FOREIGN TRADE UNIVERSITY
FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

--------o0o--------

GRADUATION THESIS
Major: International Business Economics

CULTURE INTEGRATION IN CROSS-BORDER
M&A IN FINANCE INDUSTRY IN VIETNAM

Student‟s name

: Vu Thu Huong

Student ID

: 1211150061

Class

: A25 – High Quality Program

Course No.

: 51

Instructor

: Nguyen Thi Viet Hoa

Hanoi, May 2016


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TABLE OF CONTENTS
LIST OF ABBREVIATON
LIST OF FIGURES AND TABLES
INTRODUCTION ..................................................................................................... 1
CHAPTER 1: THEORETICAL FRAMEWORK ................................................. 7
1.1 Overview of cross-border M&A ..................................................................... 7
1.1.1 The definition of cross-border M&A ........................................................ 7
1.1.2 Motives for cross-border M&A................................................................. 8
1.1.2.1. Motives for FDI.................................................................................... 8
1.1.2.2. Motives for cross-border M&A.......................................................... 10
1.1.3 The M&A modes ..................................................................................... 12
1.2 Overview of Culture in the organization ..................................................... 14
1.2.1. The background of culture ..................................................................... 14
1.2.1.1 The definition of culture ...................................................................... 14
1.2.1.2 Levels of culture .................................................................................. 15
1.2.2 National culture ....................................................................................... 17
1.2.2.1 The definition of national culture ....................................................... 17
1.2.2.2 Hofstede’s theory on national culture ................................................ 18
1.2.3 Organizational culture ............................................................................. 20
1.2.3.1 The definition of organizational culture ............................................. 20
1.2.3.2 Schein’s theory on organizational culture .......................................... 20
1.2.3.3 Types of organizational culture .......................................................... 22
1.3 Culture integration in cross-border M&A .................................................. 23
1.3.1 The definition of culture integration ....................................................... 23
1.3.2 The theories of culture integration .......................................................... 26

1.3.2.1 Mercer’s theory about M&A culture integration ............................... 26
1.3.2.2 Zhu and Huang’s theory about principles of culture integration
management .................................................................................................... 27
1.3.3 The impacts of culture on cross-border M&A performance ................... 28
1.3.3.1 Positive effects .................................................................................... 28


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1.3.3.2 Negative effects ................................................................................... 29
CHAPTER 2: THE ANALYSIS OF CULTURE INTEGRATION IN CROSSBORDER M&A IN FINANCE INDUSTRY IN VIETNAM .............................. 30
2.1 The actuality of cross-border M&A in Finance Industry in Vietnam ...... 30
2.1.1 Cross-border M&A in Banking sector .................................................... 30
2.1.2 Cross-border M&A in Insurance industry .............................................. 33
2.1.3 Cross-border M&A in Securities industry .............................................. 35
2.1.4 Cross-border M&A in Financial services sector ..................................... 37
2.2 The case studies of culture integration in cross-border M&A in Finance
Industry in Vietnam ............................................................................................ 38
2.2.1 The acquisition of Andersen by KPMG in Vietnam ............................... 39
2.2.1.1 Case Description ................................................................................. 39
2.2.1.2 The analysis of culture integration after M&A ................................... 41
2.2.1.3. The results of culture integration and summary of implications from
the case ............................................................................................................ 52
2.2.2 The case of HSBC and Bao Viet ............................................................. 54
2.2.2.1 Case Description ................................................................................. 54
2.2.2.2 The analysis of culture integration after M&A ................................... 57
2.2.2.3 The results of culture integration and summary of implications from
the case ............................................................................................................ 63
CHAPTER 3: THE RECOMMENDATIONS FOR THE BETTER CULTURE
INTEGRATION IN CROSS-BORDER M&A IN FINANCE INDUSTRY IN
VIETNAM ............................................................................................................... 65

3.1 Forecast cross-border M&A activity growth in Finance Industry in Viet
Nam for 2016-2020 ............................................................................................... 65
3.2 The recommendations for the better culture integration in cross-border
M&A in Finance Industry in Vietnam............................................................... 68
3.2.1 The recommendations in the pre-stage of cross-border M&A in Finance
Industry in Vietnam .......................................................................................... 70
3.2.1.1 Culture Awareness .............................................................................. 70
3.2.1.2 Effective Planning ............................................................................... 72


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3.2.2 The recommendations in the post-stage of cross-border M&A in Finance
Industry in Vietnam .......................................................................................... 75
3.2.2.1 Top-down and constant communication ............................................. 75
3.2.2.2 Active management of the cultural integration process ..................... 77
3.2.2.3 Retaining key people ........................................................................... 80
3.2.2.4 Cross-cultural Training ...................................................................... 82
CONCLUSION ........................................................................................................ 84
REFERENCES


