International business assignment essay on: Challenges and culture
International business is basically trade carried on beyond the geographical boundary of the country. When a company expands its business and carry on trade in multiple countries or even more than one country, it is engaged in international business. It can be either by opening your own branch in the other country or by the means of mergers and acquisitions. Carrying on international business is not an easy job and it faces a lot of challenges as the culture of the two countries are different and the way of doing business in different organisations differentiate on the basis of their organisational believes and values so in case of international mergers and acquisitions these factor come in force where a company plans to acquire a company in other country. I would like to elaborate this topic by taking the example of BenQ a Taiwan based company which acquired Siemens (German based company) and the complications it faced due to the cultural diversity and lack of proper communication strategy while carrying business across the borders of their own country.
BenQ is a Taiwan based company; it was in headlines in June 7, 2005, due to its acquisition of loss making mobile company Siemens which is a German based company and renamed it as BenQ-Siemens to launch it in the market. This strategic move of the company came up as a complete failure as the both the companies are different from each other in many ways so many cultural and communicational issues arose which became the reason for the acquisition to be a complete failure. The failure of the acquisition is a lesson for the other companies as they first need to understand the cultural differences between the countries and need to allocate proper time and resource to determine the take steps to overcome these cultural and communicational issues and achieve success in its plan to expand its business internationally. Whenever a company is planning of acquiring a foreign company and merging it with its main company it also needs to concentrate on the differences in the organisational cultural of the two companies as it also many times become the reason of failure as in the case of BenQ, the difference in the organisational cultural was also a reason of the company not able to generate profit from its acquisition.
BenQ was established in 1984, IT was known as Acer Peripheral Inc. Initially and was later renamed as BenQ in 2006. In the beginning BenQ was a consumer electronics contract manufacturer but it expanded at a very great speed soon had clients like Motorola and Nokia. The Chairman of the company Lee believed that the technology as changing at a very fast pace and so are the habits of the customers so what stay in the long run is the brand name of the company and the management philosophy (Einhorn, 2004, p.26). With such views in mind Lee very soon shifted the focus of the company from a contract manufacturer to produce self designed products, and he publicised the brand name of BenQ globally with an increased product line.
BenQ acquired Siemens in June 2005 as Lee thought it to be a shortcut strategy to the global mass market and said in front of the reporters that BenQ would make Siemens free from all its debt in a period of two years and he believed that they can achieve these profit levels due it the sales and distribution channel which they have globally. He said that “Both the companies complement each other and what they have Siemens doesn’t have and what Siemens has they don’t have.” (“BenQ boss sees Siemens unit turning profit in 2007,” 2005, p.11).
In the acquisition agreement 100% of the Siemens’s mobile devices were acquired by BenQ and it didn’t had to pay to the company any money, instead Siemens paid 250 million Euros to BenQ to fund its day to day operations and paid an additional amount of 50 million Euros to buy the newly issued shares in BenQ. Till September 2005 Siemens carried the losses of the unit of around 1.5 million Euros per day (Dean, Karnitschining, & Pringle, 2005).Siemens kept on working on developing handset technology along with BenQ. BenQ had exclusive rights for the usage of Siemens trademark for a period of 18 months and co-branding rights for 5 years. The cost estimated to around 350 million Euros to Siemens and BenQ agreed to fulfil the labour contract of Siemens with the cell phone employees by the end of 2006 (Dean, Karnischinig, & Pringle, 2005). The execution of the agreement gave positive results for Siemens initially as its shares increased to 61.9 Euros i.e. up by 3% whereas the shares of BenQ dropped by 2.7% and the company incurred a loss of 500 million Euros and on September 2006 the company had to ask for bankruptcy protection from Germany. The international mergers and acquisitions (IM&A) are very complicated and demanding processes and they provide a very unique organisational learning (Hitt Harrison & Ireland 2001). There are many reasons which are attached to the success and failure of the process of IM&As.
Main reasons for the failure of acquisition
Cultural Differences
BenQ is Taiwan based and has different culture as compared to Siemens which is a German company. The Germans follow the European culture whereas Taiwan represents Oriental Confucian group. The Taiwanese are not future oriented and assertive instead are more collectivist and rule oriented; on the contrary Germans have their own individuality and focus on rights, contracts and agreements (Hofstede 1980).
When Lee began the operations initially it kept the management of the company same with the chief executive Clemens Joos and 2800 other research and development employees so that the transition is smoother, but he had to repent his decision in future as instead of focusing on gradually restricting the new subsidiary he should have replaced the entire management team so that the cultural and communicational gaps could be filled (Huang & Sun, 2006, p. 153). Whenever a company acquires a firm it tries to have a quick access on it and tries to take control immediately by imposing a list of rules and regulation whereas in case of BenQ the company in order to build better relationship didn’t change the management team or prescribe any format of rules to be followed but the Germans focus more on general rules and are highly individualistic and keep their own interest over and above the interest of the organisation and have a high degree of self-esteem (Trompenaars & Hamp den-Turner, 1998).
