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Human Resource management in Cross Border Mergers


Globalization of business in general and manufacturing, in particular, has increased greatly during the last decades as companies have internationalized their value-chains in a search of competitive advantage through scale and/or scope throughout the world. Combined with other developments, such as increased deregulation, technological change, privatization and corporate restructuring, globalization has spurred not only increased international orientation but also an unprecedented surge in cross-border mergers and acquisitions (Aswathappa and Dash 2011).

A merger is the result of an agreement between two companies to join their operations together. Partners are often equalled. An acquisition, on the other hand, occurs when one company buys another company with the interest of controlling the activities of the combined operations. Within the context of this international volume, the focus of this essay will be on cross-border mergers and acquisitions (M&As). Many of HRM challenges faced in mergers and in acquisitions are similar, and for this reason, in the further discussion we will not differentiate between these two entities, but summarize them and use the abbreviation M&A.

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Cross border M&As involve partial or full takeover or the merging of capital, assets and liabilities of existing enterprises in a country by transnational corporations form other countries (Aguilera and Dencker 2005). M&A generally involve the purchase of existing assets and companies. One major reason to engage in mergers or acquisitions is often to facilitate rapid entry into new markets. Thus mergers and acquisitions are a predominant feature of the international business system as companies attempt to strengthen their market positions and exploit new market opportunities. The issues, challenges and opportunities related to the human resource in case of mergers and acquisitions have been discussed in the following sections of this essay.

Role of Human Resource Management

Human resource management (HRM) refers to all of the activities that are dedicated to affecting the behaviours of people working for it. As the employee behaviour has a profound impact on profitability, the satisfaction of customers and a variety of other important measures of the effectiveness of the organization, it is a key strategic challenge for all companies to manage human resources and particularly those that are engaged in cross border alliances (Faulkner and Joseph 2012).

All organizations are engaged with activities associated with human resource management. Such activities involve formal policies and everyday practices to manage people in the organization. HRM practices then play a significant role by providing specific statements on the way of managing people. As per the view of Becker and Huselid (2006) the more systematically HRM practices and policies are matched to the company, more successful is the company is terms of finance and performance. This principle holds importance even in the successful management of human resources in cross-border alliances in the form of mergers or acquisitions.

In relation to cross border alliances, HRM has an influence over each stage of M&As. For instance, during the pre-merger states, the focus of HRM is to ensure legal compliance such as in relation to equal opportunity and collective bargaining agreements (Mirvis and Marks 1992). In the planning process, the role of HRM becomes evident through retaining the agreements and assessing the differences in compensation between the potentially merging entities.

In the integration stage, the major role of HRM emerges while implementing M&A policies and practices. Here the major cultural differences are to be faced and have the potential of affecting many of the practices and policies of firm often because of the variations in the nature of integrating companies belonging to different countries and cultural backgrounds.
Challenges posed by cross border M&A

In relation to human resource management, there are several challenges that are posed due to cross border mergers and acquisitions. As people from different backgrounds have differences in their culture, beliefs, values, etiquettes, working style, etc., it is a challenge to make a perfect mix of two categories of people that are required to be work together in a harmonious manner after the merger or acquisition has taken place. It is to be noted that M&A requires immediate organizational change through cultural adjustment. According to Larsson and Risberg (1998), organizations adopt three different approaches to introduce change. These are directed change, planned change and guided change. Whatever may be the nature of change, it considers two key factors: business complexity and socio-technical uncertainty. Directed change is enforced through persuasion, more an induced one.

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The planned change ensures thorough participation. Guided change, on the other hand, ensures total involvement of all sections of employees of the organization. What type of change would be suitable in a specific M&A case, has to be decided by the organizational leadership. Leadership, therefore, is the key enabler to bring the desired cultural change in the organization subsequent to M&A (Very 1997). Culture is a long-term complex phenomenon. It represents the shared expectations as also the image of the organization. As culture creates tradition and the way we do things, the same job is done by different organizations differently.