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LIST OF ABBREVIATON
Abbreviation

Full name

AEC


ASEAN Economic Community

FDI

Foreign Direct Investment

FTA

Free Trade Agreement

GDP

Gross Domestic Product

M&A

Mergers and Acquisitions

MNE

Multinational Enterprises

MNC

Multinational Corporation

OECD

Organization for Economic Cooperation and Development


R&D

Research and Development

SBV

State Bank of Vietnam

SOE

State-owned Enterprises

TNC

Transnational corporation

TPP

Trans-Pacific Strategic Economic Partnership Agreement

UN

United Nations

UNCTAD

United Nation Conference on Trade and Development

UNESCO


United Nations Educational Scientific and Cultural Organization

WB

World Bank

WTO

World Trade Organization


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LIST OF FIGURES AND TABLES
FIGURES
Figure 1.1: Driving Forces Behind Cross-border M&A ........................................... 11
Figure 1.2: Levels of culture ..................................................................................... 15
Figure 1.3: Model of organizational culture ............................................................. 21
Figure 1.4: The relationship between culture types in terms of the degree of restrain
they place on individuals. .......................................................................................... 22
Figure 1.5: Modes of organizational and individual acculturation in M&A and its
potential outcomes .................................................................................................... 25
Figure 1.6: Eight-step cultural integration process ................................................... 26
Figure 2.1: The Hofstede‟s national culture index, Vietnam in comparison with
China and the UK ...................................................................................................... 57

TABLES

Table 2.1: Cross-border M&A deals in 2007-2012 .................................................. 32
Table 2.2: Comparison of empirical data and Hofstede„s (2005) cultural

dimensions................................................................................................................. 42


1
INTRODUCTION
1. Background of study
In the age of globalization, FDI is an integral part of an open and effective
international economic system and a major catalyst to development. The majority of
FDI activities have been in relation to TNCs which penetrate into host market by
two widely used modes: cross-border M&A and Greenfield Investment. In practice,
M&A has been adopted as a core growth and expansion strategy and made the
higher-equity end of themenu. Global FDI inflows jumped 36% in 2015 to an
estimated $1.7 trillion, their highest level since the global economic and financial
crisis of 2008-2009 (UNCTAD, 2016, p.1), which pegged the increase to a wave of
cross-border M&A.
M&A activities cover a variety of industrial sectors in the economy, in which
global financial services sectors including: banking capital markets, insurance,
wealth and asset management have experienced an increase in recent years. A
significant volume of M&A activity was seen within the Financial Services Industry,
with over £265.1 billion of deals announced worldwide by the end of third quarter
of 2015 (Deloitte, 2016, p.1). In Vietnam, banking and insurance are considered as
two potential fields for investment and M&A deals. The main reason why M&A
activity in Finance, especially in Banking sector in Vietnam, draws high attention is
not only the upward trend of M&A on a global scale but also the banking
restructuring scheme, launched by the SBV.
Despite of the fact that M&A, in general, and M&A in Financial sector, in
particular, have gained popularity and made up large proportion of international
investment, there are some challenges to be successful M&A. Many researches have
underlined the high rate of failure among international M&A and the difficulty to
achieve expected results. The failure rate for M&A sits between 70 percent and 90

percent (Harvard 2015). The reasons for international acquisition failures derive
from different issues and explained in different ways; however, it is generally
agreed that there are three main factors: the financial, the strategic and the cultural.
The high rate of failure of M&A which has been analyzed by many researchers
primarily relates to business and financial misfit; while cultural issues have been


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left with less concern. Nevertheless, Cartwright (2006) highlights that the successful
management of integrating companies involved and their cultures is the key to
attaining the desired M&A outcomes. Differences in culture make integration
process more difficult, resulting in dissimilarities in organizational and
administrative practices and employee expectations. In the case of cross-border
M&A, many cultural conflicts often ariseregarding not only the corporate culture,
but also the national culture corresponding to the habit, thoughts and beliefs, which
has an influence on thecorporate culture depending on the country in which the
company evolves, stating that one of the key factors of M&A activity is culture
integration.
The analysis of the impacts of cultural aspects on M&A deals in financial sector
would create conditions for international integration process smoothly; more
specifically, assist financial organizations to implement M&A rationally which
takes cultural elements into account of making decisions: whether making a deal or
not, culture-related issues during M&A negotiation and how to harmonize different
culture to develop business strategy in the post –M&A stage, reaching the ultimate
goals of generating more profit for the newly built entities; therefore, I would like to
write a thesis with the topic: “Culture Integration in cross-border M&A in
Finance Industry in Vietnam”.
2. Literature Review
Cross-border M&A has become one of the leading approaches for financial
firms to gain access to global markets. Yet there has been little progress in the

