You are on page 1of 70

1

A
Project report
On
Managing People at Global Level
(A Case Study on Cross Border Mergers & Acquisition)

Submitted in partial fulfillment of the requirement for the
award of degree of
PGDM – International Business under ITM B-school.
Submitted by
SUYASH JAIN
Batch: 2012 – 2014




Global Leadership Centre,
Institute for Technology and Management
Plot 25 & 26, Institutional Area, Sector 4
Khargar (E), Navi Mumbai – 410210
2


CERTIFICATE


This is to certify that the Project Work titled Managing People at
Global Level (A case study on Mergers & Acquisitions) is a bona
fide work carried out by Suyash Jain, a student of PGDM-IB
program 2012 – 2014 of the Institute for Technology &
Management, Kharghar, Navi Mumbai under my guidance and
direction.


Signature of Guide:
Pro. Manisha Rajadhyaksha
Adjunct Faculty-IB
ITM B-school

Date:
Place:



3


ABSTRACT


Corporate mergers and acquisitions (M&As) have become popular from corner to
corner the world during the last two decades thanks to globalization, liberalization,
technological developments and intensely competitive business environment. The
synergistic gains from M&As may result from more efficient management,
economies of scale, more profitable use of assets, exploitation of market power, the
use of complementary resources, etc. Interestingly, the results of many empirical
studies show that M&As fails to create value for the shareholders of acquirers. In
this article I covered background of merger and acquisition, reasons for failure of
merger and acquisition, and impact of merger on shareholders.

This paper develops a conceptual framework of MNCS’ strategies during and after
M&A activity in both developed and developing markets. It provides insights and
guidance into the motives, strategic opportunities and constraints in cross national
transfer of management policies and practices in a multi-polar world.








4

ACKNOWLEDGMENT


I express my deep sense of gratitude to my faculty guide Pro. Manisha
Rajadhyaksha (Adjunct Faculty-IB), ITM B-school, for her valuable guidance, her
high analytical caliber and constant encouragement during the project. It was an
enriching experience to work under her esteemed prescience. I would never be
achieving this success without her. I will never forget her for her friendly behavior
and stretching her helping hand towards me.
I am failing short of words in expressing my regards and gratitude to my parents,
without whose continuous inspiration, patience and moral courage, this project
would have been materialized.


Suyash Jain
GLC-IB- 200
ITM B- School








5

DECLARATION


I hereby declare that the project report entitled “Managing People in International
Market (A Case study on Merger & Acquisition)” is submitted by Mr. Suyash Jain.
This is an original work done and submitted by me in partial fulfillment of the
requirement for the award of certificate on i-Connect Capstone project. This is a
record work done by me under the internal guidance of Pro. Manisha
Rajadhyaksha (Adjunct Faculty-IB), ITM B-school.



Place: Navi mumbai
Date:
Suyash Jain
GLC-IB-200
ITM B- School











6

CONTENT:

1. List of Tables………….................................................................... 8
2. List of Figures…………………………………………………………. 8
3. Chapter : 1 Introduction……………………………………………… 9
1.1 Introduction……………………………………………………….. 9
1.2 Motive Behind Internalization ………………………………....... 10
1.3 Major International strategies………………………………….... 11
1.4 Major Drivers and Obstacles in FDI…………………………….. 14
1.5 Limits to the Globalization of the Market………………………... 16
1.6 Managing People Globally………………………………………. 17
1.7 Definitions…………................................................................... 18
1.8 International Trends……………………………………………… 20
1.9 Research Objectives……………………………………………… 24
1.10 Research Topic………………………………………………… 26
1.11 Research Problems…………………………………………… 27
1.12 Scope of Research……………………………………………. 28
4. Chapter: 2 Literature Survey………………………………………… 29
5. Chapter : 3 Research Methodology…………………………………. 32
6. Chapter : 4 Data collection, analysis & Interpretation……………… 33
4.1 Data collection & analysis………………………………………… 33
4.2 M&A activity worldwide…………………………………………… 34
4.3 Some big M&A failure…………………………………………….. 35
4.4 Effects of M&A on Parent company……………………………… 41
4.5 Some other reports show about failure of M&A activity………... 47
4.6 Case Study: An analysis of business challenges faced by foreign
multinationals operating the Chinese Market……………………….. 51

4.6.1 Introduction………………………………………………. 51
4.6.2 Problems in Chinese Market…………………………… 52
4.6.3 Challenges……………………………………………….. 53
7

4.6.3.1 Short of talent………………………………… 53
4.6.3.2 The differences of social environment…….. 54
4.6.3.3 Compensation and benefits………………… 55
4.6.3.4 Expatriate failure……………………………... 56
4.6.4 Other challenges……………………………………….. 58
4.6.4.1 Culture differences…………………………… 58
4.6.4.2 Guanxi…………………………………………. 59
9. Chapter: 5 Recommendations & Conclusion………………………….. 60
5.1 Conclusion from Data Analysis and Case Study………………. 60
5.2 Conclusion from Case Study…………………………………….. 61
5.3 Recommendations..................................................................... 63
5.3.1 Some reason for failure and there precautions……… 63
5.4 Overall benefits of the project…………………………………….. 65
5.5 Learning from the project…………………………………………. 66
5.6 Limitations………………………………………………………….. 67
5.7 Scope for future study…………………………………………….. 68
References……………………………………………………………… 69











8

LIST OF TABLES

1. Strategic background of M&A waves.
2. Some big Merger & Acquisition failure.
3. Parent company’s downward growth due to M&A activity.


LIST OF FIGURES

1. Strategies for emerging foreign markets.
2. Driving forces for strategic alliances.
3. Merger & Acquisition waves.
4. The volume of FDI and M&A in the world in 1987-2000 period.
5. The structure of cross border M&A.
6. Relevance of host country culture for MNCs’ HRM policies and practices
7. M&A activity worldwide
8. Global and Cross-border merger and acquisition deal value: 2006-2010 ($tn)
9. Success rate of Alliances and Acquisition
10. TATA Steel
11. Hindalco Industries
12. Suzlon Energy
13. Renuka Sugars
14. Problem caused by Merger & Acquisition
15. Communication problem during Merger & Acquisition
16. Reason For Merger & acquisition failure





9

CHAPTER: 1.
INTRODUCTION

1.1 INTRODUCTION
We are living in a complex world. MNCs, especially those with a global customer
base and workforce, play a significant part in this complex, fast-moving, multi-
faceted world by sponsoring innovation and applying scientific breakthroughs.
MNCs have been the principal agents of globalization of the market and the world.
Research on MNCs has tended to be focused on those from developed countries
establishing subsidiaries either in other developed economies (e.g. U.S. to the UK)
or into developing economies (e.g. the U.S.A into Latin America, India, South-East
Asia). U.S. firms invested in Europe from before 1939 but the major push came
after World War Two. Japanese MNCs began to locate in advanced economies,
particularly in the 1980s. While, there has been a rich stream of MNC research in
this area, there has been relatively less research on newer industrialized to the
more industrialized economies. This is a new era which is often referred to as a
‘new geography of investments’. Whilst most MNCs come from the world’s top five
economies, a growing number are from developing and newer industrialized
economies. UNCTAD categorizes developing economies into two groups - South
Korea, Taiwan and Singapore who are newer industrialized and have an
established track record as outward investors and those such as India and China
that are rapidly developing.



10

1.2 MOTIVES BEHIND INTERNATIONALISATION
Market saturation, fierce competition from domestic and foreign companies, high
costs of production and shortage of managerial and technical skills are some
reasons why firms might find further investment in home markets less attractive
than in foreign markets, the so-called push factors.
Various opportunities and advantages abroad, the so-called pull factors, may entice
companies to internationalize their operations: low production costs, closeness to
raw materials, advanced technology, skilled human resources, tax incentives in
host countries, etc. Companies that wish to internationalize, can only do so if they
have the core competencies such as operational capability, managerial skills and
the ability to work with foreign partners and/ or in foreign companies.











