Cultural Difference

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The Cultural Differences Analysis of Geely's Acquisition of Volvo

1. Introduction

Cross-border mergers have become the inevitable trend of economic globalization, which is strategic tool for the enterprises to obtain the core competitiveness. The mergers can not only enhance the internal competitiveness of the enterprises, but also promote the enterprises to develop international markets and some emerging areas. However, when multinational companies enter the international market, Cultural difference is becoming more significant, and even will lead to failure of cooperation. These issues have become a hot topic and widely discuss. For these contradictions and confusion existing in multinational corporations’ management, some business operators believe that this is a business management issues; while they try to solve this problem, but the effect is limited, or duplication of efforts. In fact, it is cultural difference in the multinational companies’ management, and cultural differences are the direct cause. On March 28, 2010, Zhejiang Geely signed a definitive stock purchase agreement with Ford Motor Company to acquire 100 per cent of Volvo Car Corporation for $1.8 billion. The company said they intend to preserve Volvo Cars’ existing manufacturing facilities in Sweden and Belgium, while Volvo will take to further strengthen the sales network in China and procurement channels. The headquarters of Volvo will remain in Gothenburg, Sweden. Mergers and acquisitions in the car business do not have a good record. DaimlerChrysler is one of the worst examples. Indian Tata Motors Ltd. has struggled with Jaguar and Land Rover since it bought it from Ford in 2008. In addition, General Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy equipment maker, but now it has collapsed. What problems will the Group face after acquisition? How can Geely make profit from this acquisition? How can Geely deal with the issues that are caused by cultural differences? This paper will firstly introduce the dimensions of culture and the phrases of merger & acquisition process from the theoretical perspective. Taking Geely’s acquisition of Volvo as a case study, the author analyzes the factors which might decreases the chance of success of acquisition and the tool to achieve success, after which, the paper gives some suggestions of multinational corporations’ management.

2. Dimensions of Culture

To gain an understanding how cultural differences on national level can be in fact measured, it is helpful to summarize the various theories that have been developed in the studies of national culture.

2.1 Hall’s Cultural Patterns

Edward T. Hall (1959, 1969) identifies two classic dimensions of culture. He (1976) categorizes cultures as being either high or low context, depending on the degree to which meaning comes from the setting (context) or from the words being exchanged. Context can be defined as “the information that surrounds an event; it is inextricably bound up with the meaning of the event.” According to Hall (1976), a high context communication or message is one in which most of the information is already in the person, while very little is in the coded, explicitly transmitted part of the message; a low context communication is just the opposite; i.e., the mass of the information is vested in the explicit code.

High-context cultures (including much of the Middle East, Asia, Africa, and South America) are relational, collectivist, intuitive, and contemplative. This means that people in these cultures emphasize interpersonal relationships. Developing trust is an important step to any business transaction. According to Hall, these cultures are collectivism, preferring group harmony and consensus to individual achievement. People in these cultures are less governed by reason than by intuition or feelings. Words are not so important as context, which might include the speaker’s tone of voice, facial expression,...
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