research exploring the role that culture may play in the success or failure of these
ventures, especially the studies conducted by Vietnamese researchers.
On the culture levels context, a diversity of studies was conducted based on
national culture and corporate culture. In the world, researchers have begun to
develop comprehensive assessment of the role of organizational culture in the M&A
process (Cartwright & Schoenberg, 2006; Stahl&Voigt, 2008). One review
concludes that the study of culture in M&A is still inits infancy and that current
research is too inconsistent to support clearconclusions about the positive or
negative role that culture can play during M&A (Teerikangas& Very, 2006). A


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second line of research unique to cross-border M&A in particular isunderstanding
the effect of differences in national culture. The research on this issue, however,
has been inconclusive. Ahern et al (2011), Datta et al (1995), Barkema (2008), and
Das (2003) have concluded that cultural differences have a negative impact on
M&A transactions, whereas Chakrabarti et al. (2005), Morosini et al. (1998),
Doukas et al. (2007), Brown et al. (1989) have found that cultural differences have
the capacity to generate a positive impact regarding the long-term performance of
the combined firm.
In terms of research methodology, research can be conducted by two sorts of
research methods: qualitative method and quantitative method. The culture is a
broad and intangible entity which is subject to the personal opinion and
preconceptions of the researchers. There is no definite model to observe culture, and
the author realize that the measurement, collection and interpretation of the data on
culture are affected by subjective factors, whether the judgement is based on
quantitative or qualitative data. However, almost of researchers studying cultural
aspects in cross-border M&A have used more qualitative method than quantitative
one, particularly, qualitative case studies approach. There are two typical master
thesis analyzing culture integration in M&A and using the case study of Andersen

acquisition by KPMG in Vietnam (Karol Duda – Hong Y Pham, 2009; Jing Chen –
Vi Nguyen, 2010). More specifically, the methodology in those researches is
interpretive and exploratory approach. They drew conclusions on the basis of
similarities and differences analyzed from the qualitative data, gaining an all-round
view on culture from different levels of the two companies. Rather than collecting
large data for statistical and generalization purpose, a qualitative study is used to
present empirical investigation from real life experience and consequently search
for an understanding. Nevertheless, there still exists a research called “Mars-Venus
Marriage: Culture and Cross Border M&A” (Rajesh Chakrabart, Swasti GuptaMukherjee, Narayanan Jayaraman, 2008) using quantitative method which studied
the performance of over 1150 cross-border acquisitions between 1991 and 2004
involving acquirers from 43 countries and targets from 65 countries. This eventually
found that long-term stock market performance of the acquiring firms is positively


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and significantly related to the cultural distance between the target and acquirer.
Besides, there are some researchers using descriptive approach, based on literature
review and the typical one could be the bachelor thesis conducted by Daan (Perhlen,
2010). The information presented in the paper relied on existing knowledge which
originates from respected academic journal articles, books and data from reliable
and qualified organizations.
In Vietnam, there has been almost no study specifying the culture integration
in cross-border M&A, except for an article “M&A and cultural impacts” written
by MA.TrinhThiPhanLan and MA.NguyenThuyLinh, Vietnam National University.
This article was posted on Science Magazine of Vietnam National University in
2010. The content of this article mentions about the characteristics of cultural
aspects in M&A activity and the cultural factors in contributing to the success of
integration process. However, this article just covers the surface of the cultural
issues in M&A activity without having a deep knowledge about how cultural
elements affect the consolidation process and how to deal with the matters of

culture to promote the efficiency of M&A transactions. However, this article was
the first Vietnamese publication that addressedthe cultural aspects in M&A activity.
It is clear that both Vietnamese and foreign research studies on the overall
situation with a broad view, especially, do not make concentration on any specific
fields in the economy, particularly finance industry. Moreover, the previous studies
often focus on mentioning only national culture or corporate culture, instead of both
of them. Therefore, by dint of digging deeper into the culture integration process in
cross-border M&A in Finance Industry in Vietnam, the author hopes that this thesis
would be a good reference in the future.
3. The purpose of study
The purpose of this research is to provide a deep understanding about the
characteristics and outcome of cultural integration as influenced by both national
culture and organizational culture in cross-border M&A in the context of financial
sector in Vietnam. In this way, there are three main missions within the research.
Firstly, the author will build theoretical framework about the cross-border M&A
and the culture in the organization. Accordingly, the author will analyze two M&A


