M&A Culture Factor Indian Context

Stereotypes need to be unlearned
Geographic styles
Values, Different cultures value things differently – Life, Family, Money and Possessions, Autonomy
Communication Verbal- Yes/No, agenda.. and non verbal –eye contact, physical contact

In the mid-1990s, Chrysler Corporation was the most profitable automotive producer in the world.
its U.S. market share climbed to 23% in 1997
As revenues and market share rose, product development costs shrank to 2.8% of revenues - compared with 6% at Ford and 8% at General Motors.

July 17, 1997, Chrysler CEO Bob Eaton - Auburn Hills, Michigan- The Perfect Storm, a tale of three fishermen
chronic overcapacity, retail revolution that empowered buyers, environmental concerns
Daimler-Benz luxury vehicles had captured less than 1% of the American markets.
Chrysler's primary reason for teaming with Daimler-Benz is to extend its international reach
May 7th, 1998

"merger of equals“!!!!! Daimler-Benz CEO Jürgen Schrempp
U.S. market share has sunk to 14%, earnings have slid by 20%,
the once independent company has been fully subordinated to Stuttgart
DaimlerChrysler CEO Jürgen Schrempp, "What happened to the dynamic, can-do cowboy culture I bought?"

Corporate Structure ---
Daimler - Hierarchical Structure
Chrysler - Team-orientated
Corporate Cultures
Daimler - M anagement processes of planning, organizing and controlling. More conservative, efficient and safe .
Chrysler - Setting goals, directing and monitoring implementation. Known as the risk-taking underdog
Customer proposition ---
Daimler -
The driving image and experience associated with the highest quality available in the market .
Chrysler - Attractive, eye-catching design at a very competitive price

Value chain
Daimler -
Emphasis on engineering, design, quality and after sales service.
Chrysler -
High volume, low cost manufacturing and distribution
Leadership
Daimler -
J ü rgen Schrempp - with independent personality and South African overlay.
Chrysler -
Robert Eaton - broke the Chrysler tradition of commanders

Recognize the differences in the corporate contexts – will this merger work?
Channels of communication must be open
Consider a mediator at meetings – hired help (if you are a multi-billion dollar company)
Goals, goals, goals?
Avoid cultural stereotyping
Trade employees – a major failure
Resolve cultural stereotypes
Contextual differences - $
Share knowledge
Exploit the merger

In 1999, Renault caused a considerable stir by becoming Nissan’s biggest shareholder.
Renault has since reinforced its position as the Japanese manufacturers’ main share holder, the two brands have nevertheless succeeded in preserving their own identities
not only made possible a number of joint projects, but has also led to the creation of institutional entities for strategic command and operational coordination.

Belief that alliance, merger, acquisition – any corporate combination is about partnership & trust rather than power & domination
Merger struggle or fail when on paper they seem to succeed from financial and operating perspective
balance between making changes and safe guarding identity
Dignity of people to be respected even when they are challenged to over run deep seated practices and tradition.

The most fundamental challenge of an alliance or merger is cultural: if one does not believe anything can be learned from one’s partner, the venture is doomed to fail.
In the final analysis the only real asset the company has is its people, and the people perform well only if they are motivated.
People will not give their best effort if they feel that their identity is being consumed by a greater force.

The successful Renault-Nissan alliance demonstrates that you can handle cross-cultural differences properly only if you understand that you start with many ingrained prejudices and preconceptions of your own. This is nothing to be ashamed of. We are all bound to be influenced by the culture from which we have originated
Incidentally, it is risky to imagine that avoiding cross-cultural problems is just a matter of applying common sense. Too many senior executives believe that they, their colleagues and subordinates will find it easy to navigate the choppy cross-cultural seas by intuition only

First, you need to know yourself. You must identify and be aware of what constitutes “normal” behavior for you. What are your values? How do you see the world? What kind of behaviors and preconceptions in social and business settings do you regard as the norm? Of course, what you regard as the norm is not really an objective norm, but only your take on it. But you need to understand this before you can move on

Next, you need to understand the factors that have determined what your counterparts in different countries regard as the norm. Geographical, demographic, historical, religious, educational and economic facts create the attitudes that shape the behavior of the people from the particular culture you are dealing with

This second step demands careful thinking and analysis. It is all too easy to forget how deep and ingrained your counterparts’ attitudes (and yours, for that matter) are likely to be. Particular attention should be paid to thinking about the attitudes that you and others are likely to have towards:
Time – for example, how important is punctuality and sticking to deadlines?
Truth – for example, what is the attitude towards honesty, right and wrong?
Relationships – for example, what is the attitude taken towards senior people in the organization?
The human condition – for example, what is the attitude to risk and free choice?
Communication – for example, are frankness and directness appreciated?