11

1.3 MAJOR INTERNATIONAL STRATEGIES
The most prevalent and perhaps the oldest form of international business are
import and export of goods and services. Some firms may buy, or sell, or facilitate
the import and export of commodities, products and services of other companies in
international markets. Others may import raw materials and semi-processed goods
for use in their own manufacturing operations, mainly because these either do not
exist in their own country in sufficient quantity, or might be cheaper abroad. There
are also companies that export their own products and services.
Some firms choose, for economic, technical and sometimes political reasons, not to
export their products to some countries, but to license certain companies in those
countries to use their production technology and components to produce similar
products.
Franchising is very similar to licensing, but the products are made under the
original company’s brand name. The American company McDonald’s, which has
hamburger restaurant chains in many countries, is an example of this kind of
international business. One factor that all of the above forms of international
business share is that the companies concerned do not normally have managerial
control over the foreign part of the operation. Another form of non-managerial
foreign involvement is portfolio investment, whereby a company may decide to buy
shares in one or more firms operating in other countries. These shares entitle the
investing company to dividends but not to managerial control.

12



Control of assets and management distinguishes foreign direct investment (FDI)
from portfolio investment. FDI normally takes one of two forms. One is partnerships
with firms, also known as joint ventures; the other is wholly owned subsidiaries.
Joint ventures are companies with multinational ownership, usually involving two or
three countries. Joint ventures can be established as such from the outset, or
foreign investors can buy into a multi-national company and change it to a joint
venture. Development zones give more freedom to companies where there are tax
incentives and other financial concessions as well being able to dictate their own
terms.
There are clearly potential economic and technological benefits that result from firm
venturing together; the failure rate of joint ventures is high. For example, in a study
13

of 880 joint ventures and co-operative alliances, only 45 percent of the companies
were judged successful by all sponsors. Misunderstanding is most likely when
international joint ventures span diverse national cultures, and when attitudinal and
value differences exist between different groups in the venture. Problems often
arise when executives in the parent companies attempt to impose their standards
and policies for operation on the joint venture firm.














14

1.4 MAJOR DRIVERS AND OBSTACLES IN FDI
FDI has been on the increase in recent decades. A major political force behind this
increase was the Marshall Plan. This accelerated a trend that had already started in
the years between the two world wars. Western European countries had been
devastated by the ravages of WWII; they had to be rebuilt and become a powerful
counterbalance to the communist Eastern bloc. In addition, these countries needed
to shift from producing armaments to making commercial goods.

At both national and company levels, decisions to engage in foreign direct
investment are influenced by political and cultural factors as well as by economic
and commercial ones– both at the entry stage and once the company is operational
within the host country. Some developing countries choose to have foreign
15

investment on a temporary basis, notably in the form of turnkey projects. These
nations, although they might need foreign firms for economic reasons, prefer to
reduce their dependence on them, for long-term political and economic reasons. A
limited-life turnkey operation could bring the usual benefits of inward investment,
such as technical and managerial know-how, and employment. But at the same
time it will not remain long enough to either dominate the local economy or make it
indispensable forever.
A variation on such a theme has been employed by Iran in recent years, in the form
of buy-back projects to engage foreign multinationals in its oil industry, an industry
that has been engulfed by foreign and domestic politics as well as by economic
considerations since its birth in the late 19th century.
FDI among industrialized nations is relatively unproblematic although it is viewed
with suspicion in some countries where there is a history of exploitation and
manipulation. Some nations impose conditions such as percentage of ownership,
investment of profits. Nowadays MNCs are normally too busy trying to survive than
to interfere, as they used to, in a country’s political or cultural arena.








16

1.5 LIMITS TO THE GLOBALISATION OF THE MARKET
The Global Village isn’t really all that global. It exists for major MNCs that operate
within a handful of advanced nations. It is dominated by the Triad (the US, EU,
Japan) and many countries are excluded or play a minor role as movers and
shakers. Strategic decisions affecting the rest of the world are made annually at the
G8 summit.














17

1.6 MANAGING PEOPLE GLOBALLY
Once a company goes international, its HRM policies and practices will change
depending on the form of internationalism and the extent and depth of its
involvement in the local market. Importing, exporting, franchising, licensing and
portfolio investment do not involve employee management as part of foreign
operations in the host country (although there are exceptions).
It is when there is direct investment when a company is involved with joint ventures
and wholly owned subsidiaries that it comes into direct contact with local or non-
local employees. As a company moves in more deeply into internationalization
does it become more involved with foreign countries and cultures. The context of
an MNC’s relationship with their foreign subsidiaries is normally referred to as the
parent-subsidiary relationship.










18

1.7 DEFINITIONS
In market economies where free competition is the principal rule by establishment
and extinction of enterprises, a third natural process, the concentration of
companies can be observed. In the widest meaning concentration is the gaining
control over the other company, gaining influence on the decisions of the other
company and the joining of companies. In a more narrow sense only the
achievement of influence above a certain extent and the joining of companies can
be considered as concentration. Corporate mergers and acquisitions are the most
spectacular forms of concentration Merge is incorporation or fusion that results in
the decrease of the companies’ number. The acquisition or takeover is a qualified
case of the sharing, according to the corporate and security act the obtaining of a
majority part in a given company or at least the 25% - in case of public corporation
the 33% - of the shares. Merger is a most important form of the corporate
concentration, when at least one of the companies is winding up and on the
organizational level joins with another company. According to the corporate act the
merger can be realized through incorporation (A + B » A) and through fusion (A + B
» C). In the case of incorporation one of the companies is winding up and the other
company remains its general successor whose subject will not change. The fusion
winds up both of the companies and their capital falls to the newly established legal
successor company.

Acquisition is obtaining a share or gaining influence. It means obtaining the rule
above the company or obtaining a certain part of the right of disposal above the
company. Takeover generally means obtaining at least the majority part of the
votes and capital rights of a given company. Obtaining a share according to each of
the rules prescribed by legal consequences is an influence on the company’s
decisions in the operative level on the base of voting rights, agreements or actual
behavior. Takeover can be realized by share purchasing or by purchasing assets.
In addition to the previous mergers and acquisition can be characterized as the
following also. In case of acquisitions we can differentiate between: Leverage Buy
19

Out - LBO where the transaction is financed from debt and the target company’s
assets are the coverage. In case of Management Buy Out - MBO the company’s
management takes over the owners’ right. We are talking about Employee Buy Out
- EBO if employees of the company become the owners.

Mergers can be characterized as follows. In case of horizontal mergers the
transaction takes place between the companies with the same activity (merger with
a competitor company). The merger is of vertical type if companies join from a
different level of the production-purchasing chain (merger with a supplier company).
We consider a merger to be of a conglomerate type if companies are from different
industries and there had been no previous connection between them.














20

1.8 INTERNATIONAL TRENDS
Mergers and acquisitions are not inventions of recent times. Internationally, M&A
transaction intensive periods occurred several times in the past hundred years. As
it can be seen on the figure no. 3 we can observe five M&A intensive waves when
the number of transactions was enormous.


The certain waves upon different strategic considerations have tried to suit the
challenges of the economic environment of the time with various transaction types.
In cases of analyzing decision motives leading to transactions, according to
literature we can differentiate between microeconomic and macroeconomic aspects
or mixed with these financial motives we can also find the management motives
and other reasons.


21

There are two basic motivation forces can be distinguished behind the transactions.
Establishment of the future opportunities – search of strategic options and solving
the past problems – corporate restructuring. To sum up there can be only one
rational, economically acceptable argument behind the mentioned motives and this
is the increase of shareholders value. Actually M&A waves can basically be
interpreted as business reactions to a changed environment. These changes may
vary and differ over time, but are mostly related to technology changes. The
following table-1.summarizes the probable strategic considerations and business
reactions regarding to the five M&A waves showed on figure-3.








