Cultural differences impact on cross border mergers and acquisitions outcomes

Master Thesis
IUBH International University of Applied Sciences
Campus Berlin
International Management (MIM-120)
Cultural Differences Impact on Cross-Border Mergers and
Acquisitions Outcomes
Mohammad Sayed
Student ID: 3160283
Harbigstraße. 14
14055 Berlin
Supervisor: Professor Dr. Bernd Klöckner
Date of submission: 16th
of April 2019

i
Acknowledgment
Firstly, I wish to thank my personal mentor and supervisor Prof. Dr. Bernd Klöckner for
everything he taught me, and his continuous support and motivation from the early stages of
the study program.
I would like also to thank Prof. Kunal Saigal for taking the role of the second supervisor.
Also, I would like to thank all my master professors for the valuable knowledge that I have
gained from them that kept me motivated to pursue my academic journey till its end.
Lastly, my deepest gratitude and love go to my mother Mona Zayed, my brother Ahmad
Sayed and my uncle Magdy Yehia.

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Abstract
The world economies and its markets dynamics continue to develop constantly where
the competition and parameters shaping the markets are changing swiftly to the extent that
the introduction of new technologies or new products and services can alter entire markets
leaving the leading companies behind wondering how they lost their market dominance so
easily. The companies are in continuous search for alternative and enhanced solutions not
only to secure their survival in the market but also to provide them with a competitive edge
over their rivals in the fierce markets they are operating in. One of the strategic solutions
that can provide companies with rapid growth is mergers and acquisitions.
Despite various desired gains and promising synergies that can be achieved from the
mergers and acquisitions deals whether they are domestic or cross-borders, several studies
suggested that around half if not more of the mergers and acquisitions deals are considered
to have ended in failure. One of the most common reasons behind the deals’ failure is owed
to the cultural differences and the lack of cultural compatibility between the involved firms
where the impact of cultural differences is usually magnified in the cross-border mergers
and acquisitions, leading to unsuccessful integration of the two companies and thus losing
the ability of achieving the aimed synergies that were behind the deal in the first place.
In this research, a study is conducted on the case of the famous merger
DaimlerChrysler that was considered to be the largest deal in history in 1998. Despite the
highly promising potential synergies that were expected to be achieved and the enthusiasm
met by the stockholders and the financial markets at the time of the deal announcement,
multiple factors mainly owing to the cultural differences and management practices in
addition to other circumstances, have hindered the achievement of successful integration
leading to a sharp decline in morale and motivation towards the new entity that evolved after
the merger completion and consequently the loss of realizing the aimed synergies.
Keywords
Globalization, National culture, Organizational culture, Cultural Differences, Cultural fit,
Cross-borders, Mergers, Acquisitions, Integration, Communication, Leadership, Human-
capital, Aimed synergies.

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Table of Contents
Acknowledgment.................................................................................................................i
Abstract................................................................................................................................ii
Table of Contents………………………………………………………………………….iii
List of Figures……………………………………………………………………………..v
List of Abbreviations……………………………………………………………………...vi
1. Introduction......................................................................................................................1
1.1. Rationale and Motivation........................................................................................2
1.2. Research Question and Objectives..........................................................................3
1.3. Structure of the Research........................................................................................3
2. Literature Review.............................................................................................................4
2.1. Globalization and Flow of Capital..........................................................................4
2.1.1. Foreign Direct Investment…………………………………………………5
2.2. Mergers and Acquisitions…………………………………………………………7
2.2.1. National and Organizational Cultures……………………………………..21
2.2.2. Hofstede and Concepts of Culture………………………………………...22
2.2.3. National Culture………...…………………………………………………22
2.2.4. Organizational Culture…...………………………………………………..31
2.2.5. Critique of Hofstede……………….………………………………………34
2.2.6. Mergers and Acquisitions Process………………………………………...35
2.2.7. Post-Mergers and Acquisitions Integration Process………………………39
2.2.8. Communication and Leadership, and Human Capital…………………….41
3. Research Methodology………………………………………………………………..44
3.1. Research Philosophy……………………………………………………………...44
3.2. Research Approach………………………………………………………………..44
3.3. Research Design…………………………………………………………………..46
3.4. Research Strategy…………………………………………………………………46
3.5. Research Choices……...………………………………………………………….47
3.6. Time Horizons…………………………………………………………………….48
3.7. Techniques and Procedures……………………………………………………….48

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4. Findings ……………………………………..………………………………………...50
4.1. DaimlerChrysler Case Study……………………………………………………...50
4.2. Discussion………………………………………………………………………...71
4.2.1. DaimlerChrysler Case Study…...………………………………………….71
4.2.2. Personal Interviews……………………………………………………..…77
5. Conclusion……………………………………………………………………………..80
5.1. Research Limitations……………………………………………………………...82
5.2. Future Recommendation….………………………………………………………83
6. References……………………………………………………………………………..vii
7. Appendices…………………………………………………………………………....xvi
8. Declaration of Authenticity...………………………………………………………....xxi

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List of Figures
Figure 1: Three Levels of Uniqueness In Mental Programming...................................24
Figure 2: Manifestations of Culture at Different Levels of Depth…………………...25
Figure 3: The Learning of Values and Practices……………………………………..27
Figure 4: Map of M&A Process……………………………………………………...35
Figure 5: The Five Integration Forms……………………………………..………….40
Figure 6: Meeting Resistance with Action…………………...………………………43
Figure 7: DaimlerChrysler Market Capitalization…………………………………....54
Figure 8: DaimlerChrysler Stock Performance………………………………………54
Figure 9: Legal Structure of the Merger……………...……………………………....57
Figure 10: Cultural Dimensions in the United States and Germany…………………...60

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List of Abbreviations
CBMAs Cross-Border Mergers and Acquisitions
CEO Chief Executive Officer
EUR Euro
FDI Foreign Direct Investment
FPI Foreign Portfolio Investment
GDP Gross Domestic Product
GM General Motors
IBM International Business Machines
IT Information Technology
JV Joint Venture
M&As Mergers and Acquisitions
OECD Organization for Economic Co-operation and Development
PDI Power Distance Index
R&D Research and Development
S&P Standard and Poor’s
U.S. United States
UNCTAD United Nations Conference On Trade And Development
USD United States Dollar
Vs. Versus

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1. Introduction
The tremendous technological advancement in the last centuries have led to the
globalization and thus enabling the world to become a small village where the dynamics and
concepts regarding the global economy have significantly changed and developed. The
globalization has enabled the free flow of capital across the national borders where the flow
of capital is usually conducted on two horizons, the first horizon is conducted by foreign
governmental institutes or publicly-owned companies and the second horizon is conducted
by foreign privately-owned companies (Sandhu, 2003). The author is focusing only on the
second horizon, where factors such as political relationships and sensitive industries will not
be considered in this research. The second horizon can be divided into three forms, the first
form is debt, the second form is foreign portfolio investment (FPI) and the third form is the
foreign direct investment (FDI).
The FDI occurs when a firm invests in a foreign country with the purpose of
establishing a lasting management interest, meaning that it enables the investor to influence
and participate in the management and running the operations of the businesses that are
invested in (Chen, 2018a; Pettinger, 2017). According to the Organization for Economic Co-
operation and Development (OECD) guidelines, the evidence of establishing a lasting
management interest occurs when an investor owns 10 percent of the voting stock or the
voting power in a foreign enterprise. The FDI can be either inward or outward depending on
the direction of investment. Inward investment occurs when a designated country receives
investment flows from a foreign country, while outward investment occurs when a
designated country generates investment flows to be invested in another foreign country
(Pettinger, 2017). The FDI is usually performed through two methods, the first is the
greenfield investment and the second is the brownfield investment.
The greenfield investment is where the investor establishes a new business from
scratch in a foreign country, that can include building factories and production lines,
constructing work sites, headquarter and administration offices and even in sometimes the
establishment of roads and transportation routes for the business. Unlike the greenfield
investment and instead of starting from scratch, the brownfield investment is where the
investor acquires ‘acquisition’ or enters in a partnership ‘merger’ in an already existing and
operating businesses in the foreign country, the brownfield investment resembles the
definition of the term cross-border mergers and acquisitions (CBMAs). (Chen, 2018a;
Kenton, 2018).

