IHRM IN CROSSBORDER MERGERS & ACQUISITIONS,

INTERNATIONAL ALLIANCES AND SMEs

Chapter Objectives In the last chapter, we outlined how the international growth of MNEs places
demands on management. In this chapter, the IHRM implications of other modes of international
operations become our center of interest. Consequently, we move from an internal perspective on
structure, control mechanisms, and managerial responses to a global perspective which includes
external partners. In this chapter we will first concentrate on cross-border alliances with a special
emphasis on equity-based alliances. These alliances are given priority here due to their association with
complex IHRM processes and practices,1 which is the main interest of study within this volume. Equity
cross-border alliances include:

 Mergers and acquisitions (M&As); and

 International joint ventures (IJVs).

At the end of the chapter, we will address the special case of globalizing small and medium-sized
enterprises (SMEs) while looking for attendant IHRM responses. SMEs represent important elements in
the world economy. However, in IHRM research they are often neglected. There is evidence that their
approaches to international human resource management differ to a large extent from those of large
MNEs and this is why we cover this topic in the present chapter. Chapters 2, 3 and 4 complement each
other and are designed to deliver insights in the most important organizational contexts for
international human resource management.

CROSS-BORDER ALLIANCES

The strategic importance of alliances has increased in the course of globalization. Cross-border alliances
are cooperative agreements between two or more firms from different national backgrounds, which are
intended to benefit all partners. As depicted in Figure 4.1 these comprise equity as well a non-equity
arrangement.

 A non-equity cross-border alliance ‘is an investment vehicle in which profits and other
responsibilities are assigned to each party according to a contract. Each party cooperates as a
separate legal entity and bears its own liabilities’. Examples include international technology
alliances or strategic research and development alliances as well as cooperative agreements in
different functional areas such as marketing or production.
 Equity modes involve a ‘foreign direct investor’s purchase of shares of an enterprise in a country
other than its own’. These include the establishment of subsidiaries as mentioned in Chapter 3,
either through Greenfield investments or acquisitions, as well as through joint ventures or
mergers. The latter typically involve long-term collaborative strategies, which require the
support of appropriate HR practices. They represent typical cross-border equity-based alliances.
FIGURE 4.1 Equity and non-equity modes of foreign operation

Equity as well as non-equity cross-border alliances pose specific challenges to international human
resource management. Often, these are crucial to the success of the international operation. As Schuler
and Tarique note, ‘Some of the HR issues that are critical to the success of equity-based international or
cross-border alliances may also rise in non-equity cross-border alliances, but they are often less central
to the success of the alliance’. Hence, the difference in HRM in equity and non-equity cross-border
alliances is supposed to lie in the differing extent to which specific HR measures are used. However, it
has to be stated that there is a research deficit with respect to HRM in non-equity cross-border alliances
and it is beyond the scope of this chapter to discuss implications of all foreign entry modes in detail.

CROSS-BORDER MERGERS AND ACQUISITIONS

A merger is the result of an agreement between two companies to join their operations together.
Partners are often equals. For example, the DaimlerChrysler merger was supposed to be a merger
between equals in its first stage. More information about this merger and its eventual lack of success
can be found in IHRM in Action Case 4.1. An acquisition, on the other hand, occurs when one company
buys another company with the interest of controlling the activities of the combined operations. This
was the case when the Dutch steel company Mittal, ranked second by volume in crude steel production
in 2006, initiated a hostile takeover of the Luxembourg-based Arcelor group, ranked first in the same
statistic. Figure 4.2 shows that a merger usually results in the formation of a new company while an
acquisition involves the acquiring firm keeping its legal identity and integrating a new company into its
own activities. The HR challenge in both cases consists of creating new HR practices and strategies that
meet the requirements of the M&A.

SUMMARY In this chapter we have extended the discussion about the organizational context of MNEs
conducted in Chapter 3 to other organizational forms, which pose specific problems to IHRM, i.e. cross-
border alliances and globalizing SMEs. Cross-border M&As have seen a tremendous growth in the
course of globalization. We have described their formation process as well as four important
development phases: pre-M&A phase, due diligence phase, integration planning phase and
implementation phase. In each of the phases specific strategic HR requirements need to be taken into
account in order to effectively manage the M&A process. The role of expatriates is mainly discussed with
respect to learning effects. A comparative approach to HR in M&As indicates the complexity that
emerges from the institutional and cultural environments in which the firms are embedded. The number
of IJVs has increased significantly over the last few decades. In the chapter we have outlined the IJV
formation process, which poses considerable challenges for the HR function. Four stages are identified
for the development of IJVs (formation; development; implementation; advancement and beyond) that
require specific HR measures and roles. We also addressed the importance of cross-cultural
management in IJVs, which is an important factor for effective cooperation across all levels of the IJV
including the top management team. Both types of equity-based cross-border alliances are very similar
involving both strategic, comparative and cross-cultural HRM issues as well as specified expatriate roles.
The third organization form we addressed was the case of the internationalized SME. In this case,
different challenges have been identified. First, we outlined the strategic importance of SMEs in
international business and examined barriers to SME internationalization. We also addressed important
IHRM features distinguishing SMEs from MNEs: the founder/owner of the SME; recruitment, selection
and retention; human resource development with special emphasis on learning; expatriate
management; and the limited resources of the HR department in SMEs and outsourcing opportunities.