IHRM_Chapter3

1(c) 2009 by Nelson Education Ltd.

Chapter Three

The Context of Cross-Border Alliances and

SMEs


Chapter Learning Objectives

After reading this chapter, you should be able to:• define cross-border mergers and acquisitions (M&As)¹ the

different stages of formation, and phase-specific strategic HR requirements

• describe the formation process of international joint ventures (IJVs) and identify HR measures and roles relevant in the development of such cross-border alliances

• discuss the internationalization of small and medium-sized enterprises (SMEs) and their approaches to international human resource management


Opening Vignette

Mergers and Acquisitions: The Dynamics of Globalization

• increased level of internationalization through M & A’s


Terms

SMEnon-equity cross-border allianceequity modesmergeracquisitionborn globalsboundary spanning positions

pre-M&Adue diligenceintegration planningimplementation planning

resourcesprocessesvalues

M&AIJV

UNCTADTNC


Cross-Border Alliances

• cooperative agreements between two or more firms from different national backgrounds, which are intended to benefit all partners


Non-Equity Cross-Border Alliance

• investment vehicle in which profits and other responsibilities are assigned to each party according to a contract


Equity Modes

• foreign direct investor’s purchase of shares of an enterprise in a country other than its own


Equity and Non-Equity Modes of Foreign Operation (Figure 3.1)


Cross-Border Mergers and Acquisitions

Merger• result of an agreement between two companies to join

their operations together

Acquisition• one company buys another company intending to control

the activities of the combined operations


The Formation Processes of M & A’s and HR Challenge (Figure 3.2)


HR Challenges in M&As

• creating new HR practices and strategies that meet the requirements of the M & A


Cross-Border M&A

• merging or takeover of an enterprise in one country by TNC’s from another country


Mergers and Acquisitions in US Billions (Figure 3.3)


Reason to Engage in M&As

• facilitate the rapid entry into new markets


Facts Firms Take into Consideration When Deciding on a Target Country

• the growth aspiration of the acquiring company• risk diversification• technological advantages• a response to government policies in a particular country• exchange rate advantages• favourable political and economic conditions• effort to follow clients


IHRM and its Role in Employee Relations (M&A)

The quality of employee relations, ranging from employee support to employee resistance is influenced by variables such as the

• similarity between management styles of the two organizations

• type of cross-border combinations• combination potential in terms of efficiency gains• extent of organizational integration


Employee Resistance Endangers M&A Performance

HRM role (task and human integration)• visibility and continuity of leadership• communication processes• integrating mechanisms• acquired personnel retained• voluntary personnel loss


Human Integration Process

• especially difficult to manage and takes time• both firms are embedded in their own national,

institutional and cultural settings


Typical Cross-Border M&A Problems

• within first year of merger, up to 20% of executives may be lost. Over a longer time frame, this tends to increase even further.

• personnel issues are often neglected.

• a high number of M & As fail or do not produce the intended results.


Impact of the Human Integration and Task Acquisition (Figure 3.4)


Task and Human Integration Process

Low Integration• if the M&A is carried out for portfolio reasons both

companies remain separate cultures

High Integration• crucial for the M&A to meet the HR requirements of the

phases


Phases of Cross-Border M & A

• pre- M & A phase (a screening of alternative partners based on an analysis of their strengths and weaknesses)

• due diligence phase (analyzing the potential benefits of the merger, product-market combinations, tax regulations, and compatibility with respect to HR and cultural issues)

• integration planning phase (planning for the new company)

• implementation phase (action plan)


HR Activities in the Phases of a Cross-Border M & A (IHRM Notebook 3.1)


Strategic HRM and the Role of the HR Function in M&As

Starting points in HRM practices• high HRM involvement early in the M&A process• fit between business, M&A and HR strategies• decisions about resources involve staffing and retention

issues, with termination decisions being particularly important

• training and development programs• appraisal and reward systems



• values that shape employees priorities and decision making

• strategic approach and aligning the HRM activities with the M&A strategy with respect to resources, processes and values



• create a strong team including a mix of both expatriates and local members of top management

• language skills and sensitivity toward cultural differences crucial skills for M&A success



IHRM roles• strategic partner• administrative expert• employee champion• change agent

A Comparative Approach to HRM in M&A Processes

Post-integration trends in HRM practices • convergence across nationalities in HRM policies

(performance-related pay, training and team-based product development)

• adjustments to suit the local culture

• American HRM reflected a short-term individualistic national business culture

(c) 2009 by Nelson Education Ltd.

