Chapter Three

The Context of Cross-

Border Alliances and
SMEs
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 Chapter Learning Objectives

After reading this chapter, you should be able to:

• define cross-border mergers and acquisitions (M&As)¹ 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
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 Opening Vignette

Mergers and Acquisitions: The Dynamics of

Globalization

• increased level of internationalization through M & A’s

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 Terms

pre-M&A
M&A due diligence
IJV integration planning
SME implementation planning
non-equity cross-border alliance
equity modes
merger UNCTAD
resources
acquisition TNC
processes
born globals
values
boundary spanning positions
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 Cross-Border Alliances

• cooperative agreements between two or more firms from

different national backgrounds, which are intended to
benefit all partners

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 Non-Equity Cross-Border
Alliance

• investment vehicle in which profits and other

responsibilities are assigned to each party according to a
contract

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 Equity Modes

• foreign direct investor’s purchase of shares of an

enterprise in a country other than its own

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 Equity and Non-Equity Modes of
Foreign Operation (Figure 3.1)

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 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

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The Formation Processes of M & A’s
and HR Challenge (Figure 3.2)

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 HR Challenges in M&As

• creating new HR practices and strategies that meet the

requirements of the M & A

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 Cross-Border M&A

• merging or takeover of an enterprise in one country by

TNC’s from another country

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 Mergers and Acquisitions in US
Billions (Figure 3.3)

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 Reason to Engage in M&As

• facilitate the rapid entry into new markets

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 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

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 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

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 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

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 Human Integration Process

• especially difficult to manage and takes time

• both firms are embedded in their own national,
institutional and cultural settings

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 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.
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Impact of the Human Integration and
Task Acquisition (Figure 3.4)

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 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

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 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)
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HR Activities in the Phases of a Cross-
Border M & A (IHRM Notebook 3.1)

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 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
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 Strategic HRM and the Role
of the HR Function in M&As

• 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

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 Strategic HRM and the Role
of the HR Function in M&As

• 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

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 Strategic HRM and the Role
of the HR Function in M&As

IHRM roles
• strategic partner
• administrative expert
• employee champion
• change agent

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 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

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 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

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 Post-Acquisition Trends in HRM
Practices (IHRM Notebook 3.3)

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 Cross Border International
Equity Joint Ventures

Joint Venture
• legal entity representing holdings of parent
firms located outside the country of operation

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Formation of an International Equity
Joint Venture (Figure 3.6)

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 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

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 The Main Reasons for
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

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 The Main Reasons for
IJV Failure

• lack of interest in HRM

• cross cultural management aspects

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 IJV Development Stages and HR
Implications (IHRM Notebook 3.4)

36
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 Strategic HRM and the Role
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.

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 Strategic HRM and the Role
of the HR Function in JIVs

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

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 Strategic HRM and the Role
of the HR Function in JIVs

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. 
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 Strategic HRM and the Roles of
the HR Function in IJVs

IHRM roles
• partnership
• change facilitator and strategy implementer
• innovator
• collaborator

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 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

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 EU Defining Standards for SME’s
(Table 3.1)

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 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

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 Access Barriers to International
Markets by SMEs (IHRM Notebook 3.5)

• inadequate quantity of and/or untrained personnel for

internationalization
• difficulty in managing competitor’s prices
• lack of home government assistance/incentives
• excessive transportation/insurance costs

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 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

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 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

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 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
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 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
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 SME Employer Image and
Internationalization (Figure 3.8)

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 Human Resource Development:
The Challenge of Learning

SMEs
• short term oriented
• informal learning
• tacit knowledge

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 Human Resource Development:
The Challenge of Learning

IHRM activities for SMEs

• learning processes are critically important
• improve capacity to perceive relevant environmental
developments: strategy and communication training
• resist the temptation to impose “large firm thinking”

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 Learning in Small
Organizations (IHRM Notebook 3.6)

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 Expatriate and Limited
IHRM Resources

SMEs
• informal

IHRM activities for SMEs

• cultural integration
• outsourcing IHRM

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 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.
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 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?

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 Case: HR in the Daimler
Chrysler Merger

1. Why do you think the board member responsible for

human resources was not included in the Chairman’s
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?

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 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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