Globalization has exponentially increased the number of cross border M&A. The winds of globalization have forced businesses to look beyond their national borders for competitive advantage that is world wide in scale, even through foreign acquisitions. The advent of global capital and global finance, on a scale not witnessed ever before, has given a tremendous booster to the great merger movement and business globalization. Strategic alliances by and between global partners has become the order of the day.
Earlier a strictly national mindset stood in the way of considering the options of cross border M&A by small and medium sized companies. With change of mindscape due to the benefits of globalization, cross border M&A is an option today even on the agenda of small and medium sized companies. However, most of the cross border mergers have failed due to their complicated nature.
Even merger of companies, with headquarters within the same country, though not considered as cross border M&A, may involve integration of their operations spread across different nations around the world.
Understanding of the peculiar problems and challenges of cross border merger is essential for the buying company. Given the wide difference in culture, business norms and management styles among countries; management of cross border M&A can be extremely troublesome and painful. Despite the global imperatives on companies today, there are very real differences in the ways of doing business in different countries. These differences are in country culture, customer expectations, power of employees union and labor force, worker job security norms, regulatory landscape and parameters of corporate governance. These factors throw up extra challenges in cross border mergers. No wonder cross border mergers are potential minefields that call for utmost care and attention of the buying or acquiring company.
However, there are some basic principles that can make life a lot easier even in cross border mergers, particularly in the post merger integration process for value creation for stockholders. There should not be attempts to upset the long entrenched cultural traditions within the acquired company overnight for this is likely to backfire. The challenges of such cross border merger can be better negotiated by learning and respecting the differences in cultural ethos, business norms, legal system, labor laws, accounting standards, environmental regulations and other variables in the host country.
