Research on M&As – time for consolidation

Citation

Caiazza, R. and Dauber, D. (2015), "Research on M&As – time for consolidation", Journal of Organizational Change Management, Vol. 28 No. 5. https://doi.org/10.1108/JOCM-07-2015-0106

Research on M&As – time for consolidation

Article Type: Guest Editorial From: Journal of Organizational Change Management, Volume 28, Issue 5.

Introduction

Mergers and acquisitions (M&As) have not only shown to be one of the most popular market entry strategies in the past, but also one of the most frequently studied contexts for several disciplines that investigate organizational change. This, however, seems to have created a fragmentation of knowledge about such change processes resulting in a multiplicity of models, constructs, measurement techniques, research findings and conclusions. This appears particularly true for research about M&A performance, socio-cultural integration and acculturation strategies related to national or organizational culture differences.

Several studies have highlighted that culture has a crucial impact on the successfulness of M&As (Cartwright and Cooper, 1993; Chatterjee et al., 1992; Child et al., 2001; Datta, 1991; Fink and Holden, 2007; Hurt and Hurt, 2005; Larsson and Lubatkin, 2001; Lupina-Wegener et al., 2011; Olie, 1994; Weber, 1996; Weber et al., 1996). However, it remains unclear “how” (Teerikangas and Very, 2006). More recent reviews of the field (e.g. Dauber, 2012) have highlighted that models, constructs, variables and measurement techniques, significantly differ between studies and that resolving the apparent dissent in the literature requires further exploration and a more fine-grained analysis.

In particular dynamic and holistic configuration models (Tsui et al., 2007), which account for changes and complexity in organizations (Dauber et al., 2012); and the application of thorough and well-founded quantitative, qualitative and mixed-methodology, appears particularly important for synthesis and further development of M&A research as a multidisciplinary field. This paper on one side summarizes existing researches on organizational change, social viability and performance in M&A and on the other accounts for what Magala (2012) describes as the “evolution of academic division of research domains”, a process, which the M&A field has gone through, partly unnoticed, since several years now.

The theoretical background

The global flow of M&As in the twenty-first century has been driven by macroeconomic and microeconomic drivers. The most important factor at the macroeconomic level has been the economic growth of several emerging countries. It has lead firms from emerging economies to be both targets and bidders in cross-border M&A deals with firms from developed countries.

At the microeconomic level, transaction cost economics (TCE), the resource-based view (RBV), institutional theory (IT) and strategic choice perspective (SCP) have provided the dominant theoretical foundations on which research on cross-border M&A between firms of both geographically and culturally distant countries has been based on (Caiazza, 2015). Specifically, TCE identifies markets, hierarchies and inter-organizational links as the alternative modes of organizing firm's to minimize the sum of production and transaction costs (Williamson, 1975). Thus, according to TCE market failure forces a firm to internalize trough cross-border merger or acquisition the activity of a firm localized in other countries. From RBV, resources are key to the firm's competitive advantage. The need to acquire resources creates dependencies from other organizations and pushes firms to acquire control over other organizations. Thus, according to this theoretical approach, cross-border M&As are mechanisms to access critical resources of firms localized in other countries (Caiazza and Volpe, 2015). The IT suggests that institutional environments impose pressure on organizations that want to operate in a new country to conform to its norms. These pressures motivate firms to agree with the prevailing rules, requirements and norms of new business environments. This view suggests that cross-border M&As occur if companies intend to enter a new market through a target company that already operating in line with regulations and norms of a country. The SCP grew out of economic arguments that firms pursue M&As to increase market power in a new country overcome market entry barriers and become more diversified.

Despite of the different drivers of cross-border M&A identified in previous studies they converge in identifying culture as a crucial factor affecting cross-border acquisition success (Fink and Holden, 2007; Hurt and Hurt, 2005; Child et al., 2001; Larsson and Lubatkin, 2001; Weber, 1996; Weber, et al., 1996; Caiazza, 2015). National cultural distance can be defined as the extent to which the shared norms and values in the buyer country differ from those in the target one (Caiazza, 2013). Several factors can explain why and how a national cultural distance influences cross-border acquisitions. First, firms from culturally dissimilar countries have different organizational practices (Child et al., 2001), conflict resolution strategies human-resource management and codes of ethics (Langlois and Schlegelmilch, 1990). Second, differences in practices of employees lead to misunderstandings, and to misattributions of motives and intentions, which can impede interactions between people from different national cultures (Caiazza, 2014). The larger the cultural differences between the buyer and the target, the greater the amount of psychological stress, which is the disruptive tension that is felt by the members of a culture when they are required to interact with another (Berry, 1980). However, the whether or not cultural differences (on the organizational as well as national level) unfold a positive or negative impact are largely depending on the change processes involved (Dauber, 2011). Thus, cultural differences, although often seen as a barrier to M&A success can also be seen as a source of competitive advantage (in line with the RBV). Thus, the “quality” of the so-called social integration processes appear to be at least of equal importance as the pre-determined opportunities for synergies. This is certainly an area that still lacks a solid theoretical framework and possibly.

