CHAPTER 4

INTERNATIONAL MERGERS
AND ACQUISITIONS,
INTERNATIONAL JOINT
VENTURES, AND ALLIANCES

LEARNING OBJECTIVES
Describe the basic nature of international mergers and
acquisitions, international joint ventures, and international
alliances
Explain the major IHRM implications from international
mergers and acquisitions, international joint ventures, and
international alliances
Define the IHRM professionals role in implementing
effective
international
mergers
and
acquisitions,
international joint ventures, and international alliances

TYPES OF INTERNATIONAL COMBINATIONS

In some countries, combinations are the only way to enter the
market.
Also, combinations might be more practical to start your business
abroad or mandated by business necessity.

Non-equity based international combinations

Share profits, responsibilities, and resources according to
specific contractual relationships

Equity based international combinations

Represent long-term collaborative relationships that require

active day-to-day management of a wide variety of HR issues

TYPES OF INTERNATIONAL COMBINATIONS

Equity based international combinations
International
mergers
and
acquisitions
(IM&A)two
companies agree to join their operations together to form a new
company in which they participate as equal partners
International joint ventures (IJV)legally and economically
separate organizational entities created by two or more parent
organizations that collectively invest financial as well as other
resources to pursue certain objectives

RECORD OF SUCCESS OR FAILURE

A large percent of international combinations fall short of their
objectives and one-third are dissolved within a few months or
years.
Reasons for pursuing an acquisition or international alliance are
usually financial or strategic in nature; compatibility or synergism
in:
Operations
Products & services
Markets
Technologies
Knowledge

RECORD OF SUCCESS OR FAILURE

An international merger or acquisition will yield increased
value and profits. There are five reasons:

Enhances industry consolidation

Enables geographic expansion into neighboring regions
Enhances expansion into new markets
Acquires new technology or products or knowledge
Involves combining with one or more other firms in order to
realize a synergy that will form a preeminent firm

Reasons for failure usually have more to do with

the incompatibility of people, cultures, and/or
HR systems than with problems with the
originally perceived financial or strategic
benefits
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DUE DILIGENCE
Firms must conduct thorough preliminary due diligence to assess
carefully the real values to be gained
Extensive HR due diligence is essential prior to any international
acquisition or international alliance and during the necessary postmerger people integration

Overestimation of the partner abilities

Incompatibilities of the firms programs
Incompatibilities of ways of doing business
Incompatible organizational cultures
Lack of preparedness for after combination loss of productivity
and downsizing
In addition to dealing with various cultures and legal systems.
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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
PROCESS OF COMBINATION

IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM

A key reason for the high failure rate in acquisitions is lack of

attention to HRM and cultural issues:
PreparationHRM professionals should help their firm
prepare for potential liabilities and incompatibilities in the
merger
Action plan & checklist of items to evaluate

What data and information is needed?

Where are the sources of information (internal & external)?
What are the deliverables/outcomes and when should it be released?

Creating a SWAT team(knowledge of HR issues)

Who should be included on the team?

What are their characteristics?
When and how this team will operate?
Are they knowledgeable of HR issues such as compensation and benefits,
payroll systems, union agreements, cultural & language differences
etc.?

Forming and communicating the new culture

What is the culture of the targeted firm?

Is it compatible with our culture?
What culture are we seeking after combination? Is it achievable?

IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Contentgeneral people issues that impact the whole
organization and all employees such as
The national and corporate cultures of the acquired firm
Management approach to strategy; management and decision
making
Hided issues Skeleton issues that are not immediately obvious
like pending lawsuits, scandals, secret compensation promises and
labor issues
Managerial succession plans (where some managers will be laid off
and others need to be retained for success).
Management capabilities
Employee skills (quality and depth)
Language skills/concerns

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM

Within your groups, discuss some HR practices

specific issues that you might face when merging
with another firm.

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM

Specific IHR issues

Staffing

At various countries selection criteria might differ

Local laws might inhibit downsizing without significant
indemnity
Laying off people might also need the approval of unions
and work councils
Who will be retained and what will be their
compensation packages?
Some personnel might be remotely located and not
recognized
What training is needed for the retained staff?

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Compensation
What is the method of payment within the country?
What will be the salary scale?
What are the legislations that govern employee stock
ownership plans?
What is the payroll system?

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Specific IHR issues
Benefits
Do you have enough funds to merge the pension plans?
What are the offered retirement and saving programs,
employee health and welfare programs?
Benefits are usually protected by law and cannot be
altered easily
How about healthcare, vacations, holidays, medical and
family leavesetc.

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 End of Lecture

15

IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Specific IHR issues
Training and development/Career Development
How training is delivered and what subjects are covered?
How much is the training budget?
What are the legislations that govern training?
HRIS
How to merge data on employees?
Can you move data from a legal perspective?
How much it will cost to merge the databases?

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Specific IHR issues
Unions/Work Councils
The level of employee relations needed
What are the pre-existing agreements and promises?
What is mandated by law to agree upon with the unions
and work councils.

