Cultural Due Diligence in Mergers and Acquisitions

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Cultural due diligence
1. Introduction
Why Cultural Due Diligence (CCD)
The implementation of effective cultural due diligence is well recognized in both the academic and business world. Through mergers and acquisitions, as well as any other business alliances, cultural due diligence has helped companies enter global markets, acquire capital, technology, branding, and country specific practices to help do business. It also reduces the risk and maximizes the profits in many ways (Cartwright & Cooper, 1992). Studies have shown the vast differences between companies that utilize cultural due diligence with those that do not. Profits, company production efficiencies, and employee satisfaction have all been improved with effective CDD. Spalner (2008) explains, a proper CDD help managers to make more effective decisions, allow better risk and reputation management, help in recovery planning and crisis management, help in implementation of strategy, communicating the corporate character, alignment of internal behaviors and external expectation (particularly the stakeholder) and improve the productivity. She also argues that understanding the culture help immensely attracting and retaining talented human resource. Generically speaking, CDD suggests the ultimate objective of any business combination is to attain synergy, where both companies achieve higher results than that would have possible independently (taxonomy of managerial goals in M&A; Walter & Barney, 1990). This is through the cultural awareness of both social teams and managers working in the environment, under one set of common goals across all cultural boundaries. Many studies have suggested that a large number of business mergers, acquisitions and Greenfield projects donʼt produce the anticipated result; particularly those that involve combining two units from different countries, (Krattenmaker, 1999). In an increasingly globalized business environment, which both facilitates and forces the companies to expand internationally, it is important to understand what causes these operations to fail (Evanschitzky, Baumgarth, Hubbard, & Armstrong, 2007). More importantly, certain procedures must be implemented in order to understand how to minimize those failures in order to achieve the company objectives and maximum profits, despite cultural differences and social boundaries.

2. Theoretical background
CDD is an umbrella term that includes various factors. Practitioners suggest discussing the limiting factors (need, type of business alliance, country etc) and interpreted the results together with other due diligence process (legal, market, financial…etc.) for the best result possible. We used a combination approach that are in line with the three different level of interaction in an international business operation. •At national level a composite measurer is used to identify the existence of differences (Kogut & Singh, 1988). Aggregation of differences in communication (High vs Low Context), differences in labor relation, and human resource management practices are also used to understand the difference at this level. At an aggregate level there is the national cultural distance that used to understand how shared norms and values in one country differ from other (Shenkar, 2001; Hofstede, 2001). In his pioneering work Hofstede (1980) recommended five statistically independent attributes of national culture (taking nation as a proxy for culture). They are ʻpower distanceʼ, ʻIndividualismʼ, masculinityʼ, ʻuncertainty avoidanceʼ and ʻlong-term orientationʼ. Each of these elements represents one unique dimension of the national culture (Drogendijk, Slangen, 2006). In present cross-cultural business research Hofstedeʼs concept of national cultural distance is widely used, however Schwartz (1994) raised some concerns. The main criticisms were directed to its non-exhaustive nature as well as its coverage in terms of the spectrum of national culture and...
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