Филинов статья семинар

Previous theoretical research has argued that national cultural distance hinders crossborder acquisition performance by increasing the costs of integration. This article tests the alternative hypothesis that national cultural distance enhances cross-border acquisition performance by providing access to the target's and/or the acquirer's diverse set of routines

and repertoires embedded in national culture. Using a multidimensional measure of national cultural distance and controlling for other effects, we examine a sample of 52 crossborder acquisitions that took place between 1987 and 1992, and find a positive association between national cultural distance and cross-border acquisition performance.

Gross-border merger and acquisition

(M&A) activity has continued to increase at a torrid pace during the past decade and a half, to the point that it has become a major strategic tool for growth of multinational corporations (Cartwright and Cooper, 1993). Throughout the 1980s, the number of cross-border acquisitions occurring each year had more than tripled, accounting for a significant proportion of total M&A activity by the early 1990s - 95 percent in the case of Japanese companies and 50 percent for European Union companies (Morosini and Singh, 1994). After a temporary slowdown during the recessionary global economy of the early 1990s, the value of cross-border M&A reached a record high of US$181.7 billion within the first nine months of 1996 (The Economist, 1997).

Recent research findings suggest that national cultural distance is relevant to cross-border acquisition performance (Morosini, 1998). In the context of a cross-border acquisition, national cultural distance represents distance in the norms, routines and repertoires for organizational design, new product development, and other aspects of management that are found in the acquirer's and the target's countries of origin (Kogut and Singh, 1988). In particular, specific routines and repertoires have been shown to be critical to post-acquisition performance, and to vary significantly across countries in direct association with the national cultural distance between them (Jemison and Sitkin, 1986; Hofstede, 1980). This is the case with routines and repertoires related to innovation effectiveness (Shane, 1993), degree of entrepreneurship (McGrath et al., 1992), deci- sion-making practices (Kreacic and Marsh, 1986; Bourgoin, 1989), and the power and control structures of an organization (Brossard and Maurice, 1974).

Multinational corporations may need to possess a diverse set of routines and repertoires if they are to compete in a diverse world. Routines and repertoires are often dependent on the multinational corporation's unique institutional and cultural environment, and are therefore not imitated easily by other firms (Barney, 1986). Given uncertainty as to the routines and repertoires that will be valuable in the future, a multinational corporation may increase the probability of possessing a greater variety of potentially valuable routines and repertoires by acquiring a firm in a culturally distant country.

Against this background, we attempt to address an issue which has received very little attention in the literature, namely, the effects of national cultural distance on cross-border acquisition performance. As multinational companies increasingly acquire targets in more culturally distant countries, they face new challenges in managing their external environment (Moran, 1980). Such considerations have motivated the central question of this article: How does national cultural distance between the acquirers' and targets' countries of origin influence crossborder acquisition performance?

This article tests the relationship between national cultural distance and cross-border acquisition performance, while controlling for firmand industrylevel variables. The findings suggest that researchers and practitioners should incorporate national cultural distance into cross-border acquisition decisionmaking and research. The article is structured in the following manner: In the next section, we outline the terminology used to define national cultural distance. We then develop the theoretical explanation for the effects of national cultural distance on cross-border post-

acquisition performance. We go on to describe the methodology and empirical model designed to test this explanation, and to present the results. We also present the results of field interviews of four multinational companies that complement the findings of the empirical model. In the final section, we draw the conclusions.

TERMINOLOGY

It is importantto establish a clear terminology at the outset. National cultural distance is defined as the degree to which the cultural norms in one country are differentfrom those in another country (Kogut and Singh, 1988). In their article on national culture and choice of entry modes, Kogut and Singh (1988) estimated national cultural distance as a composite index based on the deviation from each of Hofstede's (1980) national culture scales: Power distance, uncertainty avoidance, masculinity/femininity, and individualism. Following this approach, we measure national cultural distance between the countries of origin of the acquiringand target firms following Hofstede's (1980) four cultural dimensions. We employ Hofstede's (1980) national culture scores because they are consistent with our empirical approach to measure national cultural distance. Our measure is discussed in detail in the methodology section, along with a justification for selecting Hofstede's (1980) quantitative scores to measurenational culture.

