Updated: Jan 23
The way people react to their company merging with another company depends on personal characteristics and values. Significant resistance and opposition can occur simply because of change and the way the change is viewed or introduced. Companies can successfully bring about change by being aware of the reasons for behavior and managing the change accordingly.
Individualism vs. Collectivism (Hofstede). Individualism vs. Collectivism in Hofstede’s framework provides guidance on a culture’s inclination towards a personally-focused mentality versus a group-focused mentality. Individualist societies typically have weaker ties between individuals and each person is expected to care for oneself and immediate family. On a business level, this often translates to a greater focus on individual promotion, self-recognition, and self-preservation. Collectivistic societies tend to view persons from individualistic cultures as impersonal and self-serving, as collectivists place a higher value on communal well-being.
[note]10 minutes with Geert Hofstede on Individualisme versus Collectivisme 10112014 [Video file]. Retrieved from http://geerthofstede.com/training-consulting/online-lectures/[/note]
This is often characterized by personal sacrifice in the name of the company and demonstrations of loyalty, perhaps through long work hours or suppressed personal opinions or needs. Figure 2.1 illustrates the spectrum of individualism versus collectivism countries.
Often—especially in cross-border deal making—the preferences of individuals on the spectrum can come into conflict. For example, Lenovo experienced conflict regarding individualism after its acquisition of IBM’s PC division. The Chinese workers complained about the Americans’ “less human” approach with their focus on individual achievement and self-focused pursuits. ]Connor, J., Yi Min., & Iyengar, R. (2013). When East Meets West. T+D, 67(4), p. 56[/note]
While the Americans viewed the Chinese as not flexible enough to allow individual achievement and overly focused on long workdays and a demanding, fast-paced culture. Company training was required to help workers understand the perspective of their counterpart and to find a middle ground between their goals. Understanding country preferences for individualism and collectivism will help leaders create goals and manage teams to best motivate workers.
Masculinity vs. Femininity (Hofstede). Not to be confused with social gender roles, masculinity vs. femininity focuses on the characteristics or motivations that a society considers acceptable. Masculinity refers to the societal preference for characteristics related with goal-orientation: assertiveness, heroism, achievement, and material success. On the other hand, a feminine society prefers characteristics associated with relationship building: modesty, quality of life, and caring for others.
[note]Gray, S. (1988). Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. Abacus, 24(1), p. 7[/note]
Geert Hofstede’s studies rank many European countries, especially the Nordic countries, as relatively more feminine than the United States. This leads to differing societal preferences: “The American Dream puts an emphasis on economic growth, personal wealth, and independence. The new European Dream focuses more on sustainable development, quality of life, and interdependence.”
[note]Jeremy Rifkin as quoted in Höferle, C. (2009). USA vs Germany: Masculine vs Feminine? Retrieved from https://southeastschnitzel.wordpress.com/2009/06/01/usa-vs-germany-masculine-vs-feminine/[/note]
The core differences between masculine and feminine cultures is adeptly articulated in stating Americans ‘live to work’ while Europeans ‘work to live.’ Masculine and feminine cultural approaches provide strengths and limitations; when balanced, these differing perspectives can bestow increased synergy. Figure 2.2 illustrates the spectrum of masculine versus feminine countries.
Belief Systems. “Culture and religion unite where beliefs move from internal values to external actions.” [note]Young, M. (2013). Cultural Influences on Accounting and Its Practices. Retrieved from http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1396&context=honors, p. 34[/note]
Belief systems refer to any societal value—religion being just one example—that influences the way someone might think or act. This could be any influential belief, such as elements of a predominant religion (e.g. Hinduism or Catholicism) or influential ideas or cultural beliefs (e.g. the caste system or superstitions). These ideals are often underlying motivations in a society and thus affect the workplace.
Although varying belief systems may seem insignificant, they can actually have a significant impact on the financial success of a product or company. For example, one study found that Chinese companies in the initial public offering (IPO) process tended to avoid any listing using the number 4, which is considered unlucky, and instead tried to obtain listing numbers including lucky numbers, such as the number 8. Those with listing codes with lucky numbers tend to trade at a higher-than-expected premium, at least until initial concerns about the firms’ performance are resolved.
[note]Hirshleifer, D., Jian, M. & Zhang, H. (2016). Superstition and Financial Decision Making. Management Science, p. 5, 32[/note]
Another example is the influence of Islam on the accounting and the bank industries. The Qurān, the Islamic book of religious text, includes the forbidding of “ribā” which is interpreted as usury or interest. This has caused ongoing discussion among members of the Islamic faith. While some interpret the meaning as a complete rejection of any form or substitute for interest, some allow modifications such as substituted fees, while others accept interest as a necessary reality of the global economy today.
