An investigation into cultural influences on mergers

Category: Accounting

1. Introduction:

In today's competitive world the trend of globalisation is on the roar. Globalisation has generated an intensification of international competitiveness and pressured organisation to change and expand. To grow internationally and reach globally but due to legal and few other limitations it needs to collaborate with other firms to complete its mission. Mergers are commonly termed as the consolidation of two organisations into a single organisation, on the other hand acquisition is commonly characterised as one organisation buying the other organisation where the buyer or acquirer maintains control.(Borys and Jeminson, 1989). In an article by Mcentire and Bentley (1996), Mergers and acquisition are becoming increasingly popular as a strategic option for organisations. Mergers and acquisition has always been a topic of interest for people related with finance and management. Many authors have given their contribution on this topic and there has been lots of research done on various areas of this topic. An article by Stanwick in 2000 stated that annual price tags of mergers and acquisition in USA exceeded $1 trillion. Obtaining a global presence has also been a motivation for mergers and acquisition (Marks and Mirvis, 1992).

There are several motives for performing a merger or an acquisition. The main motive is the belief that a new , combined organisation will help to attain strategic goals more quickly and less expensively than if companies would attempt to do it separately .(Bouno,2003) organizations might seek to achieve economies of scale and scope by combining their resources . furthermore they may also wish to gain access to technology or market reach, achieve a dominant position in the industry and manipulate the rules of competition and antitrust .(buckley & ghauri ,2002)

Companies do go for mergers and acquisition activity to gain strength in the market or sometimes exploring new markets and opportunities, to eliminate competition, share risk, exchange technology and know-how etc. Mergers and Acquisitions are becoming a strategy of choice for organisations attempting to maintain a competitive advantage. It is amongst the most important phenomena of modern economics (kwoka, 2002). There are two schools of thoughts with regards to mergers and acquisitions as large number of authors has given their consent in favour of M&A on the contrary others have criticized and disagreed with the benefits of mergers.

Thus, to sum up mergers and acquisition is an alternate option for firm to cross the borders and grow globally and to exchange surplus with opportunities but the primary aim of every business is to maximise their profits and increase shareholders wealth.

Although M & A's are increasingly popular strategic option for consolidation of business the outcomes are often disappointing. This is as organisation merge they do not only merge their buildings plants and equipment they also merge their individual structures, people , policies and culture .however although M&A ‘s are something that happens to people and not organisations , the human factor have received relatively little attention catwright & cooper ,1996; applebaum gandell, yortis, proper & jobin, 2000a) organisation and managers need to have a greater understanding of the importance of organisational variables such as leadership styles and organisational culture , since changing the way organisations conduct their businesses means changing the people and their cultures. It two companies come together and their culture are incompatible. this will negative impact on the outcome ,infact , several Merger that appeared to be suitable strategic partners have failed due to poor cultural fit.( lok & Crawford , 2004;catwright &cooper , 1996)

1.2Organisation culture in mergers

Organisational culture is something quite different from national culture. while national culture differ with regards to values, organisational culture within a country differ more with respect to shared perception of daily practices.(gertsen , et al .,1998 )each culture tends to be unique to a particular organisation , and concerned with tradition and nature of shared belief and expectations about organisational life (Buono, 2003)organisational culture can influence how people set personal and professional goals , perform task and utilize resources to achieve them .In merger when two organisation integrate they tend to consider each other as equals and have the intention to integrate their cultures as well. As the organisation often wish to preserve their own culture .it is important to consider the distance to the other organisation culture in advance. If the difference between the culture is extensive, the culture shock is likely to be great and the integration harder to perform (gertsen et al.1998;catwright& cooper ,1996)

The role of organisational culture has emerged as an outstanding factor in affecting merger outcomes, and many authors blame their failure on cultural gap between the companies and create difficulties for integration. (catwright & cooper , 1996)

2.1.Research Objectives:

The main purpose to conduct this research is to deeply understand that why & how companies enter into mergers and how culture influences on merger. I am keen on understating the cultural differences in working styles & patterns of different countries which acts as a barrier in success of the cross border merger. I also wish to gain wider peripheral knowledge on this topic.