In the context of this article,we define routines and repertoires as the ways in which a firm typically addresses aspects of organizing its business activities.

These routines and repertoires include such elements as R&Dprocedures, policies for supervising subordinates, and procedures for scanning the competitive

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environment. As previously mentioned, critical routines and repertoires within organizationsin different countries have been shown to vary significantly and in direct association with the national cultural distance between them (Shane, 1993; McGrathet al., 1992; Hofstede, 1980; Brossard and Maurice, 1974). They have also been shown to affect post-acquisition performance through learning and specialization that take place between the acquiringand the target firms following the acquisition (Haspeslaghand Jemison, 1991; Jemison and Sitkin, 1986;Lincoln et al., 1981).

THEORYDEVELOPMENT

Researchwithin the perspective of the resource-basedview of the firm has indicated that sustainable competitive advantageresults fromvaluable, rareand inimitable resourcesthat can be physical, financial or human (Barney, 1986; Barney, 1991). Human capital-based resource advantages often lie in the administrative routines and repertoires that firms develop to make decisions, to govern the allocation of resources, to formulate strategy, to interact with stakeholders, or to make use of assets (Fiol,

1991).

For administrativeroutines and repertoires to create a sustainable competitive advantage, they must not be easily imitated by other firms. This is the case for organizational routines developed in interaction with a firm's history and institutional environment (Collis, 1991). Indeed, such interaction leads to the development of a unique set of routines and repertoires within the organization. Even though these unique routines and repertoiresare often seen by managersof other firms as valuable, they may not be easily replicated by companies other than the advantagedfirm if they have not

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followed a similar path of historical development, or if they have not been present in the same institutional environ- ment (Barney, 1991).

The institutional environment of a firm and the historical path of development of the routines and repertoiresthat generate a firm's competitive advantage appear to be embedded in national culture (Barney,1986). Routines and repertoires are shaped by the national cultures of firm founders and the national circumstances of their foundation (Pettigrew, 1979). Some routines, such as the process of innovating and inventing, decision-making practices, stakeholder relationships, strategies, structure and training, are more common in some national cultures than in others because of the institutional environment in which firms operate (Shane, 1992; Schneider and DeMeyer, 1991; Kreacic and Marsh, 1986; Barney, 1986; Hof- stede, 1980). As a result, the organizational routines and repertoiresthat lead to a firm's sustainable competitive advantagetend to be constrainedby national culture (Hofstede et al., 1990; Lincoln et al., 1981; Kogut and Singh, 1988), which makes them difficult to replicate in othernational cultures (Barney,1986).

However, firms that operate on a multinational scale may need to possess a diverse set of routines and repertoiresif they are to compete in a diverse world. In an uncertain environment, it is difficult for managersto know ex ante what routines and repertoireswill provide sustainable competitive advantage and performanceover time. Given the difficulty of forecasting valuable future routines and repertoires, it may be in a multinational firm'sbest interestto access a relatively large and diverse pool of routines and repertoires,thus increasingthe probability that it will possess those that

prove to be valuable in the future. Crossborderacquisitions provide a mechanism for accessing valuable routines and repertoires embedded in other national cultures without having to follow the developmental path that leads to them (Jemisonand Sitkin, 1986). Acquisitions across national cultures could enhance firm performanceby providing access to a valuable pool of critical routines and repertoires previously not available to the firm (Ghoshal, 1987).

Access to routines and repertoiresvia acquisition of a firm in anothernational culturecould enhancethe performanceof the combined organizationin two different ways. The firstway is throughlearn- ing (Ghoshal, 1987). Firms in some national cultures are unable or unwilling to develop certain routines because they lack a tradition of a particular "way of doing things" (Barney,1991). Following a cross-borderacquisition, the two firms interactand learn fromeach otherat various operatinglevels, pooling their organizational routines (Haspeslagh and

Jemison, 1991). The second way is through specialization. Acquisition of a firm in another national culture enables access to routines specialized to that firm'slocal context (Lincolnet al., 1981). National culture leads and contributesto the adoption of country-specificroutines for accomplishing certain tasks (Fiol, 1991). It is less costly to have employees performtasks in ways that are consistent with theirnationalculturalvalues than to have them carryout tasksin ways thatare not compatiblewith their culturalbeliefs (Shane, 1993). For example, the acceptability of freedom from organizational control varies across national cultures (Hofstede, 1980). Consequently, it has been shown that it is less costly to innovate in the context of some national culturesthan in others(Shane,1992).

