IHRM Implications of International Acquisitions and Mergers
Hofstede Cultural Dimensions & Lens Framework
Introduction
Global mergers and acquisitions have become vital business trends in this contemporary era. Organizations adopt this business strategy for expansion and a possible increase in the market share. However, International human resource implications emerge when it comes to international merger and acquisition. The merger or acquisition may fail due to lack of cultural integration in the context of both national and corporate culture. In this study, the emphasis is on one successful and one failed merger and acquisition along with the integration of Hofstede cultural dimensions and lens framework.
Successful: Amazon’s Acquisition of GameSparks
Amazon, the world’s largest online retail chain, bought the United Kingdom’s GameSparks for almost $10 billion (Lunden, 2018). It was a successful cross-border acquisition. It was a big deal in the corporate sector, which opened new business dimensions for Amazon, for Instance, entrance in the gaming market. The big reason for this mega acquisition for Amazon was to make its product range broader for customers. IHRM implications of this international acquisition are in the limelight. Successful cultural integration of HR management made this acquisition successful and sustainable (Welch and Björkman, 2015).
Reasons for Success
Human resource management of Amazon anticipated the difference regarding values, beliefs, norms, traditions, and attitudes. This incredible assessment of culture helped to make effective employee strategies. Also, based on GameSparks home country culture, HR management successfully managed to design communication and integration strategies. One of the significant issues for Amazon was the increasing employee turnover in GameSparks. Thus, the primary concern was to retain the best talent in the company by motivating and rewarding them. Amazon’s integration with local culture to shape HR policies was remarkable, and it made the acquisition successful. HR management overturned a possible cultural clash in the pre-acquisition planning phase. Amazon aimed to emerge as a key distributor and creator of games to increase its market share. But HR management had to play a critical role due to the difference in culture and employee strategies.
Hofstede Cultural Dimensions
· Power Distance
The United Kingdom’s culture does not depict inequality. In this society, people always intend to minimize the disparity, and it is little more than the United States. As far as the score of power distance is concerned, Amazon’s HR management emphasized equal employment opportunities and introduced democratic culture to contribute to reducing the power distance. Amazon and GameSparks did it by merging HR practices and functions.
· Individualism versus Collectivism
United Kingdom’s score in this section is 89, and it depicts its individualistic culture, resembling the United States. Apart from focusing on redundancies, the HR management of Amazon was successful because it focused on individual performance, and it was the best strategy to retain top performances or creative designers in the company.
· Masculinity versus Femininity
Mode’s culture of the United Kingdom is quite similar to the United States. The UK and USA scored 66 and 62 respectively, and it justifies the resemblance. Both are Masculine societies, but the modest culture of the United Kingdom forced Amazon to open more space for women in the company. IHRM ethically focused on women employment and encouragement. It brought this diversity and made this cross-border acquisition successful (Werther and Chandler, 2006).
· Uncertainty Avoidance Index
People in GameSparks did not like to take the risk, as they were risk-averse, especially natives, as compared to the United States. HR management, after the merger of HR functions and policies, designed clear goals and objectives for employees. It was a new consideration, as people in the USA are more comfortable in uncertain conditions.
· Long- Versus Short-Term Orientation
In GameSparks, people demonstrated long-term planning regarding performance and career. It was different from Amazon’s culture, as employees focused on short term plans to get advantages. Thus, regarding IHRM’s implication, HR management intended to enable knowledge management culture to support people in sharing things and making plans.
· Indulgence versus Restraint
Indulgence is almost the same, as both countries scored 69 and 68 respectively. This cross border acquit ion was successful because the HR management of Amazon already experienced people controlling their desires and impulses. With every new HR policy or function, optimism in GameSparks was incredible, and it helped the company to grow both internally and externally.
Source: https://www.hofstede-insights.com/country-comparison/the-uk,the-usa/
Lens Framework
· Stakeholder Engagement
Amazon’s deal with this gaming company was successful due to incredible stakeholder engagement. For Instance, the company considered employees as key stakeholders. HR management used to engage employees when making policies, delegating work, and making decisions. Of course, Amazon wanted to portray a positive social impact in the new country, and it worked for it (Werther and Chandler, 2006).
· Resource Mobilization
Knowledge was a crucial resource for both Amazon and GameSparks. HR leadership understood the national culture, which facilitated the knowledge sharing process. Employees were engaged and mobilized to come up with ideas, as it could be the key performance measure as well.
· Knowledge Development
Amazon’s HR team conducted recruitment, selection, training development, and compensation process, as these are IHRM functions. However, cultural integration enhanced the knowledge of HR management to direct promotions, motivation, salaries, and work procedures, and ultimately, the company wanted to maintain the social impact.
