inherited, but rather something that is taught in our social environment. It is not only manifested by our own thoughts and values, but also by rituals, heroes, symbols. These manifestations are visible to an outside observer as practices, and the cultural meaning of them is only apparent to the members of that culture. The number of parameters to think about and anticipate at pre-deal level in an M&A deal is huge—and it is easy to understand that a cross-border deal increases that level of complexity. Each cross-border deal is different from every other one. As a principle, each international acquirer should take as a basic assumption that most parameters change from one country to the next. This paper extends the existing research in international M&A by shifting the perspective towards cross cultural rather than cross-border M&A and find out how the cultural differences can be sorted out.