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case studies in finance industry in Vietnam on the basis of theoretical framework.
Finally, the analysis of case studies will play a basic role of important purpose
which formulates some recommendations to improve the effectiveness of
accommodating different culture after M&A in Vietnam.
4. The scope and object of research
The scope covered by this research is the cross-border M&A in Finance Industry in
Vietnam; however, the narrow object of this thesis is about cultural aspects. The
thesis just concentrates on two particular M&A deals: the case of Bao Viet and
HSBC; the case of KPMG Vietnam and Andersen Vietnam, ultimately aiming to
point out that two possibilities in the post-stage M&A may exist: successful culture
integration and culture integration in failure and then draw lessons to financial firms

within Vietnam to better integrating culture after M&A. The thesis will focus on
making evaluation over the period of 2000-2015 and give some predictions until
2020.
5. The method of research
The author uses the analytic and synthetic method on the basis of information
collected from secondary data sources such as books, published articles, existing
studies and documents, websites. These materials provide support to analyze culture
integration in cross-border M&A in Finance Industry in Vietnam. Besides, the
thesis utilizes comparative methods to give implications in order for financial
institutions to have better culture integration after cross-border M&A within
Vietnam.
Specifically, in order to fulfill the purpose of this thesis, a qualitative case
study approach which allows in-depth, multi-faceted explorations of complex issues
in their real-life settings was chosen. The main reason why the author chooses this
approach is that case study is considered as a productive approach to offer a deep
insight into conflicting literature, as well as developing the ability to generalize
from various theoretical stances. Moreover, the case studies differ from other
qualitative approaches due to their specific focus and the investigation of individual
cases, providing an opportunity to observe and analyze a phenomenon and keep a
holistic perspective.


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6. The thesis structure
The thesis is divided into three main parts:
Chapter 1: Theoretical Framework
There will be three main parts in this chapter. The first part will be the
overview of cross-border M&A from the definition to general knowledge about
M&A activity. The second part will show the theories on culture and the final one
illustrates the theoretical framework about cultural dimensions in M&A

intergration.
Chapter 2: The analysis of culture integration in cross-border M&A in finance
industry in Vietnam
This chapter will firstly represent the overview of cross-border M&A, in
general, and in finance industry in particular, on a global scale and in Vietnam.
Then, the author will analyze two M&A cases in finance industry in Vietnam in
terms of culture integration: the case of Bao Viet and HSBC; the case of KPMG
Vietnam and Andersen Vietnam.
Chapter 3: The recommendations for effective culture integration in crossborder M&A in Finance Industry in Vietnam
This final chapter will propose some recommendations for enhacing the
effectiveness of integrating both national and corporate culture between acquired
and acquiring firms.


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CHAPTER 1: THEORETICAL FRAMEWORK
1.1 Overview of cross-border M&A
1.1.1 The definition of cross-border M&A
Together with globalization making the world smaller daily, opportunities
for companies to expand across borders have become increasingly attractive. As a
matter of fact, the contribution of FDI to development is now widely recognized.
There is a perception, nevertheless, that this contribution can be affected by the way
investment enters a country. It can be the forms of either Greenfield investment or
M&A relying on whether the transaction involves mainly newly created assets
coming under control of the foreign firms, or just a transfer of existing assets from
local ones, respectively. A more and more popular path to the global growth and
expansion is through cross-border M&A. Cross-border M&A have rapidly
increased in recent years, which speeds up the globalisation of industry and
reshaping industrial structure on the global scale.
Generally, M&A is an activity in which a business obtain the control of other

firms through its ownership of part or all the share the businesses have, or
companies merged together to improve the size and its operational efficiency as
well The M&A, strictly defined, occurs when an operating enterprise acquires
control over the whole or a part of the business of another enterprise (OECD, 2000,
p.6). Thus, cross-border M&A is regarded as the combination of two or more
companies belonging to the same legal entity (or not) to achieve strategic and
financial objectives; companies involved in the operation may come from different
economic sectors (OECD, 2004, p.2). In other words, cross border M&A is defined
as M&As that involve an acquirer firm and a acquiring firm whose headquarters are
located in different countries.
Look at the definition of cross-border M&A standing for merger and
acquisition, these two terms are often confused and used interchangeably by
business and financial executives. On the face of it, the difference may not really
matter since the net result is often the same: Two companies (or more) that had
separate ownership is now operating under the same roof, usually to gain some
strategic or financial purpose. However, it is necessary to be able to distinguish


