Филинов статья семинар

research; particularly in 1991 and 1992, a large scale devaluation forced the Italian government to temporarily withdraw the Lira from the European Monetary System of minimal exchange rate fluctuations between the main European currencies. These events may have affected the performance of the acquisitions under study, as many of the Italian companies acquired were export oriented (e.g., in the textiles and apparel industry). We used dummy variables for the years 1987, 1988, 1989, 1990 and 1991.

Industry: Research has documented industry differences in the preference of acquisitions as an entry mode (Caves, 1982). Moreover, strong patterns are present in the preference for acquisitions across services and manufacturing industries (Kogut and Singh, 1988). Industry differences in the preference of acquisitions as an entry mode suggest that industry might have an effect on postacquisition performance. Therefore, through the use of dummy variables, we controlled for acquisitions in four key industries in which there was significant acquisition activity during the period under study: Banking, textiles and apparel, waste management, and pharmaceuticals.

The Model

We tested our hypothesis on the sample of acquisitions using ordinary least squares regression analysis. The regression model was of the following form:

Performance = f (CD, UA, RE, SI, IN, 87, 88, 89, 90, 91, TE, WA, BA, PH)

where:

Performance = Percentage growth in sales for the two years following the acquisition.

87, 88, 89, 90, 91= Dummy variables for acquisitions that took place in 1987, 1988, 1989, 1990 and 1991, respectively.

TE, WA, BA, PH= Dummy variables for the textiles and apparel, waste management, banking, and pharmaceutical industries, respectively.

Field-based Interviews

Field based interviews of 16 senior executives in four companies engaged in cross-border acquisitions were also employed to provide a more fine-grained understanding of the mechanisms by which national cultural distance was addressed in the corporations. Indeed, it is questionable whether exclusively quantitative approaches are appropriate to characterize the multiform and highly diverse contextual aspects in which cross-cultural mechanisms are carried out in practice within multinational companies (Lane and Beamish, 1990). Thus, our expectation was that by combining quantitative and qualitative analy-

sis we could gain a deeper understanding of the phenomenon under investiga- tion (Parkhe, 1993).

The field work consisted of interviews of CEOs, other high ranking executives and line managerswith deep knowledge of their companies' international M&A activity. These executives were selected on the basis of their direct decision-mak- ing and long-term involvement in their companies' M&A activities throughout the assessment, negotiation and implementationphases. The varied managerial levels and specific experiences sought after intended to avoid potential problems of hindsight rationalization or partial knowledge of the business situations examined (Regner, 1996). Detailed research of these companies, particularly focusing on their cross-borderM&Aactiv- ities, precededeveryinterview. The interviews themselves were highly structured, and focused on the companies' M&A activities in culturallydistant countries.

An interview protocol was designed and used throughoutthe field interviewing process. A letter was sent to the company executives chosen asking them to answer a few questions during a one hour personal meeting. An interview guide was attached to the letter in order to illustrate the types of issues being investigated, but without describing the hypothesis, theoreticalbasis, or quantitative results of the research. The interview guide had several open-ended questions and consisted of two parts. The first part included several questions related to whether, in the context of their companies' cross-border acquisition activity, decision makershad been significantly motivated by the value they saw in national cultural distance; what specific kind of benefit was provided by culturally distant acquisitions;and how was this benefit transferredto the acquiring

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firm. The second part of the questionnaire was tailored to investigate in more depth each company's specific instances of culturally distant acquisitions, characterizing the benefits provided by nationally embedded factors, and providing concrete examples of the mechanisms through which these benefits were effectively transferredto the acquirer.

There was a high degree of consensus among respondents on benefits provided by national cultural distance (e.g., acquisition of diverse routines and repertoires in areas such as R&Dprocedures, executive compensation systems, international project management and financing), and on the mechanisms throughwhich these benefits were transferredto the acquirer (e.g.,the internationalrotationof key personnel between the acquiringand the target firms), but these tended to present some variety depending on the type of industry and the specific competitive context of each company. Following the initial contacts with the executives, multiple interviews were conducted at each company's location during 1995 and 1996.