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The mergers and acquisitions (M&As) can be classified into two categories either
domestic or cross-borders. The CBMAs provide remarkable opportunities for achieving
synergies including profit maximation and cost reductions through economies of scale and
the unification of common-service departments such as finance, human resources and
information technology as examples, in addition to the transfer of technology and know-
how, providing access doors for new markets and thus allowing an increase in the market
share and the mitigation of the potential risks from depending on a sole market through
diversification.
The CBMAs are more complex when being compared to the domestic M&As. The
complexities involved are owed to multiple additional factors that the acquiring firms are
required to face and deal-with upon the deciding to enter CBMAs. ‘Mergers are tricky; the
benefits and costs of proposed deals are not always obvious’ (Myers, 1976, p. 633).
The estimates of the M&As deals’ failure range between 20% to 70% depending on
the definition of success (Appelbaum et al., 2000; Marks, 1988; Weber, 1996). One of the
main themes that are considered to explain the reasons behind the failure of M&As is the
cultural differences or the cultural fit between the involved firms (Appelbaum et al., 2000;
Mirvis & Marks, 1992).
1.1. Rationale and Motivation
The globalization and the liberated world economy continue to change the
playground and the rules for the game of survival and competition in such a rapidly
developing business world, many companies strive hard to achieve excellence and gain
competitive advantage through growing profitably and thus protecting its existence in the
market. The companies can achieve profitable growth both internally and externally, the
internal growth can be obtained through the introduction of new products and services or by
the expansion of the capacity of the existing production and increasing the market share,
while the external growth can be obtained through entering into M&As deals with existing
and operating businesses. (Chen, 2018, March 6a; Ghosh & B., 2003; Gupta, 2012; Kenton,
2018; Mallikarjunappa & P., 2007; Pinto, Prakash, & Balakrishna, 2006)
The vastly rising competition in the global market has urged the companies to
consider M&As as an important strategic choice. M&As can support the companies not only
to survive the competition but also to gain competitive advantage, extend their market share
and global presence (Gupta, 2012). The M&As activities have been booming around the
world for the last thirty years, where M&As represent a strategic option that enables the

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companies to realize a rapid growth for many of the leading companies around the globe,
such noticeable expansion in the numbers of M&As deals indicate that many companies are
dedicating significant amount of time and effort either locating potential target firms to
acquirer, or attempting to take the available precautions in order to protect themselves from
being acquired (Gupta, 2012; Weber & Tarba, 2012).
Despite the promising results and synergies that can be achieved through the M&As
there is a growing need to explain why the outcomes of deals don’t stand up to the
expectations where the majority of the studies estimate the failure rates to be around fifty
percent if not more depending on the measurement criteria used by the researchers (Cardel
Gertsen, Sederberg, & Torp, 2013). Still, the desire to use the M&As as reliable solution is
not a false hope rather than knowing the craft of how to approach them (Kummer & Steger,
2008).
The author is a former financial Analyst at Deloitte, one of the big four audit firms.
During his work, the author participated with the due diligence teams in several due diligence
assignments. The author decided to re-ignite the kindle of his interest and passion about the
M&As with the aim that this research can contribute in filling the gap in the research area
behind the M&As outcomes and provide insightful guidelines for the best practices in
relation to the cultural differences and minimizing their negative impacts on achieving the
aimed synergies from the CBMAs.
1.2. Research Question and Objectives
Research Question
This research seeks to answer the following general research question:
RQ – How do the cultural differences impact the cross-border mergers and acquisitions
outcomes?
Research Objectives
1. To understand the mergers and acquisitions process in relation to culture.
2. To investigate the role of culture in post-mergers and acquisitions integration process.
3. To examine the communication and leadership, and human capital roles in the integration
process.
4. To draw conclusions on the best practices that can contribute to improving the outcomes
for cross-border mergers and acquisitions.

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1.3. Structure of the Research
Chapter 1: The first chapter introduces the readers to an insight about the FDI and its types,
the M&As and the main reasons owing to the deals’ failure. It also explains the motivation,
the relevance, and background of the research. The chapter is concluded by outlining the
research structure.
Chapter 2: Chapter two provides the theoretical framework of the topic and some of the
work done by others. By reviewing the current literature, the author introduces to the readers
the national and organizational cultures’ concepts and their dimensions, in addition to the
stages of M&As process including the Post-M&A integration process and the roles of
communication and leadership, and the human capital in the integration.
Chapter 3: This chapter introduces the research methodology through projecting the selected
research philosophy, research design, and strategy, in addition to providing justification for
the data collection.
Chapter 4: The fourth chapter presents the findings from the analysis conducted on the case
study of the famous merger DaimlerChrysler. The chapter also seeks to fulfill the research
objectives.
Chapter 5: The final chapter presents the conclusion for the research work and attempts to
answer the general research question. The research limitations and future recommendation
are presented at the end of the chapter.
2. Literature Review
2.1. Globalization and Flow of Capital
The tremendous technological advancement in the last centuries has led to the
globalization where the world became a small village. Globalization has extended its
shadows on every aspect of our lives starting from the personal way of living to the
international trade and world economies. Today, the world economies’ dynamics and
concepts regarding performance and competency in such a small world have developed
significantly if not have changed in all from what it started from. (Sandhu, 2003)
Globalization has allowed the free flow of capital across the national borders, which
is well perceived by economists because of more than one advantage that it allows. As an
example, seeking the highest return on capital by seeking new opportunities everywhere
possible and reducing risks or risk mitigation through diversification whether for lending in
the form of debts or for investment opportunities. (Mussa, 2000)

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The capital flow across national borders come in three forms which are debt, FPI,
and FDI. The light will be shed directly on the FDI as which underneath comes the topic
M&As. In general, these three forms can be conducted on two horizons, the first is conducted
by foreign governmental bodies or public-owned firms, the second is conducted by foreign
private-owned firms (Germany Trade and Invest, 2016; Goldstein & Razin, 2005).
2.1.1. Foreign Direct Investment
The FDI is when a firm invests in a foreign country with the purpose of establishing
a lasting management interest. The FDI enables the investor to influence and participate in
the management or running the operations of the businesses invested in. According to the
Organization for Economic Co-operation and Development’s (OECD) guidelines, evidence
of establishing a lasting management interest occurs when an investor owns 10 percent of
the voting stock or the voting power in a foreign enterprise or firm. (Chen, 2018a; Pettinger,
2017)
The FDI can be either inward or outward depending on the direction of investment.
Inward FDI occurs when a designated country receives investment flows from a foreign
country, while outward FDI occurs when a designated country generates investments flows
to be invested in another foreign country. (Pettinger, 2017)
FDI Methods
The FDI can be divided into two methods, the first is greenfield investment and the
second method is the brownfield investment.
Greenfield Investment
Is where the investor establishes a new business from scratch in a foreign country,
that can include building factories and production lines, constructing work sites, headquarter
and administration offices and even in sometimes the establishment of roads and
transportation routes for the business. The greenfield investment often occurs in developing
countries where the investors are usually multinational enterprises. The developing countries
tend to attract investors by providing incentives, tax waiver and other subsidies to encourage
foreign investment. In return, the developing countries benefit from foreign investment
through the creation of jobs, raising the skill level of the labor and transfer of the know-how
to the created business. (Chen, 2018ab)
The multinational enterprises also benefit from the cheap labor force in the
developing countries beside the provided incentives. One of the potential disadvantages or a
possible risk factors of the greenfield investment is the stability and continuity of the
investment as such investments often require huge amounts of capital, time and efforts for

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planning, events such as political instability or deterioration of the relationship with the
regulatory authorities in the developing country can lead to noticeable losses for the
multinational enterprises. (Chen, 2018ab)
Brownfield Investment
Unlike the greenfield investment and instead of starting from scratch, the investor
acquires ‘acquisition’ or enters in a partnership ‘merger’ in an already existing and operating
businesses in the foreign country, the brownfield investment resembles the definition of
CBMAs. The brownfield investment enables the investor to benefit from the existing
business through its knowledge and experience in the market and having direct access to its
customer base, also, the merger or the acquisition with an existing business is usually much
cheaper than building one from scratch not only in terms of capital but also in terms of time
and efforts for acquiring the permissions and grants for setting up the new business and its
related facilities. (Chen, 2018a; Kenton, 2018)
One of the potential disadvantages or possible risk factors of the brownfield
investment is when the existing businesses need serious upgrades for the production lines or
machinery where in some cases, the cost of the upgrading or replacement can be higher than
setting them up from scratch. Another factor is when environmental standards such as air,
water or land are violated by the previous activities on the working site. (Kenton, 2018)
FDI Advantages and Disadvantages
FDI Advantages
• Allowing investors to lower risks through diversification of investments and increase
potential profit generation through access to new markets and exploration for new
opportunities.
• Allowing developing countries to benefit from technology and know-how transfer from
the investors’ home country.
• The creation of jobs and raising the level of skill for national labor.
• Improving local customer benefit through higher quality and cheaper products or
services.
• A healthy economic indicator for the developed countries as being perceived as a
favorable investment destination by foreign investors.
(Vittana, 2018)

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FDI Disadvantages
• Risks arising from political changes and exploitation, where a political authority or new
government can seize the investment.
• Unfair competition against the local producers or services providers due to the high
technological and financial capabilities of the investor.
• Taking advantage of the cheap local workforce.
(Vittana, 2018)
The flows of global foreign direct investment had decreased by around 23 percent
from an amount of USD 1.87 trillion in 2016 to an amount of USD 1.34 trillion in 2017,
while other economic variables such as trade and gross domestic product (GDP) have
recorded a noticeable improvement in the year 2017. (UNCTAD, 2018)
The FDI flows were stable in the economies in transition and the developing
economies while recorded a decline in the developed countries. The FDI inflows to the
developed economies decreased by one third from USD 1.13 trillion in 2016 to USD 712
billion in 2017. (UNCTAD, 2018)
This huge drop can be relatively explained by the noticeable surge of FDI inflows in
2015-2016 to the developed countries which exceeded USD 1 trillion, the surge was driven
by megadeals in CBMAs and corporate reconfigurations which included changes in the
ownership and legal structures of multinational enterprises and an inversion of taxes. The
net value of CBMAs also decreased from USD 887 billion in 2016 to USD 694 billion in
2017. (UNCTAD, 2018)
2.2. Mergers and Acquisitions
The merger can be defined as a combination of two enterprises into a new separate
and independent enterprise, while in acquisition an enterprise which is the target is absorbed
by another enterprise which is the acquirer, where the acquired enterprise vanishes (Ghauri
& Buckley, 2003).
The M&As can be hostile or friendly. The friendly M&As are done with the
agreement and support from the target enterprise where its board of directors supports the
transaction to occur even though they can be objecting to the transaction in the beginning or
before spending sufficient time in negotiations, while the hostile M&As were conducted
against the will and the desire of the board of directors of the target firm. The price premium
is usually considered to be less in the friendly M&As than in the hostile ones (Ghauri
& Buckley, 2003).