22

As we could seen on table no.1 among the M&A waves the last wave, 5th in the
line (period 1993-2000) was the largest. Knowing the strategic considerations and
business reactions to the changed environment as it can be seen on table1., Cross-
Border Mergers and Acquisitions were the most typical transactions in that wave.
These transactions differ from the traditional M&A transactions in the means that
the origin country of the two participating companies is not the same. Restructuring
of corporate operations and assets reallocation are the most important task of M&A
transactions on the long run.


23


Figure No 5 shows the hierarchy of merger & acquisition activity. This research
describe only international merger & acquisition, that why this paper is not
explaining various mode of domestic activity (acquisition of a local firm).
24

This paper widens the horizon of International human management to include HRM
strategies and practices from emerging economies. The purpose of the paper is to
explore how HRM strategies of the MNCs or cross-border acquired companies in
emerging economies are formed and how it operates in practice. This provides
managerial insights and guidance into the motives, strategic opportunities and
constraints in cross national transfer of HR policies and practices. The paper
concludes with a discussion of how our findings relate to existing research and
identify directions for future research.
This paper helps identify and analyze the motive and opportunity behind cross-
national transfer of HR policies and practices. Such an understanding of corporate
management thinking and practice in MNCs helps practitioners understand their
own strengths and weaknesses in the new scheme of things and assists them in
strategizing accordingly as to how best to influence the top management layers and
players. This would in turn assist them to facilitate a smooth ‘travel’ of policies and
practices across subsidiaries.
25

1.9 RESEARCH OBJECTIVES
The purpose of this research is understood that how culture of a particular
influences the process of a MNC.
This research will also establish a great deal of comparison between managing
people in different context, so as to understand cross cultural influences
This research will also help in cross cultural understanding of human resource
management because many times foreign companies find it problematic to
incorporate the values and cultural influences while working in different markets
(Country). Similarly, small companies have a tough time while trying to penetrate
into the foreign market.
When a company opens its subsidiary company then they have to design company
procedure or managing people according to local culture with best HR practice.
When a company goes for a joint venture then they have to set the company
environment to balancing with other company working environment.








26

1.10 RESEARCH TOPIC
This project will provide to put a light on HRM at global level. This project includes
global market and its major factor to define need of HRM, different model to
managing people in global market, global context and its nature with employees of
various region, institutional context in human resource management, transfer HRM
practices across border, managing people in joint ventures and wholly owned
subsidiaries, various tactics to managing people and Various Issue related to HRM.
This project report also show the some reason for failure of merger & acquisition in
cross border.












27

1.11 RESEARCH PROBLEM
For a MNC’s, it is necessary to operate their function according to countries’ culture
and their regional employees policies to provide accurate working methodology to
employees. After a merger & acquisition activity it is difficult for both companies to
understand each other’s organization culture and working environment. Some time
it is difficult to setup a right working environment in different culture. Different
country has different labor laws, which affect functional process of company. It is
difficult to apply same method in all country to get maximum profit. Many
companies try to apply any previous success methodology in different region to get
same level of success.












28

1.12 SCOPE
Managing people in global market is very necessary part for MNC’s or an
organization that is looking for globalization. Different Region has different culture,
context and employees policies and organization has to manage people using
these things to make a strong bond between organization and employees. With the
help of this research report we can understand various problems of company
regarding managing employees in different culture. This report also addresses
various working environment in different countries or cultures.












29

CHAPTER: 2.
LITERATURE SURVEY


We are living in a complex world. MNCs, especially those with a global customer
base and workforce, play a significant part in this complex, fast-moving, multi-
faceted world by sponsoring innovation and applying scientific breakthroughs.
[1] [2]

MNCs have been the principal agents of globalization of the market and the world.

Market saturation, fierce competition from domestic and foreign companies, high
costs of production and shortage of managerial and technical skills are some
reasons why firms might find further investment in home markets less attractive
than in foreign markets, the so-called push factors.
[3] [4]


Corporate mergers and acquisitions are the most spectacular forms of
concentration Merge is incorporation or fusion that results in the decrease of the
companies’ number. The acquisition or takeover is a qualified case of the sharing,
according to the corporate and security act the obtaining of a majority part in a
given company or at least the 25% - in case of public corporation the 33% - of the
shares.
[5]
Merger is a most important form of the corporate concentration, when at
least one of the companies is winding up and on the organizational level joins with
another company.
[6]



Worldwide merger & acquisition trend are getting increment continuously. But still
cross border merger & acquisition activities not getting success as domestic merger
& acquisition getting success. Success rate in cross border acquisitions are very
low compare to domestic acquisition. Acquisition creates many problems in
acquired and acquirer company and this problems become the reason of failure of
acquisition.
[7]
Acquired company also affects the profit of parent company.
30


Cultural differences and negotiation problems have affected foreign business
operation and development. This case is to discuss the different challenges that
multinational companies suffered in Chinese market.
[8]
It will firstly indicate the
localized staffing strategy that foreign multinationals used for human resource
management in Chinese market. Then will point out the difficulties of attracting and
retaining qualified managerial staff in China
[9]
for multinational companies’
operation.
Human resource management (HRM) has become one of the most popular issues
in international management and business practice recently. As the increasingly
important of qualified staff in multinational companies, the international human
resource management models had been developed.
[10]
In the beginning,
multinational companies adopt standardization of human resource management,
which believed coherence strategy and coordinate practice can lead to operational
effectiveness and efficiency.
There are four main problems foreign multinational companies faced when they
attracting and retaining qualified managerial staff in China.
(1) The shortage of talent.
(2) The differences of social environment
(3) Compensation and benefits
(4) Expatriate failure
A multinational company can operate an acquired company in China or any other
company, they just need to understand the basic managerial problem and solve it
internally. Some basic challenges in china, the short of talent in China due to the
unpractical education system and embarrassing output of university graduates;
different recruitment and selection system between foreign companies and China;
un-perfect salary incentives for Chinese staff; and high expatriate failure rate in
China mainly because of culture shock. In order to win the talent war, it is
31

suggested that multinational company should firstly pay more attention on the
recruitment process to ensure the employees’ quality. On the other hand, the
company can establish the internal training courses or schools to improve
employees’ abilities and skills.
When discussing the other challenges such as culture differences and ‘Guanxi’
involvement
[11]
, it refers that foreign multinationals should learn the fundamental of
Chinese business culture and keep a good relationship with Chinese government.

Human resource problems can be managed by multinational company itself
through setting a good employment system, and there are strategic and economic
benefits associated with doing so.










32

CHAPTER: 3.
RESEARCH METHODOLOGY


For making any report, a defined research methodology should be there for getting
an expert result and conclusion. But in some case it is difficult to make a manual
survey and making report according to collected data.
This research report is all about cross border merger & acquisition activity and how
to manage people in this activity to get maximum utilization of them. It is all about
international management or International HR policies. So, it is difficult to go for a
manual survey. I used secondary data to understand the merger and acquisition in
different countries.
This report contains various data related to international trend related to Acquisition
& Merger activity which is available on internet. This report required survey in
various field of M&A activity, such as international trend in M&A, success rate of
acquisitions and alliances, some example of worst merger and acquisition.








33

CHAPTER: 4.
DATA COLLECTION, ANALYSIS &
INTERPRETATION

4.1 DATA COLLECTION AND ANALYSIS
This research paper has various types of data to show how all about
Merger & Acquisition activity. This paper designs a specific format of
data analysis in a flow with explaining all steps of research.
 First section it explain world wide M&A activity, cross border M&A
activity, its success and failure rates etc.
 Second section shows how two companies lost their business
after M&A activity due to unbalanced management.
 Third section shows how a parent company loses their share due
to malfunctioning of acquire company.
 Fourth section show details of problems occurred due to M&A
activity and how these problems support activate to make M&A
activity fail.