We are glad that this special issue managed to contribute to the above debate and provide new and unprecedented insights into the field of M&A research.

Papers in our special issue

The paper of Munjal Surender and Pereira Vijay seeks to examine opportunities and challenges of multiple-embeddedness through M&As by multinational enterprises (MNEs) from industrially advanced countries into emerging economies. Embeddedness refers to the degree to which the MNEs' economic activity is integrated within local environment. This environment can be external to the MNE, e.g. local institutions of the country where the MNE operates and legitimize, or the internal environment consisting of “organisational culture, strategy, structure and operations” followed within the boundary of the MNE. Meyer et al. suggest that in both cases the MNE faces opportunities and challenges in managing local institutions. At the external level, host countries' location advantages presents a variety of opportunities, such as potential to tap market and resources, as well as challenges that arise due to differences between home and host countries institutions. However, at the internal level, the MNE faces benefits and challenges through the integration of the acquired firm. The scope of the paper is not to cover the internal embeddedness of the MNE by investigating the post-acquisition integration issues. It aims to explore the opportunities and challenges arising during the course of external embeddedness of the MNE. It argues that the challenges of external embeddedness faced by MNEs from advanced economies into emerging economies have diminished over time. It extends the multiple-embeddedness approach through this contribution by suggesting that opportunities and challenges are dynamic opportunities grow, whereas the challenges diminish over time. The reasons for such a proposition is linked to the increase in degree of external embeddedness itself that enhances not only the MNE's scale and scope of international operations but also gives the MNE experiential learning to deal with challenges in foreign locations. It builds upon the evolving literature on multiple-embeddedness focusing on embeddedness of MNEs from developed economies into emerging markets.

The paper of Fink Gerhard and Yolles Maurice develops a generic cultural socio-cognitive trait theory of plural affective agency – The Emotional Organisation – involving interactive cognitive and affective traits. These traits are epistemically independent (uncorrelated); and operate on a bipolar scale, the alternate poles having an auxiliary function to each other – where the traits may take intermediary “balanced” states between the poles. Authors integrate James Gross' model of Emotion Regulation with their earlier work on Normative Personality within the context of Mindset Agency Theory. Through this Personality Theory they identify three necessary bipolar normative personality traits, these referring to self-identification, self-regulation and self-organization of a “living” social/organizational system and two bipolar traits that regulate the interaction of an agency (an organization) with its cultural and operative environments. Through this they modify and extend Gross' approach and model the interaction between “reason and the emotions”. In order to satisfy a need suggested Ashkanasy, Humphrey and Huy, this new theory provides guidance for framing multilevel interaction where, smaller collectives (as social systems) are embedded into larger social systems with a culture, an emotional climate and institutions. Thus, this generic theory is providing a frame of analysis for M&A processes, modelling the interaction between two organizations (two plural affective agencies) as an extension of Dauber's (2011) modelling of the interaction between two cognitive agencies.

The paper of Maheshwari Shweta and Vohra Veena provides a conceptual framework that identifies critical human resources practices that support organizational change and examines their impact on employee perception and commitment to change. An extensive literature review on organizational change at macro level has been done to identify critical practices desired from key organizational members during organizational change. Then a case for importance of HR function as a key organizational member during change is presented. Further literature on effectiveness of HR practices adopted by HR professionals during organizational change is examined to find out the gap areas. Third, literature on employee perception and commitment to change is examined to find out possible linkages to HR practices during organizational change. Finally eight propositions are presented to build an integrated conceptual framework identifying critical HR practices during organizational change and their impact on employee perception and commitment to change. The study suggests that HR practices undertaken in the area of culture, leadership, cross-functional integration, training, communication and technology if introduced and implemented will positively influence employee perception reducing resistance and increasing commitment to change. Therefore assessing employee perception about critical HR practices at different stages of change initiation, implementation and consolidation can enable understanding about employee commitment to change. This would also help HR professionals understand how effective the HR practices implemented during change have been. Researchers and practitioners can use this framework to manage HR during organizational change. So far literature provides a generic view of desired organizational practices during change. Moreover there are few studies available on employee perception about HR practices implemented during organizational change and its impact on employee commitment to change. The framework presented in the paper would help explore the effectiveness of specific HR practices implemented during change by evaluating its impact on employee perception and commitment to change.

The paper of Aureli Selena analyses cross-border acquisitions from India to Italy in order to understand their impact on the target company's business sustainability. While foreign direct investments performed by emerging multinationals from Brazil, Russia, India and China (also called BRICs) have generally been studied with a macro-perspective, this research aims to address the effects occurring at the firm level, adopting the target's perspective. The deal's effects are analyzed in terms of financial performance, i.e. using accounting data to assess profitability and future survival of the target, and in terms of value-added distributed to stakeholders to evaluate the positive/negative social impact of the acquisition at the local level. Case studies are examined to understand the motives behind the deal and if expected synergies result in target performance improvement. The justification of this study lies in the recent growth of international acquisitions by emerging multinationals, which are now important players in both the global market and in Europe and in necessity to understand if target companies preserve their capability to create economic value and to contribute to local communities. It evidences that some Indian acquirers intend to develop the target's actual business and simply don't search for a specific asset (brand or technical knowledge) without caring for the future of the company and its employees.

