Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of WERC.
When a large global U.S. manufacturer purchased a smaller company in the Middle East—one that had fewer employees and market share but state-of-the art technology—it was an employee on assignment that played a critical role in the success of the acquisition. The targeted company had novel equipment the U.S. company needed for growth; however, it was the people behind that technology who were just as valuable. When the employees at the smaller company learned of the pending takeover, several key people threatened to leave, unsure of what their own future might be. But through the skillful efforts of the U.S. expat, mutual trust was established that enabled the acquisition to go through, and with it the successful integration of all the employees.
What Culture Are We Talking About?
Why is this story relevant to global mergers and acquisitions efforts and joint ventures? It is how the word culture is considered. Most executives think of corporate culture when it comes to integrating a company they wish to buy. Will this target’s organizational culture “fit” with our own? How do they develop and reward their employees? Are their roles and functions aligned with ours? A recent McKinsey & Co. article, “The culture compass: Using early insights to guide integration planning,” lists five cultural attributes that are key for success. While these are useful insights, the focus is on organizational corporate culture, which is very different from national culture.
It was the cross-cultural awareness and savvy of the foreign expat in the Middle East that played the biggest role in the success of the acquisition mentioned above. He quickly understood the interdependent and relationship-oriented culture of his host country and worked hard to build a new combined team environment built on trust along with strong personal relationships with key counterparts.
National Work-Style Preferences Example
Source: GlobeSmart Profile from the Aperian platform
The majority of global M&A transactions fail. One estimate for the cost of these failures over the past 20 years is a net $226 billion loss of shareholder wealth—a sobering statistic. Such failure stems in large part from difficulty in integrating employees from different national cultural backgrounds into the new organization. The integration efforts during a merger or acquisition often fall on the shoulders of human resources, but HR personnel may have limited experience and little support in managing the complexity that arises from cross-border transactions.
Two mirror examples illustrate how cross-border differences that can be difficult to integrate and why international assignees play such a critical role:
Example #1
A large South Korean conglomerate purchased a fast-growing medium-sized U.S.-based technology company, seeking to incorporate both its technology and the expert engineers that it had on staff. Unfortunately, the several Korean expats who were sent to run the integration process in the U.S. failed to adjust their leadership styles and took a very hierarchical approach to making changes—common in their home country but a shock to the local employees who had hoped to establish a more collaborative working environment with their new owner. Within the first year after the acquisition, 100% of the U.S. engineering team had left the company.
Example #2
A U.S. company acquired another firm based in the U.S. but neglected to consider the implications of the acquisition for its global subsidiaries. In several major countries, the size and scale of the acquired firm’s local operations were far larger than the new owner’s previous subsidiary operation. In Japan, for example, the acquired subsidiary had more than 20 times the number of employees than the acquirer, with much more localized operations and very traditional Japanese management practices when it came to decision-making, information-sharing, meeting practices, promotion, and so on.
The acquisition led to major conflicts over leadership styles and customer relations, delaying the integration process and affecting the value of the acquisition. An expatriate from headquarters who was assigned to implement the integration was caught in the middle of this culture clash, with many of her own original company’s local employees threatening to leave because they did not want to feel like outsiders in a more traditional Japanese organization. Although the integration process gradually gained traction thanks to the efforts of this expatriate and other local leaders, within just a few years, the U.S. acquirer decided to divest the acquisition at a cost of several billion dollars.
Where Does Global Mobility Fit?
What is rarely talked about in most current M&A deliberations is the major impact employees traveling abroad or on international assignments can have in mitigating costly cultural mistakes and putting potential transactions on the right path. Consider the stages of the M&A process:
- Gauging the strategic fit of a potential partner
- Conducting due diligence
- Negotiating an agreement
- Integrating the acquired entity into the new parent organization
- Ensuring sustainability of the transaction over time so that its value in terms of people, technology, and business performance is fully leveraged
In each of these phases, having savvy cultural guidance, including deep local knowledge and insights, can influence the process and save valuable time and money. If targeting a company in another country, even prior to signing a letter of intent, having people on location helping to conduct due diligence and contribute to negotiations can pay dividends later.
International assignees, and the global mobility departments supporting them, can play strategic as well as practical roles in M&A efforts, leveraging their expertise and cultural understanding to facilitate cross-border transactions. Here are some ways expatriates may be involved:
- Market Entry and Expansion: International assignees with knowledge of the target market’s language, business practices, and regulatory environment can assist in evaluating potential company acquisitions and navigating local complexities.
- Negotiation and Relationship Building: Expats familiar with the cultural nuances of the target company’s country can play a key role in building trust and rapport during negotiations, which is crucial for successful deal-making.
- Integration and Change Management: Expats can be deployed to oversee the integration process, helping bridge cultural differences, align business processes, and manage change effectively across geographies. Sometimes this also involves delivering tough messages about layoffs and other changes; thus, having a seasoned employee with cultural sensitivity is key.
- Knowledge Transfer: Assignees can facilitate knowledge transfer between the acquiring and acquired companies, helping to disseminate best practices, transfer technical expertise, and foster collaboration.
- Leadership and Talent Development: Expats may assume leadership roles in the acquired company or mentor local talent, contributing to the development of a strong leadership pipeline and promoting cross-cultural understanding within the merged entity.
M&A transactions are usually approached in a very analytical way, and yet the integration process is also intensely personal, with employees’ careers, aspirations, and personal lives on the line. Integration challenges are frequently most acute within newly combined executive and functional teams. Such leaders tend to be viewed as role models by their employees and as a bellwether for how successfully the integration process is proceeding. Conflicts may ripple through the entire combined organization, causing teams to split into factions working toward different purposes, hindering integration or even bringing it to a complete halt. Depending on their level of cultural competence, expatriates can help weave together the people and practices in the new combined organization, realizing its anticipated value, or they can reinforce fears and/or preconceptions and add fuel to the flames of a failed transaction.
International assignees have the potential to bring valuable skills, perspectives, and networks to global M&A efforts, enhancing the likelihood of success in complex cross-border transactions. What is critical, however, is ensuring they have the cultural agility and competence to succeed in these roles. A company’s global mobility team, in conjunction with talent development, can support the intercultural knowledge acquisition and skill-building that is essential. Investments in cultural preparation to retain deal asset value and avoid disastrous mistakes are minor compared to the huge capital investment required to purchase another company.