Impact of Culture on Mergers and Acquisitions: A Theoretical Framework Mohibullah*
Mergers and acquisitions (M&As) are the front line strategic option for organizations attempting to have competitive advantage over its competitors. Organizations word-wide spend billions of dollars in pursuit of this strategy. However, the success rate is less then estimable. This is mainly due to the clashes of corporate cultures. The objectives of this theoretical paper are to find out the reasons why most of the mergers and acquisitions fail. Four main issues related to the culture clashes are highlighted in this paper, ambiguity and communication problems within the merged entity, properly management of cultural integration, the acquisitions and organizational culture, and Improper acculturation process among the merged organizations. The factors in this paper are based on previous literature. On the basis of different views of authors, a conceptual framework that uses the afore-mentioned issues through out the acquisition process to produce and negotiate some workable approaches. It is suggested that this conceptual framework can give a new insight into explaining the causes of unfulfilled expectations in international mergers and acquisitions.
Key words: Mergers and communication, acculturation. Paper type: Conceptual paper
Purpose: The purpose of this theoretical paper is to evaluate the role of culture in the failure of many international mergers and acquisitions and also to illustrate the methods to avoid the cultural problems between the merged organizations.
Introduction/ Rationale Of Choice
During the last twenty years, due to increasing competition, new financing possibilities and changes in regulation all over the world, mergers and acquisitions (M&A), international as well as domestic, have become popular strategic tools for increasing products portfolios, entering new markets and acquiring new technologies. However, despite the popularity, the general consensus is that about 80% of M&A do not reach to their financial goals (Nahavandi and Malekzadeh 1993) and about 50% simply fail (Cartwright and Cooper 1995; Child et al. 2001, Sally Riad. 2007). ________________________________ *Mohibullah, Lecturer City University of Science and Information Technology Peshawar, Pakistan e-mail: firstname.lastname@example.org
It is true that mergers and acquisitions do fail due to the reasons of financial and economic nature; but making a successful mergers or acquisitions, as most of the organizations have learnt to their cost, is more than ‘getting the sums right’. Many firms have also come to recognise that a compatible and successful organizational marriage depends upon the characteristics of the partner, which extent beyond the suitability of the strategic match. Financial advisors may guide merger managers in suggesting the broad areas in which economic of scale may be achieved, but they do not have to translate them into practice and physically implement such decisions (Cartwright and cooper, 1992. Lodorfor 2006). Cultural clashes between the two merging companies have been one of the most common explanations. Most of the researchers put this blame for the lack of success on cultural differences between the companies and the difficulties in these differences create in merger and acquisitions company integration (Buono et al. 1985; Datta and Puia 1995; Veiga et al. 2000). Difficulties encountered in M&A are augmented further in cross-cultural situations, when the companies involved are from two or more different countries. People working in different countries may react to the same circumstances or events in very different behaviours. So, it is important for an organization involved in an international merger or acquisition needs to consider these differences right from the design stage if it is to succeed. However, one should also not forget that combinations between organizations...
References: Young. M. and Post, J.E (1993) “Managing to communicate, communicating to manage: How leading companies communicate with employees” Organizational Dynamics, Vol. 22. No. 1, summer, pp. 33-43
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