By Luis Fuentes

There is no room for doubt that culture affects the way we live – it affects the way we think, the way we behave and the way we interact with each other. It also has an effect on the way we work. As every country has its own culture and its own way to approach business, should we expect there to be culture clashes when a company merges with a company from a different country?

Every now and then we read in the press about failed international mergers between big companies. The case of German-based Daimler-Benz merging with American-based Chrysler is maybe one of the most famous. Despite the high expectations Chrysler had for this operation, they didn’t manage to be as profitable as Daimler-Benz just after the merger took place and both companies’ management strategies didn’t seem to match up. Apparently, cultural differences played a big part in this untoward event.

Having initially been designed as a merger of equals, the operation saw Daimler-Benz and Chrysler maintaining their own corporate cultures as a way to avoid suspicions, instead of trying to combine the best of each culture in a single, integrated culture for the newly merged company. As a result, each brand of the company continued to operate in the same way they used to, and it didn’t take long before culture clashes started appearing.

The German part of the company liked methodical decision-making and the implementation of detailed plans, often through bureaucratic precision. On the other hand, the Americans favoured creativity and adaptability, trial-and-error performance and keeping red tape as little as possible. When the Germans finally took over the management of Chrysler, the merger was already doomed to failure.

The cultural dimensions theory

Now let me make a little digression just so we can understand how culture has an impact on everyday life. In 1980, Dutch researcher Geert Hofstede carried out a study on cultural differences in corporate contexts. The study and the book published after it, Culture’s Consequences, have since then become a classic reference work within intercultural communication and cross-country business studies. Hofstede took multinational company IBM as a case study and undertook a large survey amongst more than 115,000 workers from across 50 countries. He found quite a lot of differences between these countries’ cultural values and he came up with the idea of grouping all these values into the so-called “cultural dimensions”, four categories by which he ranked the countries (he added some more dimensions in later revisions of his work).

These dimensions:
•    power distance
•    individualism/collectivism
•    uncertainty avoidance
•    masculinity/femininity.

What countries display these characteristics?

Power distance

This is how readily members of a society accept that power in institutions and organizations is distributed unequally. Societies from countries scoring high would accept hierarchical orders and autocratic power models, while low scoring countries would not.

Countries scoring high: Panama, Guatemala, Arab countries

Countries scoring low: Austria, Israel, Scandinavian countries

Individualism/collectivism

Individualist societies would emphasise personal achievements and favour loosely knit social frameworks, while collectivist societies would strongly rely on social groups and joint goals.

Countries scoring high (individualist): the US, Australia, the UK, Canada, the Netherlands

Countries scoring low (collectivist): Guatemala, Ecuador, Panama, Venezuela, Eastern countries

Uncertainty avoidance

This is the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity. Countries scoring high don’t feel at ease with unforeseen situations and like to keep traditions and strict codes of belief. Meanwhile, countries scoring low can cope with not knowing what the future will bring, and tend to tolerate different opinions and welcome innovative ideas.

Countries scoring high: Greece, Portugal, Guatemala, Uruguay

Countries scoring low: Singapore, Jamaica, Denmark, Sweden, the UK

Masculinity/femininity

“Masculine” countries would encourage competition, achievement and material success. Whereas, “feminine” countries would promote establishing relationships, modesty and quality of life.

Countries scoring high (“masculine”): Japan, Austria, Switzerland, Italy

Countries scoring low (“feminine”): Sweden, Norway, the Netherlands, Denmark

For or against international mergers?

Taking all these differences into account, we may well understand why many cross-border mergers and acquisitions usually end up being a complete disaster. It also makes sense that the highest volume of cross-border mergers corresponds to merging companies from culturally close countries or countries that share a common language, religion or similar legislation. Thus, the US-Canada and the US-UK remain the most usual connections when it comes to international mergers.

Some experts consider strong cultural differences a source of conflict for cross-border mergers and are inclined to advise against merging operations between companies from culturally distant countries. On the other hand, there are some studies which show that cross-border mergers perform better when the merging companies come from culturally disparate countries. They argue that, although culture differences may pose some problems during post-merger integration, they have beneficial effects over synergy in the long run.

What about you? Have you experienced any culture clashes when working outside your home country? Do you find it easy working with people from different countries?

 

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