10
Multiple Shared Identities in Cross-Border M&As
Introduction
The recent academic literature reveals that constructing a shared identity is crucial to the success of mergers and acquisitions (Lupina-Wegener, Schneider, and van Dick, 2011; Marks and Mirvis, 2011). Shared identity has been typically conceptualized as both content (Gaertner et al., 1993)—that is, the perception of a common ingroup identity—and process (van Dick, Ullrich, and Tissington, 2006)—that is, the degree of identification with the new organization (see Haslam, 2001, and Haslam, Postmes, and Ellemers, 2003, for conceptualization of shared identity in terms of content and process). While past research has focused on M&As of freestanding organizations, cross-border deals remain underexplored. In cross-border M&As, one organization becomes nested in a new, larger organizational and cultural context. In such conditions, shared identity might need to account for both internal and external foci. This is in line with a qualitative study conducted by Lupina-Wegener, Schneider, and van Dick (2015), who show that in cross-border M&As, shared identity moves beyond a post-merger organization in efforts to differentiate the new organization from reference others, such as the head office or other subsidiaries as new “outgroups.” Thus, it might not be enough to operationalize shared identity on the level of the post-merger organization only, as the concept of shared identity may account for the multiple memberships of organizational members, such as function, division, holding, head office, or country.
In this chapter, we extend the current operationalization of a shared identity in M&As. Building on literature on multiple identities and identity complexity (Roccas and Brewer, 2002), we introduce a more nuanced concept of multiple shared identities (MSIs). This accounts for multiple group memberships that are shared by organizational members. Specifically, it refers to a smaller or larger group-level overlap in memberships across pairs of ingroups, with a larger overlap reflecting high MSI. Thus, to address a research gap in multiple identities in M&As we present a framework that helps understand how MSIs are constructed from a perspective of an acquired organization—that is, the one nested in a larger, acquiring organization, based in a different national culture. The framework depicts that MSIs in the post-merger organizations develop in interactions of relevant stakeholders—that is, members from the merging organizations, or from the outside, such as head office and other subsidiaries. The larger the cultural distance, the more challenging these interactions might be for the stakeholders, but cultural distance can be bridged if organizational members share multiple identities (Reade, 2001; Vora and Kostova, 2007) and cross-vergence facilitating “best-of-both” cultures occurs (Sarala and Vaara, 2009).
The chapter is structured as follows. First, we will present the social identity approach to M&As. Second, we will discuss the concept of multiple shared identities as applied to cross-cultural ventures. Third, we will develop and present a conceptual framework of multiple shared identities as constructed in an acquired organization. Finally, we will illustrate our framework with the case of Chinese acquisition in Europe.
Social identity theory: implications for cross-border mergers and acquisitions
Social identity theory (Tajfel and Turner, 1986) and self-categorization theory (Turner, Hogg, Oakes, Reicher, and Wetherell, 1987) help explain social behavior wherein individuals are not acting on the basis of their personal identities but as members of their group(s) in relation to members of other groups. As such, personal identity—“How am I different from him/her?”—might become less salient in some circumstances, such as during contact with other groups, or when facing external threats. Individuals tend to define themselves in terms of their organizational identity based on attributes shared with ingroup members in terms of characteristics collectively understood by the members to be central, distinctive and enduring (Albert and Whetten, 1985b). Self-categorization theory provides a complementary perspective to social identity theory (Turner et al., 1987; Turner, 1985). Various social identities for self-categorization are available to group members at a particular time (Brewer, 1991) and individuals may choose to identify with a collective, which provides them with distinctiveness and self-esteem. And while identification is referred to as “the perception of oneness or belongingness to some human aggregate” (Ashforth and Mael, 1989: 21), organizational identity is a relatively enduring state that reflects an individual’s willingness to define him- or herself as a member of a particular organization (Haslam, 2001). Previous research has demonstrated that employees who identify strongly with their organization show positive work outcomes, including lower turnover intentions and higher job satisfaction, work motivation, cooperative behavior (Riketta, 2005) as well as readiness for change (Rousseau, 1998).
