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How to achieve cultural integration in mergers and JVs

BritCham / CBBC
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Our HR & Training Forum held a busy workshop on 8 August about how to bridge the culture gap following a Sino-UK merger or joint venture (JV).

Talks at the workshop, held at the British Business Centre in Beijing, focused on three aspects:

  • The role of cultural integration in cross-cultural mergers and JVs, and approaches to solve problems (Jeremy Perks, Managing Director, Mindset Matters Group)
  • Study of a contemporary case: Lenovo and IBM (Lambert Bu, Associate Partner, McKinsey & Co China)
  • Rolls-Royce's experience in China and abroad (Patrick Horgan, Regional Director, North-East Asia, Rolls-Royce)

Jeremy Perks focused on the psychological and personal effects of a cross-cultural merger/JV, highlighting Peter Drucker's maxim "culture eats strategy for breakfast" to illustrate the importance of getting things right at a personal as well as a management level.

He summed up the "human" fears of a workforce about to be integrated in another company - particularly one from another country - by explaining that employees fear losing their SCARF: Status, Certainty, Autonomy, Relatedness (i.e. working relationships) and Fairness (i.e. will my years of service now go out of the window?). It is inevitable, he claimed, that in a post-merger environment, individuals prioritise their own concerns over those of the organisation.

A significant factor in smooth integration and people management is that actions speak louder than words: in other words, employees from both sides of the merger will pay more heed to what actually happens and how they are treated after the merger than to anything that was promised beforehand, or other verbal assurances.

Lambert Bu concentrated on the specific case of Lenovo and IBM. The former, a Chinese company, acquired IBM's personal computer business in 2005 and has now all but finalised a deal for its servers. McKinsey was called upon for advice on integration, and Mr Bu ran through the successful and less successful aspects of synergising the two companies and their culture. He particularly noted the issues thrown up by different management styles - one top-down, the other spread throughout the management chain - and by the companies' independent ambitions and strategies with relation to the US, Chinese and global markets.

Patrick Horgan ran through the longstanding experience of Rolls-Royce, citing a joint venture in China and an acquisition in Scandinavia. The latter caused difficulties for Rolls-Royce only years after the acquisition, because no measures had been taken to align the companies involved. The consequences of the failure to integrate the Scandinavian and British arms came to the surface only when business took a downturn after the financial crisis, when, as Mr Horgan put it, the overall company paid the price for deferring integration measures.

Rolls-Royce is also part of an aerospace JV in Xian with a state-owned enterprise, in which the SOE holds the majority stake. Mr Horgan explained how his company has not sought overall control - given that in any case the SOE will not become a Rolls-Royce company - but instead has aimed to maintain the original product quality and code of conduct among both UK and Chinese staff, so that nothing occurs to "compromise the reputation" of Rolls-Royce.

On these points, Mr Horgan stressed that there is an "appropriate level of integration" in certain cases, which depends on the nature of companies involved, the balance of the merger or joint venture, and the maturity of the companies involved. He underlined the earlier point that managers must be explicit to their staff about what will and what will not change following integration. 

One participant equated the circumstances of a cross-cultural venture with those of a marriage, in which it is often the case that "opposites attract" - that is, each partner has its strengths, and it is not always necessary to successful integration for one side to impose its own culture entirely on the other.

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