© Günter K. Stahl
EIASM Workshop on International Strategy and Cross-Cultural
Management, Helsinki, September 24-26 2009
How, Where and Why Culture Matters in Mergers and Acquisitions: A Research Synthesis and Agenda for Future Research
Günter K. Stahl, WU Vienna and INSEAD

© Günter K. Stahl

© Günter K. Stahl
Lots of Anecdotal Evidence Showing Negative Effects
Another drug industry mega merger goes bust: Clash of cultures kills Monsanto-AHP marriage.
T. Burton & E. Tanouye, Wall Street Journal , October 14, 1998
Every CEO who has been through a cross-border merger says he knew culture was going to matter but did not realise how much.
C. Firstbrook, Head of Strategy Europe, Accenture , Financial
Times , July 31, 2008
It’s difficult enough for two domestic firms with markedly different cultures to combine. But in a cross-border context, opportunities to misunderstand and disagree multiply like weeds.
R. Bruner, Harvard Business Review, May 2004

Theory Predicts Negative Effect
 “Cultural Distance” Hypothesis: The difficulties, costs and risks associated with cross-cultural contact increase with growing cultural differences
(Hofstede, 1980).
 M&A literature has sought to explain M&A failure in terms of “cultural distance” (Morosini et al., 1998), “cultural divergence” (Birkinshaw et al.,
2000), “cultural incompatibility” (Larsson & Finkelstein, 1999), “cultural risk”
(David & Singh, 1994) or related concepts.
 Cultural fit (e.g., Cartwright & Cooper, 1996) and acculturation models
(Nahavandi & Malekzadeh, 1988) propose that the cultures of merging firms have to be similar in order to integrate successfully.
 Social identity theory (e.g., Hogg & Terry, 2000) and trust research (e.g.,
Stahl & Sitkin, 2005) suggest that cultural distance has an adverse impact on interorganizational relationships and post-merger integration.
 But some theoretical evidence that cultural differences can be a source of value creation and learning in M&A (Vermeulen & Barkema, 2001).
Source: Stahl & Javidan (2009). Comparative and cross-cultural perspectives on cross-border mergers and acquisitions. In Bhagat & Steers
(Eds.), Handbook of culture, organization, and work . Cambridge University Press.
© Günter K. Stahl

Lenovo
• $3b revenues
• 27% of Chinese Market
• No. 8 global PC maker
•
Founded 1984, HK listed 1994
IBM PC Division
• $10b revenues (IBM total: $96b)
• 8% of global market
• No. 3 global PC firm
•
IBM founded 1911
$1.75b deal: 600m equity (19% stake), $650m cash, take over $500m liabilities
Lenovo takes over IBM PC Division (announced 8 Dec 2004, completed 1 May 2005)
• Right to use IBM brand name for 5 yrs
• IBM provides sales and support services
• IBM will be preferred vendor for financing and maintenance services
• 10,000 IBM employees join Lenovo
© Günter K. Stahl
Source: Stahl, Ngo & Yean (2008). Lenovo-IBM: A marriage across 12 time zones. INSEAD Case.

Source: Korine, Asakawa & Gomez (2005). Renault and Nissan: Partnering with the unfamiliar. In Stahl & Mendenhall (Eds.),
Mergers and acquisitions: Managing culture and human resources . Stanford Business Press.
© Günter K. Stahl

Source: Kühlmann & Dowling (2005). DaimlerChrysler: A case study of a cross-border merger. In Stahl & Mendenhall
(Eds.), Mergers and acquisitions: Managing culture and human resources . Stanford Business Press.
© Günter K. Stahl

Some people consider cultural differences as a source of friction and conflicts. It is true. But cultural differences are basically a source of enrichment and progress.
(Carlos Ghosn, 2000)
Cultural differences can be viewed as either a handicap or a powerful seed for something new. What we see today [in Renault-Nissan] is that differences in culture are … seen more and more as a means of cross-fertilization and innovation.
… So, it is a careful selection of best practices.
(Carlos Ghosn, 2001)
Sources: Carlos Ghosn, INSEAD Tokyo Forum, November 2000;
Emerson 2001 ‘An interview with Carlos Ghosn, President of Nissan Motors and Industry Leader of the Year. Journal of World Business, 36, 3-10 .
© Günter K. Stahl