34

4.2 M&A ACTIVITY WORLDWIDE


Figure no. 7 shows that worldwide Mergers & Acquisitions increasing continuously
till year 2000, after year 2000 there is a fall and again a fall after year 2007. The
period year 2008-2010 is known as economic recession. But after 2010
Acquisitions & Mergers are going down due to instability in economy and failure of
organization strategies. But overall trend shows that there is a increment in merger
& acquisition activity.


35




In figure no. 8, domestic M&A deals are more favorable then cross-border M&A
deals. Here is a down fall from year 2008, due to economic recession. But cross-
border M&A deals are very low compare to domestic M&A deals.
This graph also shows that cross-border mergers and acquisitions are still very
risky compare to domestic merger & acquisition activity. But still there is a
increment in recent year due to improved global HR polices. Now below given
graph showing failure percentage of M&A deals in new geographic markets.


36



Figure no. 9 showing Alliances and Acquisitions success and failure percentage (in
US and Europe from Year 2000-2010). This graph clearly shows that Acquisitions
are getting more failure then Alliances. And Cross-border Acquisition is getting
highest failure due to cultural difference. When industries going for same industries
alliances or acquisitions, success rate is higher but in different industries this
success rate going up for alliance and going down for acquisition. During the
geographic changes acquisition showing worst result, there is very low success
rate.





37

4.3 SOME BIG M&A FAILURE
This data shows that how a Merger & Acquisition can be cause of
failure of business or reducing parent company’s overall growth.

Some big mergers that were killed by culture
When mergers come up, these are the causes often discussed. But culture, in part
because it is so difficult to measure or manage, is all-too-often overlooked. Yet
according to SHRM, over 30% of mergers fail because of simple culture
incompatibility. Let’s consider a few well-known cases of spectacular culture clash:

1. New York Central and Pennsylvania Railroad:
In 1968, two longtime railway rivals, New York Central Railroad and
Pennsylvania Railroad merged to become Penn Central, the sixth largest
corporation in America. What Penn Central did not expect was that years of
fierce competition made it impossible for the two companies to work
cooperatively together. The company filed for bankruptcy after only two
years.

2. Daimler and Chrysler
When German Daimler (the makers of Mercedes-Benz) merged with
American company Chrysler in the late 1990s, it was called a “merger of
equals.” A few years later it was being called a “fiasco.” Discordant
company cultures had the two divisions at war as soon as they merged.
Differences between the companies included their level of formality,
philosophy on issues such as pay and expenses, and operating styles. The
German culture became dominant and employee satisfaction levels at
Chrysler dropped off the map. One unhappy joke circulating at Chrysler at
the time was “How do you pronounce DaimlerChrysler? ‘Daimler’—the
38

‘Chrysler’ is silent.” By 2000, major losses were projected and, a year later,
layoffs began. In 2007, Daimler sold Chrysler to Cerberus Capital
Management for $6 billion.

3. Novell and WordPerfect
In 1986, WordPerfect was the nation’s best-selling word processing
software. For the next few years the private software company grew steadily,
despite being locked in a battle with rival Microsoft for market share. In
March 1994, WordPerfect signed a merger agreement with Novell, Inc. It
should have been a match made in heaven, but the management of the
two companies was in conflict from the start. The merger was followed by
layoffs at both companies and a steep drop in share value. With the focus on
internal discord, WordPerfect lost its market leadership. Two years later,
Novell sold WordPerfect to Corell for $1 billion less than they had paid.

4. AOL/Time Warner
In January of 2000, Time Warner stock sold for $71.88. By 2008 you could
buy a share of Time Warner for less than $15. A failed $350 billion merger
with AOL. Culture clash was widely blamed for the failure of the joint
venture. Said Richard Parsons, president of Time Warner: “I remember
saying at a vital board meeting where we approved this, that life was going
to be different going forward because they’re very different cultures, but I
have to tell you, I underestimated how different. It was beyond certainly my
abilities to figure out how to blend the old media and the new media culture.”

5. Sprint/Nextel
In 2005, in a bid to keep pace with industry giants like Verizon & AT&T,
Sprint acquired rival Nextel for $35 billion. By 2008, the company had written
down 80% of the value of the Nextel, confirming the widely held belief that
the merger had been a failure. That failure is widely attributed to a culture
clash between the entrepreneurial, khaki culture of Nextel and the
39

buttoned-down formality of bureaucratic Sprint. A Washington Post
article written two years into the merger stated: “The two sharply different
cultures have resulted in clashes in everything from advertising strategy to
cell phone technologies.” In early 2012 Sprint announced it would be ridding
itself of the Nextel network, marking what CNET calls “a concluding chapter
in one of the worst mergers in history.”

6. HP and Compaq
2001, struggling computing giant Hewlett Packard announced it would
acquire similarly struggling competitor Compaq. The merger was ill-fated
from the start, as critics pointed out how the HP engineering-driven culture
was based on consensus and the sales-driven Compaq culture on rapid
decision making. This poor cultural fit resulted in years of bitter infighting in
the new company, and resulted in a loss of an estimated 13 billion dollars in
market capitalization. Though the merger itself was widely regarded as a
failure, the company has hung on, and has been able to make significant
cultural and leadership changes that have resulted in long-term success.









40

CONCLUSION: Some big Merger & Acquisition failure

S. No. M&A activity
between companies
Reason for Clashes and Failure
1. New York Central
and Pennsylvania
Railroad
impossible for the two companies to work cooperatively
together
2. Daimler and
Chrysler

Discordant company cultures
3. Novell and
WordPerfect

management of the two companies was in conflict from
the start
4. AOL and Time
Warner
different organization cultures: Culture clash was widely
blamed for the failure of the joint
5. Sprint and Nextel

to a culture clash between the entrepreneurial, khaki
culture of Nextel and the buttoned-down formality of
bureaucratic Sprint
6. HP and Compaq

Organizational cultural-difference: HP engineering-driven
culture was based on consensus and the sales-driven
Compaq culture on rapid decision making

Table No.: 2

Table no. 2 shows the reasons of failure/clashes of M&A activities. Most of the
companies fail due to organizational culture difference. These all companies were
working well before M&A activity but after M&A activity they failed to get profit and
coordinate each other for long time.





41

4.4 EFFECTS OF M&A ON PARENT COMPANY
Some organization Acquire foreign firm and this acquisition affect their
home company’s profit or reduce the profit. Let’s consider a few well-
known cases:

1. Tata Steel
More than five years since Mr. Ratan Tata-led Tata Steel acquired Corus for
an eye-popping $12 billion, the European entity is still deep in the red. The
acquisition resulted in Tata Steel's capacity increasing five-fold overnight,
but also burnt a big hole in its balance sheet.
A persistent slowdown in industrial demand in the wake of the financial crisis
has wreaked havoc with Tata Steel Europe's profitability. Boasting double
the capacity of Tata Steel's Indian unit, the European operations were
expected to contribute a chunk to the profit of the combined entity. On the
contrary, the Indian operations still account for the lion's share of the
company's total profits.
Only recently, the parent had to write off $1.6 billion from its balance sheet
towards loss of value in its European arm. Now, the company is reportedly
looking to sell some of its European assets in order to deleverage its
balance sheet. This will help pare debt to an extent, but there is no respite
from the bleak demand environment for its European unit. Tata Steel’s share
price going down after buying Corus company. Below giving graph shows
the down fall in share price in year 2012 to 2013.

42




2. Hindalco Industries
Kumar Mangalam Birla took a huge gamble in 2007, when he decided to buy
the Canada-based Novelis for $6 billion. Novelis was almost four times
bigger than Hindalco, the Aditya Birla Group's flagship company. The
acquisition hurt the company initially as Novelis was a drag on its balance
sheet. For the first two years, the Canadian company has reported losses as
the impact of the economic crisis hit home.
However, after some restructuring involving closure of a plant and its
relocation to India, Novelis began to turn around. By 2010, Novelis was
able to stand on its own feet, enabling it to return $1.7 billion to the Indian
parent. Today, Novelis contributes handsomely, having generated 72% of
the parent's cash flow in 2012.
Novelis is expected to increase its capacity by 0.8-0.9 million tone over the
next two years. This, coupled with a near doubling of capacity in domestic
operations, is expected to boost the company's earnings. Hindalco is now
43

also benefiting from its presence in the value-added segment, which not only
contributes higher margins, but also protects it from fluctuations in aluminum
prices on the London Metal Exchange.