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The M&A activities around the globe can be described as generally increasing
through time and especially over the last thirty years, despite the increasing rate of deals
activities, the results of the deals can be described by high rates of failure and unsatisfactory
performance that failed to maintain or achieve the aimed synergies which are the main reason
behind conducting the M&A deals in the first place. In the year 2007, an analysis performed
by the Hay Group for more than two hundred major deals of M&As that have occurred over
the last thirty years, the analysis findings were that the business executives and top
management indicated that around only nine percent of the deals can be described as totally
successful when it comes to achieving the desired synergies. One of the main themes that
are considered to explain the reasons behind the failure of M&As is the cultural differences
between the involved firms. (Denison & Ko, 2016; Finkelstein & Cooper, 2016; Hofstede et
al., 2010; Mirvis & Marks, 1992; Weber, 1996; Weber & Tarba, 2012)
M&As Types
M&As can be categorized into three types:
• Horizontal: The acquirer and the target firm are operating in the same field of business.
• Vertical: The target is not operating as the same as the acquirer, rather than operating in
a supporting business or business related to the target’s field such as raw materials
supplying or products distribution.
• Conglomerate: The target and the acquirer are operating in unrelated and entirely
different businesses, where the acquirer is willing to enter a new field of business.
(Buckley & Ghauri, 2002; Ghauri & Buckley, 2003)
The acquisitions vary depending on the size of the assets of the target enterprise in
relation to the size of the acquirer enterprise, sometimes the acquirer is targeting to acquire
a target with assets of the same size or even bigger than its own, sometimes the acquirer
needs to put their own assets under leverage to in order to able to acquire the target firm, and
usually in such scenarios the integration of the acquired assets into the acquirer’s assets is
much complex than integrating relatively smaller assets within an existing part or section of
the acquiring enterprise. (Ghauri & Buckley, 2003)
The acquisitions when made are usually followed by two assumptions from the
acquiring enterprise, the first is that they are able to produce more return or value from the
acquired assets more than the target firm which implies the assumption that their
management abilities and skills are enhanced than of the target firm, the second assumption
is that not only they can produce more return or value from the acquired assets but also that
the produced return or generated value of the acquired assets will be more than the market

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price that they were evaluated and paid for or in other terms that the acquired assets have
been undervalued and they are in reality worth more and consequently can produce and
generate more value, where in many cases, this assumption is often exaggerated and reflects
sometimes magnified confidence by the management of the acquiring enterprise. (Ghauri
& Buckley, 2003)
Merger Waves
The M&As activities are suggested to happen thought time in the form of clusters or
plots, making their occurrence and the consequences following their occurrence to appear
tidal waves through periods of time (Nelson, 1959).
The triggers that lead to the emerging of the waves can be owed to multiple causes.
One of the causes is the individual decision making, where the leading manager from the
acquirer enterprise side is driving to achieve the merger and or the acquisition of the target
enterprise, this behavior can reflect more than one version either the manager is seeking to
maximize the shareholders wealth, seeking a self-interest whether financially or on social
and business levels or being overconfident. Another cause is due to conditions mainly related
to the industry itself, for example, an industry shock, which is an incident that happens out
of the industry controllable forces and causes a disruptive change in the industry. Another
cause is very similar to the previous one but on a larger scale where the conditions are related
to the whole economy and not only to specific one or more industries. (Ghauri & Buckley,
2003; Nelson, 1959)
The first merger wave was from 1987 to 1904 and it was characterized by horizontal
mergers to create monopoly and dominance in production fields in multiple industries such
as steel production, hydraulic power, and textiles. This wave was witnessed after the
inclusion of electricity widely in industries, technological advancement was huge back then
and consequently created the opportunity for economic growth and innovation. In that time,
the modern capital markets and corporate enterprises have seen an opportunity to realize
growth and generate profits by dominating over the markets or industries through mergers.
Many giant enterprises have benefited from mergers and takeovers and realized market
dominance and gained monopolistic power in the fields of their industries. (Ghauri
& Buckley, 2003)
The second merger wave was from 1916 to 1929, being affected by the first world
war and the rise of the anti-trust law from the first merger wave have led to the
transformation of merger goal from monopoly to oligopoly. The third wave was from 1965
to 1969, was characterized by the goal of diversification as the competing enterprises were

10
seeking opportunities for growth through entering new products markets and they were
achieving their goal by the formation of takeovers, alliances, and conglomerates. (Ghauri
& Buckley, 2003)
The fourth merger wave was from 1981 to 1989, it was characterized by being hostile
along with the spread of the use of financial leverage through the introduction of new
methods for financing such as junk bonds and acquiring debt from banks. The fifth merger
wave was from 1993 to 2000 can be described as a wave of takeovers that were friendly and
nonhostile in nature where the industries were related together and the major industries
became more consolidated through the takeovers where those deals were paid by stock swap
or in other words they were paid by stocks. (Holmstrom, B. and Kaplan, S.N., 2001) (Cooper
& Gregory, 2003)
The sixth and last merger wave was from 2004 till 2007 and this wave had a
distinguished character which was the rise of CBMAs and the consolidation of industries
continued from the previous wave but this time it also took the international form. The
takeovers were also friendly in nature and deals were financed by debt and corporate cash
reserves. The main industries that have participated in the wave were banking, utilities, and
media and telecommunications. The last wave was ended the economic recession that
occurred in 2008. (Cooper & Gregory, 2003)
M&As Opportunities and Challenges
M&As Opportunities
The CBMAs represent a tool to realize international expansion as a brownfield
investment, another tool is the greenfield investment which is an international expansion but
starting from scratch, and a third tool is the creation of corporate alliances. This international
expansion provides the enterprise with an opportunity to extend its geographic field of
operations and elevate its products and services diversification and distribution strategy to a
much broader scope. In other words, bringing the enterprise to operate on a whole new level.
The CBMAs allow the acquiring enterprise to reach new possibilities such as the exploration
of new markets that can be able to generate revenues even more than the home market of the
acquiring country in addition to having the opportunity to expand the acquiring firms’ market
of distribution. (Hitt & Pisano, 2003)
Also, the acquiring firm can enjoy a very fruitful situation when acquiring a target
enterprise that is operating in another country, where the acquiring enterprise can benefit
from the acquired enterprise’s knowledge and experience about the market it operates in. the
international expansion can allow the acquiring enterprise as well a window to gain access

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to complementary resources which the acquiring enterprise does not possess, and in a matter
of fact, it actually needs it in order to be able to achieve a breakthrough or competitive
advantage over the market players. (Hitt & Pisano, 2003)
Market Opportunity
Normally it is a difficult task to enter a new and foreign market because usually there
are market entry barriers and in addition to these barriers, there are additional limitations
that can arise from the nature of some industries themselves and their related market
conditions, adding to these, governments or other regulating authorities usually add
restrictions to limit the entrance of new and foreign enterprises to compete in the local
market, in addition to the previous limitations, the foreign enterprise is also going to face
many struggles as it will be operating in a completely new market where the enterprise will
need to build a network of suppliers and distributors so it can secure for itself a steady supply
and channels for distribution and such factors are essential to the extent that they can decide
the foreign enterprise success or failure in the market. Most if not all of these obstacles would
be very difficult in reality to overcome if not for the CBMAs to exist. (Hitt et al., 2003)
Having access to new markets provides an opportunity for the acquiring enterprise
to expand its geographic diversification which in turns gives the acquiring enterprise the
possibility to expand the distribution of its products. This allows foreign enterprise to
achieve what is called economies of scale where the cost per unit of the products becomes
cheaper due to producing in mass volume, therefore allowing the acquiring enterprise to not
only grow in production and size but also realize and generate more profits and gains, on
condition that the cost of the acquisition was too high to the extent that it actually consumes
the realized gains and profits. (Hitt et al., 2003)
The geographic expansion that is enabled by the CBMAs can act as a risk
management tool because the expansion and diversification denies the acquiring enterprise
to rely on a single market where the potential losses will be huge in case the market was
influenced by negative forces whether internal or external, in addition to that, the geographic
expansion allows the acquiring enterprise the potential to generate more profits benefiting
from the various market and economic conditions across the world. The CBMAs allows the
acquiring firm to achieve market power as a result of growth in production, size, and access
to new markets and benefiting from diversification. Also, the advantage of reaching
economies of scale in production enables the acquiring enterprise to improve its production
capability and efficiency as well as utilizing its resources. (Hitt et al., 2001a)

