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The role of expatriates has been discussed with respect to knowledge transfer between the

acquiring and the acquired company. However, the transfer of embedded knowledge is not
guaranteed by each international assignment. While some studies have revealed the importance
of prior working experience with a specific host country or with a particular entry mode as a
success factor for expatriates involved in the integration of mergers, 47 this has not been confirmed
for acquisitions. In a study by He´bert et al., prior experience did not have an impact on
the performance of the acquired firm.48
In contrast to these findings, the above-mentioned study on M&As in Germany revealed that
successful integration is dependent upon managers’ industry experience, experience with similar
projects, and particularly in the case of cross-border alliances, level of intercultural competence.
49 An emphasis on industry experience is in line with the suggestion by He´bert et al. who
state that industry experience is an important asset when staffing an acquired subsidiary with an
expatriate because it can lead to a transfer of best practices.50
These arguments have implications for the staffing of the post-merger integration team. He´bert
et al.51 suggest that acquiring companies should not completely rely on the placement of expatriates
within the top management team of an acquired subsidiary. They suggest creating a strong
team including a mix of both groups – expatriates and local members of top management – and
that the acquisition integration be viewed as a collective learning process.
CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 89
A study by Villinger of 35 acquisitions by western MNEs in Hungary, the Czech Republic,
Slovakia and Poland found that post-acquisition managerial learning52 highlights the importance
of appropriate cross-border management skills. The author emphasizes that local language
skills as well as sensitivity towards cultural differences are crucial for M&A success. It is
especially important to note this when companies from developing countries represent the
acquired firm in the M&A process. As Villinger53 notes:
Interestingly, although language and communication problems are clearly pointed out as the key barrier
to successful learning from both sides, there seems to be a consensus that the command of the
partner’s language is mainly a requirement for eastern managers, and significantly less so for western
partners. This may be surprising, as it can lead to a situation in which a hundred eastern European
managers have to learn German, instead of a small number of German expatriates learning the local
language. However, it may be argued that the language chosen for (future) communications will
depend on the expected direction of ‘the flow of learning’ between the two partners.

A comparative approach to HRM in M&A processes


While it seems possible to identify the typical phases of M&A processes across nationalities and
industries, the content of the HR measures appears to depend very much on the nationality and
culture of the companies involved in the M&A – a specific application of our previous discussion
of ‘country of origin effect’ in Chapter 2. Child et al. 54 highlight the following HRM policy
characteristics for the different countries of their investigation (USA, Japan, Germany, France,
and UK):
l Performance-related pay is more popular in the USA than in Japan or Germany.
l Recruitment in the USA tends to be rather short-term compared to Germany, France and the UK. In
Japan the lifetime orientation is now less prevalent but there is still a longer-term focus than in the
other countries.55
l Training and career planning is most extensive in the USA.
Despite the fact that there are signs of convergence in HR practices across countries due to the
increasing globalization of markets, the cultural and institutional differences between MNEs
and the resulting impact on HR still seems to be important.56 This seems to also hold true when
M&A processes are concerned and especially in the post-integration phase. Child et al.57 summarize
the results of their case study research as follows:
l Convergence across nationalities in HRM policies was evident in post-acquisition moves towards
performance-related pay, training and team-based product development.
l Most acquirers also made adjustments to suit the local culture.
l American HRM reflected a short-term individualistic national business culture.
l Japanese HRM, although adopting some American methods, generally reflected long-term,
consensual, team-based, collectivist national philosophies.
l French companies have been influenced by international HRM best practice but still tend to display
an ethnocentric approach that gives precedence to managers of French origin.
l German companies were the most anxious to adopt international practices in their acquisitions,
even when these conflict with their traditional practices. For example, they force themselves to be
more informal.
90 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs

