Developing Cross-Cultural Capability - Dissertation Example

HRM: Developing Cross Cultural Capability 1. Introduction Mergers and acquisitions of companies is a recent phenomenon that has gained immense momentum. The world today has become so linked that it is astutely called a global village. In order to take advantage of the global village that we live in, companies prefer to either merge internationally or acquire some other firm in another country. Despite the advantages of international mergers and acquisitions, it has been a questionable prospect since it requires understanding cultures, laws etc which can be difficult at times (Greouriou, Greg). Mergers and acquisitions refer to the aspect of corporate finance that deals with buying, selling and combining companies that can help each other grow or that can finance the other company without having the need to create another business entity. There are certain motives that firms have in mind of improving financial performance and standing when they resort to merging with or acquiring another company. First of all, companies have economies of scale and economies of scope in mind. With economies of scale, we mean the reductions in cost that arise in a firm’s fixed costs when it merges. These reductions are due to the removal of duplicate departments with identical operations. Economies of scope on the other hand arise because the two companies function together. Also, mergers and acquisitions lead to increased revenue for both firms and a larger market share globally (DePamphilis, Donald). With international mergers, there come certain other advantages too such as geographical diversification. The two companies can take advantage of each other’s locations and resources that are available there. This further leads to cheaper and easier transfer of resources. This reduces the asymmetry that lies in resources amongst different regions by combining scarce resources. However, when companies decide to merge internationally they need to keep in mind that they got to accept another culture and its values and traditions. They cannot impose their laws and culture upon people of another country. Mergers need to be totally professional but the element of respect is mandatory under all circumstances. The merging countries need to sign a pact that acknowledges that they will be considered separate entities despite being together for a common goal (Bruner, Robert). The share that needs to be given to each of the firms also needs to be decided beforehand and everything needs to be written down and very legal to avoid any problems later. 2. Cultural profile - comparison between 2 countries 2.1. Cultural profile + analysis The two countries that have been considered for a merger in this research paper are Saudi Arabia and United States of America (USA). Saudi Arabia belongs to the Middle Eastern side of the world whereas USA is in the west. These two countries differ in almost everything from religion to culture to traditions to values to financial standing to nearly everything that matters. They have totally different view points on every social and economic matter but since mergers are independent of any such differences, a merger can take place despite the existing diversity and disparity (Miller, Edwin). Starting off with religion which is undoubtedly the foundation of the culture, tradition and values, the two countries differ tremendously in religion. Saudi Arabia consists only of Muslim population whereas United States accommodates 51.3% Protestants and other religions like Roman Catholics, Mormons, other Christians, Jewish, Buddhists, Muslims and other people with unspecified religions. The Muslim societies in Saudi Arabia throughout history have been known to be more tolerant towards the religious minorities than US. They have accepted other cultures and religions within their boundaries with more respect than US which has seen other religious minorities with the eyes of doubt and deception (Levitt, Arther). When they are deciding upon a merger, it needs to be understood that the two communities would have to accommodate each other and trust each other. If they doubt one another’s perspectives and intentions, the company would never be able to do well. On the other hand, there are certain extremist groups in Saudi Arabia that totally disapprove of the financial policies of the US. This is more of a political debate than a religious issue but it has some cultural aspects too. The Muslims of Saudi Arabia are too scared of losing their local cultural norms and practices if US plunges in any financial or political activity. In mergers and acquisitions, there may be a risk that the two countries adapt to each other’s culture or they may even have to modify their cultures a little to fit in together (Reed, Stanley). After all, everything has a price attached to it. If the merger will benefit them, they would have to lose something to gain that extra benefit or profit. Certain measures and cultural dimensions have been presently used to measure the extent of some culture or value prevailing in a country. The comparisons provided by these dimensions are thought to very accurately represent how culturally distinct or similar the two countries are. Firstly, Hofstedes cultural dimensions are used for comparison. Hofstede came up with 4 dimensions that he thought would perfectly measure the culture and its influence in a locality. The first of Hofstede’s dimensions is the power distance index. It tells the extent to which the less powerful or less authoritative members of organizations accept and expect that power is distributed unequally within the organization. It represents the degree of inequality of status that exists in an organization. The power distance index of Saudi Arabia is 80 while the power distance index of USA is 40. There is therefore a huge difference in the inequality that exists between the two countries. The second Hofstede dimension is individualism. It concerns how individuals are brought up in a society, how much do their struggle for their own good and not for collective