However,it has been arguedthat a relatively high level of cultural distance between firms is likely to lead to "cultural ambiguity" and process losses when different cultures "collide" during the post-acquisition period (Jemison and Sitkin, 1986; Buono et al., 1985). Higher levels of cultural distance between firms have been associated with a higher degree of conflict during the day-to-day post-acquisition integration period (Jemisonand Sitkin, 1986). While cultural distance is often seen as a potential source of difficulty,the eventual outcome of an acquisitionis dependentupon steps taken during the post-acquisition phase (Haspeslagh and Jemison, 1991). Moreover, many of the concerns about cultural distance that have been put forward in the literatureon post-acquisition performanceare based on corporateculture differences(Datta,1991). In the context of a cross-border acquisition, however, benefits of national cultural distance between the acquirerand the target firm may offset the potentially disruptive impact of othersources of difficulty related to corporate cultural distance during the post-acquisition period (Ghoshal, 1987), or even duringthe pre-acquisition phase, forexample,throughlearning.

Extensive empirical research has shown that, on average, the greater the national cultural distance between two countries, the greater the differences between them in terms of routines and repertoires (Hofstede, 1980; Lincoln et al., 1981). For example, routines and repertoires related to innovation and inventiveness, as well as the degree of entrepreneurship, have been found to vary significantly across countries along Hofstede's (1980) "individualism-collec- tivism" polarity (Shane, 1993; McGrath et al., 1992). It has also been shown that firms in countries which are significantly

distant along Hofstede's (1980) "uncer- tainty-avoidance" and "power-distance" national cultural dimensions present specific differences in their decisionmaking practices and in their power and control structures (Bourgoin, 1989; Kreacic and Marsh, 1986; Hofstede, 1980; Brossard and Maurice, 1974). National cultural distance between countries has also been associated with significant differences in their legal systems, incentive routines, administrative practices and working styles (Hofstede, 1980; Shane, 1992; Ouchi, 1980).

If, as we argued earlier, the ability to develop certain routines and repertoires is partly dependent on the national cultural environment in which firms operate, multinational firms will find that cross-border acquisitions in culturally distant countries tend to be more valuable, because a greaternational cultural distance makes it more likely that the target will provide a set of routines and repertoiresthat are significantly different from the bidding firm's own set, and which cannot be easily replicated in the acquirer's country of origin - or vice versa (Barney,1991). Since these different routines and repertoires can be utilized to significantly transform a firm's business strategy, structure and operations in order to improve performance (Hofstede,1980; Ghoshal, 1987), a crossborderacquisitionmightbe interpretedas a mechanism for the acquiring(orthe target) firm to access differentroutines and repertoires that are missing in its own national culture, and which have the potential to enhance the combined firm's competitive advantage and performance overtime (Jemisonand Sitkin, 1986).

These argumentslead to the following hypothesis tested in this study:

The greater the national cultural distance between the acquirer'scountry and

the target's country, the greater will be the post-acquisition performance of the combined firm.

METHODOLOGY

A survey of firms involved in crossborderacquisition activity was undertaken, complemented by in-depth interviews of individuals involved in crossborderacquisitions in four multinational companies.

