Mergers, Acquisitions, and Cultural Dilemmas

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Table of Contents

Introduction
Gung Ho Summary
Case 1: Procter & Gamble and Gillette
Case 2: CEMEX and RMC
Case 3: Publicis Groupe and Saatchi & Saatchi
Case 4: British Petroleum and Amoco
Case 5: Exxon and Mobil
Conclusion
References

Introduction

Mergers and acquisitions (M&A) are one of the most important ways to increase the competitiveness of companies. Through M&A, major concerns from developed countries enter new markets, and companies from developing countries can overcome the technological gap by acquiring the necessary technologies. However, a plethora of various issues during the process of integration may arise. Among crucial ones is the presence of cultural differences between two combining companies, which can lead to a failure in further business. This paper investigates the influence of cultural dilemmas on leadership effectiveness and the success of joint ventures, mergers, and acquisitions. Moreover, Gung Ho will be considered here as a movie-example of cultural conflicts between two integrating companies from different countries.

Gung Ho Summary

Gung Ho is a comedy movie that humorously presents problems that occur during the acquisition of a bankrupt auto factory in the USA by a Japanese auto manufacturing company. Despite its comedian character, the film exhaustively depicts the importance of an appropriate cross-cultural strategy of acquiring firms. If enterprises do not develop and undertake an effective policy of cultural adaptation, they will face the unproductive performance of their employees – the most valuable resource – almost for sure. The movie was directed by Ron Howard and starring Michael Keaton as Hunt Stevenson, a protagonist. Relationships between employees and new top management, humorously shown in the film, provide viewers with the opportunity to realize all the obstacles and hardships that might occur due to M&A.

The incompatibility of business approaches, substantial differences between American and Japanese mentalities, and wrong actions of the protagonist as a leader are directly related to the theme of the paper. For instance, the main plotline in the movie is about Hunt trying to lie to his colleagues about the number of cars that must be provided by the end of the month (Howard, 1986).

Then, Howard ridiculously shows the differences between the West and East approach to business negotiations by the scene in which Hunt is trying to convince the Japanese to purchase the factory (1986). It might be crucial to understand the points given in the film and apply them to one’s management practice. Scenes from the movie that demonstrate the clash of cultures will be integrated into the following research to provide a coherent train of thought and support ideas.

Case 1: Procter & Gamble and Gillette

To stimulate its growth and development, Procter & Gamble (P&G) decided to purchase Gillette. However, it faced “a range of business disruptions, including government inquiries in Massachusetts, Gillette’s home state, and issues in India that erupted as a reaction to distributor changes” (“What you can,” n.d., para. 7). Moreover, P&G had to do its best to retain top employees of Gillette. Despite all the mentioned issues, the process of acquiring was completed in 2005 (Kumar, 2019).

P&G spent time on developing a successful integration strategy of the companies – they formed nearly 100 global teams that had to manage the process of cultural unifying. Each collective had two leaders, one from P&G and one from Gillette, who had similar functions. It should be noticed that “in line with this spirit of collaboration,” Gillette workers could use their own manufacturing approaches until they could learn and implement P&G’s methods (“What you can,” n.d., para. 9). In contrast, in Gung Ho, Japanese managers do not allow American employees to work as before the integration, which results in constant conflicts and tension in relationships among the staff.

Case 2: CEMEX and RMC

CEMEX is a Mexican building materials firm; RMC is a multinational enterprise located in the United Kingdom producing concrete. In 2005, the primary purpose of CEMEX was to increase its size by the merger sustainably. However, CEMEX faced some challenges, and one of the most critical ones was that RMC’s employees did not consider CEMEX as industry leaders and did not trust their policy (Malhotra, Lin, & Farrell, 2016).

The company’s leaders had to find a way to negotiate and improve their reputation and establish productive relations with new personnel. However, as Lewicki, Barry, and Saunders (2015) reasonably mention, “many negotiators do not know how to bring their business talks to a successful close” (p. 71). Thus, constant and coherent teamwork – involving staff from both companies – on the issues discussed might be the only option to solve cultural dilemmas.

They created post-merger integration teams for the mentioned essential goal. These teams included workers from around the world as CEMEX aimed to implement cross-cultural training for their stuff. Each group was involved in “cross-cultural training in British culture, learning … how they needed to adjust their current processes to align with expectations” (“What you can,” n.d., para. 22). As a result, RMC employees turn their suspicious views into team spirit and motivation. The same attempt was undertaken in Gung Ho when the Japanese try to encourage Americans to gymnastics to get used to working as one team. It was not effective as the Japanese do not try to implement cross-cultural training but rather a Japanese-cultural one because Americans reject such sport at the workplace.

Case 3: Publicis Groupe and Saatchi & Saatchi

The main reason for Saatchi & Saatchi’s acquisition by Publicis Groupe, one of the biggest advertising firms, was the aspiration to the constant future growth. In 2000, one of the crucial issues was the possibility of a loss of top Saatchi employees as they “could cash out their stock on favorable terms” (“What you can,” n.d., para. 27). Then, a cultural aspect also took place as workers of the British company hardly accepted the fact that they were bought out by French Publicis Groupe. Thus, the main goal of Publicis Groupe was to create a friendly working climate as well as maintain working relations of respect.

First, they decided to implement Saatchi’s best practices: Publicis managers could learn from Saatchi’s top personnel by participating in training sessions. Second, they allowed Saatchi to take an active part in the future of the enterprise: “Publicis established Saatchi as running parallel, along with other agency networks” (“What you can,” n.d., para. 29). According to Weber (2019), such an approach resulted in the motivation of Saatchi stuff to join Publicis and recognize its authority. Gung Ho depicts a similar successful approach when the Japanese allow Hunt to take part in top managers’ conversations and directly involve themselves in the manufacturing process.

