CHAPTER#04
However, the INTERNATIONAL
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.
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’.
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 either
through Greenfield investments or
acquisitions, as well as through joint
ventures or mergers.
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.
An acquisition, on the other hand,
occurs when one company buys
another company with the interest of
controlling the activities of the
combined operations.
Typical problems that arise in cross-
border M&As involve the
following:
>Within the first year of a merger, it
is not uncommon for a company’s
top management level to lose up to
20 per cent of its executives. Over a
longer time, frame, this percentage
tends to increase even further.
>Finally, a high number of M&As
fail or do not produce the intended
long term results.
>Personnel issues are often
neglected, delayed or not a priority.
M&A phases and HR implications
Typically, mergers and acquisitions
are characterized by a series of
phases. Depending on the
publication, these phases will have
different names.
EQUITY
M&A process usually consists of
the following four steps:
>>A pre-M&A phase including a
screening of alternative partners
based on an analysis of their
strengths and weaknesses.
>>A due diligence phase which
focuses more in depth on analyzing
the potential benefits of the merger.
Here, product-market combinations,
tax regulations, and also
compatibility with respect to HR
and cultural issues are of interest.
>>In the integration planning phase,
which is based on the results of the
due diligence phase planning for the
new company is carried out.
>>In the implementation phase
plans are put into action.
Strategic HRM and the role of the
HR function in M&As
Strategic HRM literature suggesting
a fit between business strategy and
HR strategy they argue that firms
should match their M&A strategy
with their HR strategy while relying
on three conceptual tools:
Resources are defined as tangible
assets such as money and people,
and intangible assets, such as brands
and relationships.
Processes refer to activities that
firms use to convert the resources
into valuable goods and services.
Values are the way in which
employees think about what they do
and why they do it. Values shape
employee’s priorities and decision
making.
The role of expatriates in M&As
The role of expatriates has been
discussed with respect to knowledge
transfer between the acquiring and
the acquired company. However,
the transfer of embedded knowledge
is not guaranteed by each
international assignment. While
some studies have revealed the
importance of prior working
experience with a specific host
country or with a particular entry
mode as a success factor for
expatriates involved in the
integration of mergers, this has not
been confirmed for acquisitions.
JOINT VENTURES
International joint ventures (IJVs),
the second type of equity-based
cross-border alliance have
experienced tremendous growth
during the last two decades and will
continue to represent a major means
of global expansion for MNEs. An
IJV can have two or more parent
companies. Many IJVs, however,
involve two parent companies. An
increasing number of IJV partners
leads to increasing complexity
overall, including the international
HR function and practices. IJVs,
this challenge includes the
following factors:
>>HR must manage relations at the
interfaces between IJV and the
parent companies. The different
partners that make up the IJV may
possibly follow different sets of
rules and this can lead to critical
dualities within the HR function.
>>The HR department must develop
appropriate HRM practices and
strategies for the IJV entity itself.
HR has to recruit, develop, motivate
and retain human resources at the
IJV level.
The importance of cross-cultural
management in international joint
ventures
The information on comparative
HRM as well as on cross-cultural
HRM is relevant to both M&As and
IJVs. In many studies, the
implications of different cultural
employee backgrounds coming
together in an IJV have been the
center of interest.
The top management team and
the role of expatriates in IJVs
e IJV’s top management team has a
high impact on the performance of
the joint venture. The team’s main
task is to control the daily business
operations of the IJV. The case
described here is typical when the
two parent firms of an IJV share
equal equity division. Usually, both
have the right to be equally
represented in the management team
and control of the key management
positions is a critical issue when
negotiating an IJV contract.
SMEs: Strategic importance and
barriers to internationalization
The role of small and medium-sized
companies (SMEs) is often not
discussed in the international
management literature. SMEs can
be defined using headcount, annual
turnover or annual balance sheet
total. It is often forgotten that SMEs
play an important role in the world
economy as shown by the following
figures:
>>In the European Economic Area
(EEA) and Switzerland there are
more than 16 million enterprises.
Less than 1 per cent are large
enterprises, the rest are SMEs. Two
thirds of all jobs in this region are in
SMEs, while one third of all jobs
are provided by large enterprises. In
the European Economic Area (EEA)
and Switzerland there are more than
16 million enterprises. Less than 1
per cent are large enterprises, the
rest are SMEs. Two thirds of all
jobs in this region are in SMEs,
while one third of all jobs are
provided by large enterprises.
>>SMEs constitute the backbone of
the Asia Pacific region, accounting
for 90 per cent of enterprises,
between 32 and 48 per cent of
employment and between 80 and 60
per cent of gross domestic product
in individual Asia Pacific
economies.
In the United States more than 80
per cent of total employment is with
organizations with less than 20
employees.
The top ten barriers to access to
international markets as identified
by an OECD survey on SMEs
worldwide include the following:
1 Shortage of working capital to
finance exports.
2 Identifying foreign business
opportunities.
3 Limited information to
locate/analyze markets.
4 Inability to contact potential
overseas customers.
5 Obtaining reliable foreign
representation.
6 Lack of managerial time to deal
with internationalization.
7 Inadequate quantities of and/or third as preferred foreign market
untrained personnel for entry strategies of SMEs, after
internationalization. export activities and subsidiaries.
8 Difficulty in managing Expatriate management. As the
competitor’s prices. previous sections have shown, an
9 Lack of home government informal approach to human
assistance/incentives. resource management still
10 Excessive dominates in SMEs– especially for
transportation/insurance costs. expatriate employees.
IHRM features in SMEs Limited resources of the HR
Much of our knowledge generated department and outsourcing. The
in the area of IHRM applies to large list of barriers to internationalization
organizations.93 While there is of SMEs at the beginning of this
evidence that some recruitment or section indicated that resources such
compensation practices are as financial capital, qualified human
applicable to small organizations as capital to initiate and control
well, the management of people in internationalization processes and
small organizations often differs time are often all too scarce.
from practices and strategies of
established large organizations.
Internationalization process
theory, which is derived from the
behavioral model of uncertainty
avoidance, suggests that specific
features of the owner or founder of
an SME have an impact on the
internationalization process of this
particular enterprise.
The ‘experiential market
knowledge’ of the managers is
assumed to have a direct impact on
the choice of foreign markets and
thus, the internationalization process
of the SME. This theoretical
approach predicts that managers
start the internationalization process
in geographically and culturally
close markets and that with
increasing experience they move
towards more distant markets.
Recruitment, selection and
retention. Small firms may have
more difficulties than large firms in
recruiting adequate international
managers. It has been argued that
many less-qualified employees are
employed by SMEs because they do
not meet the recruitment
requirements of large organizations
and were forced to work for SMEs
as their second choice.
Human resource development:
The challenge of learning.
Learning processes are of critical
importance in the volatile global
environment of modern business.
This is especially true in cross-
border alliances, which are ranked