Empirical Evidence is Mixed
 Cultural distance was found to be negatively related (e.g., Weber, Shenkar
& Raveh, 1996), unrelated (e.g., Markides & Oyon, 1998), or positively related (e.g., Morosini, Shane & Singh, 1998) to measures of postacquisition performance.
 Success rate of cross-border M&A was found to be higher than for domestic M&A (e.g., Chakrabarti et al., 2009).
Source: Stahl & Javidan (2009). Comparative and cross-cultural perspectives on cross-border mergers and acquisitions. In Bhagat & Steers
(Eds.), Handbook of culture, organization, and work . Cambridge University Press.
© Günter K. Stahl

a) Unmediated model
Cultural
Distance
M&A
Performance b) Mediated model
Cultural
Distance
Mediating Variable
(e.g., Resistance)
M&A
Performance
Moderating Variable
(e.g., Integration Level) c) Moderated model
Cultural
Distance
© Günter K. Stahl
M&A
Performance

d) Complex model
National
Industry
Functional
Company A
Culture
Corporate
Professional
Moderating Variable
(e.g., Integration Level)
Cultural Differences
- Practices
- Values
- Assumptions
National
Industry
Functional
Company B
Culture
Corporate
Professional
Mediating Variable
(e.g., Resistance)
M&A Performance
- Operational synergies
- Accounting performance
- Abnormal returns
Source: Stahl (2008). Cultural dynamics and impact of cultural distance within mergers and acquisitions. In Smith, Peterson
& Thomas (Eds.), The Handbook of cross-cultural management research (pp. 431-448). Thousand Oaks: Sage.
© Günter K. Stahl

Dimension of
Cultural Differences
(Moderators)
Degree of
Relatedness
Note: a The relationship between cultural differences and task integration has not been examined with sufficient frequency in previous research to be considered in this meta-analysis.
Cultural Distance
- Practices
- Values
- Basic assumptions
Integration Process
Sociocultural
Integration
- Shared identity
- Positive attitudes
- Trust
M&A Performance
Synergy
Realization
Accounting performance
Task Integration a
- Capability transfer
- Resource sharing
- Learning
Shareholder Value
Abnormal returns
Time
Source: Stahl & Voigt (2008). Do cultural differences matter in mergers and acquisitions? A tentative model and meta-analytic examination. Organization Science , 19, 160-176.
© Günter K. Stahl

I.
II.
III.
Final Sample: 46 studies that examined the relationship between cultural distance and M&A performance, with a combined sample size of 10,710 M&A, completed over a 54-year period (1950-2004)
© Günter K. Stahl

Outcome Measure K N Mean ES
Range of
ES
Q
Sociocultural Integration
(Behavioral/Attitudinal Measures)
Synergy Realization
(Accounting Measures)
Shareholder Value
(Stock Market Measures)
– Announcement effects
– Longer-term effects
– Target firms
– Acquiring firms
15
15
16
9
7
6
8
1316
1692
7702
2418
5693
5490
2041
-0.09*** -0.74; 0.23
0.01
-0.01
0.08*
-0.05*
-0.38; 0.42
-0.62; 0.22
285.05***
-0.62; 0.20
-0.40; 0.22
43.59***
86.77***
40.92***
214.94***
0.07** -0.03; 0.20
19.32**
-0.26*** -0.62; 0.19
102.07***
Notes: k = Number of studies; N = Sample size (number of M&A); Mean ES = Weighted mean effect size;
Q = Value of chi-square distributed homogeneity statistic Q ; * p < .05; ** p < .01; *** p < .001.
Source: Stahl & Voigt (2008). Do cultural differences matter in mergers and acquisitions? A tentative model and meta-analytic examination. Organization Science , 19, 160-176.
© Günter K. Stahl

1. Positive and negative effects on outcome variables (which partly or fully offset one another);
2. Moderated relationships (e.g., impact of contextual factors);
3. Mediating mechanisms and intervening variables;
4. Non-linear effects of cultural distance on outcome variables;
5. Combining of outcome measures that share little common variance (i.e., the mixing of “apples and oranges”);
6. Effects of study design and sample characteristics.
Source: Stahl (2008). Cultural dynamics and impact of cultural distance within mergers and acquisitions. In Smith,
Peterson & Thomas (Eds.), The Handbook of cross-cultural management research (pp. 431-448). Sage.
© Günter K. Stahl