[note]Kamla, R. & Alsoufi, R. (2015). Critical Muslim Intellectuals’ discourse and the issue of ‘Interest’ (ribā): Implications for Islamic accounting and banking. Accounting Forum, 39(2), 140-154[/note]
It is important to be aware of how cultural or religious beliefs such as these might influence the suitability of cross-border deals.
Strong Uncertainty Avoidance vs. Weak Uncertainty Avoidance (Hofstede). Hofstede defined uncertainty avoidance as a measure of a particular society’s acceptance of ambiguity and the unknown:
This feeling leads them to beliefs promising certainty and to maintaining institutions protecting conformity. Strong Uncertainty Avoidance societies maintain rigid codes of belief and behaviour and are intolerant towards deviant persons and ideas. Weak Uncertainty Avoidance societies maintain a more relaxed atmosphere in which practice counts more than principles and deviance is more easily tolerated.
[note]Gray, S. (1988). Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. Abacus, 24(1), p. 7[/note]
Strong uncertainty avoidance does not necessarily equate risk avoidance; a society with higher degrees of uncertainty avoidance may have behavior just as risky—or more so—than another. The central issue is whether a particular society prefers certain, knowable situations rather than those that are more ambiguous.
[note]10 minutes with Geert Hofstede on Uncertainty Avoidance 01032015 [Video file]. Retrieved from http://geerthofstede.com/training-consulting/online-lectures/[/note]
Research shows that cultures with high uncertainty avoidance are less inclined to pursue cross border M&A, and when they do, they prefer deals with high returns, not just low but positive returns. Additionally, in transactions formed as stock acquisitions, they tend to acquire larger ownership stakes than they do in domestic acquisitions. [note]Bremer, M., Hoshi, A., Inoue, K., & Suzuki, K. (2015). Uncertainty Avoiding Behavior and Cross-border Acquisitions. RIETI Discussion Paper Series 15-E-033. Retrieved from http://www.rieti.go.jp/jp/publications/dp/15e033.pdf, p. 25[/note]
Figure 2.3 illustrates the spectrum of high versus low uncertainty avoidance countries.
Figure 2.3: Adapted from Hofstede 2001
Preferences on uncertainty avoidance can influence day-to-day management decisions. For instance, some cultures are more accepting of financial and production risks, while others avoid them at all costs:
Project managers in more uncertainty-tolerant cultures like the United States often employ a triage-like risk management concept, categorizing risks as either unacceptable, manageable, or as irrelevant. The latter is often a judgment call: if a risk has a low probability of occurring while common wisdom or past experience say that it will likely not cause a problem, project leaders may choose (sometimes without any further analysis) to assume that the risk can safely be ignored.
This concept is foreign to the Japanese who will not tolerate any “assumed non-risks”. All risk factors, no matter how large or small, will have to be identified, assessed, and managed throughout a product’s lifetime in Japan. This approach naturally enforces a much more systematic risk assessment and tracking process, promoting superior product quality and reliability.
[note]Katz, L. (2005). Article: On Avoiding Uncertainty. Leadership Crossroads. Retrieved from http://www.leadershipcrossroads.com/arti_oua.asp[/note]
In this case, a native of the United States might not see eye-to-eye with a Japanese counterpart if the mindset towards uncertainty is not well understood. These differing approaches are important to understand when working with counterparts from another culture because they may offer a differing perspective of the future.
Task-based vs. Relationship-based (Meyer). Meyer’ task-based vs. relationship-based value addresses developing trust and forming relationships in ways that avoid culture clashes between merged companies. A task-based culture develops relationships based on cognitive-trust: the trust built from another’s skills and accomplishments. Relationship-based cultures exist on the opposite end of the spectrum and develop relationships based on affective trust: the trust built on friendship or emotional closeness.
[note]Meyer, E. (2014). The Culture Map: breaking through the invisible boundaries of global business. New York: PublicAffairs, p. 168[/note]
For example, a task-based culture focuses on completing the agenda during a meeting while a relationship-based culture needs to develop a rapport with the other party before engaging in business. However, friendliness doesn’t always signify friendship. A culture that tends to smile and chat more isn’t necessarily a relationship-based culture, nor is an initially cold and distant welcome, necessarily, an indicator of a task-based culture. Meyer gives the example of an American businessman who engaged in conversation with a Russian during a long flight. The Russian was surprised at the personal level of conversation, but slowly warmed to the contact. As the flight ended, the Russian fully expected contact information to be exchanged in order to maintain a continuing friendship. He was shocked when instead the American cheerfully wished him farewell, deplaned, and went on his way.
