Alicia Clegg March 30, 2017 As the appetite for cross-border deals increases, business schools are mining insights from corporate couplings that prospered against the odds, in the hope that they hold valuable lessons for managers struggling to overcome cultural divisions.

Case studies plunder the past for lessons in how to turn adversity into success. For example, few would have bet on a good outcome when Haier, China’s leading home appliances maker, formed a joint venture with Sanyo Electric to develop refrigerators in Japan — a 2007 episode in corporate history studied by researchers at Iese Business School in Spain.

Speculation was rife among the Japanese workforce that Haier, the majority partner, merely wanted to rip off Sanyo’s know-how. “There was a lot of uncertainty,” says Du Jingguo, Haier’s Asia chief executive, of the deal. “Would we co-operate long term or did we just want to take the technology?”

Culturally, the two companies were poles apart. While Haier promoted staff on merit and paid by results, Sanyo was wedded to the Japanese tradition of promoting by age and length of service. Undeterred, Mr Du split the Japanese workforce into small groups and night after night, over rounds of drinks, he listened to their concerns.

In the end, his softly-softly approach paid off. Guided by what he learnt, Mr Du began to promote younger employees, but in a way that spared the pride of their seniors, who were given honorific titles and opportunities to work beyond retirement to compensate for their loss of expected income.

His bridge-building helped pave the way for Haier’s acquisition in 2012 of Sanyo’s whitegoods business in Japan and other south-east Asian markets — though he paid a price. “After two years of drinking, I developed a gastric ulcer,” he says.

Acquisitions are an important way for businesses to grow and gain knowledge. With global M&A activity at highs last seen in 2007, deals today often cut across borders, with emerging market companies among the biggest spenders. In 2016, according to Deloitte, Chinese acquirers spent 10 times more on European businesses than vice versa.

However, studies typically find that between 40 and 70 per cent of all deals fail to pay back.

A third of companies blamed differences in corporate culture for their lack of success in one of only a few quantitative studies of post-deal integration, conducted by Aon Hewitt, the consultancy, in 2011.

For deals that mix businesses from advanced and emerging markets, the statistics may be worse. On top of differences in corporate ethos and all the other hazards that cause mergers to unravel, such as incompatible IT systems and personality clashes, there is the risk of cultural misunderstanding. What can organizations do to improve the success rate? And after a merger, what is the best way for companies from cultures that are worlds apart to work together?

Encouraging employees with cross-cultural backgrounds, who have lived and worked in both countries and speak the local language to act as link points between headquarters and local management is a good first step, says Sebastian Reiche, an associate professor at Iese Business School, and the co-author of the case study of Haier’s acquisition of Sanyo Electric.

When a foreign acquirer buys a business, employees often fear for their future. Will our jobs be moved abroad? Do the new owners understand what our customers like? Rather than parachute in expatriates and risk a brain drain, a wiser course may be to retain the local leadership and build on what made the business successful. As Prof Reiche puts it: “You don’t want to destroy the asset that you are buying.”

Infosys, the Indian IT business, is grappling with the dual dilemma of how to integrate foreign acquisitions without stifling their entrepreneurial spirit or falling foul of cultural differences.

Rajesh Krishnamurthy, who heads Infosys Consulting, cites Noah Consulting, a Houston based information management business, still led by its founders under Infosys’s umbrella, as an acquisition that the business got right.

To help the founders integrate their company into their new parent’s systems, Mr Krishnamurthy recruited two managers of Indian origin from Infosys’s US operations.

Having lived in India and the US, the managers were also able to provide the cultural translation sometimes needed between Houston and Bangalore.

Mr Krishnamurthy observes that while some nationalities, notably Americans, spell things out, Indians make their points in a more roundabout way. They often hate to say no.

His comments are supported by the analysis of communication styles conducted by Erin Meyer, a professor of organizational behaviour at Instead. When cultures with different styles of disagreeing meet, she notes in The Culture Map, misunderstandings are the result. As Mr Krishnamurthy puts it: “It can seem to others that we beat about the bush.”

Even businesses that appreciate the importance of culture can be wrongfooted by differences that they fail to anticipate. Nathan McDonald, co-founder of We Are Social, a London-based marketing services agency acquired by Blue Focus, China’s largest marketing services group in 2013, highlights the breakneck speed by which business is conducted in some emerging markets as a potential pinch-point in cross-cultural deals.

“In China, everyone is in a big hurry because the growth is so fast,” he says.

Mr McDonald recalls a sticky moment when the HR director at Blue Focus proposed visiting his team — but at such short notice that he and his partner would have had to cancel client meetings to host her. So they emailed back, emphasizing that while they were eager to spend time with her, their commitments to their clients took priority.

Now the companies schedule a monthly catch-up call at which future visits are planned.

“We’ve learned how to calibrate our expectations, we’ve adjusted to their pace and they’ve adjusted a bit to us,” Mr McDonald says.

While acquirers need to respect cultural differences, an entirely hands-off management style may not be the answer. Even subsidiaries that relish autonomy want to feel connected to the wider whole, says Mr Krishnamurthy.

There are commercial drawbacks to managing businesses as standalone entities. If each company exists in a silo, there is no knowledge-sharing, and no learning from each other’s successes and mistakes.

Organizing exchange visits and opportunities to collaborate on shared projects may be one way to foster a sense of collective identity. At Infosys, workers from across the group are encouraged to dial into monthly forums and present their top innovations so that good ideas can be shared.

Local differences in the protections that workers enjoy on matters such as disability, health and safety, gender and LGBT rights are another hazard that companies must negotiate. Though respecting local law may be all that is required to operate legally, applying different policies internationally can expose companies to accusations of hypocrisy.

To avoid such problems employers’ forums, such as Business Disability International, recommend adopting company-wide policies on equality rights and applying them globally.

Mr Du, for his part, remains committed to fostering entrepreneurialism in a culturally sensitive way. Though progress can be slow — persuading Japanese workers to accept just the basic principle of performance-related incentives took six months of discussion — he insists that there is no alternative.

“As the manager, I can issue an order, but if people don’t agree in their hearts, the order will be meaningless,” he says.

Question 11-1. Discuss the importance of top leadership in bringing together effective cross-cultural teams. How can leaders affect the relative success of cross-border mergers?
11-2. What kinds of potential cross-cultural conflicts are evident in this case?
11-3. What steps did Mr. Du take to pave the way to a successful relationship between Haier and Sanyo Electric?