INTERNATIONAL EQUITY JOINT VENTURES


International joint ventures (IJVs), the second type of equity-based cross-border alliance discussed
in this chapter, have experienced tremendous growth during the last two decades and
will continue to represent a major means of global expansion for MNEs. 58 In emerging economies
such as China they represent the dominant operation mode for MNEs’ market entry. 59
According to a well-known definition by Shenkar and Zeira60 an IJV is:
A separate legal organizational entity representing the partial holdings of two or more parent firms, in
which the headquarters of at least one is located outside the country of operation of the joint venture.
This entity is subject to the joint control of its parent firms, each of which is economically and legally
independent of the other.
An IJV can have two or more parent companies.Many IJVs, however, involve two parent companies.
An increasing number of IJV partners leads to increasing complexity overall, including the
international HR function and practices.61 For reasons of simplification we concentrate on a constellation
of two partners in the following. As will be outlined later, problems will get even more
complex with more than two partners. The equity division between the parent companies of the
joint venture may differ. In some cases the ratio is 50:50, in others the dominance of one partner
becomes more obvious with a ratio of 51:49 or through various other combinations. This, of
course, has implications for the control of the IJV; an issuewhich will be discussed later in this chapter.
Figure 4.5 depicts the formation of an IJV. In contrast to M&As, the parent companies of an
IJV keep their legal identity and an additional new legal entity representing the IJV is established.
Figure 4.5 also indicates the level of complexity that an IJV represents for the human resourcemanagement
function. For this reason, IJVs clearly represent an important field of research for IHRM
scholars.62 The topics of research on IHRM in IJVs are very similar to those in M&As. In both
cases, partners with different institutional, cultural and national backgrounds come together and
must balance their interests. However, in IJVs, this challenge includes the following factors:
l HR must manage relations at the interfaces between IJV and the parent companies. The different
partners that make up the IJV may possibly follow different sets of rules and this can lead to critical
dualities63 within the HR function.
l The HR department must develop appropriate HRM practices and strategies for the IJV entity itself.
HR has to recruit, develop, motivate and retain human resources at the IJV level.

FIGURE 4.5 Formation of an international equity joint venture


Parent firm A
Country A
Parent firm C
Parent firm B
Country B
Relational interfaces
Possible additional
relational interfaces
Interface
HR challenge
International
joint venture
Intra-IJV
HR challenge
CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 91
These two challenges have to be taken into consideration during the different phases of establishing
and managing the joint venture64 and will be described later in this chapter.
According to a literature analysis by Schuler, the main reasons for engaging in an IJV are as
follows:65
l To gain knowledge and to transfer that knowledge.
l Host government insistence.
l Increased economies of scale.
l To gain local knowledge.
l To obtain vital raw materials.
l To spread the risks (i.e. share financial risks).
l To improve competitive advantage in the face of increasing global competition.
l To provide a cost effective and efficient response required by the globalization of markets.
Special emphasis should be given to the knowledge transfer or learning objective. 66 IJVs provide
an excellent opportunity to learn from another company in two ways. First, each company has
the chance to ‘learn the other partner’s skills’. This can include gaining know-how and process
knowledge in specific functional areas such as R&D or acquiring local knowledge about a specific
market or culture. Second, companies acquire working experience in cooperating with other
firms. Thus, the IJV can be used as a medium for organizational learning processes as well. 67
Unfortunately, there is evidence that many IJVs fail68 or do not produce the expected
results.69 Some reasons for these failures can be traced back to the lack of interest in the human
resource management and cross-cultural management aspects of international joint ventures.70
These two issues will be addressed in the following sections.