8
these two terms and there are some distinctions from different sources. In the case
of M&A, one can draw a further distinction between cross-border mergers, which
occur when the assets and operation of firms from different countries are combined
to establish a new legal identity. Besides, cross-border acquisitions, which occur
when the control of assets and operations is transferred from a local to a foreign
company (with the former becoming an affiliate of the latter)(World Bank, 2004,
p.6). However, as stated by Vietnam Competition Law 2004 (Article 17), Merger of
enterprises is the process when one or several firms transfers all their assets, rights,
obligations and legal benefits to another firm, and that firm no longer exists in the
market. Besides, Acquisition of enterprises is the process that a company buys all or
an enough part of the target company‟s asset to control the whole or one division of

the target company.
Cross-border M&A have been regarded as a popular strategy for enterprises
and an important alternative for strategic expansion. The dynamics of cross-border
M&A are largely similar to those of domestic M&A. Yet, as a consequence of their
international nature, they also involve challenges, as countries have different
economic, institutional and cultural structures.
1.1.2 Motives for cross-border M&A
FDI has played a major role in the increasing economic globalization and
Cross-border M&A is the major source of FDI. Thus, understanding the motivation
FDI and globalization plays a crucial role in identifying the motives for crossborder M&A. Theoretical studies on FDI have led to a better understanding of the
economic mechanism and the behavior of economic agents, both at micro and
macro level. Accordingly, the motives for cross-border M&A must be opened. This
section will firstly illustrate the motives for FDI; after that; the motives for crossborder M&A will be presented.
1.1.2.1. Motives for FDI
There are four popular theories explaining basic motivations that cause a
firm to invest abroad rather than export or outsource production to national firms as
below:


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Product cycle theory
This theory holds that a corporation will first establish itself in its home
country, because of some advantage it has over its competitors and the easier
accessibility to information about the home market and competitor. As the market
and the firm mature, it may recognize additional opportunities outside its home
country (Madura, 2009, p. 7). Therefore, a firm will expand internationally to retain
and enhance its position over competitors and to exploit opportunities in foreign
markets. Corporations which engage in cross-border M&A will have instant access
to local suppliers, distribution channels, and the local market. It is more time
consuming for a corporation to build up an organization from scratch in a foreign

country, because the business has to be set up, and differences in business practices
and cultures will be encountered.
Theory of comparative advantage
A country has a comparative advantage in producing a good if the
opportunity cost of producing that good in terms of other goods is lower in that
country than it is in other countries (Krugman&Obstfeld, 2006, p. 26). Therefore,
corporations in a country specialize in producing the good in which the country has
a comparative advantage which results in production efficiency. Comparative
advantages allow firms to penetrate foreign markets as it stimulates trade between
two countries. (Madura, 2009, p. 6)
Imperfect markets theory
The imperfect market theory argues that in the „real‟ world production factors,
such as capital and labor, are not freely transferable across countries as there are
costs associated with this. Moreover, there are sometimes restrictions on the transfer
of the production factors (Madura, 2009). Yet countries differ in respect with the
resources that are available, this provides motives for firms to expand internationally.
Differences in economic and regulatory environment
Mangold&Lippok (2008) and UNCTAD (2000) have concentrated on the
differences and changes in the regulatory and economic environment in the nations
that the acquiring and acquired corporation operating in. UNCTAD (2000, p.182)
views cross-border M&A as “strategic responses by companies in order to defend


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and expand their competitive positions in a changing environment”. According to
Madura (2006, as cited in Mangold&Lippok, 2008) a relatively low tax rate in the
country where the target firm operates in, an appreciating exchange rate of the local
currency compared to the home currency, and the potential for economic growth,
positively influence the decision for a corporation to engage in cross-border M&A
activity. UNCTAD (2000) also views the global deregulation and liberalization in

the recent past as an important contribution to the increase of cross-border M&As.
1.1.2.2. Motives for cross-border M&A
Why cross-border M&A instead of Greenfield?
In fact, most of the growth in FDI has been attributed to M&A rather than
Greenfield investment. Compared to Greenfield investment, a cross-border M&A
has a number of significant advantages.
Firstly, it is quicker. Greenfield investment normally requires extended
periods of infrastructure construction and organizational development. By acquiring
an existing firm, the MNE shortens the time needed to gain a presence and a
competitive entry into the market.
Secondly, cross-border M&As may be a cost-effective method of gaining
competitive advantages such as technology, brand names valued in the target local
market, and logistical and distribution advantages, while simultaneously eliminating
a local competitor.
Thirdly, specific to cross-border M&A, international economic, political, and
foreign exchange conditions may cause market imperfections, which make target
firms undervalued. A variety of enterprises in Asia have been the target of
acquisition as a result of the need of capital injections for competitive survival. In
general, the small companies with less effective activities will be merged and
restructured by larger ones. The cross-border M&As not only generate assistance
for businesses to take advantage of economy of scale, increasing market share,
reducing business expenses but also help businesses productively use the capital as
well as other scarce production resources.