Similar outcomes have been found in M&A research (Bartels, Pruyn, and de Jong, 2009; van Dick et al., 2006), wherein shared identity has been typically conceptualized as both content (Gaertner et al., 1993)—that is, perception of a common ingroup identity—and process (Hogg and Terry, 2000)—that is, degree of identification with the new organization. Overall, this research discloses that group members need to perceive belonging to a superordinate social category, such as an organization or a team, despite intergroup boundaries. When there is a lack of shared identity, conflict might prevail in terms of competing claims on who we are as an organization, and group members might seek privilege for their pre-merger, ingroup identities (Lupina-Wegener et al., 2011).
Despite important insights and extensive research on M&As in general, it remains underexplored how shared identities develop in cross-border M&As. In cross-border M&As, the acquired organization becomes a new subsidiary or a local head office as nested in a new, larger structure of the acquiring organization, its new global head office. Gioia et al. (2010: 41) point to specific challenges to shared identity development in such larger structures: “a new nested organization might take longer to attain optimal distinctiveness because its members need to work more intensively to figure out how it is different from the larger organization.” Moreover, cultural differences may constitute a specific context for cross-border M&As. In cross-border M&As, it might not be enough to look at a shared identity on an organizational level as a shared identity might also account for differentiation from reference others, such as the global or regional head office and other subsidiaries (Lupina-Wegener, Schneider, and van Dick, 2015).
Summing up, building on existing social identity theory applied to M&As, we argue that understanding how shared identities of multiple foci develops in cross-border M&As can help ensure success, despite cultural differences at the organizational or country level.
Multiple identities in cross-cultural ventures
Organizations constitute a multiple number of identities (Mael and Ashforth, 1992; van Knippenberg and van Schie, 2000) in function of employees’ collective memberships (Pratt, 2001). These memberships play an important role as individuals tend to act on behalf of the groups with which they identify (van Knippenberg and van Schie, 2000). Thus, awareness of which identities are salient helps explain individual and collective behaviors. More specifically, research has shown that multiple foci of identification may be related to specific work-related attitudes or behaviors. For example, a quantitative study conducted in cross-validated samples of 233 school teachers and 358 bank accountants reveals that while team climate was best predicted by team identification, withdrawal intentions and job satisfaction chiefly related to organizational and occupational identification (van Dick, Wagner, Stellmacher, and Christ, 2004).
In the same vein, the international business literature provides insights into subsidiary managers’ belongingness to multiple identities with a focus on dual identities on a single focus, such as nation—i.e., host versus local country (Lee, 2010)—or organization—i.e. head office versus local operations (Vora, Kostova, and Roth, 2007). Dual identities have been related to performance and work-related outcomes of a subsidiary and the head office. Dual identities in subsidiaries enhance subsidiary–parent cooperation (Lee, 2010) and play a key role in ensuring a sustainable economic success of a subsidiary through transfer of management skills and practices (Vora and Kostova, 2007; Vora et al., 2007). Indeed, there is evidence that if dual identities do not emerge, multinational corporations’ (MNCs’) international expansion is likely to be reduced (Hutzschenreuter, Voll, and Verbeke, 2011; Rugman, Verbeke, and Yuan, 2011). Moreover, if dual identities are not embraced by local employees, problems in communication flows with the head office emerge, decision-making processes can be jeopardized (Sanchez-Burks, Lee, Richard, and Incheol, 2003), role ambiguity prevails (Distefano and Maznevski, 2000), and a lack of cross-cultural leadership is reported (Petrick, Scherer, Brodzinski, Quinn, and Ainina, 1999; Russette, Scully, and Preziosi, 2008).