betterment. Saudi Arabia has an individualism index of 38 while the index for US is 91. This shows that Arabs don’t work too much to improve their own self stature, its more about being forced to work for them while the individualism index for US is extremely high indicating that Americans have great self conscience and they work tirelessly for their own good (Harvard Business Press). Hofstede’s dimensions also include masculinity which measures the differences in roles that arise in the corporate world due to gender differences. In Saudi Arabia, this index is 52 while its 62 in US. Surprisingly, it is not very different although Muslim women are mostly not allowed to get out of their houses for work but in extreme conditions, they are allowed to do so if properly veiled. The fourth Hofstede’s dimension is the uncertainty avoidance index and it tells how rapidly the people of a society adapt to novel situations or how bravely they face uncertain and unstructured events. This reflects the true strength of the society. The uncertainty index of Saudi Arabia is 68 while the index for US is 46. Here, for the first time we see that the Arabs have a stronger footing (Gauhan, Patrick). They are more likely to resist any uncertainties from affecting them and would tackle them more effectively. The last one is the long term orientation index that talks about how firms effectively plan for the future and how much willing are they to attain the goals that they have set. In this index too, like the first three indices, US beats Saudi Arabia. Thus by comparison, we get to know that the professional culture in the two countries is very distinct from each other, they would need to accept each other and compromise on issues to be able to stay on good professional terms after the merger (Oesterle, Dale). Business deals are more than just business; they are about understanding each other and compromising on any disparities that may be present. 2.2. Recommendations Since United States and Saudi Arabia are very different from each other in a lot of cultural aspects, it is going to be hard to adapt to each other and acknowledge the differences and be okay with it. The two countries will have to embrace the differences and work upon building their relationship together. It is important to realize that international mergers and acquisitions are fruitful only if both the companies gain from them. If one stays at the losing end, the company is bound to fail (Sherman, Andrew). So in order for the two countries to gain from the business venture, the US company needs to make sure that it first needs to bring the company in Saudi Arabia at the same footing so that they can then bring the company to higher heights. If there would be unequal standards prevailing in both the countries, the company will never be able to gain. They need to forget their religious and traditional differences since those will stay forever and those are very personal to each individual. Keeping those at the far end, the two countries need to understand each other’s laws, differences and way of working and then all other problems will seem secondary. Also, besides embracing each other’s differences, it is much more important to focus on each other’s weaknesses and help overcome those. Mergers and acquisitions can be successful only if both countries are satisfied. For example, the most major international mergers that the world has seen include the merger of the British Petroleum with Amoco, the merger of Exxon with Mobil which resulted in the formation of ExxonMobil and the merger of Bank One Corporation with JPMorgan Chase and Company (Bainbridge, Stephen). We see from such successful mergers that despite all the initial difficulties and problems, international mergers can turn out to be successful in the long run and in most cases, that is what matters. Once the companies begin to work in harmony with each other despite the differences, then the sky is the limit. No doubt, international mergers multiply the prospects by many folds. They give rise to international trade, better tourism facilities, greater business opportunities, international funds and revenues and attract new investors. These are all ingredients required for any country to prosper. International mergers are a great opportunity to get international recognition and move towards greater trading and tourism facilities, hence they should be taken seriously and the concerned countries should make an effort to restrain from any political or illegal intervention since that spoils international relations forever. 3. Negotiation and communication 3.1 Key Negotiation and communication differences In the merger of companies in Saudi Arabia and United States, there are certain key negotiation and communication differences that are to be kept in mind. Firstly, the language barrier needs to be removed so that it is possible to communicate easily and effectively (Gevurtz, Franklin). Arabs speak Arabic while in the US English is natively spoken. The related entrepreneurs should know how to communicate in both languages aptly. It is a misconception that Americans can do without any second language while everyone else needs to know English. Surely, English is an international language and most people know it but there are some legal issues and documents that can be understood only if the related personal know Arabic and English. In extreme cases, reliable translators should be hired on a permanent basis as the problem of communication gap can have detrimental effects on the company. Also, both parties should sit together and decide what they want for their company. They should be clear of the goals that are to be attained and there should be one common goal. Often in mergers, different companies have different goals. One party seeks on maximizing profits and revenues while the other seeks to gain international recognition. Different aims may clash with each other leading to bigger problems and so there should be a common goal for the companies and they should have a common strategy to work towards it. One of the major problems that