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INTERNATIONAL MANAGEMENT

 


CONTENTS

 

  1. BUSINESS STRATEGY Unit 1. Company structure ………………………………….…………......................4 Unit 2. The global company……..………………………………………. …………..9 Unit 3. Global production...……………………………………………....................14 Unit 4. Entering a foreign market ……………………………………… ………….19 Unit 5. International mergers………………..…………………………....................24 Unit 6. Business in the 21st century …….…………………………………………..29   2. CULTURAL ISSUES Unit 7. Corporate cultures …………………………………………………………..34 Unit 8. Global careers……………………………………………………………….40 Unit 9. Management attitudes in Germany and Britain…...………………………...45   3. SELECTION, TRAINING AND DEVELOPMENT Unit 10. The value of MBAs………..……………………………………………….50 Unit 11. Recruiting internationally …………………………………………………55 Unit 12. Selecting international managers…………………………………………..60 Unit 13. Training across cultures…………………………………...……………….65 Unit 14. International management development…………………………………...70   4. THE INTERNATIONAL MANAGER Unit 15. Thinking global, acting local………………………………………………75 Unit 16. Routes to top management………………………………………………...81 Unit 17. Overseas postings………………………………………………………….86 Unit 18. Returning home……………………………………………………………..92 References …………………………………………………………………………...97

 

Unit 1. Company structure

 

DOING THE BUSINESS

Rosin Ingle hears how efficient management structures are vital for success

                   


The need for a solid structure within all business entities is “absolutely fundamental”, according to Ms Angela Tripoli, a lecturer in Business Administration at University College Dublin. “Organisational structure concerns who reports to whom in the company and how different elements are grouped together. A new company cannot go forward without this and estab­lished companies must ensure their structure reflects their target markets, goals and available tech­nology.”

Depending on their size and needs there are several organisa­tional structures companies can choose from. Increasingly though, in the constantly evolving busi­ness environment, “many firms are opting for a kind of hybrid of all of them.”

The most recognisable set up is called the functional structure where a fairly traditional chain of command (incorporating senior management, middle management and junior management) is put in place. The main benefit of this system is clear lines of com­munication from top to bottom but it is generally accepted that it can also be a bureaucratic set up which does not favour speedy deci­sion-making.

More and more companies are organising themselves along product lines where companies have separate divisions according to the product that is being worked on. “In this case the focus is always on the product and how it can be improved.”

The importance for multina­tional companies of a good geo­graphic structure, said Ms Tripoli, could be seen when one electrical products manufacturer produced an innovative rice cooker which made perfect rice - according to western standards. When they tried to sell it on the Asian market the product flopped because there were no country managers inform­ing them of the changes that would need to be made in order to satisfy this more demanding market.



                                   
The matrix structure first evolved during a project developed by NASA when they needed to pool together different skills from a variety of functional areas. Essentially the matrix structure organises a business into project teams, led by project leaders, to carry out certain objectives. Training is vitally important here in order to avoid conflict between the various members of the teams.

During the 1980s a wave of restructuring went through industry around the globe. This process, known as delayering, saw a change in the traditional hierar­chical structures with layers of middle management being so removed. This development was driven by new technology and by the need to reduce costs. The over­all result was organisations that were less bureaucratic.

The delayering process has run its course now. Among the trends that currently influence how a company organises itself is the move towards centralisation and outsourcing. Restructuring has evolved along with a more “customercentric” approach that can be seen to good effect in the banks. They now categorise their customers and their complex borrow­ing needs into groups instead of along rigid product lines.

Another development can be seen in larger companies, which are giving their employees more freedom to innovate in order to maintain a competitive edge.

Ms Julia MacLauchlan, Director of Microsoft's European Product Development Centre in Dublin, said the leading software company had a very flat organisational structure. “There would not be more than around seven levels no between the average software tester and Bill Gates,” she said.

Microsoft is a good example of a company that is structured along product lines. In Ireland, where 1,000 employees work on localisa­tion of the software for all Microsoft's markets, the company is split up into seven business units. Each unit controls the localisation of their specific products while working closely with the designers in Microsoft's Seattle Headquarters.

