This Issue - Icwai

International Merger and Acquisition : An Overview
on the Cultural Clash
Introduction
MERGER MERGER AND AND ACQUISITION
ACQUISITION
In the last two decades, international mergers and
acquisitions (M&A) have been a popular choice
of overseas market entry (Kiessling and Richey,
2005). M & A are not confined in a particular country,
rather it is widely pervasive. China participated in the
venture from 1978 (Kleinburg, 1990), with the rise of
free trade agreements and economic growth in South
East Asia. More recently, Indian companies are
beginning to launch overseas takeover significantly
(Financial Times, 1st July 2007). M&A allow companies
to achieve greater market power, overcome barriers
to entry, enter new markets quickly, and to acquire
new knowledge along with resources (Vermeulen and
Barkema, 2001). It is to be mentioned here that M&A
are not necessarily the only way of expanding business
or of entering new markets. There are also other modes
of entry into international market like joint ventures or
strategic alliances.
International market entry through M&A has also
some demerits. M&A require additional costs
(premium and advisory cost) for acquiring firms
(Moeller, 2007). Admittedly, the success rate of M&A
is relatively very low (Quah and Young, 2005). The
evidence suggests that the intended benefits of
acquisition are often not realized (Pablo, 1994). The
acquiring firm exhibits poor performance in terms of
both accounting and stock market based measures.
Failure of M&A
Mergers and Acquisitions seem to appeal more
business than pure organic growth. In spite of heavy
risk, M & A are preferred to increase profitability and
market share. According to Cartwright and Cooper
(1993), only half of all mergers and acquisitions met
initial expectations. Ravenscraft and Scherer (1989)
found that the profitability of acquired firms declined
after acquisition. Moreover, most of the acquired firms
are later divested or sold off for their unsatisfactory
S. M. Salamat Ullah Bhuiyan*
Mohammed Shahedul Quader**
Shanto Banik***
performance (recent example include divestments
within the automotive industry by Daimler and Ford,
2006/07).
The failure of M & A can be attributed to a number
of factors. These attributes include : a) over inflated
purchase price, b) strategical mismatching, c) poor
financial management and incompetence and d)
failure to achieve projected earning ratio (Cartwright
and Cooper, 1992).
Bettis and Prahalad (1995) identified motivational
problems in M & A. They also identified that
technology, rules, procedures, conventions, beliefs,
culture, and knowledge of acquired firm differ from
those of the acquiring firm. There are also the
problems associated with planning and managing the
integration process (Haspeslagh and Jemison, 1991).
There are differences in organizational culture and
management style and these factors lead to failure of
the newly formed company (Vermeulen and Barkema,
2001; Quah and Young, 2005). In case of M&A,
differences in corporate culture have also been
identified (Weber et al, 1996). The effects of cultural
clash can decrease the commitment and cooperation
of acquired employees (Buono et al, 1985). As a
consequence, shareholders’ value of buying the firm
is dropped (Chatterjee et al, 1992), and the performance
of acquired firm is poor (Very et al, 1997;
Weber, 1996).
Cultural Clash in M & A
Cultural clash is one of the vital elements that
* Professor, Department of Marketing Studies & International
Marketing, University of Chittagong,
Chittagong, Bangladesh
** Assistant Professor, Department of Marketing Studies
& International Marketing University of Chittagong,
Chittagong, Bangladesh
*** Lecturer, Department of Marketing Studies & International
Marketing, University of Chittagong,
Chittagong, Bangladesh
790 The Management Accountant |September 2011