Quantitative investigations restricted to dual identities so far have prevented further understanding of multiple identities in organizations nested in larger structures. To date, shared belonging of subsidiary members to multiple foci of identities— both “inside” (e.g. organization, department, function, work group, team) and “outside” related (e.g. regional, national, or head office)—has not been investigated. Moreover, it remains to be revealed how specific identities may relate to M&A successes. To address this research gap, we will present a framework of multiple shared identities in cross-border acquisitions. First, we build on past M&A findings to emphasize the importance of shared identities in freestanding organizations. Second, we refer to the cross-culture management literature, studying multiple identities in cross-cultural ventures. This framework may help uncover how multiple identities shared by organizational members may develop in cross-border M&As when there are cultural differences on national and organizational levels.
Conceptual framework: multiple shared identities in cross-border acquisitions
Building on the M&A, cross-border ventures and multiple identities literature, we argue that understanding how multiple shared identities develop might provide important insights into cross-border M&As. MSI refers to group-level overlap in memberships across pairs of ingroups with a certain overlap reflecting high MSI. The framework depicts that MSIs in post-merger organizations develop in interactions among relevant stakeholders both inside (pre-merger groups: employees, managers) and outside the organization (head office and other subsidiaries). These interactions take place in a context of cultural differences, and the larger the cultural distance, the more challenging it might be for organizational members to determine: “Who are we going to become after the acquisition?”—identity; and “How are we going to do business after the acquisition?”—culture. Cultural distance can be bridged if organizational members share multiple identities (Reade, 2001; Vora and Kostova, 2007) and “best-of-both” management is enabled in a cultural cross-vergence (Sarala and Vaara, 2010). In the framework, a particular focus is given to the members of an acquired organization as: for them, it tends to be more difficult to transfer identification from the pre-merger to the post-merger one; and the acquired organization becomes nested in a larger, acquiring organization and rarely vice versa.
Cultural distance
In cross-border M&As, a freestanding organization becomes nested in a new superordinate structure of its acquirer, located in a different country: for example, German-based Wella at the US Procter and Gamble holding or British-based Jaguar at the Indian TATA group. In such deals, cultural differences might be apparent and pose challenges to M&A success.
Following Hofstede (1980: 13), we define culture as a collective “programming of the mind that distinguishes the members of one human group from another.” The concept of culture attempts to capture values and beliefs of a typical individual in a society and allows differentiation from other countries’ nationals. Research reveals that people from different countries might differ on some dimensions, such as individualism, power distance, uncertainly avoidance, masculinity (Hofstede, 1980), long-term orientation (Hofstede, 2001), performance orientation, assertiveness, future orientation, human orientation, ingroup and institutional collectivism and gender egalitarianism (House, Hanges, Javidan, Dorfman, and Gupta, 2004). In the international business literature, cultural differences are referred to as cultural distance (CD). This has been measured on a macro level as a cumulative difference in cultural norms between two countries (Kogut and Singh, 1988). On a micro level, cultural distance is operationalized as differences in national cultural values of managers in the home office and the local operation (Tihanyi, Griffith, and Russell, 2005). Recently, cultural distance was extended to account for differences not only in national culture but also in language, degree of industrialization, economic development, and political system (Blomkvist and Drogendijk, 2013).
While high CD may have disruptive effects on the performance of cross-border ventures (Brown, Rugman, and Verbeke, 1989), it may also have a positive impact on financial performance (Morosini, Shane, and Singh, 1998), organizational learning, and flexibility (Barkema and Vermeulen, 1998). CD may also be inversely related to turnover in organizational changes (Krishnan, Miller, and Judge, 1997; Lubatkin, Schweiger, and Weber, 1999). Summing up, past research suggests that cultural differences may have a limited direct effect on work-related and organizational performance (Tihanyi et al., 2005). Instead, CD provides a context for managing organizational culture (Rugman, Verbeke, and Nguyen, 2011) and constructing identities (Vora and Kostova, 2007).