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
DUE DILIGENCE AND THE ROLE OF HRM
Process of integrationfirms must plan and implement
the integration of the firms.
Managing resistance for change
Managing mistrust, stress and potentially destructive
behaviors
Lack of commitment, loyalty and enthusiasm are common
Usually, one firm will be more dominant than the other

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POLL QUESTION

IHRM due diligence includes examining

concerns, including
Adequate funding of health care plans
Foreign employment regulations.
HR department practices, policies, and
organization.
All of the above

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
PROCESS OF ACCULTURATION

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IHRM AND INTERNATIONAL MERGERS AND

ACQUISITIONS
SEPARATION PROCESS

The separation process (divestiture) is very similar to the

acquisition process
Most of the issues of concern to IHR during a divestiture
can be viewed as being quite similar to those examined
during the acquisition process, except they are from the
other side of the transaction, whenever the firm being
purchased is a part of another, larger firm

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IHRM AND INTERNATIONAL JOINT

VENTURES
In an international joint venture (IJV), a new legal entity is
created defined as

A separate legal organizational entity representing the partial holdings

of two or more parent firms, in which the headquarters of at least one
is located outside the country of operation of the joint venture.

This entity is subject to the joint control of its parent firms,

each of which is economically and legally independent of
the other
The central challenge in an IJV is to create a new firm, with
all its dimensions, culture, and practices and this occurs in
four stages

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IHRM AND INTERNATIONAL JOINT

VENTURES
FOUR STAGES OF THE IJV PROCESS

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IHRM AND INTERNATIONAL JOINT

VENTURES
FOUR STAGES OF THE IJV PROCESS

What is motivating the formation of Joint

Ventures between Chinese and Indian
firms?
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IHRM AND INTERNATIONAL JOINT

VENTURES
FOUR STAGES OF THE IJV PROCESS
Why India?

Why China?

Large market
Less labor cost than China
Good
for
labor
intensive
industries
Industrial Zones for Chinese
Manufacturers
Governments Facilitation of
trade
Cheap
production
of
raw
material

Good business reputation

Reliability
Robust knowledge in specific
sectors

especially
infrastructure
Technological Advancements
Cheap manufactured goods as
compared to the west
FDI from China Availability of
Capital

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IHRM AND INTERNATIONAL JOINT

VENTURES

STAGES ONE AND TWO:

FORMATION AND DEVELOPMENT OF THE IJV
Specific motives include:
Gain knowledge from the joint venture partner
Gain access to partners product technology, knowledge, or
methods of manufacturing
Satisfy host government requirements and insistence
Gain increased economies of scale without more direct
investment
Gain local market image and channel access
Obtain vital raw materials or technology
Spread the risks with the foreign partners
Improve competitive advantage in the face of increasing global
competition
Become more cost-effective and efficient in the face of
increased globalization
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IHRM AND INTERNATIONAL JOINT

VENTURES

STAGES ONE AND TWO:

FORMATION AND DEVELOPMENT OF THE IJV
Track Recordhigh failure rate and managerial complexity
suggest that particular examination of the human resource
issues is required
Reasons for failure, many of which are directly or indirectly
within the responsibility of HR:
Poor selection of partner(s)
Partners dont clarify each others goals and objectives or have
differing goals
Negotiating teams lack JV experience
Parties do not conduct adequate or realistic feasibility studies
Parties lack clarity about the real capabilities of their partners

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IHRM AND INTERNATIONAL JOINT VENTURES

STAGE THREE:
IMPLEMENTATION OF THE IJVROLE OF HRM IN IJV

From a human resource management point-of-view, lessons

learned from successful joint ventures include:
When national and corporate cultures are blended, partners
need to spend time building trust; understanding and
accommodating each others interests
Job design can be enhanced when the partners are willing to
learn from one another
Recruitment and staffing policies should be well-defined in
the early stages of the venture

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IHRM AND INTERNATIONAL JOINT

VENTURES
STAGE FOUR:
ADVANCEMENT OF THE IJV

Since one of the main reasons for creating IJVs involves the
desire of the partners to learn from each other, this
becomes one of the central foci for determining the success
or failure of an IJV
If learning is taking place, the partners must develop ways
to ensure the transfer of the new knowledge to the
partners, both within the IJV, itself, as well to the
parent firms, outside the IJV

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IHRM AND INTERNATIONAL ALLIANCES

International alliances

Informal or formal partnerships or agreements that do not

result in an independent legal entity
Provide ways to increase capabilities and to enter new markets
in relatively low-risk and low-cost ways

In most modern partnerships, the three most important

reasons their members form international alliances are

Growth
Access to competencies like technology and research capability
Expansion into new markets

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IHRM AND INTERNATIONAL ALLIANCES

OPTIONS FOR MANAGING INTERNATIONAL

ALLIANCES
As with IM&A and IJVs, there are a number of choices for
design of an international alliance including the following:
The operator model: one dominant partner
The shared model: draws on culture and practices from
both partners
The autonomous model: new organizational culture and
management structure is developed

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IHRM AND INTERNATIONAL ALLIANCES

GENERAL PEOPLE ISSUES

There are a number of concerns referred to simply as

people and general management issues

Organizational structure and reporting relationships

Culture
Pre-alliance due diligence for skeletons
Cross-cultural skills of involved executives
Succession plans
Assignment of top talent capabilities
Language skills between partners
Selecting the right team to start-up and implement the
international alliance

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IHRM AND INTERNATIONAL ALLIANCES

ROLE OF IHRM IN INTERNATIONAL ALLIANCES

IHR professionals assigned to an international partnership
or international alliance have to:
deal with many more decision-makers (from all of the
partners)
exercise much greater negotiation skills
take on more extensive responsibilities, combining those of a
local nature and those of an international nature

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