2.2.Research Question:

What are the primary reasons of the companies to enter into a merger?

What does the existing literature mention on cultural influences on merger?

How employees react to the changes of organisational culture following merger?

Organisation culture is one factor identified as a potential mechanism to the success of Merger?

Incompatible cultures can be a major reason of failure to Merger?

3. Rationale:

3.1. Importance of the topic

This topic aims to complete an in-depth research relating to how cultural influences on Mergers There are various reasons for failure but the most important according to me is corporate culture as most of the times firms are engaged in cross border mergers. I will try to find out how corporate culture can affect the strategies and result in failure.

3.2. Importance to Knowledge and Understanding:

This topic is very important to our knowledge as it plays an important role in the society. It is an alternative method to globalise and extend the borders of the company. Successful mergers can create a remarkable difference in the global market and can benefit both the society by getting global standards in the products or services and at a better price and companies in getting better deals due to economies of scale, upgradation of technology, eliminates inefficiency and complementing resources.

3.3. Motivation for undertaking Research:

Mergers and acquisitions have always attracted me since a very early age because according to me M&A are the best way to globalise and it opens the doors to the worldly markets. Due to different legal patterns of every country it is either difficult or impossible for companies to trade individually. I always wanted to work for a Multinational company having their presence globally. This area of specialisation would help me in forming my career in line with my dream as I am an Indian National and would like to shape my career back in my home country. India is a booming economy and most of big companies want to trade in India because of its growing nature. Some of the examples are Tesco Plc and Tata India Limited recently merged to open a super market in India, second is Reliance India limited merged with Wal-Mart etc. Also I have been living, studying & working in London since more than two years which have given me a reasonable experience of the western corporate culture and I am very well versed with Indian working pattern and as my topic revolves around the cultural difference, I can bridge the gap between both the corporate cultures and be an asset for the company.

3.4. Organisation of work

This research starts with introduction on Mergers followed by review of literature by variety of authors on the issues relating to corporate culture. Research in this field will allow practitioners to make a right decision and to take corrective actions for solving the cultural issue. Finally this paper will gather collection of literature written by many authors and will compare and contrast their views to come up with a reasonable solution on the topic. Followed by methodology that would be explaining the methods used for the data collection.

Literature Review

Borys, B., Jemison, D.B. (1989), "Hybrid arrangements as strategic alliances: theoretical issues in organizational combinations", Academy of Management Review, Vol. 14 No.2, pp.234-49.

McEntire, M.H., Bentley, J.C. (1996), "When rivals become partners: acculturation in a newly-merged organization", International Journal of Organizational Analysis, Vol. 4 No.2, pp.154-74

Stanwick, P.A. (2000), "How to successfully merge two corporate cultures", The Journal of Corporate Accounting and Finance, pp.7-11

Marks, M.L., Mirvis, P.H. (1992), "Rebuilding after the merger: dealing with survivor sickness", Organizational Dynamics, Vol. 21 No.2, pp.18-35

Kwoka, J.E. Jr (2002), "Mergers and productivity", Journal of Economic Literature, Vol. XL pp.540-1

Bouna ,A.F(2003)seam -less post merger integration strategies' cause for concern. Journal of organizational change Management, vol.16, No.1pp 90-98

Buckley, P.J & Ghauri P.N,(2002)international merger and acquisitions': A reader .london:Thomson

Catwright, S& Cooper, C.L(1996).Managing Mergers, Acquisitions & Strategic. Alliances. Oxford:Butterworth Heinamann, Inc

Applebaum, S.H.,Gandell,J.,Yortis,H.,Proper,S. and Jobin,F.(2000b).Anotomy of a Merger: Behaviour of organizational factor and processes throughout the pre-during-post -stages(Part-2)Management desicion, vol.38, no 10, pp 674 - 690