Multiple shared identities
In the context of a larger cultural distance and frequent intergroup interactions (Fiol, Hatch, and Golden-Biddle, 1998), members from the acquired organization inquire about their new membership(s): “Who are we?” and “Who are we to become”? Specifically, post-merger identity can be shared by ingroup members both as identity content—“Who are we?”—and strength—“To what extent do we identify?” (Haslam et al., 2003). Social identity theory suggests that identity process and content result from self-categorization with respect to others (Dutton, Dukerich, and Harquail, 1994). Consequently, ingroup shared meaning about the post-merger identity develops in interactions between members from merging organizations. However, how multiple identities as shared by ingroup members may develop in cross-border acquisitions remains under-researched. We address this research gap by introducing a concept of multiple shared identities, building on existing operationalizations of shared identity in M&As and social identity theory, namely social identity complexity and multiple identities.
First, social identity complexity by Roccas and Brewer (2002) provides important insights on multiple group memberships. They developed social identity complexity referring to individual differences in perception of prototypes of the groups to which they belong and they theorize that an individual’s identity structure can be presented in a continuum of multiple membership complexity, with high complexity with differentiation between identities and low complexity with inclusiveness of identities. We extend their work on individual to collective multiple group memberships. Specifically, we coin the concept of multiple shared identities, which refers to group-level overlap in memberships across pairs of ingroups, with an overlap reflecting high MSI, and being spaced out reflecting low MSI. MSI refers to shared attributes both within a subsidiary and beyond its boundaries as relevant in nested organizations. In other words, high MSI requires fit between memberships of ingroup members as perceived to correlate with own group membership (for the salience of social categorization, see Blanz, 1999; Oakes, Turner, and Haslam, 1991).
Moreover, MSI encompasses both the nature of multiple identities and the relationships between multiple identities.
Nature of multiple identities
Multiple identities in a post-merger organization may have internal (group, division, organization) or external (head office, country), foci—that is, they may exist at different levels of abstraction, ranging from higher- (organization, division) to lower-order (job, workgroup) identities or the employees’ personal identity (e.g. their career) (Ashforth and Johnson, 2001). Such multiple memberships might be particularly prevalent in cross-border M&As as different stakeholder groups jointly construct identities; besides merging partners, head office and other subsidiaries might be important stakeholders informing the construction of a shared identity after a merger (Lupina-Wegener, Schneider, and van Dick, 2015). Thus, individuals may also embrace identities beyond the organization, such as nation or region (Lee, 2010; Vora and Kostova, 2007), which also resonates with the stakeholder approach that views organizational identity as “emerging from complex, dynamic, and reciprocal interactions among managers, organizational members, and other stakeholders” (Scott and Lane, 2000: 43).
Relationships between multiple identities
Identities may have various, dichotomous relationships. These relationships may include the following identities: utilitarian versus normative (Albert and Whetten, 1985a); competing versus collaborative (Alvesson, Ashcraft, and Thomas, 2008); and prestigious versus stigmatized (Pratt and Rafaeli, 1997). Thus, embracing multiple identities may help to reduce competing demands on organizational members. However, synergies might need to be looked for if identities are compatible and group interdependence is high (Foreman and Whetten, 2002). However, challenges in cross-border acquisitions particularly emerge if identities are competing or stigmatized, such as in ventures led by multinationals from emerging economies in Western markets (Zhang and Edwards, 2007; Zhang, George, and Chan, 2006). In such conditions, developing identity synergy might be difficult and risks posing competing demands on members from merging organizations.
Summing up, MSI accounts for an ingroup overlap across salient memberships, which may vary in both their nature and their relationships.
Cross-cultural convergence
In case of high cultural distance, differences need to be bridged, and ingroup members strive to determine: “How will we do business after the acquisition?” This question is particularly relevant as management is part of culture (Hofstede, 2007) and thus might result in different managerial practices (Kogut and Singh, 1988; Sirmon and Lane, 2004; Weber, 1996).