We can say that leadership is the reflection of culture, i.e., the collective vision of the organization (Chartterjee 1992). Organizational leaders individually cannot change the culture because culture if embedded in the organization, influences the characteristics of the climate and affect the actions and thought processes of the leader. Therefore, whatever the leader does will affect the climate of the organization.

Cultural differences

Cross border mergers not only bring together two companies which themselves have different organizational cultures, but two companies whose organizational cultures are rooted in different national cultures. Culture refers to values, norms, and behaviour. Differences in culture create obstacles for cooperation and integration between groups (Catwright and Cooper, 1993). The corporate culture as well as national culture has a profound impact on the effectiveness of integration in case of cross border mergers and acquisitions.

It is to be noted that the larger the task of integration, the larger is the importance of cultural differences as it involved greater communication for implementation of the integration. It has been argued by Chatterjee (1992) that there is a negative impact of cultural differences on shareholder’s value. The differences in culture are the most prominent factor as it lacks the predicted performance and results in loss of main staff and gives rise to several other issues (Mohibullah, 2009). There is a cultural clash among members of the newly formed company that can be described as a conflict between merged companies.

Differences play a major role in the integration process, however, the existence of differences itself is not enough to create a culture clash. Furthermore, companies from the same nationality do not automatically have the same organizational cultures. Even within a nation subcultures exist and so we can imagine the challenges posed by cultural differences in cross border alliances.

Concept of power

Power is pervasive and power relationships are of crucial importance for social analyses. Power has, however, been understood in a variety of ways in the literature relevant to M&A. A crude distinction can be made between those who theorize power as a resource, as something held and used and those who advocate a relational view of power in social interaction (Chatterjee 1992).

Mergers and acquisitions (M&A) are a complex social phenomenon that brings together different people in conditions of uncertainty and ambiguity. M&A give rise to competing versions of strategy, disputes over resource allocation, and confrontation between groups with varying vested interests (Ruysseveldt 2010). Although their own future is typically insecure, employees are expected to work together and take part in integration efforts. Hence, it is not surprising that issues related to power are crucial for M&A. Power relations are often intertwined with organizational politics. Power remains a contested terrain in management and organization research.

Both views – power as resources and power as relations – have been criticized. On the one hand, to understand power as a resource to be acted on and used by individual decision-makers and dominant groups is to run the risk of simplification (Bhattacharyya 2008). At the extreme, power may be reduced to qualities and possessions of individuals and groups and the positions they hold. On the other, post-structuralism conceptions of power relations have been criticized for an overly deterministic view where the role given to individual subjects and selects remains limited. At the extreme, individuals are seen as puppets moved around by invisible and faceless discourses (Bhattacharyya 2008).

High Attrition Rate and need of managing stress and conflicts

Cross border mergers and acquisitions pose a serious challenge of high attrition rate within the merging organizations due to high level of stress and a failure of employees to manage work and personal life. Several changes introduced due to the business decision of merger or acquisition results in such stress and confusions leading to a high rate of attrition within the company Faulkner and Joseph, 2012). HR managers are required to play safe and introduce high retention strategies to their job functions among employees.

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Furthermore, such stress results due to conflicts that can surface among the employees of two companies involved in restructuring. Such conflicts again give rise to confusions due to differences in working style, culture, religious beliefs, morals, values, etc. of two countries (Bhattacharya, 2008). HR managers have the challenge of following a consultative approach through continuous dialogue, open communication and participative discussion.

Knowledge integration

Another challenge posed by cross border M&A is associated with the need of creating a learning mix or knowledge integration among the companies. As globalization intensifies, organizations face new challenges to sustain and enhance their competitiveness. Moreover, a wide range of forms of international working become possible (Mirvis and Marks, 1992). The management of human resources is confronted with new issues in cross-national settings where different cultural, political, economic, and legal systems are involved. International HR professionals need to promote innovative ways of working that transcend the boundaries of firms as well as nations.

Among the key challenges faced by international human resource management, it has been identified that information exchange and knowledge transfer are the two of the most prominent drivers of change. It has been pointed out by (Becker and Huselid, 2006) that doing business in an international setting makes more complex, creation, transfer and application of knowledge. The literature on knowledge management underlines the fact that fragmented initiatives coexist in those organizations which implement knowledge management tools or processes, such as the implementation of knowledge-sharing tools, the creation of a knowledge base, or actions at identifying the organizations competencies. The difficulty lies in articulating these different actions and incorporating them into an integrated approach that can capitalize upon them (Mirvis and Marks, 1992).