Case 4: British Petroleum and Amoco

This merger is often considered as one of the most successful ones among two big firms. It took place in 1998 and was the most prominent case to date at that point (Mullen, 2016). The main reason for such action was the desire of British Petroleum (BP) to act on a global scale achieving dominant status. But it should be mentioned, “although BP was the primary shareholder in the relationship, the two sides intended to work together in the integration process” (Mullen, 2016, p. 62). However, cultural differences between the British and US companies still existed, and top managers had to find the solution to overcome them.

The strategy was “clarity of any planned action, as well as a constant cycle of communication” that connected employees to the firm leaders and vice versa (Mullen, 2016, p. 66). In Gung Ho, the Japanese try to undertake a similar kind of communication by interfering in the manufacturing process and making comments on how the work should be done. However, they do not fully cooperate with American employees as it was hard for the Japanese to accept any other approach instead of their one.

Case 5: Exxon and Mobil

During the merger of Exxon and Mobil, the new leaders were facing the challenge of establishing a corporate culture that would contribute to integrate two former competitors in one productive enterprise. In 1999, “the merger followed by just over a decade the disastrous Exxon-Valdez oil spill off the coast of Alaska,” and the new management wanted to avoid any similar experience (Olson, 2015, para. 3). The new administration took an important step – they decided to concentrate rather on goals and values on which their cooperation could be based than on cultural differences (Olson, 2015).

It led them to coherent and beneficial decision-making and further business success. Resembling situation takes place in the final part of Gung Ho when Japanese and Americans start to work together to present 15000 cars before the deadline. And their efforts pay-in: integrated by common purpose but not disunited by controversies, they achieve the required goal and save the company. After all, the effective collaborative teamwork results in moving happy end of the movie.

Conclusion

As the world experience in conducting M&A shows, one of the most challenging stages of a merger or acquisition of companies is the integration of culture and human resources of the combined enterprises. This aspect is crucial and requires the unifying parties to have a detailed and developed action plan. To effectively complete the integration, it is necessary to form a group of the most qualified employees of the companies, the main functions of which will be the formation of a new common corporate culture. It implies the use of the experience of the firms in various business areas and the creation of a medium-term and long-term development plan based on this experience.

It might be suggested that when making strategic decisions, there is always the subjectivity of either the top management or the owners of the merging enterprises. This subjectivity does not still contribute to the practical completion of the transaction and the subsequent integration of company assets. Moreover, often the subjectivity of decision-making in M&A of companies leads to financial and personnel losses due to insufficiently thought out actions.

There is a number of crucial aspects of successful M&A; first of them is careful planning of the implementation stage or the so-called integration. The most beneficial M&As lead to an increase in the efficient operation of companies and an increase in equity. Careful planning of the implementation stage or the so-called integration must begin at the same time as the first stage of the merger negotiations takes place.

The management should be based on reality, not on expectations. At the time of the decision on M&A, the purchaser makes a considerable number of assumptions, as it does not have all the necessary information. Gained facts lead to the creation of an integration plan, as well as an operational plan. Once “inside” the company, managers should not look for events confirming the results of thorough preliminary research on which the decision on M&A was based.

It is necessary to redo it in order to include new points that were not visible from the outside. Top managers might develop a plan to integrate the two cultures. It is vital that the employees in the merged or acquired company feel like full members of the new team as soon as possible. It is essential to give them enough freedom for a creative approach. Often this leads to substantial internal reforms mainly undertaken by the current management of the company.

It is also critical to find quick solutions to management problems. When merging or acquiring, almost always, a huge supervisory board is formed, which consists of members of two merged companies. This leads to duplication of roles, additional costs, a lack of responsibility, which is not the best way to affect the management efficiency of the newly formed company. When acquiring, there is always a dilemma about what to do with the top management team of the target company.

If the current team is successful with the company employees, the dismissal of top managers will lead to significant unrest within the company, a decline in motivation and loss in business. But if the senior management collective does not meet the requirements of the company’s performance, the most reasonable action will be to retire them.

Any activity in its deepest essence is informative, so company leaders should provide employees with everyday communication. It is necessary to explain to personnel of the purchased company the goal, the logic of the purchase, the action plan for the future, the motivation system. The staff should not be worried for a long time about the merger or acquisition. They should do their routine work: communicate with suppliers and customers and give positive information to them, make plans for the future, and develop their enterprise further.

References

Howard, R. (Director) (1986). Gung Ho [Video file]. Web.

Kumar B.R. (2019). Procter & Gamble’s acquisition of Gillette. In: Wealth creation in the world’s largest mergers and acquisitions. Management for professionals (pp. 243–250). Web.

Lewicki, R. J., Barry, B., & Saunders, D. M. (2015). Negotiation: Readings, exercises and cases (7th ed.). New York, NY: McGraw-Hill Education.

Malhotra, S., Lin, X., & Farrell, C. (2016). Cross-national uncertainty and level of control in cross-border acquisitions: A comparison of Latin American and U.S. multinationals. Journal of business research, 69(6), 1993–2004.

Mullen, S. (2016). The cultural paradox revisited: How the management of culture influences the success or failure of mergers and acquisitions. Web.

Olson, M. W. (2015). BankThink corporate culture is not something you pick like upholstery. Web.

Weber, Y. (2019). Mergers and acquisitions: Exploitation and exploration. The cross-disciplinary perspectives of management: Challenges and opportunities (Chapter 2). Web.

What you can learn from successful mergers & acquisitions. (n.d.) Web.

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