· Cultural Management
In this international alliance or acquisition, Amazon portrayed the shared model of culture. For Instance, HR management combined cultural traits, mentioned in Hofstede analysis, and practices to make the difference.
Failure: Daimler and Chrysler
The merger of Daimler and Chrysler was a disaster, as corporate leaders anticipated the deal wrong. For Instance, they premeditated the deal and took the cultural integration or possible clashes lightly. Daimler invested $36 billion to merge with this American automobile giant (Andrews and Holson, 2001)
Reasons for Failure
This cross-border merger failed due to the immense difference between the culture of the United States and Germany, and people reflected it in the internal business environment. The difference in strategy formation and philosophy on issues were also fundamental causes of this failure. Of course, the IHRM had a role in planning, and unfortunately, it did not work according to expectations. Lack of cultural integration, ineffective management, and corporate and HR leadership were the main reasons. Two different cultures formed one company, which struggled due to various work practices, employee perceptions, pay structure disparity, and different attitudes. The minor role of human resource management led to the contradictions regarding fundamental operational values. In short, human resource management was ineffective, which made this deal a fiasco (Gates, 2016). The failure of this merger can also be understood by navigating the Hofstede cultural dimension.
Hofstede Cultural Dimensions
· Power Distance
There is a slight difference between Germany and the United States in terms of power distance. For Instance, German culture believes in less power distance, and corporate sector always intends to engage employees to share knowledge and enhance interactions. Employees in Chrysler were less satisfied due to lack of knowledge as compared to German automobile. In the cross-border merger and acquisition, it is necessary to enable talent management practices, and Daimler took initiatives accordingly. Nevertheless, it was opposed to Chrysler. It was a power distance, as Chrysler wanted to retain autonomy.
· Individualism versus Collectivism
HR management, which was combined after the merger, failed to understand the national (USA) and corporate (Chrysler) culture. Germany scores just 67, which is comparatively lower than the USA. In Daimler, people used to work in teams and want to win as a group of teams. In Chrysler, due to typical USA culture, people focused on individual performance. HR leadership failed to make a new culture of strategy, which could help people to work on the same agenda. Work practices due to culture differences were different, and it was a significant concern.
· Masculinity versus Femininity
Germany scores 66, and it depicts the intentions to consider men in technical and leadership positions. In Chrysler, women participation was controversial for Daimler management and workers. The difference in this section is not big, but, in biased work culture, human resources failed to deal with it.
· Uncertainty Avoidance Index
Uncertainty avoidance Index tells that German people, especially employees in corporations, like to take the risk. They think that the future is always uncertain, and premeditation cannot work. However, in Chrysler, HR faced anticipation from workers. For Daimler, the anticipation was baseless. It created the impact on work activities, styles, and different work strategies. It was tough for HR managers to change the behavior of people to meet organizational goals and objectives. Even in the training and development process, more than half of employees have future concerns, and it was entirely new for Daimler leadership, management, and employees (Watkins, 2007).
· Long- Versus Short-Term Orientation
Germany is way above or ahead in long-term orientation as compared to the United States. Germany scores 83, which makes it pragmatic country, and corporate sectors also reflect this factor. The problem in this merger was the pragmatic approach by Daimler management. Natives in Chrysler liked to work on short term goals and objectives. HR faced impaired structure and reporting relationship due to this difference. In the pre-acquisition phase, both companies could premeditate the need for an autonomous model (new culture) instead of focusing on the shared model (combined culture and practices)
· Indulgence versus Restraint
German people like to have control over their desires and impulses. People in Daimler integrated with social norms. In Chrysler, versatility and adaptation were in the limelight. Thus, the level of employee satisfaction, work behavior, and work practices were different, which made this cross-border merger a failure. HR management did not understand that employees in Chrysler were not restrained, as they were open to adopting things. In pre-combination and agreement signing and planning, HR was unable to find these possible clashes. It can be said that the role of IRHM was negative, as just business benefits or outcomes were preferred. The layoff started, and Daimler sold the company to Cerberus Capital Management for $ 6 billion.
Source: https://www.hofstede-insights.com/country-comparison/germany,the-usa/
Lens Framework
· Stakeholder Engagement
The big issue for HRM was to combine two different cultures in the internal business environment successfully, and it was possible due to stakeholder’s engagement. Contradictions among management personnel even before and after the merger created an internal rivalry, and it made the stakeholder engagement impossible (Freeman, Kujala and Sachs, 2017). For Instance, in the decision-making process, it was tough to engage people due to different approaches. In Daimler, the decision-making approach was methodical, and on the other hand, in Chrysler, creativity was supported and encouraged. Thus, in this kind of cultural clash, engagement seems irrelevant.
