IHRM Chapter3

1 (c) 2009 by Nelson Education Ltd.
Chapter Three
The Context of Cross-
Border Alliances and
SMEs
Chapter Learning Objectives
After reading this chapter, you should be able to:
define cross-border mergers and acquisitions (M&As) the
different stages of formation, and phase-specific strategic
HR requirements
describe the formation process of international joint
ventures (IJVs) and identify HR measures and roles
relevant in the development of such cross-border alliances
discuss the internationalization of small and medium-sized
enterprises (SMEs) and their approaches to international
human resource management
Opening Vignette
Mergers and Acquisitions: The Dynamics of
Globalization
increased level of internationalization through M & As
Terms
SME
non-equity cross-border alliance
equity modes
merger
acquisition
born globals
boundary spanning positions
pre-M&A
due diligence
integration planning
implementation planning
resources
processes
values
M&A
IJV
UNCTAD
TNC
Cross-Border Alliances
cooperative agreements between two or more firms from
different national backgrounds, which are intended to
benefit all partners
Non-Equity Cross-Border
Alliance
investment vehicle in which profits and other
responsibilities are assigned to each party according to a
contract
Equity Modes
foreign direct investors purchase of shares of an
enterprise in a country other than its own
Equity and Non-Equity Modes of
Foreign Operation (Figure 3.1)
Cross-Border Mergers and
Acquisitions
Merger
result of an agreement between two companies to join
their operations together
Acquisition
one company buys another company intending to control
the activities of the combined operations
The Formation Processes of M & As
and HR Challenge (Figure 3.2)
HR Challenges in M&As
creating new HR practices and strategies that meet the
requirements of the M & A
Cross-Border M&A
merging or takeover of an enterprise in one country by
TNCs from another country
Mergers and Acquisitions in US
Billions (Figure 3.3)
Reason to Engage in M&As
facilitate the rapid entry into new markets
Facts Firms Take into Consideration
When Deciding on a Target Country
the growth aspiration of the acquiring company
risk diversification
technological advantages
a response to government policies in a particular country
exchange rate advantages
favourable political and economic conditions
effort to follow clients
IHRM and its Role in
Employee Relations (M&A)
The quality of employee relations, ranging from
employee support to employee resistance is influenced
by variables such as the
similarity between management styles of the two
organizations
type of cross-border combinations
combination potential in terms of efficiency gains
extent of organizational integration
Employee Resistance Endangers
M&A Performance
HRM role (task and human integration)
visibility and continuity of leadership
communication processes
integrating mechanisms
acquired personnel retained
voluntary personnel loss
Human Integration Process
especially difficult to manage and takes time
both firms are embedded in their own national,
institutional and cultural settings
Typical Cross-Border M&A
Problems
within first year of merger, up to 20% of executives may
be lost. Over a longer time frame, this tends to increase
even further.
personnel issues are often neglected.
a high number of M & As fail or do not produce the
intended results.
Impact of the Human Integration and
Task Acquisition (Figure 3.4)
Task and Human Integration
Process
Low Integration
if the M&A is carried out for portfolio reasons both
companies remain separate cultures
High Integration
crucial for the M&A to meet the HR requirements of the
phases
Phases of Cross-Border M & A
pre- M & A phase (a screening of alternative partners
based on an analysis of their strengths and weaknesses)
due diligence phase (analyzing the potential benefits of
the merger, product-market combinations, tax
regulations, and compatibility with respect to HR and
cultural issues)
integration planning phase (planning for the new
company)
implementation phase (action plan)
HR Activities in the Phases of a
Cross-Border M & A (IHRM Notebook 3.1)
Strategic HRM and the Role
of the HR Function in M&As
Starting points in HRM practices
high HRM involvement early in the M&A process
fit between business, M&A and HR strategies
decisions about resources involve staffing and retention
issues, with termination decisions being particularly
important
training and development programs
appraisal and reward systems
values that shape employees priorities and decision
making
strategic approach and aligning the HRM activities with
the M&A strategy with respect to resources, processes and
values
create a strong team including a mix of both expatriates
and local members of top management
language skills and sensitivity toward cultural differences
crucial skills for M&A success
IHRM roles
strategic partner
administrative expert
employee champion
change agent
A Comparative Approach to
HRM in M&A Processes
Post-integration trends in HRM practices
convergence across nationalities in HRM policies
(performance-related pay, training and team-based product
development)
adjustments to suit the local culture
American HRM reflected a short-term individualistic
national business culture
(c) 2009 by Nelson Education Ltd.
A Comparative Approach to
HRM in M&A Processes
Japanese HRM reflected long-term, consensual, team-
based, collectivist national philosophies
French companies displayed an ethnocentric approach
German companies were the most anxious to adopt
international practices
Post-Acquisition Trends in HRM
Practices (IHRM Notebook 3.3)
Cross Border International
Equity Joint Ventures
Joint Venture