Focal Organization
Shareholder
Value
Note: + ,
–
, n.s.
indicate significant and non-significant main effects
Time n.s.
Cultural
Distance
-
Sociocultural
Integration
+
+
Relatedness n.s.
Example: Moderator Analysis
Outcome
Measure
Sociocultural
Integration
Synergy
Realization
Moderator:
Degree of
Relatedness
Low
High
Low
High
Z
2.24
*
3.28
*** k N
Mean
ES
9 994 -0.06
4 306 -0.21
3 328 0.16
6 805 -0.06
Level of
Culture
Synergy
Realization
Notes. Z = Z value of critical ratio test for the comparison of subgroups; k = Number of effect sizes; N = Number of
M&A examined; Mean ES = Weighted mean effect size;
* p < .05; ** p < .01; *** p < .001.
Source: Stahl & Voigt (2008). Do cultural differences matter in mergers and acquisitions? A tentative model and meta-analytic examination.
Organization Science , 19, 160-176.
© Günter K. Stahl

• Cultural differences present “double-edged sword” – may be positively or negatively associated with M&A performance, depending on contingencies such as the degree of relatedness and integration design.
• The ability to manage the sociocultural integration process in an effective manner appears to be a key factor influencing M&A outcomes.
• Research design characteristics such as type of outcome measure, time of measurement, and focal organization (acquirer, target) affect study results.
• Existing research suffers from methodological weaknesses : level-of-analysis problems; validity of ‘cultural distance’ measure; simplistic assumptions about cause-effect relationships; lack of control for confounding variables; etc.
• Future research should open the “black box” of M&A integration . Issues that deserve more research attention include:
–
–
– the temporal dynamics of the sociocultural integration process; the role of context in shaping the performance effects of cultural differences; how differences in culture facilitate or undermine the transfer of capabilities, resource sharing and learning.
© Günter K. Stahl

• Sociocultural dynamics and synergy exploitation: A study of Israeli biotechnology firms engaged in M&A (with Yaakov Weber) .
• Cultural distance and capability transfer in M&A: The mediating roles of capability complementarity, absorptive capacity, and social integration
(with Eero Vaara, Riikka Sarala and Ingmar Björkman) .
• The role of trust in the post-merger integration process
– Role of leadership in M&A: Integration managers as gate keepers and trust builders (with Sim Sitkin)
– Factors influencing trust in acquisitions: A decision-making simulation
(with Amy Pablo and Chei Hwee Chua)
– Role of trust in the post-acquisition integration process: A case survey
(with Rikard Larsson)
• M&A case studies
– Lenovo-IBM: A marriage across 12 time zones
(with Winston Yean)
– Teva Pharmaceuticals: Growth through acquisitions (with Haim Benjamini)
– Emirates Bank/National Bank of Dubai: Building a regional champion
(with Paul Evans)
© Günter K. Stahl

Note: + ,
–
, indicate significant main effects
Team Size
+
Conflict
Task Complexity
+
Creativity
Cultural
Diversity
Performance
Social
Integration
Team Dispersion
-
+
(no direct relationship between diversity and performance found)
Satisfaction
Team Tenure
Sample: 108 studies, with combined sample size of 10,632 teams
Source: Stahl, Maznevski, Voigt & Jonsen (forthcoming). Unraveling the diversity-performance link in multicultural teams:
Meta-analysis of studies on the impact of cultural diversity in teams. Journal of International Business Studies.
© Günter K. Stahl

Mergers and Acquisitions
Managing Culture and Human
Resources
Edited by Günter K. Stahl and
Mark E. Mendenhall
Contributors: D. Schweiger, H. Lane,
P. Dowling, M. Javidan, R. Larsson,
A. DeNisi, P. Evans, S. Cartwright,
S. Sitkin, I. Björkman, S. Chaudhuri,
Y. Weber, H. Korine, K. Asakawa,
V. Pucik, R. Olie and others
Professors Stahl and Mendenhall have done a superb job putting together a book that focuses on one of the most important yet often neglected areas in the field of mergers and acquisitions, that of creating a common corporate culture and optimizing human capital.
Jean-Pierre Garnier, CEO, GlaxoSmithKline
This book rejects simplistic analyses and instead explores the human and social paradoxes, complexities and challenges that are inherent when business systems integrate.
Carlos Ghosn, CEO, Nissan and Renault
This book, a unique collaboration between leading academics and seasoned practitioners, offers the most insightful and practical account yet of how one can get a grip on the 'softer' social, psychological and cultural aspects that are at the heart of successful integration.
Philippe Haspeslagh, Paul Desmarais Chaired Professor, INSEAD
This book provides a wealth of insights into the human side of the integration process: where it goes wrong, and what firms can do to manage it better.
Julian Birkinshaw, Professor of Strategy, London Business School
The book effectively blends scholarship and practice with chapters by respected scholars, commentaries by top executives and actual cases of M&A … This volume is of significant value to both scholars and executives alike.
Michael Hitt, Joseph Foster Chaired Professor, Texas A&M University
© Günter K. Stahl