While in a separation or assimilation M&A mode one party adopts all or part of the acquirer’s culture, in a blending or integration M&A mode the aim is to take the best of both parties in order to develop a new culture (Schweiger, Csiszar, and Napier, 1993). Such a two-way transfer of organizational culture, referred to as cultural cross-vergence (Sarala and Vaara, 2009), may be possible if organizational members embrace dual identities on both internal and external foci (Reade, 2001; Vora and Kostova, 2007). Indeed, while organizational culture is an important source of identity for organizational members, identity defines “who we are” in relation to culture (Fiol et al., 1998). Specifically, we argue that a high MSI enables working, with the strength coming from cultural differences on the organizational level. In other words, differences are not suppressed; on the contrary, they are made available to organizational members. Otherwise, if MSI is low, any attempts to transfer managerial practices might be considered as an identity threat (see Lupina-Wegener, Karamustafa, and Schneider, 2015).
First, we propose that a high MSI allows members from the merging organizations to embrace a mindset of the partner and consequently facilitates openness to learning from one another. Second, understanding partners’ management practices may inform MSI. Indeed, sharing management practices allows the acquired and acquiring organizations to develop more common aspects, and to feel belonging to the same entity. Thus, members from the acquired group can understand the acquisition from the acquirer’s perspective. Otherwise, if cross-vergence is low, organizational members may experience a threat to their ingroup identities if affected by integration decisions.
Summing up, the conceptual framework presented in this chapter facilitates understanding of how MSIs may develop in cross-border acquisitions characterized by a high cultural distance. We shed light on how MSIs may both inform and result from cultural cross-vergence. In the next section, we will illustrate the model with the case of Chinese acquisitions in Europe.
Model illustration: Chinese subsidiaries in Europe
Past research on dual identities in cross-border ventures has mainly been conducted in the context of subsidiaries of Western HQs. Foreign direct investment (FDI) of emerging companies has received little attention (Bruton and Lau, 2008; Lau and Bruton, 2008) with regard to their subsidiaries in Western economies (Tanure, Penido Barcellos, and Leme Fleury, 2009; Zhang and Dodgson, 2007). We consider Chinese acquisitions in Europe of particular relevance in terms of cultural differences and the search for cultural cross-vergence. Qualitative research conducted on UK subsidiaries of Chinese MNCs reveals two-way managerial transfer under conditions of autonomy of local executives (Zhang and Edwards, 2007). Such a limited functional integration and focus on “business stability” aims to preserve core competencies of the acquired Western company (Cogman and Tan, 2010; Kale, Singh, and Raman, 2009). Interestingly, managerial transfer may also go from Chinese acquirers to the European targets. This can be explained by poor financial situations in Western organizations, which find themselves on the brink of bankruptcy. Thus, Chinese acquirers aim to improve management efficiency in their European subsidiaries.
Despite the need for cross-vergence in Sino-Western acquisitions, a two-way managerial transfer might be particularly difficult between national cultures that are opposed in terms of independence from the ingroup and legitimacy of inequality between individuals (Bhagat, Kedia, Harveston, and Triandis, 2002). Indeed, the Chinese business management style is largely shaped by Confucianism and modern socialism, which may not easily match Western managerial practices (Fan, 1998). Interestingly, Chen and Miller (2010) proposed a conceptual framework of ambicultural management to reconcile the Eastern and Western approaches to management, wherein opposites are viewed as complementary and allow weaknesses in leadership (e.g. East: over-reliance on the leader; West: selfish, opportunistic CEOs), strategy (e.g. East: insular relationships with “rivals”; West: short-sighted competitive initiatives), and organization (e.g. East: lack of independent thought; West: opportunistic individualism) to be overcome.
Objectives of the acquisition
We will illustrate the framework by looking at a Chinese acquisition of a European high-technology manufacturer, which faced financial problems triggered by the global crisis in 2008. The main motive for the Chinese acquirer—Alpha—was to access knowledge in manufacturing for its own local production. Alpha also intended to generate profitability by selling high-end European products to a growing population of wealthy Chinese consumers. On the other hand, the acquired organization—Beta—sought Chinese investment in its brand and wished to gain access into the fast-growing Chinese market. Thus, the European manufacturer hoped for increased profitability. It is also important to mention that this acquisition was the second for the European manufacturer: Beta had previously been acquired by Gamma, another MNC.
