How does culture matter when different companies merge together?

Term Paper 2013 31 Pages

Business economics - Marketing, Corporate Communication, CRM, Market Research, Social Media


Table of Contents

Chapter 1- Aims & Objectives
1.1. Background Context
1.2. Research Problem
1.3. Research Objectives

Chapter 2- Literature Review
2.1. What is Culture?
2.2. Importance of Culture
2.3. Cultural Dimensions
2.3.1. Power Distance Index (PDI)
2.3.2. Uncertainty Avoidance
2.3.3. Individualism
2.3.4. Masculinity
2.4. Applying National Cultural Framework
2.5. Cross Cultural Management
2.5.1. Organisation
2.5.2. Leadership
2.5.3. Communication
2.6. The Corporate Response
2.7. Cultural Clash in International Joint Ventures or Cross Border M&A

Chapter 3- Case Study
3.1. Case Study on Pharmacia and Upjohn

Chapter 4- Discussion & Conclusion
4.1. Discussion
4.2. Conclusion
4.3. Recommendations

Chapter 5- References

Executive Summary

This report is written on the topic of ‘How does Cultural Differences matter when the companies from different cultures merge together? The scope of this report is broad as it incorporates the implications of cultural differences in relation to the cross-border strategic alliance. Corporate Culture is used as term to signify how the managers and the workers of particular organisation tend to behave. Many international companies (Nestlè and Shell) have long term commitment towards cultural awareness and normally accepted it as an integral part of their international practices. Cultural clash and its bottom line influence are usually complicated and hard to predict. Frequently, failure to anticipate cultural clash originated from the senior managers and dealmakers lack of awareness. Understanding the prediction and mitigation of negative influence of cultural differences should be a part of cross-border alliances agenda for all management levels. From the case study chapter it has been figured out that most of American cultural traits have seemed to have direct clash with the Swedes culture which is characterised by certain aspects: modesty, values of relationship, caring and the quality of life. Both countries determined to have low power distance and high individualism but in US managemnt seemed to have slightly steeper management hierarchy than the Swedes management. Swedes ranked highlu in term of institutional collectivism but fairly low on small group or family collectivism. The vice versa case in Italian culture. Contrary to Americans, Italians are not much oriented towards performance or achievement and are turned up to be more emotional than American and Swedes and also have comparatively less future orientation. It has been recommended that Cultural differences is an impotant post-merger barrier for managers who are looking realise the value addition or the synergies impacr through the pooling of resource and capabilites of two firms from different cultures. Cultural clash and its bottom line influence are very often complicated and hard to predict. Frequently, failure to anticipate cultural clash originated from the senior managers and dealmakers lack of awareness. It has been seemed that the financial analyses which focuses only on the die-diligence process (Identifying cost-cutting benefits and counting up assets) tend to neglect any estimation on organisational and cultural synergy.

Chapter 1- Aims & Objectives

1.1. Background Context

People and Places differ. The Japanese intended to be polite; on the basis of characteristics Australians are blunt. Red signifies stop or danger in British culture but in Turkey it denotes death and in Chinese cultures it is perceived as good fortune. In France getting an admission in a high school (grande ècole) inclined to ensure good job prospects but on the other hand in Saudi Arabian culture the status of family and wealth are considered to be far more important.

Global Diversity patterns and its differences in term of implications are usually studied from various perspectives by Psychologists, Sociologists, Anthropologists and Political scientists. The main point is that how culture differences and associated differences (in term of norms, behaviour and expectations of specific groups which include employees, colleagues, managers or customers) affect the process of decision making of corporate organisations or its management.

The number of employees engaged in the foreign-owned corporations has significantly be grown from the last 20 years and this is the only outcome of expanding activities of Multinational Enterprises (MNEs) around the globe through the process of foreign affiliation. From the point of view of many people (including employers & employees) this factor has brought home the globalisation realities. Approximately 73 million people on global basis (including the figure of 24 million Chinese employees) are now working for the foreign companies and this accounts for nearly three times the figure was in 1990. Corporations like General Motors, Motorola, General Electric and British Petroleum are ranked top among the list of largest employer of private sector in economies such as Singapore and Malaysia (UNCTAD, 2007).

It has been believed that Cross-cultural management problems occur in a variety of business contexts. In individual firm, managers belong to the foreign parent firm must need to understand the local workforce from the perspective of host country which may sometime requires different organisational structure and Human Resource Management (HRM) practices and policies. In International Joint Ventures (IJV), realisation of expected synergies is extremely dependent upon the establishment of procedures and structures which encompass both cultures in a wise manner (balanced way). Moreover within IJV, the relationship between the involved companies also requires cultural compatibility or cultural compromise. And in the last, for the companies which are selling marketing offering to the foreign customers are always needed to remain culturally sensitive and carefully consider this factor in the whole phases for its product/services marketing.