It works, said Ms Maclauchlan, because everyone who works in the unit is “incredibly empowered”.

“Without a huge bureaucratic infrastructure people can react a lot more quickly to any challenges and work towards the company's objectives.”

From The Irish Times

Reading tasks

A Understanding main points

Read the text about the different ways in which companies are organised and answer these questions.

1. Four main kinds of organisational structure are described in the article. What are they?

2. Is one kind of organisational structure more common than the others?

3. When did “delayering” take place?

4. What were the reasons for delayering and what were the results?

5. How does Julia MacLauchlan describe Microsoft's organisational structure?

 Understanding details

Match these definitions with the four organisational structures described in the text.

1. A cross-functional structure where people are organised into project teams.

2. A structure rather like the army, where each person has their place in a fixed hierachy.

3. A structure that enables a company to operate internationally, country by country.

4. A structure organised around different products.

Ñ Understanding expressions

These words and expressions are used in the text to describe different aspects of organisational structure. Which are positive and which are negative?

1. clear lines of communication (line 15) positive

2. bureaucratic set up (line 16)

3. speedy decision-making (line16)

4. traditional hierarchical structure (line 34)

5. customercentric approach (line 41)

6. freedom to innovate (line 45)

7. flat organisational structure (line 47)

Vocabulary tasks

A Collocations

Match these nouns as they occur together in the text.

1. product 2. target 3. borrowing 4. project 5. delayering 6. country 7. business 8. software 9. company a. teams b. objectives c. lines d. units e. company f. process g. markets h. needs i. managers

 Complete the sentence

Use an appropriate phrase from Exercise A to complete each sentence.

1. Banks need to be fully aware of their customers’ borrowing needs.

2. Silicon Valley is full of .......................... .

3. Many companies are now organised along . ……………….., in which each division is responsible for a group of products.

4. A matrix organisation groups people into ……………………… .

5. Some companies are divided into different …………………., often also called profit centres.

6. A multinational company will often have a number of ………………………., in charge of activities in different parts of the world.

Ñ Definitions

Match these terms with their definitions.

1. business entities 2. set up 3. innovative 4. flopped 5. outsourcing 6. customercentric 7. competitive edge a. focusing on the customer rather than the product b. new, original c. companies d. something that makes you better than other companies e. did not succeed, failed f. structure g. getting external companies to do work for your company  

D Prepositions

Complete these sentences with an appropriate preposition.

1. Organisational structure concerns who reports ... to … whom.

2. Depending ………………… its size, there are several organisational structures a company can choose from.

3. Many companies are organising themselves .……………….. product lines.

4. In the 1980s a wave of restructuring went ………………… industry.

5. Delayering was driven ………………… the need to reduce costs.

6. Microsoft in Ireland is split ………………… seven business units.

E Using a dictionary

A dictionary such as the Longman Business English Dictionary can help you to expand your vocabulary. Try these two exercises.

1. The word business is used several times in the article combined with another word which comes after it, e.g. business environment. It can also be combined with words that come before it, e.g. big business. Try to think of as many word combinations using business as you can, then look at the entry for business in the Longman Business English Dictionary.

2. Do the same exercise with the words company, management, manager and product.

Unit 2. The global company

 

CASE STUDY: FORD AND HONDA

Haig Simonian on two car groups’ different routes to the global market

               


Rising costs and the worldwide spread of shared tastes in car styling have prompted the indus­try's giants to exploit global economies of scale. But rivals such as Ford and Honda have approached the task very differ­ently.

Ford is one of the world's earliest multinationals. Its first foreign production unit was set up in Canada in 1904 - just a year after the creation of the US parent. For years Ford operated on a regional basis. Individual countries or areas had a large degree of auton­omy from the US headquarters. That meant products differed sharply, depending on local executives' views of regional require­ments. In Europe the company built different cars in the UK and Germany until the late 1960s.