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Learning Opportunity
The CBMAs can participate in prolonging the existence of the acquiring enterprise
in the market because they provide them with an opportunity to learn new knowledge and
gain new experiences and thus pumping new blood in the acquiring enterprise’s veins
(Vermeulen & Barkema, 2001). The CBMAs allows the acquiring enterprise a unique
opportunity to learn as the national or societal cultures and the corporate or organizational
cultures can vary widely across countries which enables the management of the acquiring
enterprise to learn, widen its capabilities and sharpen its managerial practices. The
knowledge and experience that the management of the acquiring enterprise can learn, can
come from various streams from the acquired enterprise such as being introduced to new
marketing and logistics approaches, new production and manufacturing technologies, new
management, and leadership skills. The CBMAs in a matter of fact can allow a greater and
broader learning opportunity than the domestic M&As can provide (Hitt & Pisano, 2003).
Although the entrance of new markets can provide a great opportunity to learn still,
the entrance mode for these new markets can affect the probability and possibility to learn
new experiences, increase capabilities and new skills as for example in the mode of
greenfield investments, where the enterprise is entering a new foreign market and starting a
new business from scratch where the enterprise will have no existing source of knowledge
to learn from as in other modes of entrance investments such as alliances, mergers, and
acquisitions where there is a partner or an acquired enterprise to learn from (Cohen &
Levinthal, 1990).
The alliances and mergers can provide a better possibility to learn other than
greenfield investments like said, still the alliances and mergers can have some issues
concerning the degree of learning and transfer of knowledge they can offer to the enterprise
since there could be difficulties that can simply arise because of the degree of control, in the
scenarios of acquisitions the knowledge transfer in a matter of fact become an internal
process because the acquiring enterprise is in full control and no barriers or limitations can
arise or be shown from the acquired enterprise side when it comes to the matter of knowledge
transfer between the two enterprises. Though it is not very simple on the overall, the
probabilities and possibilities are higher when it comes to learning and transferring of
knowledge and experiences when the processes are internalized in comparison to when the
processes are externalized. (Vermeulen & Barkema, 2001)

13
Access to Complementary and Valuable Resources Opportunity
Having the opportunity to learn and gain new knowledge and experience is usually
accompanied by accessing complementary resources of the acquired firm. Most and if not
all the enterprises actually have all the required resources to implement the targeted
strategies and this is especially when it comes to international markets (Harrison, Hitt,
Hoskisson, & Ireland, 1991, 2001). Usually, complementary and valuable resources
represent an important part that the acquiring enterprise is thoughtfully taking into
consideration when it is targeting the acquired enterprise. With globalization and the
internationalization of markets, the competition is becoming day after day become fiercer
and in order for the corporations to compete they need fundamental and essential resources,
these resources are vital for the enterprises that are seeking to gain a competitive advantage
over other market players in order to succeed in the global environment (Barney, 1991; Hitt,
Keats, & DeMarie, 1998a).
Even more, for the competitive advantage over other market players can be
remarkable, the complementary and valuable resources mentioned before, need to be
difficult in order to copy or mimic and also difficult to find an alternative or substitution for
them. Therefore, the acquiring enterprise needs to look for such complementary and valuable
resources that when they are added to its portfolio of assets and resources give the acquiring
enterprise the admired competitive advantage. The complementary and valuable resources
with such characteristics as described to be difficult to imitate and find an alternative for
them are usually going to exist out the acquiring enterprise domestic or local market, thus,
the CBMAs provide a unique opportunity for the acquiring enterprise to gain and internalize
complementary and valuable resources into its own resources foundation. (Hitt, Harrison, &
Ireland, 2001a)
The complementary and valuable resources can participate in the realization of
economies of scale, but the economies of the scale itself are seldom sufficient to create the
required competitive advantage or compensate for the acquisition cost. In fact, the various
complementary and valuable resources create a distinguished and hard to imitate package of
resources. Therefore, the CBMAs can provide access to reach new knowledge and learning,
new technology and sets of skills and also access to new markets, all of which together can
be a very valuable addition to the acquiring enterprise. (Hitt, M.A., Ireland, R.D., Camp,
S.M., & Sexton, D.L., 2001ab)

14
Innovation Opportunity
The cross-border acquisition can allow a great opportunity for the acquiring
enterprise to gain and develop its innovative abilities and productivities. One scenario is that
the acquiring enterprise can actually acquire another enterprise with higher innovation
capabilities than its own, another scenario is where the acquiring enterprise can also acquire
an enterprise that has already developed and ready to be introduced to the market products
(Hitt, Hoskisson, Johnson, & Moesel, 1996). The corporations that enter international market
benefit from the exposure to learn new technologies and the opportunity to develop their
production processes as by nature, the international markets witness various market players
and this diversification that includes many aspects whether technological, innovative or
production capabilities and managerial skills, which can provide an excellent opportunity
for the acquiring enterprises to learn and develop (Hitt & Pisano, 2003).
However, the international markets which are characterized by a fast-moving pace
of innovation and short life-cycle of products, the corporations need to recover their
investments briskly in order to re-invest the generated returns and profits back into the
products to be able to maintain the same competitive position in the market. By default,
when the markets are larger, they provide more probability for the introduced products for
distribution and generation of profit and thus increasing the return on them and allowing the
corporations to re-invest the returns on more development of the products. In the last
decades, and especially with the huge technological advancement that the globe has
witnessed, the cost of innovation for new and also some existing products in many industries
have increased noticeably, and the access to international markets can be a positive
contributor for the corporations to realize rapid returns on their products and be able to re-
invest those returns on the development of their products. (Kobrin, 1991)
The acquisition of a target enterprise allows the acquiring enterprise to gain vast
access to new markets, the knowledge and innovation resources of the acquired enterprise
and in addition to the new ready or under development products that are about to be
introduced to the markets. Thus, the CBMAs can provide distinguished opportunities for the
acquiring enterprise to enhance its innovation capabilities and technological advancement.
(Hitt & Pisano, 2003)
The effects of international diversification on the corporation’s innovation, in fact,
contrasts with the products diversification effects of the corporation's capability to create
innovation (Hitt, Hoskisson, & Kim, 1997b). In the early studies in economics, some argue
that the product diversification has a positive effect on the corporation's innovation because

15
of the wide exposure to new products and markets. While others argued that there is a
negative effect between products diversification and the corporation’s innovation.
According to Hoskisson and Hitt (1988), they made an argument that when the corporation
makes an early effort to explore and diversify into new market areas, it can generate positive
innovations outcomes. However, the more the corporation keeps on diversification and
exploration into new product markets further from its core business, the less experience,
knowledge and understating the executives of the corporation become and thus, they are
become directed to more use of financial control in order to compensate the less
understanding of the business areas that the corporation became operating in. The downside
is that the financial controls by default forces the lower level managers to keep their focus
on shorter-term periods of time and consequently become more concerned about the
financial performance results and thus become more conservative towards risks, which in
turn, affects negatively the desire for more spending on Research and Development (R&D).
However, the CBMAs do not seem to deliver those outcomes in a matter of fact, The
CBMAs seem to promote the adverse direction and the promotion for more spending on the
R&D (Hitt, Hoskisson, & Kim, 1997b; Hitt, Ireland, Camp, & Sexton, 2001bb). It can be
suggested that, in order to benefit from the effects of diversification in international markets
on the innovation, is that the corporations should keep its main focus on the core of key
products and services and avoid being drifted away by making over-diversification. (Hitt
& Pisano, 2003)
M&As Challenges
The CBMAs can bring various opportunities for the acquiring enterprises but as the
same time, there could be challenges for the acquiring enterprises to encounter as well in
order to successfully complete the CBMAs and reap its benefits and rewards. There can be
challenges with the valuation of the target enterprises, managing the cultural and corporate
or organizational differences and other challenges. (Hitt & Pisano, 2003)
Evaluating the Target Enterprises Challenge
It is definitely not quite an easy task when comes to identifying a target enterprise
that fulfills the needed requirements, going through the negotiation process and completing
the merger or acquisition process. In fact, this task requires a thorough prolonged due
diligence process in order to be able to achieve the desired aims successfully. The due
diligence process, as a matter of fact, is more complex in CBMAs than in the domestic ones
(Angwin, 2001).

16
The evaluation of assets of the target enterprise can be complex because of the
different accounting standards and the nature of the fluctuation in currency and the
exchanges rates. Still, the due diligence should reach what is further than the evaluation of
the target enterprise's assets and its financial health, because not only the physical assets
need to be valued but also the intangible assets. This makes the due diligence process not
quite an easy task for domestic M&As and it becomes even more complex when it comes to
the CBMAs. (Hitt & Pisano, 2003)
The valuation of the intangible assets can be very complex as well because there are
many aspects that need an accurate valuation, as an example, the labor force, where the
acquiring enterprise needs to have an understanding and awareness of the educational
systems in the country where the target enterprise is located, in addition to understanding
and awareness of the skills and training systems and their qualities that resemble the quality
and skills standards of the working force in the target enterprise’s domestic market. Also,
when speaking about intangible assets, comes the target enterprise's reputation in the
country’s domestic market, the target enterprise's reputation is a very important factor which
is of more importance in the CBMAs than in the domestic M&As. (Hitt & Pisano, 2003)
In general, it is very important to understand and correctly evaluate and assess the
environmental and working circumstances and conditions where an enterprise is operating
in. One of the very important conditions to be aware of is the governmental and legal bodies’
laws and regulations and their impact on the market where the target enterprise is operating
and of more importance, how the target enterprise is responding and interacting with such
governing regulations and laws. The weight of impact for such regulations can be even
greater when it comes to certain industries due to their nature, such as high-technology
industries. Thus, sufficient concern and attention need to be given to the due diligence
process in order to evaluate the target enterprise as accurate as possible and especially when
it comes to CBMAs. (Harris & Ravenscraft, 1991; Kissin & Herrera, 1990)
Cultural and Institutional Difference Challenge
The post-merger and acquisition phase is usually one of the main problems that
corporations have to deal with, as the case, usually the CBMAs tend to be more complex
than the domestic M&As because of additional factors that increase the complexity. Some
of these factors are the differences in cultures, the institutional distance between the
countries of the acquirer and the target enterprises, and the difference in strategic direction
and intentions of executive and leading management of both the acquiring and the target
enterprises. (Hitt & Pisano, 2003)