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Figure 1 Cross-cultural Business Contexts, adopted from (Mead, 1998)

At the most general level, the figure above shows the relationship between the business contexts with the particular traits of individuals or groups which are more specifically concerned by the cultural and social norms of particular constituency. At face to face level especially in meeting, the behaviour and language of people varies and the aspect of people’s mutual understanding regarding each other’s culture is believed to make influence on the efficiency and effectiveness of communication between them. And sometime this may also influence multicultural workplaces at all levels of operations (even from strategic formulation made at the top level to the plant-floor operations).

Organisations are also inclined to have different organisational and decision-making processes and practices which depending on from where they originated and which cultural and sub-cultural factors to be included. For the corporations to be successful in global strategic alliances or going for Merger & Acquisition (M&A) and want to be succeeding at company-to-company level there is a extreme need of understanding of different between each other at the organisational level. Hence, it will practically cover all aspects corporate organisation (from the decision making systems and structures and relationship between management-labour to their attitude of each individual towards the work and employer.

Finally, culture also influences the preference and behaviour of customers and clients. In order to sell the marketing offering on the successful basis in the foreign markets, the manager need to adjust his/her companies’ marketing offering according to the needs and preferences of customers residing there. Thus any change in the proposed category (marketing offering features, promotion and distribution, after sale services or technical back-up) will partly be guided through cultural differences.

It has been determined that company’s failure to cope with such differences resulted in the form of communication blunders and marketing mistakes which become marketing folklore. Car Company named ‘Ford’ experienced that mistake two times. First time during the time of initial marketing of its low cost truck model (Feira) to the Spanish people in US, people regret that model because the name of truck termed as ugly old women in Spanish. And the second during the time of company’s effort in selling its Comet (high-class car) with the name of Caliente in Mexican market. Obviously this model didn’t sell much there as the name of the model is prominently used as the slang for the prostitute. So these two examples indicate the significance of language and also show how some of the famous and largest companies does not appear to do the fundamental cultural diligence when launching marketing offering in the foreign markets.

1.2. Research Problem

The growing number of multicultural workforce is increasingly becoming an important aspect of global patterns especially in term of interaction and exchange. Hence it makes a lot more imperative to recognise how people’s beliefs, values and preferences differ. Understanding international cultural differences permits the organisations to cope with and to adjust to the differences that matter for managers.

1.3. Research Objectives

In accordance with all the contexts mentioned in the figure 1, it has been disposed that the ignorance of cultural difference factor is perceived as international managers’ common stumbling block. Ethnocentrism, which is a belief that the style of one own way of doing things is superior than the others’ way and sometime this approach could also impose major challenge to the good international management (Mole, 1996). Ethnocentrism could benefit International managers in various ways: recognising differences combining the advantages originates from different management approaches and styles and making success adjustment or adaptation in relation to certain aspects (different people, different markets and different partnerships).

The definition of cultural aspect also gives indication of various forms of differences which matters during IJV process and it also intend the organisations for the development of different beliefs, patterns and values of behaviour upon their embedded national culture. A broad range of differences (management-labour relationships, attitudes towards work and workplace practices, division of responsibilities and the decision making hierarchy) could also be significant. Cross-Border alliances more frequently requires alteration to the branding and marketing existing marketing offering (products/services) as the way to expand ventures’ market reach and also to strengthen the given position in the industry. Certain differences (in term of values, preferences and language) also need to be considered seriously.

The objectives of this report are listed below:

- To identify the form of cultural differences matter when the companies from different cultures merge.
- To discover certain measures of the senior management which could be helpful for them in alleviating problems which causes cultural clash?
- To learn about strategies which permit firms in anticipating and coping with the Cultural Differences?
- To evaluate framework based upon certain dimensions which would be instrumental in signifying cultural differences.

Chapter 2- Literature Review

2.1. What is Culture?

Culture is defined as the combination of beliefs, institutions, artifacts and techniques that symbolise human populations (Ball & McCulloch, 1999) or collective programming of human mind (Hofstede, 1980). The cultural term is based upon six key elements (language, religion, norms, values, attitudes and customs) of particular group or society. The table shown below describes how the world’s population is divided in relation to home region, language and religion.

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Figure 2 Percentage of World's Population in terms of geography, language and religion, adopted from (Adherents, 2012)

Perhaps, language is regarded as the most significant aspect for the purpose of understanding culture in general and also the specific beliefs, values, opinions and attitudes of particular individual or group. English is extensively accepted as main business language and many international companies and institutions pursued English as official language. For example in the companies likes Toyota, Hitachi, IBM Japan and NEC, the English speaking proficiency is considered seriously as prerequisite for promotions (Voigt, 2011). However it is dangerous to assume that speaking same language would remove cultural differences. Moreover, too much reliance of British and American managers on only English language has not only weakened their linguistic skills but also weaken their capability to emphasise and adapt to other cultures.



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Title: How does culture matter when different companies merge together?