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Driving Forces behind Cross-border M&A
The motives mentioned above hold for explaining two modes of FDI;
particularly, the domination of cross-borderM&A in comparison with Greenfield.
However, scholars have also identified motives which hold more specifically for

cross-border M&As. Amongst others, MNCs are motivated to undertake crossborder M&As by a number of other factors according to the summary from the
UNCTAD in Figure 1.1.
Figure 1.1: Driving Forces Behind Cross-border M&A
Cross-border
M&A activity
Changes in the Global Environment
 Technology
 Regulatory Frameworks => New business opportunities and risks
 Capital market changes

Strategic responses by firms
to defined and enhance their
competitive positions

Firms undertake
M&As to
 Access strategic
propriety assets
 Gain market power
and dominance
 Achieve synergies
 Become larger
 Diversify and
spread risks
 Exploit financial
opportunities

in a changing environment

Time


Source: UNCTAD (2005)

The drivers of M&A transaction are both macro scope - the global
competitive environment and micro scope the diversity of industry and firm-level
forces and actions driving individual firm value. The key forces of change in the
global competitive environment includes technological change, regulatory change,
and capital market change, which generate golden business opportunities for MNEs,
which they follow aggressively. However, the global competitive environment is
really just the playing field, the ground on which the individual players compete.
MNEs undertake cross-border M&A for a wide range of reasons. As shown in


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Figure1.1, the drivers are strategic responses by MNEs to improve their global
competitiveness by
• Gaining access to strategic proprietary assets.
• Gaining market power and dominance.
• Achieving synergies in local/global operations and across industries.
• Becoming larger, and then reaping the benefits of size in competition and
negotiation.
• Diversifying and spreading their risks wider.
• Exploiting financial opportunities they may possess and others desire.
1.1.3 The M&A modes
Cross-border M&A may be classified on the basis of different views either
relationships for business production line, parties‟ goodwill.
In terms of business production line
In terms of relationships for business production line, there are three kinds of
cross-border M&A: horizontal, vertical and Conglomerate M&A.
A horizontal M&A is an activity occurring between companies in the same

industry. It is a business consolidation between firms who operate in the same space,
as competitors that offer the same products. Horizontal M&As are common in
industries with fewer firms, as the result of the fact that competition is likely to be
higher and the synergies and potential gains in market share are much greater for
merging firms in such an industry. This kind of M&A has now gained popularity,
because larger companies attempt to create more efficient economies of scale.
The merging of Daimler-Benz and Chrysler is a popular example of a horizontal
cross-border M&A between the US auto company and German auto company.
A vertical M&A is an activity between two companies producing different
goods or services for one specific finished product. A vertical M&A occurs when
two or more firms, operating at different levels within an industry's supply chain,
merge operations.
Most often the logic behind the merger is to increase synergies of merging
firms that must be more efficient operating as one. By directly merging with
suppliers or distributors, a firm may reduce reliance and enhance profitability. There


13
are 2 types of Vertical M&A: Forward integration (downstream integration) and
Backward integration (upstream integration). Forward integration is a business
strategy that involves a form ofvertical integration whereby activities are expanded
to include control of the direct distribution of its products. The case of Walt Disney
acquiring the ABC Television in 1996 assisted Walt Disney has become the media
company with the presence in 4 distribution systems: cable television, telephone
wires, filmed entertainment and broadcasting. Meanwhile, backward integration is
a form of vertical integration that involves the purchase of suppliers. Companies
employing backward integration will lead to improved efficiency and cost savings.
Backward integration might not be favorable if a supplier want achieve
greater economies of scale and provide inputs at a lower cost as an independent
business, than if the manufacturer were also the supplier. Starbucks is reputed as a

chain of coffee shops and it had acquired lots of coffee farms in China in order to
have abundant coffee bean sources.
A conglomerate M&A is an activity between firms that are involved in totally
unrelated activities. There are two kinds of conglomerate M&A: pure and mixed.
Pure conglomerate mergers involve firms with nothing in common, while mixed
conglomerate mergers involve firms that are looking for product extensions or
market extensions. The benefit of conglomerate merger is that it helps the company
in diversification thus a company is less vulnerable to losses due to decline in sales
in one sector or industry. However, the biggest shortcoming of this type of merger
is that company is taking over another company without having any experience
about the industry and thus chances of mismanagement and overpricing the target
company increase significantly. In conglomerate merger, firms find it extremely
difficult to merge cultural value, employees and other things in comparison with
merger between firms in the same industry.
In terms of parties‟ goodwill
From the parties‟ goodwill context, cross-border M&A can be divided into
“friendly” and “hostile” activities. Friendly M&A involves that the board of the
target firm agrees to the transaction. In other words, a friendly takeover occurs
when the acquiring company informs the target company's board of directors that it


14
plans to purchase a controlling interest. If the board believes the stock purchase
would benefit the current stockholders, they vote in favor of the sale. The acquiring
company then takes control of the target company's operations and may or may not
choose to keep the target company's board of directors in place. For example, after a
three-month takeover battle between the UK-based mobile group Vodafone
AirTouch and the German Telecommunication Mannesmann AG, the agreed to a
"friendly takeover" in February 2000. Vodafone then declared that it would fully
respect the corporate culture of Mannesmann, including the employees' codetermination rights.