3. Suzlon Energy
Wind energy major Suzlon acquired German company REPower Systems, a
wind turbine manufacturer, in 2009, for nearly $1.3 billion, a large part of
which was raised through debt. Ever since the acquisition, Suzlon has been
reporting heavy losses.
After the acquisition, US and Europe, which are REPower's primary markets,
faced severe headwinds. Cash-flow problems forced the company to go for
a restructuring of the nearly Rs 10,000 crore debt on its books.
Suzlon is now aiming to shift to a more assetlight model and sell non-critical
assets. However, Suzlon relies heavily on REPower's substantial offshore
presence.
44

The German subsidiary now accounts for more than half of its order book,
and outperformed the industry in 2012-13 by posting a 33% growth in
revenue.




4. Renuka Sugars
Shree Renuka's foray into Brazil is another instance of an acquisition that
turned sour. In 2010, Renuka made two acquisitions, which together cost
$1.3 billion, equivalent to its then market capitalisation.
The rationale: it would give Renuka the capability to produce sugar all round
the year, since Brazil's cane crushing season (April-December)
complements India's (October-March), allowing it to take advantage of
favourable sugar price movements globally, even when the domestic season
wound down. However, three months of unexpected drought in Brazil in
2011 left the operations in a shambles. Weak global sugar prices have also
led to lacklustre results in the past two years. The debt to finance the
acquisition weighs heavy on the parent's books. However, things may turn
around in the future.
45

















46

CONCLUSION: Parent company’s downward growth due to M&A
activity


S.No
.
Parent
Company’s
Acquired
Company’s
Parent company’s
Share price
Year 2012 Year 2013
1.
Tata Steel Corus
100.37 55.88
2.
Hindalco Industries

Novelis (Canada
based firm)
102.19 88.91
3.
Suzlon Energy REPower Systems
(German company)
99.54 46.34
4.
Renuka Sugars Vale Do Ivai SA,
Equipav SA(Brazil)
98.27 66.67
Table no.:3

Table no. 3 shows the details of share price (For year 2012-2013) of different
companies who acquired cross-border companies. Tata steel who acquired
European giant Corus performing well but there overall account showing down fall
and same down fall can also seen in other companies. These parent companies
facing lots of problem related to management and organization culture.







47

4.5 SOME OTHER REPORTS SHOW ABOUT FAILURE OF
M&A ACTIVITY

Many U.S. executives favor acquisitions as the best approach to creating growth
and wealth. However, when we compare success rates between the “bond” and
“buy” options, it is alliances that come out on top. Let’s examine some findings from
a few recent studies:

 In a 1998 Barron‘s article entitled “Merger Mayhem,” Leslie Norton was quoted
as saying “research studies indicate that between 60 percent and 80 percent of
mergers (and acquisitions) are financial failures.”
 In a 2001 study of 118 mergers and acquisitions, KPMG found that 70 percent
of them did not create shareholder value for the combined companies. KPMG
also found no correlation between previous acquisition experience and success.
 A recent McKinsey & Co. study of 160 acquisitions, by 157 public companies
across 11 industry sectors, found that 42 percent of acquirers had lower growth
rates than their industry peers after the acquisition. Even more notable are the
findings that 88 percent did not manage to accelerate their growth appreciably
and that 60 percent of the companies failed to earn returns greater than the
annual cost of capital required to do the acquisition.
 A BusinessWeek analysis of 302 major M&A’s revealed that 61 percent of the
merged companies destroyed shareholder wealth. (BusinessWeek, October 14,
2002).


48



Figure no. 14 shows a survey report (Done by Ernst & Young –2, 2009), this report
show causes occurred after mergers and acquisitions. These causes create a
failure in merger and acquisition. Acquirer paid too much, which shows different
standards of behavior. Distraction from day to day work and lack of common
process/policies create cultural differences.

49



Figure No. 15 is a survey report of a Bank merger and acquisition activity. During
the survey, many M&A activity related questions asked from bank employees. This
report shows that very few employees aware form upcoming merger or acquisition
activity. Due to lack of communication employees facing lots of problem after M&A
activity and these problems create an unsuccessful M&A.





50



Mergers and acquisitions almost always involve some level of transformational
change and disruption. Successful post-merger integration demands significant
change on the part of both the acquiring and the acquired organization. The
acquirer creates ‘boundary disruptions’ — changes in stated goals, strategies, ways
of doing things and customs. The acquirer also deploys control mechanisms to
manage the change and achieve the strategic goals that were the reason behind
the M&A in the first place. For its part, the acquired organization may have to deal
with any anxieties about being “absorbed” and learn to integrate itself into new
corporate procedures and values.


51

4.6 CASE STUDY:
An Analysis of Business Challenges Faced by Foreign
Multinationals Operating the Chinese Market


4.6.1 INTRODUCTION
The process of globalization has created unprecedented opportunities for global
business investment and trade. Many multinational companies are attempting to
expand their business international by many entry strategies such as joint venture
and subsidiary. China, with over 1.3 billion population and 9.6 million square
kilometers has become a excellent destination for MNC’s. Many foreign companies
are trying to enter into the Chinese market by using many different strategies, such
as Siemens set up its representative office in Beijing, Coca Cola operated a wholly
foreign-owned enterprise that produced beverage concentrate in Shanghai and is
direct joint-venture partner in a similar facility in Tianjin.

Furthermore, China’s successfully accessed World Trade Organization (WTO) in
2001 had provided numerous opportunities for foreign companies; the international
economic and business trade had been developed expeditiously in China recent
years. There were roughly 460,000 approved foreign companies in China at the
end of 2003. However, there are some challenges that foreign companies faced
when they operating business in China such as the human resources management,
cultural differences and negotiation problems, which have affected foreign & local
business operation and development. This case will discuss the different
challenges that multinational companies suffered in Chinese market. It will firstly
indicate the localized staffing strategy that foreign multinationals used for human
resource management in Chinese market. Then will point out the difficulties of
attracting and retaining qualified managerial staff in China for multinational
companies’ operation.



52

4.6.2 PROBLEMS IN CHINESE MARKET

Human resource management (HRM) has become one of the most popular issues
in international management and business practice recently. As the increasingly
demand of qualified staff in MNC’s, the international human resource management
models had been developed. In the beginning, multinational companies adopt
standardization of human resource management for all locations, which believed
coherence strategy and coordinate practice can lead to operational effectiveness
and efficiency. However, later they met difficulties after the international dimension
becoming more and more popular as a result of changes in operating environment
and structures. Different people in different countries have different culture and
conception on organization behavior.
The diversity and complexity of cross-nation and cross-culture may result in
strategy conflicts for multinational companies when they implemented international
standardized human resource management. In order to overcome these difficulties
and reduce cost, more MNC’s began to localize employment in host countries.
Localization of Human Resource Management has hence emerged as the times
require. Human Resource Management is a branch of an organization which
recruits and develops personnel to promote the organization’s objectives. Human
resource is a crucial factor which could be a competitive advantage for company’s
long term development and reputation. While China, with over 3/4 of world
population and millions of university graduates each year had been considered as a
huge labour market for multinational companies. After its entry of WTO, many
foreign companies entered in Chinese market and are planning their localized staff
strategy in China. However, the progress of human resource management system
has not corresponded with the rapid growth of economic development in China,
many of foreign companies discovered that recruiting and retaining qualified
managerial staff is different and difficult in Chinese market. It is gradually found that
hire the qualified managerial staff is a big challenge for multinational companies
when operating the Chinese market due to many reasons.