· Resource Mobilization
Better use of infrastructure, supply chain, and financial resources was possible. However, human resources were difficult to put on the line. Again, in two different corporate cultures, the philosophy to view resources and utilization can be different, and it was one of the most significant problems in Daimler (Welch and Björkman, 2015).
· Knowledge development
Due to the lack of assessment of differences in values, beliefs, attitudes, knowledge sharing was limited. Leading a new organization into the future was a key challenge for management because HR leadership failed to create a positive atmosphere. People denied sharing ideas, thoughts, and opinions, and for HR, the transition was almost impossible.
· Cultural Management
Management practices were different in both companies. For Instance, in Daimler democratic culture was adopted, because people like to work with subordinates and participate in the decision-making process. Conversely, in Chrysler, the transformational approach was adopted. In international human resource management, it seems imperative to anticipate the impact on these differences. Daimler and Chrysler’s leadership team was happy and satisfied at the beginning, but the consequence hit this deal hard (Badrtalei and Bates, 2007).
Conclusion
In the end, it is to conclude that cross border merger and acquisition need effective human resource management process, which can help to anticipate things for the internal business environment. Premeditated actions must be taken by companies to make the merger or acquisition successful and sustainable. Being a student of international business, it is essential to drive some key lessons from both successful and failure cases. Hofstede cultural dimensions and lens framework have been used in this study to justify the success or failure of mergers or acquisitions. Implications of international human resource management must be understood in this modern business era, as it can help to make the company socially responsible, even after a cross-border merger or acquisition.
References
Andrews, E.l. and Holson, l.m. (2001) Daimler-Benz to Buy Chrysler in $36 Billion Deal, 21August, [Online], Available: https://www.nytimes.com/2001/08/12/business/
daimlerbenz-to-buy-chrysler-in-36-billion-deal.html [28 June 2019].
Badrtalei, J. and Bates, D.L. (2007) ‘Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler’, International Journal of Management, vol. 24, no. 2, pp. 303-317.
Freeman, R.E., Kujala, J. and Sachs, S. (2017) Stakeholder Engagement: Clinical Research Cases, Springer.
Gates, M. (2016) Cross-cultural issues relating to the DaimlerChrysler merge – Case Study, 27April, [Online], Available: https://www.crossculture.com/cross-cultural-issues-at-the-daimlerchrysler-merge-case-study/ [28 June 2019].
Lunden, I. (2018) Amazon confirms that it has acquired GameSparks, 5March, [Online], Available: https://techcrunch.com/2018/03/05/amazon-confirms-that-it-has-acquired-gamesparks/ [28 June 2019].
Watkins, M.D. (2007) Why DaimlerChrysler Never Got into Gear, 18May, [Online], Available: https://hbr.org/2007/05/why-the-daimlerchrysler-merger [28 June 2019].
Welch, D. and Björkman, I. (2015) ‘The Place of International Human Resource Management in International Business’, Management International Review, vol. 55, no. 3, pp. 303-322.
Werther, W.B. and Chandler, D. (2006) Strategic Corporate Social Responsibility: Stakeholders in a Global Environment, SAGE.
Annotated Bibliography
Badrtalei, J. and Bates, D.L. (2007) ‘Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler’, International Journal of Management, vol. 24, no. 2, pp. 303-317.
Authors Badrtalei and Bates came up with different arguments regarding the organizational culture and its association with mergers and acquisitions. In the international business process, companies like Daimler have faced various cultural contradictions, which led to business failure. The article stated the contradiction between the corporate values of both companies. People in Germany and the United States contain different social norms, and these are reflected in the corporate culture. The DaimlerChrysler case, revealed by this article, showed the impact of the organizational culture of the business, notably merger and acquisition. Of course, organizational culture is to be changed after acquiring any company to business objectives.
Welch, D. and Björkman, I. (2015) ‘The Place of International Human Resource Management in International Business’, Management International Review, vol. 55, no. 3, pp. 303-322.
Authors Welch and Björkman demonstrated the role of human resource management in international business. Researchers revealed that international human resource processes are quite different from conventional HR practices. For Instance, in internationalization, it seems imperative for corporations to depict localization, which can be further reflected in the internal business environment. People in both societies and organizations may have different needs, wants, and expectations. Thus, accordingly, HR strategies must be shaped to ensure internal sustainability. Authors elaborated the place of international human resource management in global business, and by executing the appropriate approach, success can be ensured in the long run.
