The present report is devoted to the issues of cross-cultural management in the international business environment and the situations of mergers and acquisitions, in particular. It is argued that cultural adjustment is essential for effective organizational operation in the context of global business. To understand why it is the case, the definitions of culture are provided, and the cultural dimension frameworks by Hofstede and Schwartz are explained.
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Consequently, the obtained findings are utilized to support the investigation of the three major integration approaches used during the process of international mergers and acquisitions: collaboration, extension, and redesign. The rationale for the selection of one of the approaches is provided based on the recent research evidence and theoretical propositions.
International business implies that organizations operate on a global scale and engage in cross-cultural communication on a regular basis. It is thus essential for every international enterprise to apply the principles of cross-cultural management and communication, especially during the process of integration with companies from distant cultures. To succeed in this, managers need to be capable of perceiving the cultural differences of the host country and adjust to them effectively by finding a balance between the merging firms. Based on this, the given report will summarize and discuss the research evidence and theoretical frameworks linked to the explanations of cultural dimensions and effective business integration approaches, which managers can use in distinct cross-cultural situations.
Definitions of Culture
National culture can be regarded as an essential environmental factor in international business. One of the most frequently used definitions of culture proposed by Geert Hofstede is as follows: “the collective programming of the mind which distinguishes the members of one group from another” (Pinto et al. 343). It means that culture comprises a unique set of values, beliefs, expectations, and behavioral norms, which its representatives share and incorporate into decision making and daily actions.
Kawar notes that culture may work at distinct levels: national, organizational, occupational, and gender (105-106). The national culture values are considered the underlying ones because they are acquired by every individual early in life and affect one’s behaviors mostly on the unconscious level. At the same time, the three other types may be regarded as sub-categories. For instance, organizational cultures are described by Kawar as superficial because it is much easier to manage them, and, moreover, they may drastically differ from each other even within the same country (106).
It is also worth noting that although the organization may adopt a series of values associated with national culture, its corporate culture will still be generally applicable only to certain job-related situations. Additionally, occupational and gender cultures refer to particular professional and individual values and norms, respectively. All of these types of cultures significantly affect employees’ manner of interaction and overall behaviors at the workplace. For this reason, international businesses should consider both cultural differences and similarities represented in employees to manage them more efficiently.
Explanation of National Culture Frameworks
Hofstede’s Cultural Dimensions
Yüksel and Durna observe that Hofstede’s theoretical framework is often criticized for providing a simplistic picture of a culture that is not applicable to particular regions (such as Africa) and does not consider possible changes in some cultural aspects over time (299). Nevertheless, it remains one of the most popular frameworks due to its clarity and usefulness for managers. Hofstede discerns five basic cultural dimensions in which every nation is classified based on masculinity vs. femininity, uncertainty avoidance, power distance, individualism vs. collectivism, long-term orientation (Bergiel et al. 70).
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For example, “in high power distance countries, employees accept inequality between superiors and subordinates as a natural part of the organizations and the structure is organized accordingly,” while in countries that have a low score in the given dimension, employees value collaboration and equality (Yüksel and Durna 300). Additionally, in a country with high uncertainty avoidance score, employees will prefer adhering to strict behavioral regulations and codes, while in low uncertainty avoidance nations, people will handle uncertainty easier and, as a result, will show innovative behaviors more frequently. The differences in these and other dimensions identified by Hofstede are considered to complicate cross-cultural communication and mutual understanding.
Schwartz’s Cultural Dimensions
Schwartz took a more psychological approach when designing his national culture framework. According to Nardon and Steers, Schwartz’s model suggests that differences in national/social values are mainly defined by motivational objectives they express (5). The basic values distinguished in the given framework are “power, achievement, hedonism, stimulation, self-direction, universalism, benevolence, tradition, conformity, and security” (Nardon and Steers 6).
In different forms and to a varying degree, all these human values are present in distinct national cultures and take different places across three major cultural dimensions, including conservatism-autonomy (extent of integration of individuals into groups), hierarchy-egalitarianism (degree of equality valuation), mastery-harmony (extent of individuals’ motivation to change social and natural environment) (Nardon and Steers 7). Overall, the dimensions distinguished by Schwartz help reveal the solutions developed within the culture to regulate individuals’ behaviors.