53

4.6.3 CHALLENGES

4.6.3.1 SHORT OF TALENT
There are four main problems foreign companies OR MNC’s faced when they
attracting and retaining qualified managerial staff in China. One is the shortage of
talent. The talent in this can be defined as the young people who are upward,
progressing, professional and efficient. China has witnessed million of university
graduates each year, but major young people are major in arts rather than science.
In China, the major of arts such as management, marketing and language is
vacuous, which emphasize on theory and perception; differ from science; it has no
opportunity to take practice and exercise. On the other hand, the major of arts in
Chinese universities is a single subject, not related with other basic necessary
knowledge such as finance, mathematics or information technology, students can
pass the exam easier and finished school successfully with no skills and
techniques. As a matter of fact, except a diploma, they have not received any kind
of training and cannot achieve the initial goal of the course; they also did not
possess strong skill in language and no strategic thinking in management after
graduate. In other words, they lose their competitive advantages and are not
qualified managerial staff on the job. This prevalence of arts in universities would
ultimately result in the increase of talent shortage. By contraries, foreign
multinational companies operating in China want to attract a specific type of talent
with advanced technical skills and deeply understand international management
techniques. They expected the qualified managerial group not only to be competent
but also help to set up organization culture. Nevertheless, things did not develop
optimistically in the aspect of science graduates. Recent years, multinational
companies finding that few Chinese graduates major in science are qualified in
their occupation. The direct of McKinsey Company in Shanghai office had reported
that less than ten percent of Chinese job candidates, on average, would be suitable
for work in a foreign company in the nine occupations: engineers, finance workers,
accountants, qualitative analysts, generalists, life science researchers, doctors,
nurses, and support staff. Although there is less number of students study science,
54

the outcome is not better prospect than arts due to the bias of education system. In
China, the main characteristic of education in universities is much more towards
theory compare to other countries such as America or United Kingdom. During the
school, Chinese students did not get much practical experience in the project, and
did not obtain the cooperation skill in team work; obviously, they cannot achieve
practical solutions for a project in the job. Hence, the young graduates who get high
grade and win scholarship in school actually cannot perform well in the job. The
argument of talent shortage in China is becoming true.


4.6.3.2 THE DIFFERENCES OF SOCIAL ENVIRONMENT
On the other hand, the differences in culture, labour market, and employment
systems between China and other countries create challenges for multinational
companies attracting and maintain qualified staff in Chinese market. In the past
time of China, there was no human resource management in enterprise, three
"iron" (fixed) practices replaced conventional human resource management. During
the industry period, the government would manage all of the company’s operation,
and the managers were informed what to product and how to product by the
government. In 1980s, after the Chinese opening-up and reforming policy has been
introduced, the concept of human resource management has been developed
because of the return of foreign companies. Whereas, young people were usually
assigned to jobs by the state, and the human resource management did not
function well since it was purely administrative in nature. In this situation, the
people who have been assigned job were considered as lifetime employment in
China, which is also named “iron rice bowl”. The iron position means that the
managers can keep their job all of their lives and the payment are not related to
performance. The iron wage have been given also indicates that managers need
not responsible for workers’ salary and the company’s benefits. The managers are
not motivated as there is no extra incentive if they work hard. Therefore, the
managers’ working efficiency would much lower than expected. They will commonly
come later and leave earlier or even be absent to do private personal things in the
55

working time; they will lose their technical skills and be difficult to train, after a
period of time, most of the managers will strain their attitudes towards work and
ultimately depreciate their personal value. Accordingly, when foreign multinationals
start running business in China, they had encountered many difficulties in human
resource management, and found that attracting qualified managerial staff in China
is a challenge.


4.6.3.3 COMPENSATION AND BENEFITS
Employed compensation and benefits system is another factor that influenced the
human resource management for multinational companies in China. China’s
economy has been experiencing a rapid development after the entry of WTO, and
the turnover rate in China mainland has ranked the highest in Asia. The salary has
also raised approximate 8% annually in the past five years. These promising
increases have lead to the growth of wage rate in China and this trend is expected
to continue in China. In multinational companies, the salary of employees, in
particular the wage of Chinese managerial staff is much depends on their
performance, which means there is not much compensation and benefits for
Chinese staff. A related consequence for this pay system is an increasing number
of job dissatisfaction with the qualified and experienced staff. Chinese staff could
get a variety of compensation and benefits in domestic companies, especially for
the qualified managerial employees. China’s state-owned enterprises are the main
competitor which had occupied most of Chinese qualified employees. The large
number entry of foreign companies and rapid growth of salary in China, had
affected a reform of pay system in the state-owned enterprises. Besides the basic
wage, the qualified managerial staff has welfare entitlement and be paid a variety of
social insurance, which had been called “five insurance and one fund” in China. It
includes media insurance, unemployment insurance, working-related injury
insurance, bearing insurance, endowment insurance and house fund. After
employees have been with a company for a period of time, some managerial staff
will be treated family-friendly benefits, which are supportive of caring for their
56

family. Moreover, employees can spend the holiday with their families on Chinese
traditional festivals, such as Tomb-sweeping Day, Mid-autumn Day, and Double
Ninth Day and so on. All of these compensation and benefits have improved a
sense of job security working in China’s state-owned enterprises. Employees are
motivated and treasured their stable incomes and social welfare; they struggle hard
to increase their productivity which could help them survive and remain in the
company. Many foreign multinational companies have realized this issue and are
planning to invest more in Chinese market, they establishing rewards and pay
program to attract Chinese qualified staff, but there are still some obstacles
suffered which have to overcome and find a feasible solution in required time.

4.6.3.4 EXPATRIATE FAILURE
As the shortage of qualified and experienced staff in China, it is difficult to engage
local employees in the beginning, and many multinational companies have used
expatriate top management team to establish their operations. An expatriate is
someone who has chosen to live in a country other than the one in which he or she
legally resides. It is important to refer that an expatriate is different from an
immigrant. In General, most expatriates do not plan on residing in their new country
permanently, and if they do, they plan on retaining their native citizenship for
practical purposes. With the economic globalization, most multinational companies
need expatriates to manage the subsidiaries, because they are more familiar with
management techniques and methods used in the multinational companies than
local employees.

However, many companies have faced a high failure rate of expatriates. Most
expatriates returned earlier or have a poor job performance in China. A research
conducted on the expatriate failure rates in the U.S., European, and Japanese
multinational companies, has showed that about 76% U.S. Multinational companies
have a 10% to 40% failure rate, and the rates in the majority of European and
Japanese multinational companies are 5% more than the USA. There are many
reasons for expatriate failure, but the main reason is culture shock. Many
57

expatriates become lost, confused and anxious in new country because of the
unfamiliar situations and different cultural norms and values. Especially, when the
culture in China clashed with their own culture and their family was separated, they
would feel homesick, confounded, depressed, irritable, stressed and furious. The
expatriate failure would bring in many negative results for multinational companies.
First of all, the work productivity and efficiency of expatriates would be abated.
Owing to the uneasy feeling in host country, expatriates would not exert their efforts
to achieve excellence during the working time. They became un-enthusiasm,
absentminded and abandon the working responsibility in their current position.
Moreover, one major factor that multinational companies sent expatriates is to
promote localization staff in Chinese market. Some expatriates would be reluctant
to contribute to the localized process in China because of culture shock. They may
resist to training up Chinese local staff and not being motivated to help local
managers prepare to their new jobs. As a result, the local staff gains little chance to
be progressed and qualified, which would consequently worsen Chinese talent
shortage for multinational companies. Apart from this, the expatriate failure would
lead to substantively cost for companies, including direct and indirect cost. It is
reported that the expatriate compensation packages are typically much costly than
locals. For example, an expatriate manager in China typically receives at least
three times more than a local manager in total salary and benefits, including
hardship allowances and other perquisites. In some cases, expatriates even cost
ten times more. Therefore, the expatriate program does not improve the situation
on China’s tight talent market, but also causes a financial pressure for companies.