Typically, there were initially individual meetings with highly ranked executives, such as CEOs or board members. After these initial meetings, additional interviews were arrangedand carriedout with lower level executives and line managers at each company following the same interviewing approach. Every interview was recorded, and subsequently transcribedand analyzed in a structuredway, establishingin the context of every executive's cross-border acquisition experiences:

*whether his/her company had been significantly motivated by the value they saw in national culturaldistance;

*what kind of value and/or benefits were specifically provided by national culturaldistance;and

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* how were nationally embeddedbenefits transferredto the acquireror to the combined firm'soperations.

Multiple interviewing sessions and fol- low-up meetings were carriedout during

1995 through 1996.

The companies were chosen to be representative of different geographic locations, variation in degree of internationalization, industry differences and level of M&A activity. Thus, the sample included companies that were "globalized" and companies that had only recently begun to expand overseas. We also ensured that Swedish-Italian acqui-

sitions were included, given that the national cultural distance between Sweden and Italy was found to be the highest in the empirical sample utilized in the firstpartof our research.

RESULTS

Statistical Analysis

Table 2 shows the means, standard deviations and correlationcoefficientsfor the variables. The table shows that the highest correlationbetween the indepen- dent variables (r = 0.47) is that between the dummy variable for the textiles and

apparelindustryand the dummy variable for 1990. This modest overall level of correlationindicates that multicollinearity is not a problemin this study.

We also conducted tests to ensure the robustness of the regression model. Tests of heteroskedasticity and autocorrelation of errorsshowed that neither of these problems were present in the data. Plots of the independent variable against the dependent variable indicated that a linear model was the best model to fit the data. Plots of the residuals also indicated the robustness of the regression model.1

The results of the regression analyses are shown in Table 3. The ordinaryleast squaresform of regression on the dependent variable produces results that support our hypothesis. As Table 3 shows, the regressioncoefficient associated with the cultural distance variable was 0.13

(t=2.04; p<.05), indicating that cultural

distance had a positive effect on postacquisition performance. In otherwords, after controlling for year, industry, size, relatedness, post-acquisition strategyand uncertainty avoidance of the acquirer, the greaterthe national cultural distance between the acquirer and the target, the greater the sales growth rate over the two-year period following the acquisition.

Table 3 also shows that the regression coefficient associated with the acquirer's national cultural value of uncertainty avoidance was 0.01 (t=2.23;p<.05), indicating that the national cultural value of uncertainty avoidance had a slight, but significant effect on post-acquisition performance. The results suggest that this effect is positive, but very small.

One of the empirical findings on postacquisition performancein the literature has been that integration of operations increases efficiencies and economies of

scale and thereby enhances performance (Porter,1980; Salterand Weinhold, 1979; Datta, 1991). However, our findings show that the regressioncoefficient associated with post-acquisition strategyimplemented by the acquirer,which is akin to the integrationmode of the acquisition, was non-significant. This indicates that, in our model, the post-acquisitionstrate- gy for targetintegration did not seem to affectpost-acquisitionperformance.

Table 3 also shows that the regression coefficient associated with the relatedness variable was positive and non-sig- nificant, indicating that the degree of relatedness of the acquirerand the target firms did not influence sales growth of the combined firm during the two-year period following the acquisition.

The results show that the regression coefficient associated with the size variable was negative and significant, although the magnitude of this effect is very small. We therefore cautiously observe that, in our sample, acquiring larger targets resulted in lower sales growth in the two-year period after the acquisition than did acquiring smaller targets,but the amount of this difference was very slight.

Among the regressioncoefficients controlling for year, the variable for 1991 was positive and approached significance. This result indicated that the year of the acquisition had an almost significant, but large, effect on post-acquisition sales growth. Interestingly,as mentioned earlier, 1991 was characterized by momentous political, fiscal and monetarypolicy events with few precedentsin the Italian post-war history. It may be arguedthat these factors,particularlythe large devaluation of the Lira, affected both the level of activity and the relative performanceof cross-borderacquisitions in Italyduringthe years around1991.

One of the regression coefficients controlling for industry, namely the dummy variable for the textiles and apparel industry, had a significant and positive effect on post-acquisition sales growth. As mentioned earlier,this positive effect can be related to the fact that acquisitions in the Italian textiles and apparel industry, which were mostly export oriented, may have benefited fromthe large devaluation of the Lira during 1992. This result also indicates the importance of controlling for industry in studies on cross-border acquisition performance. Acquisitions in the textile and apparel industry had significantly faster revenue growth in the two years afterthe acquisitions comparedwith otherindustries.