The structure of an organisation in Taiwan is highly centralised and the top management has the utmost responsibility and authority whereas in Germany it is highly decentralised. The workers of Taiwan are unaware of their rights and accept what position they are given in the organisation and follow the orders given to them with due respect. They are ready to work on holidays as well. Individuals are not treated equally and the people don’t even challenge such a behaviour whereas in German equality is very important and the firms work in a highly decentralised manner and authority and responsibility are evenly distributed. The people are aware of their rights and there are labour unions to safeguard the interest of the workers as when BenQ filed bankruptcy, the union leaders in order to protect the future of the workers threatened to take legal action against Siemens for selling its loss making company to BenQ (Paterson, 2005). Even the salaries and wages of employees in Germany are kind of fixed and every German worker get six weeks paid holiday every year, and they don’t work on Sundays or public holiday. The difference in the work culture was also any issue which had to be looked after and the management had to go a long way in order to learn how to maintain good relations with the Siemens’ labour union.
Uncertainty of future:
The future is very uncertain and the people of Taiwan usually positively correlate with fear of failure and negatively correlate with risk taking and BenQ was best known for being highly cost conscious and apply all possible cost cutting measures (Hofstede & bond, 1988). The acquired company was constantly making loss and Lee the chairman could let this financial loss affect the parent company so decided to adopt a measure a for immediate reduction in losses. The future is unpredictable and on seeing the amount of losses the company was currently incurring, the level of risk to continue carrying on the business was very high so the management decided to apply for bankruptcy in Germany.
Corporate culture is the another reason
BenQ is a regional brand, and does not have the skills of high level international management. Siemens is a huge company and promotes labour harmony. The workers council operating is also very strong and resists changes. BenQ was initially involved in producing consumer electronic products and was popular for it fast, innovative and flexible systems. Their corporate culture was not well structured and very informal whereas it is well structured and formal at Siemens to there was clash in the culture thereby making the merger a failure. The methods of doing things is different of both the people like people of BenQ are flexible in the way of doing things whereas people of Siemens follow set patterns of production and resist changes highly.
Communication Issues
BenQ is a same enterprise with no experience in the field of mobile business and is not competent enough to handle business internationally and the decision of the executives of Siemens to handover the company to such an enterprise made the people disappointed. It was termed as an economic disaster (Shareholder proposals for the annual shareholders’ meeting of Siemens AG, 2007). The employees of the organisation had a feeling of betrayal in mend and could never inculcate trust in their minds for BenQ. In this situation if the employees would have known well in advance that such a decision has been made when the deal was getting finalised then they would have been mentally prepared themselves for the change and would have made the situation much easier and less disappointing. This shows that if an effective communication plan would have been implemented well in advance keeping in mind the difference in the corporate cultures of the two companies the acquisition would have been smoother (Cartwright & Cooper, 1996). Lack of such a plan led to increase in uncertainty and stress in the minds of the employees which ultimately resulted in a high rate of employee turnover.
There were conflicts between the BenQ German management and Taipei headquarters on the process of development of a new product and speed of reorganisation. BenQ’s decision to take away its financial support from Siemens was considered to be harsh and insensitive in Germany whereas it was considered to be rational by many people in Taiwan.
Post acquisition BenQ decided to implement certain new business strategies in the new subsidiary but didn’t communicate it well to the employees in a concise manner and assumed that the employees would cooperate in the implementation but when already there is such a big change going on in the organisation and then lack of effective communication of the strategies would add to the confusion and create misunderstanding and distrust in the minds of the employees.
Language issues
The was a language barrier also enforce in the present case though the employees could interact in the common language i.e. English but in spite of that the ways of communicating things were different even the non-verbal communication was difficult to understand due to cultural disparity. The Germans are more direct in their ways of communication whereas the Taiwanese prefer to be indirect in case of business communication when the response is thought to arise controversy, like when Lee was asked about the Siemens employee layoffs, Lee avoided direct confrontation and gave a very ambiguous and indirect response, saying that “so far BenQ does not plan to shut any factories” (Einhorn, Wassener, & Reinhardt, 2005, p. 18)
The firms which are planning for any kind of merger or acquisition can face many internal and external challenges. The acquisition of Siemens by BenQ was seen as an opportunity to globalise its company by Lee the chairman of the company who could not see the effort that would be required to deal with the cultural differences of the two companies, so the alliance proved to be a failure and ended in less than a year.
The cultural issues that arise in international business sometimes add to the cost of doing the business which was the major reason why BenQ failed in making acquired Siemens mobile a successful business venture. The brand recognition of Siemens is quite high but in spite of this fact there was a regular delay in new product roll out and the life cycle of such business is short and the volumes of handsets are high thereby making it difficult to compete with the competitors like Nokia and Motorola.
Whenever a company plans to go for IM&A the first thing which it should look at is the people issue that the difference in the culture in the two countries is to be well understood and steps should be taken to combine the two cultures together to promote harmony among them. Proper communication should take place as in case the management fails to communicate in the desired manner it can cause uncertainty in the minds of the employees regarding their future which is very stressful for employees ( Schweiger & Denisi, 1991).
The corporate environment was also different of both the companies and they didn’t pay due attention to this fact. The way of doing things and the values and believes were different so a proper integration strategy should have being kept in force to resolve these issues which was lacking and lead to the failure of acquisition so the company should have first thought of the ways in which the culture could be integrated and instead of hiring the same team as it was when the company was not acquired there should have made some changes in the management which would have helped in maintaining a balance in the culture of both the countries. Even the union rules of Germany are very strict so steps should be taken well in advance as to how the company deal with such issues in future.
It can be finally concluded by saying that both the countries are quite different in the national and organisational culture so it can be taken as a lesson for those companies who are looking for global expansion through IM&A. So, it is very clear that whenever a company is looking for merger abroad it needs to make a proper communication plan and strategy defining the objectives and performance deadlines while the integration and implementation process so that there is no information gap with future employees.
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