58

4.6.4 OTHER CHALLENGES

4.6.4.1 CULTURE DIFFERENCES
Besides of the aspect of human resource management, there are some other
challenges that foreign company or MNC’s faces in Chinese market. Culture is also
an important factor which has influenced the international operation of business in
China. People from different countries always have different traditions and attitudes
towards business. If foreigners want to manage business in China, they firstly need
to understand the fundamentals of Chinese though and study of the Chinese
business culture.
In China, three philosophy traditions — Confucianism, Taoism, and Buddhism had
dominated Chinese people for thousands of years, people considered them as
philosophy rather than religion. The Confucianism refers to human relationship,
which oriented Chinese people’s thinking and way of behavior; the main
contribution is to ask people trust each other, avoid conflict and keep harmonious
between each other. So when doing business negotiation with Chinese, foreigners
may discover Chinese are a group of “gentlemen” with implicative. Taoism is a kind
of doctrine which is famous for Yin Yang principle of dualism. The latter feng shui
which is probably the most popular belief in Chinese businessman is derived from
Yin Yang Eight Diagrams principle. It indicates that people’s fortune are affected by
their environment, and more specially, the position of building relative to its physical
environment and the interior layout and arrangement of furniture can influence the
events occur to the occupants of the building. Many Chinese businessmen believe
feng shui and consider it as a main strategy for business success. These
philosophy traditions have been the roots of Chinese culture, which would play an
important role in business behavior and decision-making.
However, it is a big challenge for the foreigners because the unique business
values and beliefs in China are and fundamentally different from other countries
especially western countries. On the other hand, because of the deep influence by
Confusion, people in China would rather believe people more than any other
contracts during the business activities. So if foreign multinationals want to do
59

business in Chinese market, they need to take a people oriented approach and
establish a high level of trust relationship with Chinese partners, which is called
“guanxi” in China.


4.6.4.2 GUANXI
Guanxi is another intricate aspect of Chinese business cultural phenomenon which
had challenged foreigners to much extent. The core idea of “guanxi”, involves
relationships between or among individuals creating obligations for the continued
exchange of favors. It is regarded as an individual strategy for developing and
maintaining business in China. Recently, Guanxi is becoming increasing important
in Chinese society since many Chinese people have established guanxi and use it
to carry out business in a number of ways, such as gifts, banquet and priority. It
also can be a source of power and advantage for companies if it is operated
appropriately in the right time and right occasion. However, guanxi is not easy to
obtain as the guanxi based alone is insufficient to establish a strong guanxi, and
neither the strong guanxi can not influence other’s decision-making in business
achievement. For foreigners, understand the importance of guanxi and build a
strong network in Chinese business environment is a difficulty. On the other hand,
government plays an outstanding and profound role in Chinese business. Under
the condition of central planning economy before 1980s, the government is taking
charge of Chinese economy and business operations; the vestige still exist 20
years later, business procedures and behaviors are restricted by government laws
and regulations. In such a case, it is admittedly that to build a good and close
guanxi in China especially with Chinese government is necessary for foreign
multinational companies. Furthermore, acquiring the permission of government
would facilitate the business process and management. Thereby, if the foreign
multinational companies expected to succeed their business in China, they firstly
have to learn guanxi and use it to keep a good relationship with Chinese
government.

60

CHAPTER: 5.
RECOMMENDATIONS & CONCLUSION

5.1 CONCLUSION FROM DATA ANALYSIS AND CASE
STUDY
Collected data shows that maximum no. of cross border acquisition & merger fail
because organization is unable to manage people at global level. In early year
merger & acquisition activity is not famous as much it is in current time. Now
companies are able to understand the reason of failure and also working on
reducing the factors which create failure in organization. Most of the reason of
failure comes from cultural differences, different organization culture, different
working staff different working strategies environment, communication barrier and
many more.









61

5.2 CONCLUSION FROM CASE STUDY
To sum up, there are a number of different challenges that multinational company
operating the Chinese market. It could be culture differences, government
limitations and human resource management problems. While attracting and
retaining commitment managerial staff is considered as the main challenge that
faced in China since the insatiable demand for a limited number of qualified
managerial staff. Although multinational company has realized the human resource
management problems in China and introduced a variety of employee retention
strategies, it also faced some challenges in attracting and retaining qualified
managerial staff. For example, the short of talent in China due to the unpractical
education system and embarrassing output of university graduates; different
recruitment and selection system between foreign companies and China; un-
perfect salary incentives for Chinese staff; and high expatriate failure rate in China
mainly because of culture shock. In order to win the talent war, it is suggested that
multinational company should firstly pay more attention on the recruitment process
to ensure the employees’ quality. On the other hand, the company can establish
the internal training courses or schools to improve employees’ abilities and skills.
Additionally, the compensation and benefits mechanism should also be concerned
as the rising labor cost and high turnover rates in China. When discussing the other
challenges such as culture differences and Guanxi involvement, it refers that
foreign multinationals should learn the fundamental of Chinese business culture
and keep a good relationship with Chinese government.
There are wide-ranging managerial implications of this research. A central
assertion is that some aspects of human resource problems can be managed by
multinational company itself through setting a good employment system, and there
are strategic and economic benefits associated with doing so. An appropriate
selection mechanism strategically supports business activities by developing a
group of qualified managerial staff and setting a high company recruitment
standard which consequently gain a good reputation. Economically, the systematic
implementation of faire compensation and benefits in China can help the company
62

save cost on retaining qualified managerial staff. Furthermore, the internal solutions
of human resource problems apply to all organizations; both multinational
companies which are attempting to attract qualified managerial staff and public
institutions that want to develop qualified managerial staff on their own by this
approach. On the other hand, it should be noted that the human resource problems
is not only the business issue involved in multinational companies, but also suffered
in Chinese domestic companies recent years. Many Chinese state companies such
as state-owned enterprises, bank, and hospital are facing these challenges.















63

5.3 RECOMMENDATIONS
I recommend the following points should be remember at
the time of Merger & Acquisition
A. ADOPT RIGHT CULTURAL
Cultural fit between an acquirer and a target is one of the most neglected areas of
analysis prior to the closing of a deal. However, cultural due diligence is every bit
as important as careful financial analysis. Without it, the chances are great that
M&As will quickly amount to misunderstanding, confusion and conflict.

B. RIGHT ORGANIZATION FIT
Organizational fit is described as "the match between administrative practices,
cultural practices and personnel characteristics of the target and acquirer. It
influences the ease with which two organizations can be integrated during
implementation. Mismatch of origination fit leads to failure of mergers.

C. INTEGRATION SHOULD BE STRONGLY MANAGED
Integration of the companies requires a high quality management. Integration is
very often poorly managed with little planning and design. As a result
implementation fails. The key variable for success is managing the company better
after the acquisition than it was managed before. Even good deals fail if they are
poorly managed after the merger.

D. IMMEDIATE CONTROL
Control of the new unit should be taken immediately after signing of the agreement.

E. FAILURE TO SET THE PACE FOR INTEGRATION
The important task in the merger is to integrate the target with acquiring company
in every respect. All function such as marketing, commercial; finance, production,
design and personnel should be put in place. In addition to the prominent persons
64

of acquiring company the key persons from the acquired company should be
retained and given sufficient prominence opportunities in the combined
organization. Delay in integration leads to delay in product shipment, development
and slow down in the company's road map.
F. THERE SHOULD EGO CLASH
Ego clash between the top management and subsequently lack of coordination
may lead to collapse of company after merger. The problem is more prominent in
cases of mergers between equals.

G. MERGER BETWEEN EQUALS
Merger between two equals may not work. Manufacturing plants can be integrated
easily, human beings cannot. Merger of equals may also create ego clash.

H. RIGHT COMMUNICATION
Lack of proper communication after the announcement of M&As will create lot of
uncertainties. Apart from getting down to business quickly companies have to
necessarily talk to employees and constantly. Regardless of how well executives
communicate during a merger or an acquisition, uncertainty will never be
completely eliminated. Failure to manage communication results in inaccurate
perceptions, lost trust in management, morale and productivity problems, safety
problems, poor customer service, and defection of key people and customers. It
may lead to the loss of the support of key stakeholders at a time when that support
is needed the most.