Survey of Firms

The Sample

A detailed questionnairewas designed in both Italianand English,and 400 companies that had engaged in cross-border acquisition activity in Italybetween 1987 and 1992 were invited to participate in the survey. These 400 companies were identified froma databaseput togetherby KPMGPeat MarwickConsultants,which, in Italy, is commonly regarded by researchers and practitioners as one of the most comprehensive databases. A total of 73 companies respondedpositive-

ly to the invitation, and were sent the detailed questionnairedesigned to gather information on cross-borderacquisitions in which one of the partnerseither the acquirer or the target company - was Italian. Out of these 73 companies, a total of 64 responded to the questionnaire. To ensure data reliability, only informationon companies for which performance data could be independently verified from archival sources was used. Only responses of 52 companies could be verified in this way, and thereforethe statistical analysis is based on the 52 companies, which is sufficientforthe multivariate analysis performedhere (Mazenet al.,

1987). Country frequencies for these 52

for nonresponse bias, by comparingthe respondents and non-respondents on the publicly accountablevariablesin our model: Size, country of origin and relatedness. These tests showed that the differences between the two groups were not significant at the p < .10 level, indicating no problemof non-responsebias.

The Variables

Dependent variable: Performance was measured as the percentage rate of growthin sales (denominatedin U.S. dollars) over the two-year period following the acquisition. The measure of sales growth was calculated based on data gatheredin the questionnairesdistributed to the sample, and was checked against archivalsourcesto ensure accuracy.

Market-based measures have been suggested as superior alternatives for performance measurements (Woo et al., 1992), and have been used frequently to measure post-acquisition performance in the literature (Chatterjeeet al., 1992; Singh and Montgomery, 1987).

However, the applicability of this type of approach in the largely Europeanand Italian context of the present research was rather limited for two reasons.

First, the Italian stock market is considerably small relative to other developed economies, both in terms of the number of companies quoted and as a proportion of the total size of the economy (Marelli, 1994; Morosini, 1994). As a consequence, the acquisition activity taking place through the Italian stock market is not always representative of the total level of activity (Acquisizioni, 1994). Second, a number of the stock markets of countries well represented in our sample (e.g., Italy, France, Germany) have been, until recently, notorious for their lack of market efficiency, hindering the usefulness of stock price measures.

Growth in sales has been used as a measure of performance in strategic management research (Woo et al., 1992; Morrison and Roth, 1992), including studies of post-acquisition performance (Datta, 1991; Haspeslagh and Jemison, 1991). Moreover, sales growth is an appropriate performance measure for

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capture the effects of our hypothesized relationship effectively.

period after the acquisition, the process of combining the firms usually has been completed, and the results of the underlying integration effort can be measured effectively (Jemison and Sitkin, 1986).

Independent variable: The key inde- pendent variable in this study, national cultural distance, was measured following Kogut and Singh's (1988) measures, based on Hofstede's (1980) national culture scores. Kogut and Singh (1988) defined national cultural distance as the degree to which the cultural norms in one country differ from those in another country. Based on this definition, a number of authors have shown that critical routines and repertoires within firms in different countries vary significantly in direct association with the national cultural distance between them

and the other countries along Hofstede's (1980) power distance, uncertainty avoidance, masculinity/femininity and individualism scores:

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wi=1

where:

CD1:Is the cultural differencefor thejth countiy.

Iij: Hofstede'sscore:ith cultural dimension and jth country.

I:Indicates Italy.

We selected this measure of cultural distance because of the extensive evidence of the validity and reliability of the underlying Hofstede's (1980) national cultural scores (Morosini and Singh,

1994; Shane, 1992; Kogut and Singh,

1988). Moreover, there are significant advantages to using Hofstede's scores as a measure of national cultural distance over administering a questionnaire on national culture to the managers of the companies in the sample. First, the use of Hofstede's scores avoids the problem of common method variance in which the same individuals answer questions about firm performancein the same way as answering questions about national culture (see Shane, 1995 for a discussion of the problem). Second, the use of Hofstede's scores avoids the problem of retrospective evaluation of national culture. Since people tend to be ethnocentric and prefer similarity (Hofstede, 1980), if surveyed after the acquisition, members of the acquiring firms might "remember" the national culture of target firms as being more similar than they really were. The design of this study avoids the problem of retrospective rationalization by using national culture scores from a source external to the sample and not dependent on the memory of the respondents.