International Mergers and Acquisitions (M&A)
Effective cross-cultural management and understanding of possible differences between national cultures are particularly important when the organization intends to engage in the international merge or acquire a foreign enterprise. M&A are popular business expansion strategies, but they have some inherent risks related to challenges in the integration of two companies, as well as their cultures. As Majidi states, in M&A, a lower cultural distance between the merging organizations is a substantial competitive advantage, while higher cultural distance creates liabilities and is associated with greater coordination costs (9-10).
Thus, it is possible to say that the overall success of the M&A largely depends on managers’ ability to integrate culturally different enterprises, especially if the differences between them are significant. The three of the most frequently used integration approaches will be discussed in the following section.
Explanation of Integration Mechanisms
The three integration approaches identified in the study by Chmielecki and Sułkowski are collaboration, extension, and redesign (48). Collaborative merges are simply blending of the two national/corporate cultures and the creation of a new culture that takes something from both of them. Since the given mechanism is not meant to suppress one of the cultures, it increases the chance to create a win-win scenario and facilitate the process of integration/change (Chmielecki and Sułkowski 48). The second type − extension merges − is the process “in which dissimilarities in culture between merger partners are received and viewed as insignificant” (Chmielecki and Sułkowski 48).
It means that the given mechanism can be effectively applied merely if the merging enterprises are culturally proximate. Lastly, redesign merges, which are the most widely used during international M&A, refer to the process when the dominant culture (the acquirer) entirely replaces the culture of the smaller/less successful enterprise. As a result of such an approach, one of the partners inevitably loses as their perceptions and interests are not recognized by another party.
Justification of the Integration Mechanisms
The choice of the integration mechanisms should be based on the identified national and organizational cultural values represented in both of the merging enterprises. For example, along with extension merges, the redesign is usually not appropriate in situations when two cultures are distant: “the more the differences, the tougher the integration process will be, and the more time the integration process will take” (Chmielecki and Sułkowski 49).
For example, if the acquirer is low in Hofstede’s uncertainty avoidance and power distance dimensions, as well as Schwartz’s hierarchy dimension, the imposition of freer and more informal work design and reduced control, will be less welcome by the employees of the acquired organization, which has high scores in these cultural dimensions. Therefore, when two distant cultures merge, it is better to use the collaborative approach as it helps to consider and respect their differences more efficiently.
Moreover, collaborative merges provide more opportunities for managers to consider and manage the perceptions of the home country by the host country, which Majidi regards as one of the major factors/activities defining managerial success during the integration process (10). The consideration and understanding of cultural differences allow identifying negative perceptions, as well as weaknesses and strengths of each culture, and create a blend of them in a way that would be conducive to positive organizational behaviors, greater employee motivation, and productivity.
In the context of international business, it is critical to consider the fact that social and cultural structures vary from one country to another. The understanding of characteristics associated with particular societies may significantly facilitate the process of communication and lead to productive outcomes during M&A.
The management should analyze cultural differences based on theoretical frameworks provided by such scholars and theorists as Hofstede and Schwartz to facilitate foreign employees’ integration in the work process and find a compromise between the interests and values of both host and home companies. It is possible to say that by blending the features and values of the distant cultures, the management can contribute to easier acceptance of unfamiliar cultural practices by employees in the merged company.
Bergiel, Erich, et al. “Revisiting Hofstede’s Dimensions: Examining the Cultural Convergence of the United States and Japan.” American Journal of Management, vol. 12, no. 1, 2012, pp. 69-79.
Chmielecki, Michał, and Łukasz Sułkowski. “Organizational Culture in Mergers and Acquisitions” Journal of Intercultural Management, vol. 8, no. 4, 2017, pp. 47-58.
Kawar, Tagreed Issa. “Cross-Cultural Differences in Management.” International Journal of Business and Social Science, vol. 3, no. 6, 2012, pp. 105-111.
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Majidi, Mehdi. “Cultural Factors in International Mergers and Acquisitions.” International Journal of Knowledge, Culture and Change Management, vol. 6, no. 7, 2007, pp. 1-21.
Nardon, Luciara, and Richard M. Steers. The Culture Theory Jungle: Divergence and Convergence in Models of National Culture. 2014. Web.
Pinto, Claudia Frias, et al. “A Bibliometric Study on Culture Research in International Business.” Brazilian Administration Review, vol. 11, no. 3, 2014, pp. 340–363.
Yüksel, Yusuf, and Tuncay Durna. “The Adaptability of Management Models Across Cultures.” Uluslararası İktisadi Ve İdari İncelemeler Dergisi, no, 14, 2015, pp. 295-316.