legal entity representing holdings of parent
firms located outside the country of operation
Formation of an International Equity
Joint Venture (Figure 3.6)
The Main Reasons for
Engaging in an IJV
to gain knowledge and to transfer that knowledge
host government insistence
increased economies of scale
to gain local knowledge
to obtain vital raw materials
Engaging in an IJV
to spread the risks (e.g. share financial risks)
to improve competitive advantage in the face of increasing
global competition
provide a cost effective and efficient response forced by
the globalization of markets
IJV Failure
lack of interest in HRM
cross cultural management aspects
36
IJV Development Stages and HR
Implications (IHRM Notebook 3.4)
of the HR Function in JIVs
IJVs are embedded in their own national, institutional, and
cultural settings
the IHRM challenge is to balance the various interests and
manage these cross cultural differences.
There exists interface and intra-IJV IHRM challenges.
Interface IHRM Challenges (initial stages of IJV formation
process)
manage the relationships at the interfaces of the parent
companies to integrate dualities of rules and practices
focuses on the compatibility of the respective partners
Intra-IJV IHRM Challenges (initial stages of IJV formation
process)
develop IHRM strategies and practices for the new IJV
entity.
focus on managing the mutual learning
processes between the parent companies and
the new joint venture entity.
Strategic HRM and the Roles of
the HR Function in IJVs
IHRM roles
partnership
change facilitator and strategy implementer
innovator
collaborator
The Importance of Cross-Cultural
Management ( M&As and IJVs)
different national, institutional, and
cultural environments; cultural differences matter in
collaboration, decision making and loyalty
top management multicultural team; different cultural
expectations, management styles and strategic objectives
EU Defining Standards for SMEs
(Table 3.1)
Access Barriers to International
Markets by SMEs (IHRM Notebook 3.5)
shortage of working capital to finance exports
identifying foreign business opportunities
limited information to locate/analyze markets
inability to contact potential overseas customers
obtaining reliable foreign representation
lack of managerial time to deal with internationalization
Access Barriers to International
Markets by SMEs (IHRM Notebook 3.5)
inadequate quantity of and/or untrained personnel for
internationalization
difficulty in managing competitors prices
lack of home government assistance/incentives
excessive transportation/insurance costs
Typical Challenges for IHRM in
Internationalized SMEs
importance of the founder/owner
recruitment, selection, and retention
human resource development; the challenge of learning
expatriate management
limited resources of the HR department and outsourcing
Importance of the
Founder/Owner
Specific skills of the founder have an impact on the
internationalization process of SMEs
international work experience or established
networks and relationships abroad
positive perceptions of the international environment
Recruitment, Selection and
Retention
SMEs
more difficulties than large firms in recruiting adequate
international managers
perceived to lack legitimacy as employers with a strong
international orientation
perceived as having disadvantages; career/international
work opportunities, pay/benefits, progressiveness of
company, training
Recruitment, Selection and
Retention
IHRM activities for SMEs
communicate the company has a strong position in
international markets and offers international career
opportunities
use selection criteria that defines international
competencies
improve and emphasize benefits; training, career paths,
financial
SME Employer Image and
Internationalization (Figure 3.8)
Human Resource Development:
The Challenge of Learning
SMEs
short term oriented
informal learning
tacit knowledge
Human Resource Development:
The Challenge of Learning
learning processes are critically important
improve capacity to perceive relevant environmental
developments: strategy and communication training
resist the temptation to impose large firm thinking
Learning in Small
Organizations (IHRM Notebook 3.6)
Expatriate and Limited
IHRM Resources
SMEs
informal
cultural integration
outsourcing IHRM
Discussion Questions
1. Describe the formation process of cross-border mergers,
acquisitions and international joint ventures. What are
the major differences?
2. Describe the development phases of an M&A and the
respective HR implications.
3. Outline the development phases of an IJV and the
respective HR implications.
Discussion Questions
4. In which ways do cultural and institutional differences
impact the HR integration in M&As and in IJVs?
5. What are the barriers to internationalization for SMEs?
6. What are some of the typical challenges for HRM in
internationalized SMEs?
Case: HR in the Daimler
Chrysler Merger
1. Why do you think the board member responsible for
human resources was not included in the Chairmans
Integration Council? Can you think of any consequences
for the two companies?
1. How could the HR function of the two merging
companies have addressed organizational and national
cultural differences before they became problems?
Case: HR in the Daimler
Chrysler Merger
3. If you compare the information given about the Daimler
Chrysler merger with the list of HR activities outlined in
IHRM Notebook 3.1, you can analyze the strengths and
the weaknesses from an HR perspective. What lessons
could be learned from this process?

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1 (c) 2009 by Nelson Education Ltd.

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