The third step of handling cross-cultural differences is to know how others see you. It is essential that you develop an awareness of how people from other cultures perceive you and your own culture. You especially need to be aware of any negative perceptions they might have about your culture.
The fourth step is to learn to adapt, while remaining true to your own values. But you can – and frequently should – make a conscious effort, and in a totally non-patronizing fashion, to alter your communication style if you are to work effectively with people from other cultures. In particular, think about how you use English. It is helpful to employ a kind of simplified English when doing business with non-native speakers

Punctual, Etiquette, Rules, Order oriented, very formal
Avoid I & You
Not touching society, very sensitive, intermediates preferred
Take lot of time to understand, meetings after meetings. Frustrating for others. But when they trust they go with it. E.g. Frustrating US in recent NSG meet over India
Don’t like loosing face, admitting failure or incapability.
Power distribution
Confucianism (since 2500 yrs) importance of society, group and hierarchical relationship

Punctual, Etiquette, Rules, very formal
Indirect vague reference more acceptable than direct and specific reference
Sentence are frequently left unfinished so that others can make conclusions
All kind of delicate nuances. Very symbolic. Sensitive. Don’t like to loose face
Family, group, consensus oriented
Power distribution

Goal and Achievement Oriented
Highly Organized and Institutionalistic
Freedom loving and self reliant
Work oriented and efficient
Friendly and informal
Competitive and aggressive
Transition
Judeo Christian emphasis on personal achievement and individual self worth
The society formation - Irish famine and the gold rush

Cross-border mergers and acquisitions (M&A) activity is booming. In 2005, Europe saw a 58 percent surge in transnational deals; in Japan, cross-border M&A jumped 21 percent, and in India the rise was a staggering 68 percent

With the current equity collapse and economic slowdown
M&A till may ‘08 were at $6.8b (39% less than the corresponding figure in ‘07)
2006 total $7.3b for outbound M&A
Last two years, Indian cos. Have spend $40b in overseas acquisition, 4 times on domestic deals
In the first nine months of 2006, for example, Indian companies announced 115 foreign acquisitions with a value totaling $7.4 billion, according to The Economist . That is roughly a seven-fold increase from 2000.
Varied Sectors, IT, Steel, Chemicals, Pharmaceuticals, Jewelry store

Sudanese oil field
South korean truck maker
British tea company
Singapore paint co with plants in 12 countries
Anglo dutch steel giant Corus
Infosys Technologies’ £407 acquisition of United Kingdom-based SAP services provider Axon Group plc

One major U.S. acquisition took place in February 2006 when GHCL, based in the state of Gujarat, India, acquired Dan River, a Danville, Va.-based maker of home textiles for $93 million ($17 million in cash and the assumption of $76 million in debt).
Dan River had many mills inside the U.S., but was facing significant challenges and was competing with low-cost providers outside the country
"GHCL bought Dan River for more than $90 million, shut factories and started sourcing [its raw materials] from India. Two years later, Dan River is doing a lot better. It turned a profit in October."

Power Distance Index (PDI) that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that 'all societies are unequal, but some are more unequal than others'.
Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are inte-grated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world

Masculinity (MAS) versus its opposite, femininity, refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. The IBM studies revealed that (a) women's values differ less among societies than men's values; (b) men's values from one country to another contain a dimension from very assertive and competitive and maximally different from women's values on the one side, to modest and caring and similar to women's values on the other. The assertive pole has been called 'masculine' and the modest, caring pole 'feminine'. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men's values and women's values.
Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; 'there can only be one Truth and we have it'. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions

Long-Term Orientation (LTO) versus short-term orientation: this fifth dimension was found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one's 'face'. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; however, the dimension also applies to countries without a Confucian heritage.

Difficult to understand all kinds of contradictions in progress, thought, attitude etc. e.g. very particular about personal cleanliness but not about public.
Very tolerant
Completely accept the fact that an outsider is unfamiliar with the customs and procedures

Power Distribution – 77, World- 56.5
Long Term Orientation – 61, World – 48 (perseverance and parsimony)
Masculinity – 56, world – 51 (greater than average gap between values of men and women, chances of a more competitive and assertive female population )
Individuality – degree to which one is on his/her own and cares only for immediate family – 48!, world – 43.6
Uncertainty Avoidance – 40, world – 65, India more open to unstructured ideas and situations
Country closest to India – Phillipines, Hong kong, China, Iran, Morocco, East Africa, Arab world.
Fathest – Central America, Israel, European countries – Denmark, Austria & Greece

India –Iran /India-Turk pipe line
Failure to acquire projects in central Asian Republics
Many UK/US/Canada companies working in Arab world, Georgia, Central Asian republics
Lot of Chinese work in East Africa

Companies are far more cautious in their due diligence when it comes to acquisition in culturally disparate countries.
A far larger number of such deals fall through at the due diligence stage
Those that survive therefore are more likely to have considerable synergies to gain from.

In acquisition between culturally distant countries, the acquirer is much more likely to grant greater autonomy to the target firm, admitting the target’s superiority of knowledge of business practices in the latter’s country.

**I don’t really mean that. **Can I skip this slide?

- Sumit
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M&A Culture Factor Indian Context

by Sumit Singh

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