Opportunities of cross border mergers and acquisitions

Apart from several challenges as discussed in the last section, cross border mergers and acquisitions provide several opportunities for human resource management. The persons with different skills and experience get the opportunity to work with each other and thus a wide pool of experience can be used to manage human resource post-acquisition. Further, there is increased scope of innovation as individuals with different background, experience and skills are able to help each other to find better solutions to issues and problems at work and find people get new ways of performing same old work (Birkinshaw and Bresman 2000). Managers of different countries get the unique opportunity of learning from each others’ experience and working style and learn new leadership ways and techniques to ensure efficient management of merger and acquisitions.

It has often been argued that cross border M&A are less successful than domestic transactions. The logic is that cultural and communication barriers can be major obstacles to achieving integration benefits. The cultural distance hypothesis, in its most general form, suggests that the difficulties, costs, or risks associated with cross-cultural contact increase with growing cultural differences between two individuals, groups or organizations. Consistent with the cultural distance hypothesis, extant theory on M&A integration indicates that the organizational and/or national cultures of merging firms have to be similar or at least complementary, in order to integrate successfully. While some studies found that cultural differences had a negative effect on M&A, others found a positive effect. For example, Larsson and Risberg (1998) found higher degrees of acculturation (defined as the development of shared meanings fostering cooperation between the combining firms), lower levels of employee resistance, and a higher extent of synergy realization in cross-border M&A.

Acculturation and synergy realization was particularly high in cross- border M&A that was also characterized by strong organizational culture differences, that is, M&A characterized by dual culture clash- a finding that directly contradicts the cultural distance hypothesis. Larsson and Risberg (1998) argue that, in contrast to domestic M&A, where organizational cultural differences tend to be neglected, the presence of more obvious national cultural differences may have increased the awareness of the significance of cultural factors in the integration process. They conclude that cross border M&A may not only be cursed with additional culture clashes but also be blessed with a higher propensity for culturally aware selection and integration management.

Other scholars have also provided positive explanations about the effect of culture on cross border M&A. Morosini (1998) explained through a study that national cultural distance has the potential of enhancing the post-acquisition performance through providing to the target’s and/or the acquirer’s diverse set of routines and repertories embedded in the national culture. It has been stressed by Very (1997) that cultural differences are potential of eliciting the perceptions of attraction rather than stress that depends upon the nationalities of the buying and acquiring firms.

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Cultural differences should not be confused with ineffective communication and poor cross-cultural management. The approach to the HRM challenges in a particular merger or acquisition depends on the strategic logic behind the deal and the integration approach that is adopted (Mohibullah, 2009).

For instance, in absorption acquisitions, one of the key managerial challenges is to ease the transition from separate to joining operations and to allay the fears of target firm employees through clear communication; whereas preservation acquisition require arms-length status and a willingness on the part of managers to learn from the acquired firm (Larsson and Risberg, 1998). In general, attention to culture and people issues in most critical to M&A that require a high degree of integration.


Mergers and acquisitions are not only an economic phenomenon but are considered social processes. Researchers who evaluate whether a merger is recommended often have a financial argument to justify their research. Social processes are mostly studied afterwards to find out why the merger or acquisition failed. Cross border mergers are one of the biggest challenges companies have to deal with in corporate life. After convincing the shareholders and authorities, the post-merger integration phase of cross-border mergers demands well-defined analytical and practical work, social and cultural competence.

Research has shown that failures in international business most frequently result from the inability to understand and adapt to foreign ways of thinking and acting, rather than from professional incompetence (Aswathappa and Dash, 2011). With the awareness that cultural differences play a significant role in the post-merger integration phase, it is increasingly understood that what ultimately makes M& As work are the people, and collectively, the cultures by creating a new common vision. However, cross border alliances also offer several opportunities in relation to the management of the human resource.


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