17
According to Barkema, Bell and Pennings (1996), they refer to the problem of
difference in cultures as the double-layered acculturation. The double-layered acculturation
is essential due to the differences in national and corporate or organizational cultures
between the acquiring and the target enterprises. Because of the existence of two cultures or
two layers of cultures that the acquiring firm need to bring closer as much as possible as one,
there is a higher probability for disputes and conflicts to arise on the basis of these cultural
differences. The more efforts needed for the acculturation, the more probability of the
potential differences between to arise between the two enterprises. (Hitt & Pisano, 2003;
Nahavandi & Malekzadeh, 1988)
Very, Lubatkin and Calori (1996) indicate that acculturation stress is more probable
to occur in the CBMAs than in the domestic M&As, Even more, they refer that such
acculturation stress can cause disruption and represent a main challenge for the integration
process. Very et al. (1996) refer that the acculturation stress is usually accompanied by low
cooperation and sings of commitment from the employees of the acquired enterprise and
also, signs of higher turnover from the executive management of the acquired enterprise.
Consequently, with higher acculturations stress between the two corporations, comes lower
financial success rates from such M&As.
Calori, Lubatkin, Very and Veiga (1997) refer that the social and political institutions
in each national or domestic culture shape the frame of the management practices and how
it is being applied. Therefore, the more difference among these institutions across the
countries, the more probable to have different management practices. The institutional frame
includes national culture in addition to other factors or items as well. The institutional
infrastructure is affected by more than one factor, such as the governing law and regulations
and their assistance to the industries, the financial entities that can provide access to the
required financing and funding as well as other resources and their availability in the
environment where the enterprise is operating. (Newman, 2000; Zahra, Ireland, Gutierrez,
& Hitt, 2000)
The more institutional difference or distance between the acquiring and target
enterprises, the more possibility for acculturation stress and tension between the two
enterprises, the tension and stress is usually on multiple levels such as the management and
employees levels. Although the differences in cultures and the institutional distance between
the two enterprises can be one of the main challenges for the acquiring enterprise, those
differences can also represent an important opportunity. (Hitt & Pisano, 2003)

18
Harrison et al. (1991, 2001) referred that the resources which are complementary and
even are different, usually lead to the best performance in the acquisitions, thus, the
probability of learning and generating gains from the acquired enterprise increases with the
increase of the institutional and cultural differences. It can be described that opportunities
increase with the increase of the cultural and institutional differences but at the same time,
the challenges to achieve and recognize these opportunities increase as well with the increase
of those differences.
Strategic Orientation Difference Challenge
The cultural and institutional frames or contexts contribute largely in the shaping of
managerial practices and the strategic orientations developed by the executive management
of the enterprises that are operating under those frames (Child et al., 2001; Hitt et al., 1997a).
According to Hitt et al. (1997a), they refer to finding noticeable differences between
the Korean and U.S. executive management, the U.S. executive management puts more
interest and concern for the financial performance and returns, while Korean management is
more oriented towards the realization of growth than focusing mainly on the financial gains
and returns. Although the strategic orientations of the U.S. and the Korean executive
management do not in necessarily show a direct conflict, these two different strategic
orientations have actually resembled a crucial issue in the General Motors (GM) and Daewoo
Joint Venture (JV) that witnessed its end in the early 1990s. the U.S. executive management
was oriented towards decreasing the operations with the aim of realizing profits, while the
Korean executive management was seeking to realize growth despite the fact that the JV was
actually realizing net losses. Finally, those differences in the strategic orientations for the
U.S. and Korean executive management, have led to the termination of the JV and realizing
huge losses by both corporations (Hitt et al, 1997a).
Pablo and Javidan (2002) refer that having differences in the managements’ tendency
for risk or in other words risk appetite can affect heavily the outcomes of the acquisitions. If
the executive management of the acquired enterprise is having higher risk tolerance or more
tendency towards taking risk and the acquiring executive management is having low risk
tolerance or less tendency towards taking risk, then most probably there will be disputes
between the executive management of both enterprises concerning the strategic orientation
and the selected approaches and practices to be applied. As an example, if a target enterprise
was acquired for its innovation capabilities by an acquiring enterprise, and the acquiring
enterprise starts to proceed with integrating the acquired enterprise into what can be
described as a conservative environment and conservative systems, then most likely the

19
R&D is going to decrease and there will less adherence to R&D in the new entity after the
merger (Hitt et al., 1990; Hitt et al., 1996).
As described before, the cultural and institutional contexts participate largely in
shaping the strategic orientation and managerial practices that are being adopted and applied
by the executive management of the enterprise that operates beneath those contexts. The
strategic orientation and managerial practices, in fact, influence the capabilities of the
acquiring enterprise to successfully and efficiently integrate the acquired enterprise so that
the aimed synergy can be realized through the created entity after the merger. (Kostova,
1999; Lubatkin et al., 1998; Uhlenbruck & DeCastro, 2000)
Inadequate Absorptive Capacity Challenge
The cross-border acquisitions provide the acquiring enterprise a great opportunity
for learning and gaining new experiences and knowledge from the acquired enterprise and
in fact, when the knowledge and experiences that each of the acquiring and target enterprises
possess are different, this can even provide a greater opportunity for them to learn from each
other, this way of mutual gain and exchange of experiences and knowledge provides the
acquiring enterprise to build an extensive and rich bases of complementary knowledge and
resources that are difficult to imitate which in return provides the acquiring enterprise an
opportunity to gain competitive advantage over the other competing market players.
However, the differences in the knowledge and experiences bases can represent a challenge
to the acquiring and the target enterprises and this requires the capability and flexibility from
the management to deal with and handle such differences and be able to absorb the new
knowledge and experiences and integrate them. (Hitt & Pisano, 2003)
Cohen et al. (1990) refer to the ability and capacity to absorb the different and new
knowledge and integrate them as the absorptive capacity. Tsai (2001) indicates that if the
knowledge and experiences bases have fundamental differences, then both the acquiring and
the target enterprises would only be able to exchange and transfer the knowledge between
them when they both have agreed to provide full cooperation and support to facilitate such
transfer. This, of course, is not an easy task and requires like said, the full cooperation and
coordination from the executive and responsible management from both sides to support and
facilitate such transfer in order to be able to successfully integrate the new knowledge and
such required cooperation and coordination is usually much easier to occur in friendly
acquisitions rather than the hostile ones (Hitt et al., 2001a).
The hostile acquisitions can face difficulties in obtaining the required coordination
and cooperation from the target or the acquired enterprise in order to facilitate the transfer

20
of knowledge and experiences from the acquired enterprise's side in the proper way that will
lead to realizing synergy from the acquisition. (Hitt & Pisano, 2003)
Hitt et al. (1998b) refer that friendly acquisitions were in fact characterized as the
highest and best performing ones, the hostile acquisitions like said usually have issues
concerning the knowledge transfer and this becomes, even more, a bigger issue in the
CBMAs because, in addition to the other challenges that exist, the hostile bid makes it very
difficult for the acquiring enterprise to receive the required coordination and cooperation
from the acquired enterprise in order to facilitate the transfer of knowledge and create the
desired synergy.
In the hostile bids, in cases of domestic takeovers or acquisitions, the acquiring
enterprise is usually perceived as attempting to raid the target or the acquired enterprise,
these perceptions become even worse in the cases of the international or cross-border
acquisitions, where the acquiring enterprise would be perceived as invading the target or the
acquired enterprise where this invasion is mainly based on exploitation and single-sided
interest. The fear perceptions from exploitation and other concerns held by the management
and the employees of the target or the acquired enterprise are usually much more exaggerated
in the cases of international or cross-border acquisition bids. (Hitt & Pisano, 2003)
Liability of Foreignness Challenge
The liability of foreignness is a challenge that all enterprises that are operating in
international markets have to deal with. This challenge can be described as that the
enterprises operating in international markets have to bear costs that actually cannot be
avoided, while the local or domestic enterprises do not have to bear them. These unavoidable
costs for the foreign enterprises come from the expenses of higher coordination and
cooperation, the lack of experience and knowledge about the domestic or the local market
that the foreign enterprise is operating in and also the lack of essential and fundamental
networks such as networks with governmental and regulating authorities or the political
ones. (Hitt & Pisano, 2003)
Miller and Parkhe (2002) refer that liability of foreignness forces the enterprises
operating in international markets or markets other than their home markets, to bear
unavoidable costs and have some disadvantages such as the lack of knowledge and lack of
essential networks, when being compared to the enterprises that are operating in their local
or domestic markets, these unavoidable costs and the lack of knowledge and essential
networks cause foreign enterprises to have competitive disadvantages against the local
enterprises.