The integration decision aimed at a gradual increase of strategic interdependence, on the one hand, and a decrease of autonomy, on the other. Beta’s strategy was focused on profitability through growth in the Chinese market. Thus, at the acquisition announcement, the subsidiary Beta-Europe was created in order to implement Beta’s expansion into China. In the first phase, Beta’s manufacturing facilities were constructed in China and based on European development and component sourcing, with medium strategic interdependence between Alpha and Beta. This project was led by Beta-Europe and executed by Beta-China, and the decrease in autonomy at Beta was low. At Beta-China, European expatriates were “pair matched” with their Chinese homologues in order to foster a two-way transfer of managerial practices.
In the second phase, and in addition to China-based manufacturing, Chinese sourcing was introduced in order to reduce production costs at Beta. Sourcing for Chinese manufacturing was led by Beta-China and sourcing for European manufacturing by Beta-Europe. Thus, decentralization took place as strategic interdependence between Beta-Europe and Beta-China increased. Although the two organizations cooperated closely, decisions were taken by the leaders of the respective organizations for their markets. Thus, Beta-Europe’s autonomy decreased in favor of the Chinese operations.
In the third, current phase, focus has been devoted to launch joint production.An Alpha–Beta research center was created in Europe—financed and led by the Chinese in order to prepare this R&D project. While strategic interdependence increased between Alpha and Beta, members of Beta-Europe experienced a further reduction in autonomy and faced pressure to reduce costs in the manufacturing process.
Multiple shared identities
In this studied case, three pairs of identities were particularly salient among members of the acquired organization: pre- versus post-Gamma (comparisons with the previous owner; past to present); Alpha versus Beta (comparisons of pre-merger identities); and China versus Europe (differentiations based on national identity).
Pre- versus post-Gamma identities (comparisons between past and present)
The acquisition by Alpha was welcomed by Beta members, who appreciated the fact that they were no longer owned by Gamma—an MNC with multiple businesses. During the Gamma ownership, Beta was: small, as it was part of a large structure with imposed centralized processes; and dependent, as Beta did not receive necessary investment, growth potential was limited and ultimately led to financial problems. After the acquisition by Alpha, Beta became: important, in terms of increased business relevance; and independent, due to the autonomy that Alpha granted. Thus, the acquisition facilitated an increase in Beta’s identity self-esteem (from small to important and independent). The opportunity to regain face after years of humiliation was appreciated by organizational members.
Alpha versus Beta research and manufacturing (comparisons of the pre-merger identities on a functional level)
Complementarities between Alpha and Beta were high, and while the acquisition was crucial for Beta’s survival, it was also an important step into Alpha’s internationalization. Thus, Alpha’s engineering and Beta’s cost-driven identities complemented one another. Beta was a traditional, high-quality manufacturer whose expertise and experience developed through decades of steady growth. By contrast, Alpha was funded in an early phase of China’s entry into the World Trade Organization. Its successes resulted from outstanding cost management, volume growth, and political contacts. Alpha is a young, fast-growing, and cost-driven enterprise. Overall, Beta’s identity was distinct from Alpha’s on a functional level, which allowed members from Beta to aspire to Alpha’s speed, cost control, and volume growth. Thus, Beta members were both proud of their own organization and strongly admired Alpha for its rapid development.
Chinese versus European manufacturing industry (making sense of conflicting identities on a normative level)
In Alpha’s acquisition of Beta, national-level identities were salient. First, cheap Chinese was salient among members of the acquired organization—that is, low-end manufacturer. Such low quality was viewed to result from a lack of expertise in manufacturing, an excessive focus on cost, and thus the use of cheap components in manufacturing. Second, high European quality was embedded in the national values and resulted from high-quality components and technological innovation. These dual identities—“Made in China” versus “Made in Europe”—were considered not to fit well together. Thus, calls to keep the identities separate came from the Chinese top management, which received immediate support from the European organization. Beta particularly feared stigma due to an association with China’s reputation for cheapness.