I. PROPER ATTENTION TO PEOPLE ISSUES
Not giving sufficient attention to people issues during due diligence process may
prove costly later on. While lot of focus is placed on the financial and customer
capital aspects, not enough attention is given to aspects of human capital and
cultural audit.
65

5.4 OVERALL BENEFITS OF THE PROJECT
The project report is describing about managing people in Cross functional
process. This report shows the need of cross cultural human management and how
it affects the company process. This report providing information about current
source of globalization, importance of M&A activity, it’s different types in domestic
and cross-border market, previous & current scenario of M&A activity. This report
only considers the HRM related a problem, that’s why we are not getting
information about financial & procedural conflicts. In this report we are research on
M&A activity, so this research report is also a good source of various important
factors which creates conflicts during and after M&A activity. This research report is
helping to identify importance of country culture, company culture, organization
environment, effect of merger of two different cultures and how it’s affects on
organization’s growth.










66

5.5 LEARNING FROM THE PROJECT
Learning is final part of project which we get through the result of the research. This
paper helps us to remind about importance of cross border HRM, organization
environment, local business policies or business cultural phenomenon (Example:
Guanxi), Merger & Acquisition in Globalization etc.
This report helps to understand current source of globalization, importance of M&A
activity, it different types in domestic and cross-border market, previous & current
scenario of M&A activity. In this report we are research on M&A activity, so we also
getting introduce closely with various important factors which creates conflicts
during and after M&A activity. This report only considers the HRM related a
problem, that’s why we are not getting information about financial & procedural
conflicts. This report is also putting light on importance of country culture, company
culture, organization environment, effect of merger of two different cultures and
how it’s affects on organization’s growth. This research perfectly showing that each
region needs different type of HRM policies, people management strategies which
can easily adoptable by specific culture and employees.








67

5.6 LIMITATIONS
This research report contents cross-border merger & acquisition, Current trends of
M&A, organization environment, business cultural phenomenon, reason of failure of
a merger & acquisition and what type of problems companies are facing during and
after M&A activity. We got research data from many primary researches, articles or
various organizations survey. Because this research report needed to specify each
part relevant part of M&A activity to find out our project objective and for this
purpose I looked into many primary research of cross border M&A activity and took
the final result from these research and showed in our project through graph or
table for easy visualization. This report is talking about worldwide M&A activity, so
this paper did not compare Indian or any regional specific M&A activity with others.
This research project is talking about international HRM activities, not involved any
financial or procedural activity. This report is trying to identify real HRM and cultural
related factor of failure of cross border M&A activity. This report is also not
providing any specific solution of fail M&A activity. This report is not providing any
procedural or region specific or market specific research but we can work in this
section in future study.










68

5.7 SCOPE FOR FUTURE STUDY
This report covered the cross border HRM related part which is necessary before
and after a Merger & Acquisition activity. For future study we can choose method of
HRM practices which can use to reduce these M&A activity failure problems. We
can also focus on financial section to understand M&A activity and its related
issues. There are some topics, which can be use for future study:

 Particular regional/country wise M&A study.
 Effect of domestic M&A on Cross border M&A
 Effect of New foreign policies or FDI on cross border M&A (in India or any
particular region).
 Growth of M&A activity in manufacturing and Service sector
 Find out success factor of various successful M&A and analyze these
factors.
 Find out factor of failure of various M&A and compare with success factor of
M&A.
 Find out the ways to make an M&A successful.
 Impact of local business culture on MNC’s business operation.
 Financial auditing in M&A activity.

Future study is a great mechanism to continue the research report with a
systematic way. But a research report can be considered as a perfect report if
report is able to conclude its objective successfully.





69

References
1. ^ Sonja Treven , ,2001, HUMAN RESOURCE MANAGEMENT IN INTERNATIONAL
ORGANIZATIONS, Maribor, Slovenia

2. ^ Hoskisson, R., Eden, L., Lau, C.-M., & Wright, M. (2000). STRATEGY IN EMERGING
ECONOMIES,. Academy of Management Journal. 43: 249-267.

3. ^ Wells, L. T. (1983). THIRD WORLD MULTINATIONALS: THE RISE OF FOREIGN
INVESTMENT FROM DEVELOPING COUNTRIES. Cambridge, MA: The MIT Press.

4. ^ Lall, S. (1983). THE NEW MULTINATIONALS: THE SPREAD OF THIRD WORLD
ENTERPRISES. Chichester: Wiley.

5. ^ Lourdes Susaeta, Jose R. Pin, wp , 2008, THE FIVE PHASE IN TRANSFER OF HR
POLICIES AND PRACTICES WITHIN MNCS, University of Navarra, Spain

6. ^ Varsha Virani, ,2008 MERGERS AND ACQUISITIONS - A CASE OF SYSTEM
FAILURE, http://www.indianmba.com/Faculty_Column/FC632/fc632.html

7. ^ Mohan Thite, Adrian Wilkinson, Dhara Shah, 2007, INTERNATIONALIZATION &
HRM STRATEGIES ACROSS SUBSIDIARIES IN MULTINATIONAL CORPORATIONS FROM
EMERGING ECONOMIES – A CONCEPTUAL FRAMEWORK

8. ^ Hussain, A., & Jian, C. (1999). CHANGES IN CHINA’S INDUSTRIAL LANDSCAPE
AND THEIR IMPLICATIONS. INTERNATIONAL STUDIES OF MANAGEMENT &
ORGANIZATION. 29(3): 5-20.

9. ^ Shen, J. (2006). FACTORS AFFECTING INTERNATIONAL STAFFING IN CHINESE
MULTINATIONALS (MNES). International Journal. of Human Resource Management
17(2): 295-315.

10. ^ Jianlian Wu ( 2008), An Analysis of Business Challenges Faced by Foreign
Multinationals Operating the Chinese Market, University of Nottingham, Ningbo,China.

11. ^ Gao, Y. (2006). ‘Building Guanxi with Government for Foreign Companies in China: A
Case Study’. The Business Review, 6-2, 119-125.

12. http://www.livemint.com/Industry/POGRV2grJStAumVRqr18pN/Overseas-acquisitions-
by-Indian-IT-firms-to-rise-in-2013.html

70


13. http://articles.economictimes.indiatimes.com/2013-07-29/news/40872322_1_novelis-
balance-sheet-tata-steel-europe
14. http://www.rediff.com/money/report/slide-show-1-fifteen-biggest-overseas-
acquisitions-by-indian-companies/20121128.htm#5
15. http://www.business-standard.com/article/companies/indian-companies-facing-
the-heat-in-foreign-acquisitions-113051500017_1.html
16. http://www.livemint.com/Money/dvFarTYWZ1BgAR6UWTdvUI/Most-IT-mergers-
and-acquisitions-havent-worked.html
17. http://www.economist.com/node/13751556
18. http://a--sandeep.blogspot.in/2012/12/when-indian-companies-turn-acquirers-is.html
19. http://www.imaa-institute.org/statistics-mergers-acquisitions.html
20. http://www.cfo-connect.com/title_detail.asp?art_id=162&cat_id=10
21. http://iveybusinessjournal.com/topics/strategy/equity-alliances-take-centre-
stage#.Ur0gRfQW07c
22. http://xlrisapphire.wordpress.com/category/blogger-of-the-month/page/2/
23. http://www.scielo.org.za/scielo.php?pid=S2222-34362010000400008&script=sci_arttext
24. http://www.risk.net/risk-magazine/feature/2027842/deal-contingent-trades-pick-activity
25. http://www.globoforce.com/gfblog/2012/6-big-mergers-that-were-killed-by-culture/
26. http://www.indianmba.com/Faculty_Column/FC632/fc632.html