[note]Meyer, E. (2014). The Culture Map: breaking through the invisible boundaries of global business. New York: PublicAffairs, p. 174-175[/note]
These different interaction habits could not have been predicted based simply on friendliness. In reality, Americans are highly task-based while Russians are relationship-based. Correctly understanding these distinctions may require consultation with a native insider. Understanding and using the target’s preference for relationship development will help build strong connections between acquirer and target companies. Figure 2.4 illustrates the spectrum of task versus relationship based countries.
Figure 2.4: Adapted from Meyer 2014
Confrontational vs. Avoids Confrontation (Meyer). In some cultures, disputes and disagreement are necessary in the decision-making process, while other cultures view open disagreement as offensive. This difference is explained by Erin Meyer’s confrontation scale. In confrontational cultures, open opposition is positive for a team and will not negatively impact relationships. On the opposite end of the spectrum, cultures that avoid confrontation react adversely to conflict, and debating would lead to disharmony among groups. Knowing where a company lies relative to one’s own on the spectrum facilitates effective conflict resolution. However, “emotional expressiveness is not the same thing as comfort in expressing open disagreement.”
[note]Meyer, E. (2014). The Culture Map: breaking through the invisible boundaries of global business. New York: PublicAffairs, p. 174-175, p. 203[/note]
Just because a culture seems animated in its manner of expression doesn’t automatically mean that it is confrontational. It requires care and understanding to realize that a dynamic culture is necessarily a confrontational one. Paying attention to how natives deal with disagreement and how it affects subsequent interactions can provide useful insight regarding their preferred method of resolving interpersonal discord. Figure 2.5 illustrates the spectrum of confrontational versus avoiding confrontation countries.
Figure 2.5: Adapted from Meyer 2014
Responding correctly to a certain culture could require stifling the reaction people would normally have in their own culture. In one example, a Western entrepreneur noticed that the Chinese supplier manufacturing bicycles had some faulty bikes with rattling parts. Rather than directly confronting the Chinese manager about the issue as he would have in his own culture, he suggested that they take some bikes for a quick ride in the countryside. Afterwards, he mentioned to the Chinese manager that he thought he had noticed some rattling with his bike. The subtlety worked: “because he was attuned to East-West variation in approaches to conflict, he knew that a direct confrontation could cause loss of face and retaliation might very well result in a shipment of rattling bikes. The plant manager apparently picked up on the entrepreneur’s culturally sensitive cues and assumed ownership of the problem….”
[note]Brett, J., Behfar, K., & Sanchez-Burks, J. (2013). How to Argue Across Cultures. Harvard Business Review. Retrieved from https://hbr.org/2013/12/how-to-argue-across-cultures[/note]
The bikes were fixed and confrontation was avoided. Both the customer and the supplier were satisfied. Merging companies can avoid potentially disastrous situations when they the time to understand the confrontational preferences of the other culture.
Linear Time vs. Flexible Time (Meyer). When scheduling meetings with other cultures, it is important to recognize that, “Let’s meet at 9:00 am,” or, “We need a long-term plan,” has different meanings across the world. Diverse cultures perceive time and scheduling differently which may cause hiccups in the integration process. Cultures that are based in “linear time” view scheduling as inflexible, deadlines as fixed, tardiness as rude, and agendas as required. People in these cultures often think about budgeting and saving time. On the other hand, those that are considered to run on “flexible time” treat schedules as malleable, and they may complete tasks in their own time frame. People in these cultures manipulate and stretch scheduling to accomplish their tasks. Figure 2.6 illustrates the spectrum of linear versus flexible time countries.
Figure 2.6: Adapted from Meyer 2014
Although many U.S.-based intuitions struggle with the concept of flexible time, it is advantageous to recognize that there may be unforeseen benefits to this approach. As an American working in China said, “…now that I’ve become a bit Chinese myself, I’ve learned…if I’m traveling in Guangzhou and I have thirty minutes to spare, I just make a quick call from a taxi and visit someone working in the area. I’ve come to see this system as highly flexible and efficient…. Once you understand that the Chinese are extremely flexible, everything works fine if you just do the same.”
[note]Meyer, E. (2014). The Culture Map: breaking through the invisible boundaries of global business. New York: PublicAffairs, p. 237[/note]
In cross-border M&A, learning how the other company views time will help managers set expectations around meeting times and deadlines, which will help employees effectively collaborate across cultures.
Next: M&A Synergies Framework—Management [crp limit=”3″ heading=”1″ cache=”0″]