MSI and cultural cross-vergence
The search for cultural cross-vergence was apparent at Alpha and Beta, with a particular focus on the three managerial practices: strategy, leadership, and organization (for an ambicultural approach to management, see Chen and Miller, 2010). In the early phase of integration, European expatriates were in charge of building a Chinese organization. Each was paired with a Chinese homologue in order to facilitate a two-way knowledge transfer. In the second phase, the “matched pair” system ceased, and Chinese and Europeans either worked together in multicultural teams in China or interacted virtually. In the third phase, Beta-Europe’s autonomy decreased and the Alpha–Beta joint research center was established in Europe, with many Chinese engineers relocated there.
Strategy
Taking the best of both Alpha and Beta at the strategic level focused on: improving the bottom line through investment in future products at both organizations; reducing manufacturing costs at Beta; and increasing sales of Beta products in China and sales of Alpha products in Europe. Consequently, production sites were constructed for Beta in China and a joint manufacturing project for Beta and Alpha products was launched. Moreover, in order to ensure an appropriate cost structure, local sourcing was encouraged—that is, Beta-Europe would purchase components only for European manufacturing, while Beta-China was in charge of China-based manufacturing. Quality was supervised by the Beta-Europe team. Members of Beta supported this strategy, aligned with utilitarian identities of Alpha versus Beta (comparisons of the pre-merger identities), which were in a cooperative relationship: Beta’s high quality but low volume versus Alpha’s high volume but low quality. As Beta members identified strongly with their organization and were committed to its survival, they hoped to benefit from Alpha’s rapid growth. Summing up, high dual identity distinctiveness allowed for Beta’s support for a change in strategy.
Leadership
Important differences existed with regard to leadership at the European and Chinese operations. First, high power distance was evident at Alpha, wherein one-person-based, fast decisions were predominantly taken. By contrast, at Beta low power distance implied a team-based and time-consuming decision-making process involving a large number of relevant stakeholders. Second, at Alpha and Beta-China there was high reliance on a single leader and, thus, Chinese employees paid close attention to status and seniority and rarely dared to challenge their leaders. By contrast, at Beta-Europe, employees were empowered to take decisions and could rely on support from the hierarchy in complex situations. Third, at the Chinese organizations, employees executed their supervisors’ orders and focused strictly on their narrow job descriptions. As a result, they were engaged in an aggressive search for lower component costs, challenging existing suppliers and searching for new, cheaper sources. Less concern was given to quality and technical aspects. At Beta, employees were expected to challenge their supervisors, and they were more empowered in decision-making to ensure quality based on multiple perspectives. Such a decision-making process was time-consuming and the execution was slower than at Alpha as leaders had limited possibilities to push their subordinates. As a result, the Europeans were much slower to find new suppliers and push down costs.
Taking the best of both cultures at the leadership level implied increasing the speed of decision-making at Beta and allowing Chinese employees to express their opinions. Members of Beta supported this strategy, aligned with emotional identities of Gamma versus Beta (comparisons between past and present on an emotional level). Beta’s increase in self-esteem (important and independent) supported calls for it to become agile.
At the same time, Beta insisted on maintaining the system whereby its employees were encouraged to challenge their managers and proactively develop alternative solutions; indeed it wished to promote this in the Chinese organizations, too. These calls were aligned with Beta identity in terms of high quality. Although Beta appreciated Alpha’s speed, it was concerned about the quality of the Chinese firm’s decision-making due to blind obedience to superiors.
Summing up, high dual identity distinctiveness facilitated Beta’s support for a change in leadership in terms of becoming “faster and agile” but there was still an insistence on maintaining egalitarian “follower–leader” relations.