IJV development stages and HRM implications


Similar to the M&A processes discussed earlier, the development of IJVs can also be described
in development stages. Schuler distinguishes four stages: the formation, in which the partnership
between the parent companies is the center of interest, the development and implementation of
the joint venture itself, and the advancement of the activities. 71 It is important to note that
HRM is involved in each of the IJV development stages,72 which are not independent from each
other. Activities in the first stage have an impact on activities in the second stage and so on. Furthermore,
complexity can increase depending upon the number of parent companies 73 and
countries involved in the joint venture.74
The stages model shows that compatibility between the IJV partners is most important when
it comes to mutual learning opportunities between the parent companies and the joint venture.
This aspect should be focused on from the beginning of a joint venture formation process. As all
learning processes include communication processes and are carried out by people, the management
of the human resources at this point is critical. This encompasses all activities of the HR
function including recruitment, selection, training and development, performance management
and compensation. A strategic approach requires not only a strong compatibility of the various
HR activities and practices, but also with the IJV strategy.75
Within the different stages of IJV formation, the HR manager may take on many roles in
order to meet the challenges of interaction between the parent company and the IJV:
l In the partnership role, HR managers should take the needs of all stakeholders into account and
demonstrate a thorough understanding of the business and the market.
92 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs
l As a change facilitator and strategy implementer, HR managers should be able to conceptualize
and implement new strategies involving trust-based communication and cooperation with relevant
partners. This also requires the creation of a stable learning environment.
l As an innovator, the HR manager should be able to identify talent for executing IJV strategies and
adapting to changes in the IJV stages.
l As a collaborator, the HR manager’s strengths should lie in creating win-win situations characterized
by sharing rather than competing between the different entities engaged in the joint venture.76

The importance of cross-cultural management in international


joint ventures
As outlined in the previous section on ‘the comparative approach of HR in M&As’, the
national, institutional and cultural environments of a firm do indeed matter. Here, we will focus
on cultural issues which play an important role in IJVs.77 This information on comparative
HRM as well as on cross-cultural HRM is relevant to both M&As and IJVs. In many studies,
the implications of different cultural employee backgrounds coming together in an IJV have
been the center of interest. Such a case is described in the following IHRM in Action case 4.2,
which addresses the HR-related challenges of two different institutional and cultural environments
working together in a common venture. This example illustrates how cultural differences
matter in collaboration, decision-making and loyalty in the German–Chinese Joint Venture of
Beijing Lufthansa Center Co. Ltd.

The top management team and the role of expatriates in IJVs


As shown in IHRM in Action Case 4.2, the IJV’s top management team has a high impact on the
performance of the joint venture. The team’s main task is to control the daily business operations
of the IJV. The case described here is typical when the two parent firms of an IJV share equal equity
division. Usually, both have the right to be equally represented in the management team and
control of the key management positions is a critical issue when negotiating an IJV contract. Each
firm tries to protect its own interests and to keep as much control as possible by staffing key positions
with its own people.78 Kabst79 calls these IJV positions ‘functional gatekeepers’ – they try
to protect their firm’s assets in specific functional areas such as R&D, production or marketing.
Due to the fact that the parent companies compete for these key management positions, the top
management team is usually composed of individuals from different cultural contexts. As in all
multicultural teams, diversity may provide opportunities, but the individuals may also have problems
working effectively together. The critical challenge for amulticultural team heading an IJV is
not only that it has to deal with different cultural expectations, but that it also has to balance various
management styles and strategic objectives of the different parent firms. Li et al.80 point out
that identification with both the IJV and the parent firm can lead to significant role conflicts and
divided loyalty for IJV managers. As in the Beijing-Lufthansa case study, an exaggerated identification
with the parent firm can affect communication and decision-making processes in the multicultural
team and lead to lower commitment, and consequently, to problems in decision-making
and unsatisfactory results. To avoid intercultural conflicts, companies often recruit country
experts from outside the company rather than repositioning internal technical experts.
To address these problems and to increase IJV performance, Li et al. suggest taking explicit
measures for improving organizational identity and identification at the IJV level. 81 In his study
on the retention of experienced managers in IJVs in China Li82 notes the involvement of the
managers in strategic decision-making processes and intensive social integration measures as the
most important measures for reducing turnover of high potentials in IJVs. However, the effectiveness
of these measures decreases with the increase of the shares of the foreign partner.