Field-based Interviews

To provide a richer understanding of the mechanisms by which national cultural distance enhanced post-acquisition performance and to confirm the survey results, we outline below the major results of our interviews conducted in four multinational firms engaged in cross-borderacquisitions.

All of the interviews indicated that senior executives considered cultural traitsless prevalentin their home national culture necessary to capture. For example, in Pharmacia's acquisition of Farmitalia Carlo Erba, and Electrolux's acquisition of Zanussi, senior executives sought to gain access to Italian cultural characteristics that were generally difficult to find in Sweden. As Gianmario Rossignolo, the former Chairman of Electrolux-Zanussi, formed from a Swedish acquisition of an Italian firm, observed, "One fundamental reason for Electroluxto acquireZanussi is that people skills were sufficiently complementary in marketing and product design. Our [Italian]people were more creative,

more aggressiveand much more flexible. This flexibility is part of the Italian culture, and you see many examples of this in Zanussi." While the company's crossborder acquisitions occurred across a variety of industries and at different points in time, all of the executives interviewed highlighted the value of national cultural distance as a significant motive for cross-border acquisition. As GianmarioRossignolo explained: "You don't buy just machine tools here in this company [Zanussi],you get access to the people's [Italian] culture, which is an asset to be preserved." Specifically, Electrolux executives explained that the acquisition of Italian Zanussi provided access by researchers and product designers to innovative routines and repertoires different from those of Electrolux.

Similarly, senior executives at Sweden's Pharmacia pointed out that ensuring access to different innovative routines and repertoiresin critical pharmaceutical research areas was a significant motive for acquiring Italian Farmitalia Carlo Erba. As Lars Lindegren, a former CEO of PharmaciaFarmitalia Carlo Erba, remarked, "We Swedes are very different from the Italians. This is a big cultural difference between the countries. One could notice this diversity reflected in the very different research approaches and working methods that Farmitalia Carlo Erbahad developed here in Italy vis-a'-vis our own ways of doing researchin Pharmacia."

The beneficial effect of countryspecific routines and repertoires stemming from acquisitions across culturally distant locations were described as bidirectional. Thus, in the case of Pharmacia,the concern for social interdependence and welfare of others also provided routines valuable to the Italian

target firm. The acquirers were able to transfer routines and repertoires for team-basedand non-hierarchicalways of working in which Italian creativity and innovativeness could fully develop its potential. As LarsLindegren explained, "Italianshad a big problem. They lacked an understanding of the conditions under which research works. See, creativity and innovation cannot flourish in a place where control and hierarchy are more important than delegation. -Research means to innovate, to invent and create new things, and that needs freedom, delegation and team-work. So, the acquired company's way of working, hierarchical,individualist and not crossfunctional, was counterproductive in this context."

Senior executives at Swedish/Swiss ASEA Brown Boveri (ABB) also pointed to the acquisition of Italiancompanies as providing access to specific and valuable skills embedded in that country's particular cultural environment, which could then be internationallytransferredacross other ABB country operations. Through their purchase of SACE,a Bergamo-based electrical components producer, ABB gained access to, and know-how of, flexible financing instruments available in Italy to finance large-scale infrastructure projects. Such flexible financing instruments have been historically developed within Italy's specific business context and traditionally uncertain political milieu, which have been closely linked with the country's particular national culturaltraits (Putnam,1993). Following its acquisition of SACE,ABB was able to absorb and transfer the Italian target's flexible financing mechanisms and know-how to fund large-scale electrical engineering projects, particularly across transitional economies and developing countries that were perceived as being

culturally distant vis-a-vis the Swedish/Swiss parentcompany.