Organization
Both Europeans and Chinese faced significant challenges in their attempts to achieve cross-vergence at the organizational level. First, important differences existed in the corporate culture, which was engineering-driven at Beta and cost-driven at Alpha. In Europe, work in cross-functional teams was embedded in cohesive corporate cultures that allowed flat structures and broad job definitions. Cultural values at Beta centered on quality and product development in cross-functional teams. An important role was attached to processes coordinating this cross-functional work from product development, sourcing materials that met engineering specifications and manufacturing. In China, job definitions were narrower and work was dominantly carried out in silos. Cultural values at Alpha centered on volume—that is, fast and cheap production. Second, there was a difference in industry culture in Europe and China. While the focus in Europe was on pure facts, in China fast decisions were often based on intuitive assumptions, which in turn were based on informal exchange of information between employees, suppliers, and government. In Europe, the boundaries between key stakeholders were clearly defined and interactions were strictly business driven.
Beta employees felt that the efforts of their Chinese counterparts to implement a cost-driven culture imperiled their European quality. Beta-Europe insisted on maintaining an engineering-driven culture, and thus called for both Beta-China and Alpha to adopt the processes that were considered necessary to ensure high quality and good brand reputation. After gaining self-esteem and distinctiveness after the acquisition, the Chinese decision not to adopt these processes posed a threat to Beta members and was perceived as an attempt to remove European quality and bring cheapness to Beta.
Summing up, dual identities at the national level were not embraced by Beta; indeed, they were viewed as conflicting. Thus, any attempts by the Chinese top management to adjust Beta’s products for the Chinese market or associate Beta with China were viewed as threatening and were resisted.
Work-related outcomes after the acquisition
Collaboration was often difficult and attempts to bring European and Chinese managers closer together often proved problematic. First, Beta employees particularly pointed to the lack of experience of their Chinese counterparts and a lack of business acumen. Due to their relatively young age and low seniority in the industry, it was believed that the Chinese managers were unable to assess risk or envision potential problems and solutions, and that they needed constant supervision to ensure quality in the production process. Second, communication between Europeans and Chinese proved difficult due to language problems. Moreover, while direct communication was dominant in Europe, it was very difficult for Beta employees to understand Chinese communication, particularly with respect to “confirmatory” responses when there was disagreement. Overall, trust between the Chinese and the Europeans proved hard to establish as the European managers felt their Chinese counterparts had a double agenda, and sometimes they doubted their good intentions.
Discussion
Multiple identities were shared by ingroup members on internal and external foci with low-order identities (functional, organizational) embedded in higher-order identities (industry, national). Strategic cross-vergence was encouraged by identities as shared on organizational foci: post-Gamma and Beta. Leadership cross-vergence was encouraged by identities as shared on the functional foci (Alpha versus Beta research and manufacturing). Cross-vergence on an organizational level was impeded by identities on the industry and national foci (China versus Europe).
The present case illustrates the importance of MSI in cultural cross-vergence as applied to M&As which are characterized by strategic interdependence and decreasing autonomy of the acquired organization. In the case of low autonomy decrease but high interdependence, a reverse takeover would have occurred, and MSI would have played an important role to transfer European management practices into Chinese operations. On the other hand, in an acquisition of low strategic interdependence and low autonomy decrease, there is less necessity for MSI as only a few management practices would need to be transferred between Europe and China. Finally, in an acquisition of low strategic interdependence and high autonomy decrease, success of the acquisition would have been difficult to achieve. As such, European managers would tend to perceive any Chinese head office attempts to implement change or decrease autonomy as identity threat.
Practical implications
Unless dual identities develop on both high- and low-order levels, Beta risks a further decline in autonomy due to the efforts of Alpha to maintain its control over organizational processes. Thus, developing multiple shared identities is a priority in this acquisition. Particularly, MSI on national and industry foci requires increased exchange between Chinese and Europeans who work predominantly on a virtual basis. However, the three-month exchange program was recently stopped for financial reasons. Such exchange programs should be encouraged, and anyone working in Sino-European teams should acquire professional experience in the partner’s country. Such exchange, however, should focus on assignments that do not imply competition and do not encourage a fight for scarce resources. Global talent management should be established at both Beta and Alpha to ensure a systematic two-way transfer of managerial practices.
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