21
Execcissve Premiums Challenge – Equity Vs. Cash
The challenges we spoke about above participate in raising the challenge for the
acquiring enterprise to define or set a convenient price for the target enterprise to be acquired.
Most enterprises pay a premium or in other words an additional amount over the market
value of the target enterprise in order to acquire it. Defining a convenient and appropriate
price including the premium amount requires forecasting of the market value in the future
for the assets to be acquired. A part of the market value in the future of the assets to be
acquired is based on the potency or probability to achieve and realize the targeted synergy
from the takeover or the acquisition. (Hitt & Pisano, 2003)
Beside the excessive premiums challenge, the other explained above challenges, add
to the complexity of achieving a forecast for the future market value of the targeted enterprise
as these challenges contributions to making the acquiring enterprise's mission more difficult
while it is attempting to realize the targeted synergy which is the motive in the first place
behind the acquisition deal. Some of these challenges can make the task of estimating or
forecasting the potential synergies a difficult one for the acquiring enterprises, much less the
capability of the enterprises to realize those potential synergies. In similar cases, acquiring
enterprises often end up paying a much higher premium than supposed to. (Hitt & Pisano,
2003)
Sirower (1997) refer that when the premium paid represents more than twenty-five
percent of the acquired enterprise's market value then this premium should be considered as
excessive. The estimation of how much the premium was higher than supposed to rely on
the forecasted potential for synergies and the acquiring enterprise's capability to achieve
those synergies in reality. When the acquiring enterprise is not capable to achieve synergies,
then an amount of ten percent premium can be considered as excessive premium. It can be
concluded that the payment of excessive premiums can be highly probable to occur in cross-
border acquisitions. (Hitt & Pisano, 2003)
The long-term market value of the merged enterprise may also be affected by the
method of payment. The acquiring enterprises usually choose to pay with stocks (equity) for
acquisitions because paying with stocks obligates the shareholders of the acquiring
enterprise to bear some of the potential risk, which is the risk arising from the decrease in
the stocks’ market price. In the same time, choosing stocks as a method of payment. Allows
the acquiring enterprise to save its cash reserves to finance the potential expansions or new
projects in the future (Martin, 1996). Yet, the market psychology can have an effect as well
on the chosen financing method, when the acquiring enterprise chooses stocks to make the

22
full payment ‘one hundred percent’ of the acquisition deal, the market provides an
assumption that the acquiring enterprise’s stocks are overvalued and adjusts the stock’s
market price by reducing its value (Hitt et al., 2001a).
2.2.1. National and Organizational Cultures
In order to be able to understand and explore the impact of cultural differences on
the CBMAs, it is important to trace the sources of those differences and where do they evolve
from. In the cases of CBMAs, the cultural differences are the differences between the
organizational cultures of the acquiring and the acquired enterprises or the differences
between the organizational differences of the two enterprises that are going for the merger.
The organizational cultures are derived and shaped to a considerable extent by the national
cultures as the organizations are comprised of individuals, groups of people, and ways and
procedures of communication and interaction, these together combined are in fact are what
mainly constitutes the national cultures. (Gelder, 2011; Hurst, 2014)
2.2.2. Hofstede and Concepts of Culture
Geert Hofstede is considered to be one of the pioneers of the national and
organizational cultures fields. During his work in International Business Machines (IBM) he
was able to gather and collect large surveys data about peoples’ values and analyze them.
The people were working in the different subsidiaries of IBM in more than seventy countries
between the years 1967 and 1973 where initially he used the data from the largest forty
countries only and later the used the analyzed data for fifty countries distributed over three
continents. The analysis of the collected data has led to the creation of six dimensions or
parameters to assess and measure the countries or the national cultures, the countries
involved in the data collection, were measured and given scores according to where do they
stand from the six dimensions. Similar with the organizational cultures which are as
explained before are shaped and influenced by the national cultures, were assessed and
measured by six dimensions in order to be able to compare the compatibility and cultural fit
among organizations. The data collected and the analysis conducted by Hofstede represented
the founding base for the national and organizational fields, throughout his work,
replications, extensions, and additions by conducted him and other scientists and researchers
have been added and collaborated together to the founding base, the extensions and additions
are continuously going on. (Hofstede et al., 2010; ITAP International, 2019)

23
2.2.3. National Culture
Culture as Mental Programming
The individuals, people, groups of people and nations that form the world we live in,
feel, think and behave in different ways. Still, there are many issues in our world that
required these individuals, people and groups of people and nations to work together and
cooperate in order to be able to find solutions for common problems that cannot be solved
or handled separately especially in the modern world that we live in today. Many economic,
political and ecological issues indeed require cooperation and coordination to be solved. It
is required to consider the differences in feeling, thinking and behaving of human beings
whether on an individual level or form of groups or even as leaders of nations in order to
find solutions that can actually work with the common problems that are shared together.
(Hofstede et al., 2010)
Every individual has unique patterns of feeling, thinking and behaving, these patterns
are formed and developed through each individual's life. Most of the feeling, thinking, and
behaving patterns were developed at the time of our childhood as these are times where we
are most open to learning and absorption. Once these patterns have been settled in the
individual's mind, it is required to unlearn those patterns in order to able to replace these
patterns with new ones. And it is easier to learn for the first time than unlearning and
relearning once more especially that what we learn in our childhood is deeply carved in our
minds. (Hofstede et al., 2010)
According to Hofstede et al. (2010), the feeling, thinking and behaving patterns as
mental programming or software of the mind as being similar to how the computers are being
programmed. However, they elaborate that the individual's behavior is not entirely driven
by these patterns but only in a partial manner and for sure they can respond or react in new
or unexpected ways, while the mental programming or the software of the mind can provide
predictions of the possible actions and behavior of the individuals based on their past. The
social and the surrounding environments resemble the sources of the mental programs for
the individuals as these environments are where the individuals have grown up and
developed their experiences. The mental programming for individuals begins with very
small circles and extends to larger and broader circles by time or as the individual circles
grow up and expand, the mental programs start from the family, then extends to the
neighborhood, the school, college, work and any communities where these individuals
interact. (Hofstede et al., 2010)

24
As same as the social and surrounding environments can be greatly variable, the same
with the mental programs that can greatly vary due to the influence of the environments they
were developed in, culture comprises the unwritten regulations for social interaction. Mental
programming or software of the mind can be referred to on many occasions by the word
culture, culture is a word with Latin origin which means the soil cultivation. The word
culture is used for example to refer to education, literature, and art in many western
languages, while this is a limited reference to the meaning of the culture. Sociologists, and
in particular, the anthropologists use the word culture as mental programming or software of
the mind with a much broader meaning than that used in the western languages. The term
culture as inclusive for all feeling, thinking and behaving patterns which includes even the
most fundamental and basic skills in life such as eating, dealing with emotions as fear or joy
and anger, preserving personal hygiene, interacting with others when it comes to maintaining
personal space and intimate relationships. (Hofstede et al., 2010)
All these basic and fundamental skills are included in the meaning of culture when
being used the sociologist and anthropologists and are not limited to the meaning of
education, literature, and art like in many western languages. The culture when viewed as a
phenomenon it can be described as a collective one because the culture of the individuals is
created and developed in social and surrounding environments where there are other people
who either directly or indirectly influence and share experiences with those individuals.
Hofstede et al. (2010, p. 6) define culture as ‘the collective programming of the mind that
distinguishes the members of one group or category of people from others’. The culture is
not inherited and in a matter of fact, it is learned and developed from the social and
surrounding environments of the individual rather than being considered as inherited by
genetics. The culture should be distinguished from two sides, the first side is the individual's
human nature and the second side is the individual’s personality. (Hofstede et al., 2010)

25
Figure 1
Three Levels of Uniqueness In Mental Programming
Figure 1. Three levels of uniqueness in mental programming. Reprinted [adapted] from Culture and Organizations: Software of the
Mind (p. 6), by Hofstede, G., Hofstede, G. J., Minkov, M., 2010, New York: Publisher. Copyright 2010 by "McGraw-Hill Companies,
Inc."
Human nature is what all the human beings share together, it is the first level of the
mental programming and it is inherited and integrated into our genetics, the human nature
represents the most basic and fundamental functions whether physical or psychological such
as hunger, fear, anger, joy, happiness, and shame. However, how the individual shows, hides
or handles those feelings are influenced by the individual’s culture. On the other hand, the
personality of the individual when described in terms of mental programs can be defined as
unique and distinguished sets. Each individual has his or her unique set of mental programs,
where those sets are not shared between individuals, each individual establishes his or her
unique set through characteristics that are developed from both genetic inheritance as well
as from learning, and here the word learning means that the characteristics are influenced by
two aspects, the first aspect is the collective mental programs or the culture and the second
aspect is the personal experiences of the individual. (Hofstede et al., 2010)
Manifestations of National Culture
The cultural manifestations were described and explained in many different ways,
the author explains these manifestations according to the categories that were displayed by
Hofstede et. al. (2010). The categories displayed were four categories: Symbols, Heroes,
rituals, and Values.