High-ranked executives at Deutsche Bank's headquarters stressed that their acquisitions of major Italian financial institutions, such as Banca d'America e d'Italia (BAI), Banca Popolare di Lecco and Finanza e Futuro, also provided their company with valuable countryspecific organizationalroutines, such as flexible and aggressivesales approaches. However, these executives added that Deutsche Bank'sabsorptionof nationally embedded and valuable organizational routines through acquisition were also characteristicof other cross-borderoper- ations carried out in locations perceived

Deutsche Bank's acquisition of Britain's MorganGrenfell,a merchant and investment banking operation based in London. Deutsche Bank's executives repeatedly referred to the value of this acquisition as injecting the aggressive culture of the acquired firm into the acquirer's more conservative banking style. When asked to give a concrete example of these cultural benefits to Deutsche Bank, the executives interviewed described the organizationaland incentives routines typical of British merchant banks, but highly uncommon in the German financial sector by the time of the Morgan Grenfell acquisition in 1989. After acquiring Morgan Grenfell, Deutsche Bank transformedits previously conservative executive salary and incentives structure towards a per- formance-basedsystem learned from the acquiredfirm. Deutsche Bankexecutives explained that performance-basedexecu- tive compensation mechanisms, such as stock options and bonuses, had been unprecedented in their more conservative business environment. Corporate

policies and know-how developed by Morgan Grenfell within the British culturalcontext of higher individualism and lower uncertainty avoidance were stressed by Deutsche Bank executives as crucial to drive the rapid transformation of the German bank's incentives and compensationsystems.

We also examined the mechanisms through which new routines and repertoires were incorporatedby the acquiring companies. At Pharmacia and Electrolux, autonomy was important. By providing the Italian research teams with a great deal of autonomy, the acquirers were able to use the targetcompanies as a template for learningnew skills in teambased research. The Swedish acquirers established a limited presence in the target company (only a few Swedes were present in Italy in either case, their purposes being to set up goals, train and develop key local managers,and ensure that targets were met). Similarly, Deutsche Bank's executives explained that national cultural distance did not hinder their acquisition of Morgan Grenfell because of the flexible approachused in integratingboth firms. Additionally, the acquirershowed an open mind in maintaining the target'sincentives and salary schemes and other organizational practices as a model to learn from, and transferto otherpartsof DeutscheBank.

Given the reliance on autonomy, communication links were importantfor the firms in the survey. A strong effortwas made to ensure a high level of communications between the two firms, with objectives and progressbeing communicated at all levels. Regularcommunication meetings were employed to transfer information. As one executive explained: "The organizationand systems set up by us have been useful for improving communicationbetween people."

Policies to provide long-termand temporary international assignments and incentives for internationalizingsubordinates were also important in making cross-border transfer of routines and repertoireswork. In many of the companies, business line managerswere given opportunities to transfer what they had learned from others to different parts of the organizations around the world.

ABB's executives explained that national cultural differences do not undermine learning from this variationbecause of a heavy reliance on rotation, training and internal communications to effectively integrate their cross-borderacquisitions. To capturethe value of national cultural distance, ABB created "multidomestic" organizational routines and repertoires that allowed it to absorbrapidly companies in culturally distant countries.

These also stimulated considerable increases in productivity, through global transfer of knowledge embedded in national culture, but made proprietary through ABB acquisitions. ABB executives explained that the extensive use of rotation programs, company parenting schemes, and the development of global management skills and communications made ABB able to absorbvaried national cultures at a relatively low organizational cost.

The interviews confirmthat executives of firms undertakingcross-borderacqui- sitions see value in national cultural distance. The executives of the companies in which we conducted the interviews repeatedly echoed the theme that these acquisitions provided access to valuable organizationalroutines that were embedded in other national cultures, and which would have been difficult to develop in the home country despite their value. In orderto transferthe benefits stemming from acquisitions in cul-

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turally distant countries, the firms rely on specific absorptive mechanisms. Executives of the companies surveyed explained that valuable organizational routines embedded in the targets'national cultures are learned and transferred back to the acquirer through humanresource management practices, such as job rotation, communication, incentive mechanisms, internal reporting systems, and through global co-ordination functions involving people from different national cultural backgrounds sharing a strong corporateculture. The executives remarked that the resulting availability and timely deployment of line managers capable of effectively executing compa- ny-specific routines for assimilation which have been learned over time, and the existence of a strongglobal corporate culture and global coordinating mechanisms lowered the cost and increased the likelihood of new routines being absorbedfrom distantnational cultures.