Hostile M&A, by contrast, occurs with being against the wishes of the
acquired firm. Particularly, a hostile takeover occurs when the acquiring corporation
attempts to take over the target corporation, without the agreement of the target
corporation‟s board of directors. For instance, in 2009, US food company Kraft
Foods

launched

a

hostile

bid

for

Cadbury,

the

UK-listed

chocolate

maker.Kraft needed Cadbury to provide scale for the snacks business, especially in
emerging markets such as India.
1.2 Overview of Culture in the organization
1.2.1. The background of culture
1.2.1.1 The definition of culture
The definition of culture has long been a controversial term used in a variety

of ways. There are many definitions of the term culture given by anthropologists
and sociologists, and it is difficult to define in a way that gives a delimited and
unambiguous meaning. However, culture is a very general concept and the
definition varies depending on the use and the environment in which we observe
it. Culture is not only about nationalities and ethnic groups, but it concerns also
communities, organizations, and other systems. Indeed, culture is a complex set
of connections and each person belongs to several cultures at the same time,
where each culture has subcultures (Helgesson, 1996).
The most important definition of culture is probably offered by Hofstede
(1991, p.5) “Culture is a collective programming of the mind that distinguishes
the members of one group or category of people from another”. Another


15
commonly used definition is accepted from UNESCO: “Culture is that complex
whole which includes knowledge, beliefs, arts, morals, laws, customs, and any
other capabilities and habits acquired by a human as a member of
society.”Furthermore, Kotler (1991), well known as consultant of big companies
such as IBM, General Electrics and Coca Cola, explains that: “The society that
people grow up in shapes their basic beliefs, values, and norms. People absorb,
almost unconsciously, a world view that defines their relationship to themselves,
to others, to nature, and to the universe”.So as to get a comprehensive picture of
the society to which a culture belongs, cultural schemes which involve all the
cultural components have been created. This scheme studies the varieties of
culture and attempt to understand them (Cateora, 1991, p.73):Material culture,
technology, economics,Social institutions, social organization, education,
political structures; Humans and the universe, belief systems; Aesthetics, graphic
and plastic arts, folklore, music, drama, and dance;Language.
1.2.1.2 Levels of culture
The influence of culture on business practices can be observed in several

aspects. Alvesson and Berg (1992) mentioned six levels of culture which are
illustrated in Figure 1.2.
Figure 1.2: Levels of culture
National Culture

Industrial Culture

Organizational Culture

Professional Culture

Department Culture

Worker Culture

Source: Alvenson&Berg (1992, p.64)


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The key challenge is to find out which dimensions of culture are relevant,
assess their possible impact, and think up strategies for using them in an ingenious
way. The need to predict culture is obviously necessary in mergers and joint
ventures, because managers from different countries, industries, and companies need
to collaborate to achieve the benefits and goals from the strategic alliances. The
cultural aspects of influence and their interactions give an insight to the impact of
culture on cross border management.
Every aspect of influence has its own set of objects and behaviors, beliefs and
values, and underlying assumptions. They have their own solutions to problems of
external adaptation and internal integration. Those various solutions may coincide or
clash. All the aspects may influence the business at hand to some extent.

National culture
People of a nation who have specific shared values, preferences and
behaviors interact with each other or with an external factor (doing business or
managing companies) (Alvesson&Berg, 1992).
Regional culture
The culture is formed in a certain geographical (territory), commercial
(market) or ethnic (country) area (Alvensson& Berg, 1992, p.67). Regional
cultures have experienced the evolution through geography, history, political and
economic forces, language and religion. Regional identities may sometimes
compete against the national identity. Differences may also appear between firms
situated in cities and others areas within the same country. Those have negative
effects on the organizational culture regarding its values andpractices.
Industrial culture
Numerous firms in the same industry have much in common from a cultural
perspective (Alvesson& Berg, 1992). Industrial culture sets a shared principal
assumptions, values and beliefs behind the industry„s institutionallogic.
Organization culture
Basic assumptions and beliefs are shared by members of an organization.
ProfessionalCulture
The professional culture regards the mobilization of knowledge, which


17
brings together the application of practices and ways of working accumulated in the
work context experience.
Department Culture
Inside a company, different departments have different cultures because of the
environment in which they evolve and tasks they are executing. For instance, the
marketing department does not have the same perspective and point of view as the
financial department concerning the launch of a newproduct.