Dr Rosa Caiazza - Department of Management, Parthenope University of Naples, Naples, Italy

Daniel Dauber - Centre for Applied Linguistics, University of Warwick, Coventry, UK

References

Berry, J.W. (1980), “Acculturation as varieties of adaptation”, in Padilla, A. (Ed.), Acculturation, Theory, Models and Some New Findings, Westview Press, Boulder, CO

Caiazza, R. (2013), “Advisors' role in cross-border acquisitions: new challenges and opportunities”, Journal of Strategy and Management, Vol. 6 No. 3, pp. 309-314

Caiazza, R. (2014), “What drives firms to operate in south Mediterranean Countries?”, World Review of Entrepreneurship, Management and Sustainable Development, Vol. 10 No. 4, pp. 519-531

Caiazza, R. (2015), “Explaining innovation in mature industries: evidences from Italian SMEs”, Technology Analysis & Strategic Management, pp. 1-11, ahead of print

Caiazza, R. and Volpe, T. (2015), “Interaction despite of diversity: is it possible?”, Journal of Management Development, Vol. 34 No. 6, pp. 743-750

Cartwright, S. and Cooper, C.L. (1993), “The role of culture compatibility in successful organizational marriage”, Academy of Management Executive, Vol. 7 No. 2, pp. 57-70

Chatterjee, S., Lubatkin, M.H., Schweiger, D.M. and Weber, Y. (1992), “Cultural differences and shareholder value in related mergers: linking equity and human capital”, Strategic Management Journal, Vol. 13 No. 5, pp. 319-334

Child, J., Faulkner, D. and Pitkethly, R. (2001), The Management of International Acquisitions, Oxford University Press, Oxford

Datta, D.K. (1991), “Organizational fit and acquisition performance: effects of post-acquisition integration”, Strategic Management Journal, Vol. 12 No. 4, pp. 281-297

Dauber, D. (2011), “Hybridization in mergers and acquisitions”, doctoral thesis, Vienna University of Economics and Business, Vienna, available at: http://ssrn.com/abstract1/41743962 (accessed 23 February 2015)

Dauber, D. (2012), “Opposing positions in M&A research: culture, integration and performance”, Cross Cultural Management: An International Journal, Vol. 19 No. 3, pp. 375-398

Dauber, D., Fink, G. and Yolles, M. (2012), “A generic model of organizational culture”, SageOpen, Vol. 2 No. 1, pp. 1-16, available at: http://sgo.sagepub.com/content/2/1/2158244012441482

Fink, G. and Holden, N.J. (2007), “Resistance by host country staff in international ventures-a theoretical sketch: joint-venture-creation, acquisitions, mergers”, VHB-Kommission Internationales Management, February, Göttingen

Hurt, M. and Hurt, S. (2005), “Transfer of managerial practices by French food retailers to operations in Poland”, Academy of Management Executive, Vol. 19 No. 2, pp. 36-49

Larsson, R. and Lubatkin, M. (2001), “Achieving acculturation in mergers and acquisitions: an international case survey”, Human Relations, Vol. 54 No. 12, pp. 1573-1607

Lupina-Wegener, A.A., Schneider, S.C. and van Dick, R. (2011), “Different experiences of socio-cultural integration: a European merger in Mexico”, Journal of Organizational Change Management, Vol. 24 No. 1, pp. 65-89

Magala, S. (2012), “Shifting sands of research domains, migrating knowledge clouds and academic journals as Zeppelins (editorial considerations in mid-2012)”, Journal of Organizational Change Management, Vol. 25 No. 3, pp. 360-363

Olie, R. (1994), “Shades of culture and institutions in international mergers”, Organization Studies, Vol. 15 No. 3, pp. 381-405

Teerikangas, S. and Very, P. (2006), “The culture-performance relationship in M&A: from yes/no to how”, British Journal of Managment, Vol. 17, pp. 31-48

Tsui, A.S., Nifadkar, S.S. and Ou, A.Y. (2007), “Cross-national, cross-cultural organizational behavior research: advances, gaps, and recommendations”, Journal of Management, Vol. 33, pp. 426-478

Weber, Y. (1996), “Corporate cultural fit and performance in mergers and acquisitions”, Human Relations, Vol. 49 No. 9, pp. 1181-1202

Weber, Y., Shenkar, O. and Raveh, A. (1996), “National and corporate cultural fit in mergers/acquisitions: an exploratory study”, Management Science, Vol. 42 No. 8, pp. 1215-1227

Williamson, O.E. (1975), Markets and Hierarchies Analysis and Antitrust Implications: a Study in the Economics of Internal Organization, Free Press, New York, NY

Further reading

Weber, Y. and Pliskin, N. (1996), “The effects of information systems integration and organizational culture on a firm's effectiveness”, Information & Management, Vol. 30 No. 2, pp. 81-90