CONCLUSIONS

This article provided empirical support for the notion that national cultural distance enhances cross-border acquisition performance. Because national cultural distance between countries has, in turn, been linked to significant differences between these countries' norms, routines and repertoires(Hofstede, 1980; Kogut and Singh, 1988), our findings highlight the fact that the cross-border acquisitions that tended to performbetter were those in which the routines and repertoiresof the target's country of origin were, on average, more distant than those of the acquirer's. Some of these routines and repertoires, such as those related to inventiveness, innovation, entrepreneurship, and decision-making practices, have been found to be relevant to performance, and also difficult to

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develop and imitate across different national cultures (Shane, 1993; McGrath et al., 1992; Bourgoin, 1984; Kreacicand Marsh,1986; Barney,1991). Thus, crossborder acquisitions in more culturally distant countries might provide a mechanism for multinational companies to access diverse routines and repertoires, which have the potential to enhance the combined firm'sperformanceover time.

The empirical relationship between national cultural distance and cross-bor- der post-acquisition performance was supportedby interviews of executives in firms making cross-border acquisitions. Executives at these companies explained why the acquisition of nationally embedded routines and repertoireswas important, how the value of these routines was transferred to the rest of the firm, and why national cultural differences did not impede this transfer.

Our findings provide evidence that might contrastwith the "gradual"pattern of internationalizationproposed by some theorists, suggestingthat companies start by entering locations that are culturally close to their own in orderto learn and performwell when expanding into more distant countries (Johansonand Vahlne, 1977). However, our results show that if companies do enter culturally distant countries through acquisition, they can perform well relative to acquisitions in culturallyclose countries.

The results of this study also indicate that national cultural distance appearsto have a significant effect on cross-border acquisition performance vis-a-vis relatedness, or post-acquisitionstrategy. This finding has some implications for future researchon acquisitions. It suggests that research related to cross-borderacquisi- tions should take a broader look at the factors that influence post-acquisition performance. In this context, researchers

may choose to follow the route of Morosini (1998), Chatterjeeet al. (1992), Datta(1991), and others who have examined both strategic and cultural factors when explaining acquisition performance.

This study also has implications for managers of multinational companies with responsibility for newly acquired affiliates abroad. Various scholars have argued that the failure rate of acquisitions can be reduced through increased strategic planning for the acquisition (Datta, 1991; Achtmeyer and Daniell, 1988; Rappaport,1979). Our study suggests that managersof parent firms making acquisitions in culturally distant countries should not underestimate the value of specific firm routines and repertoires embedded in the target's national culture, which can have a beneficial impact on the performance of the combined firm.

This study presents a number of limitations and suggests some avenues for future research. Paramountamongst the former is the fact that our sample consisted of cross-border acquisitions in which one of the partnerswas an Italian corporation, and the other corporation was headquartered in either Europe or the United States. From that perspective, the empirical findings should be evaluated with care as regards their applicability beyond the predominantly Western context of this study. Another limitation of this study is that, as a course-grainedanalysis, it looked at the effect of national cultural distance on cross-border acquisition performance, rather than at the process by which managers of multinational corporations make decisions about acquisitions to take advantage of national cultural distance. Our findings suggest that firms acquiring companies in culturally dis-

tant countries might be accessing diverse routines and repertoires which are beneficial to their performance. We believe that these empirical results justify future process research on the value of acquisitions in culturally distant countries. Our study provides a contribution by suggesting that scholars investigate an alternative line of reasoning, namely, the value of cultural distance to acquisition performance. Future research should also consider the impact of other variables, such as corporateculture, which could be influencing cross-border acquisition performance as well. Such studies could serve to separate the effects of corporate cultural differences and national cultural differences on post-acquisition performance. Finally, further studies in the areas of national cultural distance and post-acquisition performance could explore the specific mechanisms through which cultural factors influence performance.

In short, this study has examined a previously unexplored topic - the effect of national cultural distance on crossborder acquisition performance. Our empirical findings suggest that national cultural distance is an important factor for researchersand managersto consider when deciding about, and carryingout, a cross-border acquisition. In a business milieu increasingly dominated by such trends as globalization and greaterinteraction between firms in culturally distant countries, this type of finding is expected to be of particularvalue to internationally oriented companies facing the pressing need of managing effectively in an uncertainexternalenvironment.

NOTES

1. The results are available from the authors.

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