Social groups in the Organization
Social groups are those which are set up informally in the organizations.It is
believed that the cultural patterns attain the form and character as a result of the
opposing interests in worker-management relation (Alvesson& Berg, 1992).
1.2.2 National culture
1.2.2.1 The definition of national culture
Among many different definitions available, national culture could be defined
as “the collective programming of the mind which distinguishes the members in one
human group from another” (Hofstede, 1991, p.21). Culture represents the way
people interact in a group with each other or react with an external outsider. The
national culture rely people on common history, beliefs, values that are specific to
theirculture.
Many differences may be found between national cultures due to the fact that
those cultures are shaped by common experiences, beliefs and organizations
according to national values and orientations. Therefore, global organization find it
vital to understand how national differences affect links between headquarter and
subsidiaries. There could be the case that different cultures prefer different rules and
behaviors or procedures, and are not willing to change their way of doing things.
Thus, while executing a M&A, it is essential for the acquiring company to have a
basic understanding of the national culture of its target because it will greatly be
helpful during the acquisition process while negotiating and start working together,
as well as in the post-acquisition stage while the acquirer have to plan the integration
of its management system as well as shaping the corporate culture together.


18
Organization activity and national culture are closely related. Indeed, the
national culture where a company is located has influence on many business factors
from nation to nation, on which it has consequences. Differences in the
organizational configuration, work structure and coordination, as well as in the

career system will be different from a country to another. This is why it is
important to study differences and variations in management, practices and
attitudes across countries.
1.2.2.2 Hofstede’s theory on national culture
With the aim of differentiating national cultures, Hofstede (2001) developed a
model through a study in 50 countries, which shows four primary dimensions of
cultures. This model had emphasized four dimensions of differences among national
value systems: Low vs. High Power Distance, Individualism vs. collectivism,
Masculinity vs. femininity, Uncertainty avoidance. Michael Harris Bond and his
colleagues then found a new dimension which was initially named Confucian
dynamism. Hofstede then incorporated this into his framework as the fifth
dimension: Long vs. short term orientation.
Power Distance
This dimension emphasized people‟s beliefs about uneqal distribution of power and
status, and their acceptance of this inequity. In countries with a high powerdistance
culture, individuals with higher positions receive significant power and employees
in these cultures are likely to accept such centralized power, which implies that they
rely on their superiors for direction because they are less likely to participate in the
decision-making process. On the other hand, in countries with a low power distance
culture, people assume to be involved in decision-making, and do not accept easily
centralized decisions and power. Indeed, employees‟ participation is part of lower
distance culture (Hofstede, 2001).
Individualism/Collectivism
Individualism implies to the extent to which everyone is expected to look
after himself and his immediate family. In a collectivist culture, the interest of the
group prevails over the interest of the individual. One distinction is reflected in
who is in charge of when you set goals. In individualist cultures, goals are set with


19

minimal consideration given to groups. In collectivist cultures, other groups are
taken into account in a major way when goals are set.
In the workplace, in individualist cultures, the employer-employee
relationship tends to be established by contract, and hiring and promotion
decisions are based on skills and rules; in collectivist cultures, the employeremployee relationship is perceived in moral terms, like family link, and hiring
and promotion decisions take employee„s in-group into account.
Masculinity/Femininity
Masculinity means that societies where social gender roles are clearly
separated. Masculine cultures poses assertiveness and give importance to material
success, while feminine cultures value modesty, tenderness and quality of life, as
well at the workplace (Hofstede, 1991).
Uncertainty Avoidance
Hofstede (1991, p.113) defines this dimension as the “extent to which the
members of a culture feel threatened by uncertain or unknown situations”. With
cultures employing high uncertainty avoidance, organizations and individuals used
to doing things in a traditional approach and tend to resist to new technologies
because of the potential risks. By contrast, with countries posing a low uncertainty
avoidance culture, there is less need to predict things and a lower reliance on rules.
This shows that people are more disposed to adopt and implement new
technologies in their work.
Long-term versus short-term orientation
Long Term Orientation means fostering of objectives oriented towards future
rewards, in particular, perseverance and thrift, while Short Term Orientation stands
for the fostering of goals related to the past and present, in particular, respect for
tradition (Hofstede, 2001, p.359). Commonly, countries with the influence of
Confucianism like China, Japan, South Korea and Vietnam has a higher long-term
orientation level.