ControlVariables

Relatedness: Relatednesswas defined accordingto the industries of the acquiring and acquired firms. Research on post-acquisition performancehas argued that relatedness of the acquisition should enhance post-acquisition performance (Salter and Weinhold, 1979; Lubatkin, 1983; Datta, 1991). A number of explanations for this relationship have been given, including economies of scale and scope (Salter and Weinhold, 1979; Lubatkin,1983; Datta,1991; Williamson, 1981; Porter, 1980) and market power (Eckbo,1983; Stillman, 1983). Singh and Montgomery (1987) demonstrated that gains to shareholders were higher in related acquisitions than in unrelated ones. Shelton (1988) has shown that related acquisitions create more shareholder value than unrelatedacquisitions. For this reason, we control for relatedness of the acquisition in this study.

Relatedness was measured based on the industry of the acquirerand the target firms. If archival data indicated that the two companies were in the same industry,the acquisition received a relatedness score of one. If archival data indicated that the two companies were in different industries, the acquisition received a relatednessscore of zero.

Size: A number of scholars have shown that the size of an acquisition influences post-acquisition performance (Kusewitt, 1985; Kitching, 1967). Therefore,we also controlled for size in this study. This variable was measured as the dollar value of the target's net sales in the year of the acquisition. These data were taken from the survey, and a reliability check was made based on archivalsources.

Post-acquisition strategy: The postacquisition strategies implemented by the acquiringfirms can be thought of as

following "integration" or "execution" modes (Morosini, 1998; Morosini and Singh, 1994), and are commonly regarded as critical for the strategicand financial success of the acquisition. Research on the post-acquisition process has shown that effective integrationof operations enhances post-acquisition performance as the combined firm lowers costs by increasingscale economies in production, marketing, distribution and advertising (Rappaport, 1987; Datta, 1991). Therefore, we control for the inherent degree of integrationin the post-acquisi- tion strategies implemented by the acquiringfirmsin this study.

Following Pursche (1990) and Morosini and Singh (1994), we broadly characterize the different post-acquisi- tion strategies implemented by the acquirer on the basis of the degree of post-acquisition integration between the target and the acquiring firm (Shrivastava,1986), and on whether the source of value of the acquisition resides in the combination of the merging firm's resources or only in the target firm's resources (Chatterjee,1992). Based on those criteria,the post-acquisition strategies were defined as: "Integration"(i.e., significant changes in both firms' businesses and functions; the source of value resides in combining both firms' resources); "restructuring"(i.e., significant changes in the target's businesses and functions;the source of value resides predominantly in the target firm); and "independence" (i.e., very limited or no business or functional changes in any of the merging companies following the acquisition).

The post-acquisition strategy implemented by the acquiring firm was measured by a questionnaire item asking if the acquiringcompany was following an "integration"strategy, a "restructuring"

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strategy, or an "independence" strategy. Explanations for each of these strategies were provided in the questionnaire so that respondents had a consistent definition of each strategy. A dummy variable received a score of minus one if the postacquisition strategy implemented was "independence," zero if it was "restructuring," and one if it was "integration," respectively

UncertaintyAvoidance: Uncertainty avoidance on the part of the acquirercan influence post-acquisition performance and is therefore controlled for in this study. Uncertainty avoidance has been associated with a preferencefor organizational rules and procedures favoring monitoring, planning and control (Hofstede, 1980), which in turn have been shown to influence post-acquisition performance (Achtmeyer and Daniell, 1988). It has also been observed that countries where there is uncertainty avoidance favor short-term feedback (Hofstede, 1980), leading to top-down types of post-merger management approaches that are generally fast to implement and lead to quick sales growth (Pursche, 1990). Because of this, we argue that uncertainty avoidance could have a beneficial impact on postacquisition performance. In order to control for uncertainty avoidance in our model, we use Hofstede's (1980) national culture scores for the uncertainty avoidance of the acquiring firm's country of origin.

Year: Controlling for the year of the acquisition was necessary because national and internationaleconomic and financial conditions vary year by year, and have a clear impact on the performance of all acquisitions. Moreover, importantpolitical, economic and financial changes took place in Italy during the period under consideration in this

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