international mergers face is the problem of triangulation. Since international mergers are bound by long distances, there is no clear line of authority. Employees don’t know where exactly do they fit in and so the employees and the managers are somewhat caught in a devastating web of conflicting objectives and loyalties. This leads to personal strangulation and the organization eventually loses the energy that it needs to overcome the loss in production. For example, there is a lot of hierarchical trend. The managers are far above the employees while in US this trend is not that common or strong. There everyone works on an equal footing and its expertise that raises rank not merely years of service. So when a merger would occur, it would be extremely important to know what framework is to be followed and it should be the same in both countries. Another great consideration for international mergers is organizational proliferation. In US there are strong and legal integration structures and transition teams that help them with the mergers and acquisitions and they represent a whole new concept of partnership. But in international mergers, the organizational change that needs to be brought in both the countries is brought in different ways (Spanogle, John). For example in Saudi Arabia, the change is brought from the top and the employees at all levels in the organization expect a new set of directions from their managers. Where as in the US, the managers expect input from the integration teams i.e. the employees. This is a totally opposite form of governing structure and so this paralyses the whole system if care is not taken of it. 3.2 Recommendations Since international mergers have been successful over the years we can conclude that it is not impossible to have a fairly successful merger on an international framework. It just requires extra attention and effort and then all the effort is worth the results. For the communication barriers, it is important to have translators available on all business meetings and decisions just to avoid any confusion. Other than that, the internet has been adapted by everyone globally as an English medium and that needs to be incorporated in daily business. After the merger, the company belongs to both the countries so it should be taken care of by both the parties. Negligence on any one party’s side will cause the other to suffer as well. To avoid the problem to triangulation, the merging countries and companies need to concentrate more on substance than form and help people adapt. It is necessary that the management provides people with correct and complete information so that they are comfortable with the new organization. After all, the company is for the people! People in US would prefer to know how they fit with the value drivers while the people from Saudi Arabia may be more interested in seeing organizational charts depicting progress. The people should be made content with the merger and they should be made to accept it wholeheartedly than enforce it on them. To avoid organizational proliferation is important to realize that the organizational transitions should not be taken as demonstrations of democracy in action. The concerned heads should have a clear mission in mind; they should empower the integration teams with their ideas and goals and support them to attain those goals (Folsom, Ralph). If left upon the countries, it will lead to a lot of haphazard. Since language and cultural differences lead to significant communication issues, clear leadership and strong support is essential. The companies need to be run in the same way since they need to attain the same stature and the same goal. Also, both the countries should give a thorough reading of each other’s country laws. These laws play a very important role in such business ventures since they need to accept each other’s laws and promise to abide by them (Brown, Meredith). That is not very easy because of cultural differences. For example, in Saudi Arabia men and women are not allowed to mingle together. Not just that, there are restrictions on working together as well. These restrictions are on religious grounds so there is no way out. US citizens do not have any such laws or restrictions but if it agrees on a merger, it needs to make sure that Saudi laws and customs are respected. Of course, this respect needs to be mutual for the merger to be successful. In the US there are no laws that prohibit US citizens from drinking alcohol or from eating pig meat. This is not allowed in Islam however, so it is important that Saudi employees should show tolerance when they go to US at business meetings and deals and it is equally important for the Americans to show respect towards the Muslim culture and beliefs. References Greouriou, Greg and Renneboog, Luc (2007). International mergers and acquisition activity since 1990. Academic Press. DePamphilis, Donald (2005). Mergers, acquisitions and other restructuring activities. Academic Press. Bruner, Robert and Perella, Joseph (2004). Applied mergers and acquisitions. Wiley. Miller, Edwin (2008). Mergers and Acquisitions. Wiley. Levitt, Arther and Bruner, Robert (2009). Deals from Hell: M&A lessons that rise above the ashes. Wiley. Reed, Stanley; Lajoux, Alexandra and Nesvold, Peter (2007). The art of M&A. McGraw Hill. Harvard Business Press (2001). Harvard business review on mergers and acquisitions. Harvard Business Press. Gauhan, Patrick (2004). Mergers, Acquisitions and Corporate Restructurings. Wiley. Sherman, Andrew and Hart, Milledge (2006). Mergers and acquisitions from A to Z.AMACOM. Oesterle, Dale (2006). Mergers and acquisitions in a nutshell. Thomson West. Bainbridge, Stephen (2008). Mergers and acquisitions. Foundation Press. Gevurtz, Franklin (2006). Global issues in corporate law. Gale Sengage. Spanogle, John and Folsom, Ralph (2009). International business transactions in a nutshell. West. Folsom, Ralph(2006). International business transactions: a problem oriented course. Gale Sengage. Brown, Meredith (2001). International mergers and acquisitions. Kluwer Law International. Read More