26
Figure 2
The Onion Skins: Manifestations of Culture at Different Levels of Depth
Figure 2. The Onion Skins: Manifestations of Culture at Different Levels of Depth. Reprinted [adapted] from Culture and Organizations:
Software of the Mind (p. 8), Hofstede, G., Hofstede, G. J., Minkov, M., 2010, New York: Publisher. Copyright 2010 by "McGraw-Hill
Companies, Inc."
• Symbols: This represents the external layer and most superficial of the culture, it
includes gestures, pictures, dressing style and similar things that understandable by those
who live in and share this culture. In general, the symbols develops frequently and new
symbols show replacing the old ones.
• Heroes: Are characters or people that are widely recognized on the cultural level, these
characters or people can be real ones or just imaginary such as animation or cartoon ones.
The heroes usually have outstanding characteristics that distinguish them from the
normal and ordinary people and thus, making them highly appreciated and perceived by
others as raw models.
• Rituals: Are the third layer of the culture, in a matter of fact, rituals actually do not
deliver certain results, rather than having a certain style or approach of doing things,
rituals are practiced in the culture because they contribute in giving the practitioners their
unique and distinguished style and approach which is a part of who they are. Rituals
include practices such as the ways of social interactions such as social greetings and
showing respect and how to treat the elders, for example, rituals are also important in
other aspects such as the religious and political ceremonies as well. Symbols, heroes,
and rituals together are categorized under the umbrella of practices as showed in Figure
two. Although these three layers are visible and observable for the outsiders from a

27
certain culture, still, the meanings and interpretations of these practices can only be
explained and understood by the insiders according to the ways these practices are
exercised.
• Values: Represent the deepest layer of the culture and its core, values are mainly what
the individuals choose for themselves to believe in and consequently practice when it
comes to selecting what to do and how to do things. The values are usually related to
things of opposite characteristics such as good versus evil, beautiful versus ugly, polite
versus vulgar and so on. As shown in Figure. (3) below, the human beings learn and
acquire most of their values in the very early stages of life, starting from birth to around
the age of twelve years old, during this period of our lives, we are unconsciously very
well prepared to collect and absorb information from the surrounding environment. We
learn and develop the four layers of culture during this early stage of our lives, for
example, communication and language representing the symbols layer, relationship, and
connection with parents in the heroes layer, the eating habits in the rituals layer, and our
basic and fundamental values in the values layer. After that period of the twelve years,
we continue our learning but in a different way which is more about learning through
new practices.
Figure 3
The Learning of Values and Practices
Figure 3. The learning of Values and Practices. Reprinted [adapted] from Culture and Organizations: Software of the Mind (p.10), by
Hofstede, G., Hofstede, G. J., Minkov, M., 2010, New York: Publisher. Copyright 2010 by "McGraw-Hill Companies, Inc."

28
Values and Moral Circles
Although human beings have an amazing capacity of compassion, empathy, and
affection, it seems very difficult that we the human beings are able to resolve debates or
disputes on a large scale regardless of the issue of the debate. This difficulty usually rises
from classification and categorization for the others. We learn from a very young age to
categorize and divide things and this, in fact, makes things are easier to handle. From our
young age, we do the same with others, we learn to categorize who does and who does not
belong to our group, who are friends and who strangers. Those who belong to our group
have hidden permission to have all the rights and also bear all the obligations. Those who
belong to our group form our moral circle. The software of our minds or our mental
programmes acts and provide whether consciously or not, the priority to these moral circles.
The moral circles derive their value and significance from the importance to each
individual to feel that he or she belongs to a bigger group of people whom are similar and
have things in common and things to share and can be trusted with. this is not limited for
sure to one moral circle in a matter of fact, there are several moral circles that each individual
belongs to these moral circles can be enthusiasm for an idea, supporting a sports team,
standing against a political party, practicing religious rituals and ceremonies or serving and
defending the country against enemies. This is why we always tend to categorize and classify
things and people so we can draw virtual lines determining our moral circles and defining
those who belong to them and those who do not. Those who do not belong to our moral
circles, we unconsciously treat them as outsiders, and as outsiders, we perceive them as not
rightful for trust and the same treatment as the insiders. (Hofstede et al., 2010)
Levels of Culture
Each individual is a member of more than one moral circle, and each moral circle
has its own set or group of mental programmes that shape and model the culture of each
moral circle. Because each individual is a member of more than one moral circle at the same
time, Each individual actually has several layers of mental programmes or several layers of
the software of the mind, so that they are able to deal and interact with different levels of
culture. Most common levels of culture are:
• A national level in relation to the country or countries of origin.
• A linguistic or ethnic and religious level.
• A gender level in relation to the sex of the individual.

29
• A generation level in relation to the way of treating children, parents and senior citizens.
• A social class level in relation to the acquired education of the individual and his or her
profession.
• A corporate or organizational level for the working employees in relation to how they
socialize and treat each other according to the working environment.
Such variations in the levels of culture that the individual must deal with and handle
in the same time can easily result in contradicting mental programs leading to the rise of
conflicts, for example, a conflict between the generation and corporate or organizational
levels. The mental programs are can be obviously stressful and causing pressure on the
individual while he or she can be trying to compromise or find a solution in-between.
Sometimes such contradicting mental programs can make it difficult to anticipate the
individual’s behavior or reaction when going through new and difficult situations. (Hofstede
et al., 2010)
Culture Differences
At the time of the colonial powers, the colonial powers resembled in some Western
European countries have divided among them the territories of the rest of the world that were
not under the control and dominance of another major power. This has led to the introduction
of the nation or country system which declared worldwide in the mid of the twenty century.
The nation or country system can be described as various political identities or units that
represents the world that we live in today. Each individual or human being in the world is
expected to belong to one of these units through what is known as holding a national
passport. Although the term nations or countries should not be used to refer to societies, as
societies represent social organizations that share the same culture which does not have to
be the case when referring to nations or countries. Right or wrong, the nation or country
system is yet the only functional and practical standard for classification. (Hofstede et al.,
2010)
In order to be able to make somehow feasible comparisons between nations or
countries, it is imperative to have specific dimensions or parameters for assessment and
measurement. When examining any nation or country, inequalities are going to be found in
its society, these inequalities can be present in many forms, such as the power, wealth, fame,
and status, etc., these attributes usually do not come together at the same levels. For example,
artists and athletes usually have fame and status but most of them do not enjoy wealth as
well, while in other countries or societies, there scientists and artists who actually have both

30
on much closer levels. The dimensions or parameters that were defined by Geert Hofstede
though the analysis of the data collected during his work in IBM were six dimensions, these
dimensions were used to establish a score index for the countries where his surveys were
conducted. Those dimensions are the same for both the national and organizational cultures.
The Six Dimensions in National Culture
1. The Power Distance
Hofstede has defined the power distance as ‘the extent to which the less powerful
members of institutions and organizations within a country expect and accept that power is
distributed unequally. Institutions are the basic elements of society, such as the family, the
school, and the community; organizations are the places where people work.’ (Hofstede et
al., 2010, p. 61)
In societies where a high degree of power distance exists, the people accept hierarchy
and that each individual has a place in that hierarchy. This hierarchy grants some people
privileges than others which would be based only for example on being a member of a certain
family that enjoys those strength because of a religious or historical reason or something
else. While in societies of a low degree of power distance, people are directed towards
equality and would demand justification and rationalization for such unfairness. (Hofstede
Insights, 2019)
2. Individualism Vs. Collectivism
The definition of individualism versus collectivism according to Hofstede is
‘Individualism pertains to societies in which the ties between individuals are loose: everyone
is expected to look after him- or herself and his or her immediate family. Collectivism as its
opposite pertains to societies in which people from birth onward are integrated into strong,
cohesive in-groups, which throughout people’s lifetime continue to protect them in exchange
for unquestioning loyalty.’ (Hofstede et al., 2010, p. 92)
With a high degree of individualism in societies, the people are much more focused
internally and are expected to take care of themselves and only those are directly very close
to them, while in societies that strive collectivism, the people are much more connected and
the group networks and relations are of high importance where people take care of each
other. (Hofstede Insights, 2019)

31
3. Uncertainty Avoidance
The uncertainty avoidance according to Hofstede’s definition is ‘Uncertainty
avoidance can therefore be defined as the extent to which the members of a culture feel
threatened by ambiguous or unknown situations.’ (Hofstede et al., 2010, p. 191)
The uncertainty avoidance dimension measure how the individuals and societies are
comfortable in dealing with ambiguous and uncertain events and situations, the societies
with high degree of uncertainty avoidance strive controlled and highly structured and clear
systems and control, while in societies with a low degree of uncertainty avoidance, the
individuals and people are more flexible and adaptive to dealing with uncertain situations
and usually prefer less rigid and controlled systems and controls. (Hofstede Insights, 2019)
4. Masculinity Vs. Feminity
Hofstede developed the following definitions for the masculinity and feminity ‘A
society is called masculine when emotional gender roles are clearly distinct: men are
supposed to be assertive, tough, and focused on material success, whereas women are
supposed to be more modest, tender, and concerned with the quality of life. A society is
called feminine when emotional gender roles overlap: both men and women are supposed
to be modest, tender, and concerned with the quality of life.’ (Hofstede et al., 2010, p. 140)
In societies of a high degree of masculinity, the individuals are oriented towards
competition, individual performance and achieving material rewards for success, while on
the other side, the societies are oriented towards consensus, and the individual strive
collaboration, support and stand next to each other and seek quality of life. (Hofstede
Insights, 2019)
5. Long-term Orientation
The long-term and short-term orientations can be defined as ‘long-term orientation
stands for the fostering of virtues oriented toward future rewards—in particular,
perseverance and thrift. Its opposite pole, short-term orientation, stands for the fostering of
virtues related to the past and present—in particular, respect for tradition, preservation of
“face,” and fulfilling social obligations.’ (Hofstede et al., 2010, p. 239)
The societies with a high degree of long-term orientation, the individuals and people
are striving to new and developed approaches in order to deal with the future, they perceive
that adopting new and modern ways and technologies will be a better preparation for the
future, while the societies that are short-term oriented, the individual and people are much
oriented towards the traditional approaches to accomplish things as the traditional
approaches are of historical and sentimental value. The short-term orientation is not limited