A Comparative Approach to HRM in M&A Processes

• Japanese HRM reflected long-term, consensual, team-based, collectivist national philosophies

• French companies displayed an ethnocentric approach

• German companies were the most anxious to adopt international practices



Post-Acquisition Trends in HRM Practices (IHRM Notebook 3.3)

Cross Border International Equity Joint Ventures

Joint Venture• legal entity representing holdings of parent

firms located outside the country of operation



Formation of an International Equity Joint Venture (Figure 3.6)


The Main Reasons for Engaging in an IJV

• to gain knowledge and to transfer that knowledge• host government insistence• increased economies of scale• to gain local knowledge• to obtain vital raw materials


The Main Reasons for Engaging in an IJV

• to spread the risks (e.g. share financial risks)• to improve competitive advantage in the face of increasing

global competition• provide a cost effective and efficient response forced by

the globalization of markets


The Main Reasons for IJV Failure

• lack of interest in HRM• cross cultural management aspects


IJV Development Stages and HR Implications (IHRM Notebook 3.4)

Strategic HRM and the Role of the HR Function in JIVs

• IJVs are embedded in their own national, institutional, and cultural settings

• the IHRM challenge is to balance the various interests and manage these cross cultural differences.



There exists interface and intra-IJV IHRM challenges. Interface IHRM Challenges (initial stages of IJV formation

process)

• manage the relationships at the interfaces of the parent companies to integrate dualities of rules and practices

• focuses on the compatibility of the respective partners



Intra-IJV IHRM Challenges (initial stages of IJV formation process)

• develop IHRM strategies and practices for the new IJV entity.

• focus on managing the mutual learning processes between the parent companies andthe new joint venture entity.



Strategic HRM and the Roles of the HR Function in IJVs

IHRM roles• partnership• change facilitator and strategy implementer• innovator • collaborator


The Importance of Cross-Cultural Management ( M&As and IJVs)

• different national, institutional, and cultural environments; cultural differences matter in collaboration, decision making and loyalty

• top management multicultural team; different cultural expectations, management styles and strategic objectives


EU Defining Standards for SME’s (Table 3.1)


Access Barriers to International Markets by SMEs (IHRM Notebook 3.5)

• shortage of working capital to finance exports• identifying foreign business opportunities• limited information to locate/analyze markets• inability to contact potential overseas customers• obtaining reliable foreign representation• lack of managerial time to deal with internationalization


Access Barriers to International Markets by SMEs (IHRM Notebook 3.5)

• inadequate quantity of and/or untrained personnel for internationalization

• difficulty in managing competitor’s prices• lack of home government assistance/incentives• excessive transportation/insurance costs


Typical Challenges for IHRM in Internationalized SMEs

• importance of the founder/owner• recruitment, selection, and retention• human resource development; the challenge of learning• expatriate management• limited resources of the HR department and outsourcing


Importance of the Founder/Owner

Specific skills of the founder have an impact on the internationalization process of SMEs

• international work experience or established networks and relationships abroad

• positive perceptions of the international environment


Recruitment, Selection and Retention

SMEs • more difficulties than large firms in recruiting adequate

international managers• perceived to lack legitimacy as employers with a strong

international orientation• perceived as having disadvantages; career/international

work opportunities, pay/benefits, progressiveness of company, training


Recruitment, Selection and Retention

IHRM activities for SMEs• communicate the company has a strong position in

international markets and offers international career opportunities

• use selection criteria that defines international competencies

• improve and emphasize benefits; training, career paths, financial


SME Employer Image and Internationalization (Figure 3.8)


Human Resource Development: The Challenge of Learning

SMEs• short term oriented• informal learning• tacit knowledge


Human Resource Development: The Challenge of Learning

IHRM activities for SMEs• learning processes are critically important• improve capacity to perceive relevant environmental

developments: strategy and communication training• resist the temptation to impose “large firm thinking”


Learning in Small Organizations (IHRM Notebook 3.6)


Expatriate and Limited IHRM Resources

SMEs• informal

IHRM activities for SMEs• cultural integration• outsourcing IHRM


Discussion Questions

1. Describe the formation process of cross-border mergers, acquisitions and international joint ventures. What are the major differences?

2. Describe the development phases of an M&A and the respective HR implications.

3. Outline the development phases of an IJV and the respective HR implications.


Discussion Questions

4. In which ways do cultural and institutional differences impact the HR integration in M&As and in IJVs?

5. What are the barriers to internationalization for SMEs?

6. What are some of the typical challenges for HRM in internationalized SMEs?


Case: HR in the Daimler Chrysler Merger

1. Why do you think the board member responsible for human resources was not included in the Chairman’s Integration Council? Can you think of any consequences for the two companies?

1. How could the HR function of the two merging companies have addressed organizational and national cultural differences before they became problems?


Case: HR in the Daimler Chrysler Merger

3. If you compare the information given about the Daimler Chrysler merger with the list of HR activities outlined in IHRM Notebook 3.1, you can analyze the strengths and the weaknesses from an HR perspective. What lessons could be learned from this process?

IHRM_Chapter3

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