There are many different reasons why a startup might merge with, acquire, or be acquired by another company abroad, and international expansion is one of the more common reasons. There are more companies combining around the world today than ever before in order to:

-acquire talent, technology, new products, raw materials
-enter new markets
-leverage strategic opportunities, synergies, improve performance
-gain a global presence
-create economies of scale

Government studies from a number of countries show that global companies are over 30% more profitable than companies that don’t expand beyond their borders. One could assume that M&A would increase the likelihood of success, however, studies show that up to 2/3 of all mergers & acquisitions fail to add shareholder value. Much of the inability to add value is being attributed to an inability to integrate culture and human resources despite the business metrics making sense.

A lot of research is done prior to merging or acquiring companies, but most of it centers around financial feasibility. After the merger or acquisition has taken place, it’s more of an operational exercise focused on logistics, not focused on the softer cultural factors which can derail the entire success.

This lack of focus on culture may be because the people who are in the middle of the deal are often culture-blind. They are unable to see what influences their own cultural behavior and the cultural factors that create meaning for either of the companies. A second reason is that it’s hard to do extensive research on a company’s culture in advance without tipping your hand about the deal in the making. Thirdly, culture is hard to identify, measure, and impact so it’s often left as an afterthought or not addressed well at all.

If culture plays such an important role in the ultimate success of a merger or acquisition, it pays to understand it better.

What is Culture?

Per LifeScience.com, ‘culture is the characteristics and knowledge of a particular group of people, defined by everything from language, religion, cuisine, social habits, music and arts.

Culture is shared patterns of values, behaviors and interactions, cognitive constructs and understanding that are learned by socialization. Thus, it can be seen as the growth of a group identity fostered by social patterns unique to the group.’

How Does Culture Work?

Culture influences

Culture influences how people behave, how people believe, how people identify themselves, and even how they justify and understand their actions. People don’t typically understand why they feel and act in certain ways but they know it’s right and culturally appropriate within their company or social circle.

Culture is enduring yet in flux

Cultural elements are often passed down from generation to generation and yet they also change over time. The implicit, or implied and assumed nature of culture helps it to endure even when new cultural values get introduced. It’s almost impossible to force people to adopt and change something they see as negative or less desirable into their culture, they have to want to adopt it, be drawn to the changes, and recognize the changes as a positive addition to their current culture. Therefore, management cannot force the two cultures to adapt and get along, people need to see value and benefits from doing so.

Insiders are culture blind

People who are in a culture typically can’t see it themselves or identify specific cultural elements, although that culture influences their behavior, meaning, and attitude. This is why it’s best to invite outside professionals to help identify culture during the research phase and help the newly combined company management create a plan for influencing the culture they want going forward.

Company culture is compounded by country culture

When you’re integrating two companies, you must take country and society cultural variables into consideration. You also have to recognize and consider company culture and the culture of startups as compared to mature organizations in order to effectively work together.

The biggest differences in country culture overall are found between the Western Business Culture, Eastern Business Culture, Latin Business Culture, Middle Eastern Business Culture, and African Business Culture. And, there are plenty of differences within each of these cultural groups in areas such as demographics, stage of business, success of business, nature of acquisition or merger (hostile or strategic), geographic, psychographic, socioeconomic, racial, tech savviness of employees, education level, work ethic, and many other variables. Mergers and acquisitions within a culture can be tough – adding in the layer of distinctly different cultures brings much more complexity and opportunity for issues.

How does culture manifest in a company?

We’ve identified a number of cultural elements that need to be considered in order to drive integration success. Of course, there will always be more factors unique to specific industries and geography to consider. Here are some of the critical areas you’ll want to evaluate and plan to intentionally address prior to, during, and after mergers and acquisitions.

We suggest putting these into buckets such as cultural elements that are extremely different from what the new management desires, cultural elements that are similar, cultural elements which can improve or change with time and intention, cultural elements you’re flexible collaborating on, cultural elements you’re not at all flexible on, and cultural elements that could kill the deal.

  • Company type: startup culture vs mature company culture differences
  • Communication: style, frequency, tone, type of media used, direct vs indirect, forthright vs reserved
  • Disagreements: cultural approaches to and appropriateness for disagreeing and negotiating
  • Common ground: finding common cultural references such as music, sports, celebrity, religion, politics
  • Relationships: identifying important relationship norms such as openness with co-workers, management, friends, family
  • Decision-making hierarchy: level of inclusiveness in decision making, ability to discuss and debate up, across and down hierarchies
  • Management style: hierarchy within the organization, pyramid vs. flat organization
  • Rewards: attitude and expectations including recognition, bonuses, perks
  • Values: on things such as freedom, influence, privacy, wealth or the impression of wealth, government intervention, transparency
  • Awareness of, attitude toward, and alignment of goals: having agreed upon and measurable outcomes, attitude on setting goals to be attainable vs over or under-reaching
  • Quality: the value of and agreement on what constitutes quality
  • Country culture: Understanding and respecting each other’s country culture
  • Influencers: formal and informal cultural ambassadors/Influencers
  • Risk tolerance
  • Work cadence: speed, thoroughness
  • Tolerance and attitude towards failure
  • Time management variances
  • Age and status: respect and expectation for respectful behavior towards elders and managers
  • Flexibility and responses to changes
  • Attitude and expectation around work hours, weekend work, evening work
  • Attitude and expectations around vacations
  • Attitude and expectations around compensation
  • Attitude and expectations around titles

To learn more about culture in business when doing business globally, watch this video of An Introduction To Go Global From A Cultural Perspective. 

In Conclusion

Startups are frequently involved in combining with other companies around the world, they are highly sought-after acquisition targets, and are merging or acquiring companies to expand into new markets. Culture is one of the most overlooked and highly impactful aspects of M&A.

Our goal is to help dramatically improve the success rate of startup M&As.

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