32
only to the approaches to do things rather than to the traditions and norms, the new
approaches and tradition are usually perceived with suspicion. (Hofstede Insights, 2019)
6. Indulgence Vs. Restraint
The Indulgence and the restraint orientations are defined as ‘Indulgence stands for a
tendency to allow relatively free gratification of basic and natural human desires related to
enjoying life and having fun. Its opposite pole, restraint, reflects a conviction that such
gratification needs to be curbed and regulated by strict social norms.’ (Hofstede et al., 2010,
p. 281)
The societies with a high degree of indulgence motivates and promotes the fulfilment
and enjoyment of the fundamental and human basic drivers towards the gratification of life,
satisfaction and fun, while on the other side, the societies that are restraint oriented usually
quashes such drives for enjoyment and fun through strict and controlled social and
behavioural norms. (Hofstede Insights, 2019)
2.2.4. Organizational Culture
As explained before the national cultures are part of our mental programming that
include are the basic and fundamental layer of culture which is the values, the values are the
ones that we have acquired during our very early age to around the age of ten years old, our
values are mainly built through the parents and other close members of the family, school
and the close living environment, these values are strongly fixed in ourselves and represent
who we are. After we grow up and become adults or young adults and enter the professional
work, we are subject to another culture which is the organizational culture. (Hofstede et al.,
2010)
The organizational culture is mainly manifested in the practices exercised in the
organization. The organization culture is not influential of us as when compared to the
national culture, still the organization culture participates in shaping a part of us as we learn
and develop new behavior and skills that we gain from the exercised practices in the work
organizations. The dimensions of the organizational culture are the same as the ones of the
national culture, which explains that in order to be able to understand the cultural differences
manifested in the organizational cultures, the national cultures are needed to be understood
and examined first. (Hofstede et al., 2010)
The Six Dimensions in Organizational Culture
1. Power Distance in the Workplace
In the organizations with a high degree of power distance, there is a higher
dependence between the employees and the bosses where it less probable for the employees

33
to contradict and argue with their bosses, while the organizations with a lower degree of
power distance are usually characterized with a low degree of dependence where is its more
likely for the employees to contradict and debate with their bosses. In the high power
distance organizational cultures, the employees had the perception that their social and
family backgrounds were considered through the employment process as a measurement for
their competence and being fit for the job, usually there is a pressure on every one of how to
talk, act and interact with others and the is low presence for diversity in such organizational
cultures. While in the low degree power distance organizational cultures, the employees
believed that their social and family backgrounds were not considered thought the
employment process as a measurement for their competence and being fit for the job, rather
than they were actually hired based on their competencies and skills. (Abdou & Kliche,
2004; Hofstede et al., 2010; QuickBase, 2014)
2. Individualism Vs. Collectivism in the Workplace
The high degree collectivist organizational cultures were perceived as the
organizations were pursuing the welfare of its employees and that their personal issues and
problems were taken into consideration when comes to delivering the job tasks and
responsibilities or in other words, the employees’ wellness is to come first even if at the
expense of the work, and the decisions that have a strong influence were usually taken in a
group or consensus form. While the high degree individualistic organizational cultures were
perceived as the organizations main interests were on the results and tasks delivered by the
employees and that the employees personal and family welfare were not taken into
consideration or in other words the results and tasks to be delivered would come first even
if at the expense of the employees’ welfare and benefit, and the decisions that have a high
impact were usually taken on an individual basis without consulting the majority. (Hofstede
et al., 2010; QuickBase, 2014)
3. Uncertainty Avoidance in the Workplace
The organizational cultures with a high degree of uncertainty avoidance, the focus is
more on how the jobs are being done, the employees were striving for avoiding risks and
spending the less possible amounts of efforts, their daily tasks were almost the same and
they followed routine patterns, while on the other hand, the organizational cultures with a
low degree of uncertainty avoidance, the employees were open and non avoidant for unclear
and ambiguous situations, they were exerting extent efforts in their jobs and they perceived
their jobs as bringing new challenges every day. (Hofstede et al., 2010; QuickBase, 2014)

34
4. Masculinity Vs. Femininity in the Workplace
In the organizational cultures with a high degree of femininity, the employees were
strived towards welcoming the newcomers and outsiders, with the expectations that
everyone would fit in, and that the newcomers usually needed a few or a couple of days to
adapt or settle-in and feel the company as their home, while on the other side, the
organizational cultures with a degree of masculinity, the employees were strived towards
being closed on themselves even among the existing members, the newcomers and outsiders
were perceived with closed and secretive behaviors, the new comes usually needed a long
time to adapt and see that they fit in, it took for many if not all, more than a year to feel and
home and at some extreme cases, some employees admitted that they felt they were treated
like an outsiders even after twenty-two years. (Hofstede et al., 2010)
5. Long-term Orientation in the Workplace
The organizational cultures with a high degree of long-term orientation, the
employees were more focused on how they do their jobs in relation to following their
organizations’ policies and procedures, the adherence to the regulations and procedures was
perceived as more important than the results achieved, the standards for practices such as
honesty and compliance with business ethics were very high. While in the organizational
cultures with a low degree of long-term orientation, the employees were more focused on
the customers and their satisfaction. The adherence to the regulations, policies, and
procedures was not as important as satisfying the customers’ needs, the achieved results were
much important than the following the correct procedures. (Hofstede et al., 2010;
QuickBase, 2014)
Through the above six dimensions that manifested the exercised practices in the
organizations, an assessment and comparison between the organizational cultures can be
conducted.
6. Indulgence Vs. Restraint in the Workplace
In a high degree indulgence organizational cultures, the organizations seemed not to
care much about the costs, the times of the meetings were not specified and kept on an
approximate basis, the employees were used to tell jokes about the organization and the jobs
that they were doing, and there was no defined dress code. While in a high degree restraint
organizational cultures, the costs were always considered and checked, the meeting times
were precise and defined, the employees seldom told jokes about the organization and their
jobs, and the dress code was clear and well defined. In the organizational cultures with a

35
high degree of strict work disciple, there were unwritten codes concerning the accepted and
expected behavior, norms, and the dress code. (Hofstede et al., 2010)
2.2.5. Critique of Hofstede
According to Eringa, Caudron, Rieck, Xie, & Gerhardt (2015), one of the researchers who
raised challenges and criticism to Hofstede is McSweeney (2002) as he argued that the
surveys through which Hofstede’s data collected are not the most suitable approach to be
used, and that nations or country or nation system is not the most appropriate way to define
and assess the cultures and their aspects. Also, the established dimensions are not sufficient
to assess and measure the cultures and their aspects. In addition, he pointed out the
implications of further usage of the data collected as they are outdated. In response to those
criticisms, Hofstede (2002) agrees that the countries or nations system may not be the best
suitable way in order to measure and assess the cultures and their aspects, still, the nation or
country system is the only feasible and practical standard for classification. Hofstede added
that the surveys instrument used to collect data shall not be the only approach to collect data
and it welcomed and encouraged that other scientists and researches provide proposals and
introductions for additional dimensions to be used for the assessment and measurement for
the cultures and their aspects. As for the argument that the surveys’ data are not appropriate
as being outdated, Hofstede responded that the recent replications and extensions show the
validity of the collected data, Hofstede indicated ‘The IBM national dimension scores (or at
least their relative positions) have remained as valid in the year 2010 as they were around
1970, indicating that they describe relatively enduring aspects of these countries’ societies.’
(Hofstede et al., 2010, p. 39). Another researcher who criticized Hofstede in relation to the
validity of the data was Kuchinke (1999) he indicated that there is a considerable probability
for the recorded scores to change with the change and the development of the economic,
political, societal and technological conditions.
2.2.6. M&As Process
The M&As process can be divided and described differently according to how
executives and managers perceive it. The author had chosen to use the M&A process as
described by Galpin & Herndon (2007). The M&A process is divided into six main stages
where each is broken down into detailed plans, milestones and progress measurement.

36
Figure 4
Map of M&A Process
Figure 4. Map of M&A Process. Reprinted [adapted] from The complete guide to mergers and acquisitions: Process tools to support M&A
integration at every level (p. 8), by Galpin, T., Herndon, M., 2007, San Francisco: Wiley/Jossey-Bass Publisher. Copyright 2007 by " John
Wiley & Sons, Inc. ".
1. Formulate
The organization need to set its business strategy which would be based on growth
through mergers or acquisitions, this strategy in order to be effective and reachable need to
be clearly identified and measurable, the general and attractive statements that can not be
translated into specific goals are in fact what could be the main reasons behind both the
organizations and the M&A deals failure. The business strategy needs to be built on as
explained on specific goals that can be measured, without these characters, the organization
will simply never know how well it is performing since there are no defined goals that it can
measure upon its performance and progress. In the first stage, all departments or functions
from the organization should participate in setting the business strategy based on the mergers
or the acquisitions growth, as the departments will be required later on to contribute to the
post-M&A integration process. This participation is essential as it would help the various
departments or functions to set and see the whole picture of how and where the progress
would go until reaching the desired goals and objectives. (Galpin & Herndon, 2007)
2. Locate
In the second stage, the organization shall allocate potential target firms. Initial
analysis for financial and operational aspects in addition to primary understanding for others
well such as the legal, environmental and cultural aspects. The investigation and analysis of

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