Why International Mergers and Acquisitions Fail

Matthew MacLachlan

21 Jun 2016

During the last two decades, the corporate world has witnessed a significant rise in the number of cross-border mergers and acquisitions. Increasing shareholder value and growing both the top and bottom line often lie at the heart of these mega deals.

While enormous sums of money and time are spent on these deals – why do so many fail? More often than not culture and the inability to address its impact can be why international mergers and acquisitions fail.

Why International Mergers and Acquisitions Fail: It’s the Culture, Stupid!

Companies should always be aware of the intercultural risks and opportunities that go hand-in-hand with the integration process

Research suggests that intercultural dissonance is one of the major indicators of why international mergers and acquisitions fail. Regardless of the objective of the merger or acquisition, companies should be aware of the intercultural risks and opportunities that go hand-in-hand with the integration process and prepare their workforce from the board down to cope with these challenges.

What role does culture play in an International Merger and Acquisition?

Basic elements of workplace behaviour can diverge hugely from one culture to another

Integrating a culturally diverse workforce can be a tremendous challenge for companies as culture affects all aspects of working styles. Basic elements of workplace behaviour can diverge hugely from one culture to another:

  • The need for supervision and direction
  • Affinity with collaborative working
  • Attitudes to planning and deadlines
  • Expectations and perceptions of reward schemes for motivation

All these factors can potentially trigger cultural clashes – which in turn can lead to

  • Staff attrition
  • Reduced productivity
  • Loss of brand recognition

Cultural Factors: Not Fully Considered

The lack of intercultural due diligence and planning can lead to major misunderstandings

And although the importance of culture is now widely accepted among HR directors and executives, it is quite puzzling to see that it is rarely addressed as fully or as early as it needs to be during the integration process.

This lack of intercultural due diligence and planning can lead to severe misunderstandings and create critical incidents which can eventually jeopardise the early stages of the cross-border integration.

The challenge of Creating a Third Culture

It is extremely difficult not to let the existing culture of one of the integrating organisations dominate over the other

A significant challenge of cross-border mergers and acquisitions is how to create and embed a new or ‘third culture’, which is shared and demonstrated by all employees. It is extremely difficult not to let the existing culture of one of the integrating organisations dominate over the other but the most successful M&As are those where a new ‘third’ culture has evolved from the integration.

Decision makers need to consider carefully how they want the culture (of the newly combined organisations) to evolve

The very creation of this organisational culture is a challenge in itself. Decision-makers need to consider carefully how they want the culture to evolve and be proactive in developing and promoting the culture and values of the new organisation.

Think about an inclusive approach 

Communication and consultation are crucial and cultural change needs to involve all levels of employees within the organisation. Vision and values should be created quickly and demonstrated from the top down and promoted by champions from all levels of the organisation .

The benefits of cross-border M&As should outweigh the challenges but all too often they do not lead to increased productivity

In addition to internal communication, workshops and training programmes can help to embed the new culture and develop the intercultural knowledge and awareness of the workforce. If employees have a greater awareness of their national and previous organisational culture as well as the cultural values of the new organisation this should help them to rise to the challenges of working within a new international entity.

Why international mergers and acquisitions fail? The cultural challenges should not be greater than the opportunities

A lack of intercultural awareness and planning too often plays a part in the poor performance of these integrated organisations

The benefits of cross-border M&As should outweigh the challenges but all too often they do not lead to increased productivity and improved financial results – and it is a lack of intercultural awareness and planning that all too often plays a part in the poor performance of these integrated organisations.



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