Cross-Cultural Issues in International M&A and Joint Ventures

Denise Pirrotti Hummel, J.D. CEO, Universal Consensus denise@universalconsensus.com +1 760.696.0151

Presentation Pet Peeves For All Cultures

Speakers who self-promote rather than imparting valuable information Speakers who dont do what they say theyre going to do

Agenda
Who are We and Our Model How Culture Impacts International M&A Learn from the mistakes of others Key C-C Objectives for M&A International M&A Challenges by Comprehension Lens Stage One, Two & Three M&A Checklist Case Studies Q&A

The Gateway to Cross-Border Success

Leverage the Power of Culture to Optimize the Bottom Line

Our Model
Optimize international business through six comprehension lenses

Optimizing Sales Across Cultures

CHINESE Guan Xi (Personal Connections) Zhong Jian Ren (The Intermediary) Shehui Dengji (Social Status) Zhengti Guannian (Holistic Thinking) Jiejian (Thrift) Mian Zi (Face or Social Capital) Chiku Nailao (Endurance) Maintain The Client

E-Blasts Networking Meetings The younger, the better Linear thinking Quality wins Confrontation when necessary Minor deviations for negotiating room

WESTERN Establish Rapport

Sell additional work & Get Referrals

32% Increase

Maximize Lead Generation

Optimizing Communication & Operational Procedure Across Cultures

Optimizing Foreign Assignments & Core Competence

Unfamiliar norms & Expectations?

Gifts?

Diverse Values?

Greetings?

Optimizing Supply Chains Across Cultures

AIM & DRIVE

Identify
Why is communication breaking down?

Agree
on need to manage costs

Critical Costs

Measure
secondary & tertiary costs

How do we negotiate ideal terms for our Establish client? Rapport

Eternally improve &

leverage process
When is a deadline a deadline?

Define key cost

drivers & develop strategic options

How do we maximize efficiency?

Verify
plan with cost monitors

Reduce,
Implemen
t action plan change or eliminate costly activities

Can we leverage other terms to get our price?

When is a deal a deal?

Optimizing Global Marketing

Localizing a Global Vision

International M&A
The Risk

According to a KPMG study, "83% of all mergers and acquisitions failed to produce any benefit for the shareholders and over half actually destroyed value."

Interviews of over 100 senior executives involved in these 700 deals over a two-year period revealed that the overwhelming cause for failure is attributed to cultural differences."

Cross-cultural differences is the main reason deals fail internationally

- David Andresen, Managing Director, Oracle Capital, leading San Diegobased investment banker

M&A
Key Cross Cultural Objectives

Learn from the Mistake of Others

Chrysler Daimler-Benz Merger

Studied financial & facilities integration Meticulously negotiated management contracts Planned integration of business functions What about The Human Element ?

Learn from the Mistake of Others

Divergence of Corporate Cultures

Americans
Values: speed from design to production Design: Read and adjust to consumer taste by quickly designing new products Innovation: Major priority Risk Taking: Whenever & wherever! Consumer expectation: 3 year shelf-life Price: low price

Germans
Values: Perfection over speed; Superb engineering Design: Brand Identification > design changes Innovation: well-documented need Risk Taking: Low tolerance for risk taking Consumer expectation: 9 years Price: High-end market

Learn from the Mistake of Others

Divergence of Corporate Culture

Americans Style: Egalitarian Vertical span: Limited hierarchy Formality: Low formal protocol & etiquette Priority: Speed & volume

Germans Style: Discipline & Structure Vertical Span: Complex & Vast Vertical Hierarchy Formality: Very Priority: in the product and status

Learn from the Mistakes of Others

The capacity for rapid change, innovation, and risk-taking that made Chrysler successful was the antithesis of the meticulous detail that was synonymous with Daimler-Benz. End Result ? Daimler sold Chrysler in 2007 at a $44 bn. loss

Six Challenges through Six Comprehension Lenses on the Path to Merger Success
Merger success is possible; however, being part of the 17% that succeeds, rather than the 83% that does not deliver, requires more than evaluating hard costs

Failure to assess the human element will, in the end, prove far more costly & may jeopardize the success of the entire transaction.

Challenge #1: Cultural Themes: Blinders in the Pre-Merger Stage

The Solution: Early Cross Cultural Assessment

Challenge #2: Glocalization Failure to Anticipate

The Solution: Focus on Localized Value

Challenge#3: Group Dynamics Divergent Leadership Techniques

The Solution: Merger of Leadership Ideals

Challenge #4: Communication: Alignment

The Solution: The 5 Cs

Concise Concrete Clear Contextual Collaborative

Challenge #5: Process Engineering: Structural Clarity

The Solution: Substance > Form

Challenge #6: Difference in Time Orientation

Saudi Arabia Spain Thailand UAE

Brazil Brunei Chile Egypt Greece India Indonesia Iran Malaysia Mexico Pakistan Philippines Portugal Qatar Vietnam

Argentina China Czech Republic France Ireland Italy New Zealand Norway Poland Romania Russia Singapore Taiwan Turkey Ukraine

Australia Austria Belgium Canada Finland Hong Kong Israel Japan Netherlands Sweden

Denmark Germany Switzerland United States

The Solution: Provide Context

Stage One Checklist

M&A

Stage 1: Pre-Combination Checklist

Explore the objectives of the M & A (C-C match) Beware of the C-C Due Diligence issues
Cost (Economies of Scale or Nightmare)

Choose an M& A team leader who is C-C core competent Search for potential partners that are a C-C match Plan for managing the process: your C-C counterpart Plan to learn from the process (strategically)

Stage Two Checklist

M&A

Stage 2-Combination and Integration Checklist Select a culturally savvy integration manager Design & implement cross cultural integration teams Creating the new C-C structure/strategies/ leadership Retain key employees by exploring their divergent needs Motivate the employees according to their norms Manage the change process according to their change tolerance Communicate and involve diverse stakeholders Collaborate on the new H.R. policies and practice

Stage Three Checklist

M&A

Stage 3: Solidification and Assessment Ongoing Checklist

Solidify leadership and staffing Assess the new strategies and structures Assess the new culture Assess the new HR policies and practices Assess the concerns of stakeholders Revise as needed Learn from the process

Next steps
The World Might be Separated by International Borders, but your Business Doesnt Have to Be

ROI of Cross Border Optimization

89% of international assignees identify crosscultural training as key to success; 88% say it should be compulsory 53% of executives say that different cultural approaches impede project success. 82% of project managers say adopting cross-cultural communication training programs increases productivity by 26% 62% of international technology projects fail for non-technical reasons mainly faulty communication 52% increase is forecasted for 2012 Foreign Direct Investment in U.S.

Be the Worlds Local Company

Leverage the Power of Culture to Optimize the Bottom Line

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