Honda, by contrast, is a much younger company, which grew rapidly from making motorcycles in the 1950s. In contrast to Ford, Honda was run very firmly out of Japan. Until well into the 1980s, its vehicles were designed, engi­neered and built in Japan for sale around the world.

Significantly, however, Honda tended to be more flexible than Ford in developing new products. Rather than having a structure based on independent functional departments, such as bodywork or engines, all Japan's car makers preferred multi-disciplinary teams. That allowed development work to take place simultaneously, rather than being passed between departments. It also allowed much greater responsiveness to change.

In the 1990s both companies started to amend their organisa­tional structures to exploit the per­ceived strengths of the other. At Ford, Alex Trotman, the newly appointed chairman, tore up the company's rulebook in 1993 to create a new organisation. The Ford 2000 restructuring programme threw out the old func­tional departments and replaced them with multi-disciplinary prod­uct teams.

               
The teams were based on five (now three) vehicle centres, responsible for different types of vehicles. Small and medium-sized cars, for example, are handled by a European team split between the UK and Germany. The develop­ment teams comprise staff from many backgrounds. Each takes charge of one area of the process, whether technical, financial or marketing-based.

Honda, by contrast, has decen­tralised in recent years. While its cars have much the same names around the world, they are becoming less, rather than more, stan­dardised. “Glocalisation” - a global strategy with local management - is the watchword. Eventually the group expects its structure will so comprise four regions - Japan, the US, Europe and Asia-Pacific -which will become increasingly self-sufficient.

Two reasons explain Honda's new approach. Shifting to produc­tion overseas in the past decade has made the company more attuned to regional tastes. About lm of Honda's 2.1m worldwide car sales last year were produced in the US. A further 104,000 were made in the UK. No other manu­facturer has such a high propor­tion of foreign output.

Honda engineers also reckon they can now devise basic engi­neering structures which are com­mon enough to allow significant economies of scale, but sufficiently flexible to be altered to suit regional variations. The US Accord, for example, is longer and wider than the Japanese version. The European one may have the 105 same dimensions as the Japanese model, but has different styling and suspension settings.

Both Ford and Honda argue their new structures represent a HO correct response to the demands of the global market. Much of what they have done is similar, but intriguingly, a lot remains differ­ent.

 

From the Financial Times

 

Reading tasks

A Understanding main points

1. Read the text about two car companies' global strategies and say which of these statements apply to Ford and which to Honda.

a. now has a strategy of decentralisation Honda

b. now works in multi-disciplinary teams for car design and development

c. has always worked in multi-disciplinary teams

d. produces more cars abroad than in its home country

e. used to be very decentralized

f. used to be very centralized

g. has divided the world into four regions

h. designs and develops all its small cars in Europe

i. has always been flexible and able to respond to change

2. According to the ideas in the text, why do car companies now need to have a global strategy?

3. How did the two companies change their strategies?

 How the text is organised

These phrases summarise the main idea of each paragraph of the text Match each phrase with the correct paragraph.

a. one reason for changes in Honda's strategy

b. Honda's original strategy

c. Ford's new strategy

d. Conclusion

e. Honda's new strategy

f. Ford's original strategy

g. the advantage of Honda's original strategy

h. introduction paragraph I

i. Ford's new strategy in detail

j. another reason for Honda's new strategy

Vocabulary tasks

A Synonyms

1. The word “headquarters” (line 17) is used to describe the central, controlling part of a large, international company. What other word is used in the same paragraph with a similar meaning?

2. Honda and Ford manufacture cars. What other phrase is used to describe what they do?

3. Honda produces both cars and motorcycles. What is a general word for both of these?

 

B Word search

Find a word or phrase in the text that has a similar meaning.

1. when a company makes a product in big volumes to reduce costs (paras 1 and 9) …economies of… scale…

2. factory in which cars are produced (para 2)

p………………… u…………………

3. independence (para 2)

a…………………

4. needs or demands (para 2)

r…………………

5. head of a company responsible for strategy rather than day-to-day management (para 5)

c…………………

6. consist of or be made up of (paras 6 and 7)

c…………………

7. financially independent (para 7)

s………………… - s…………………

8. total of a company's production (para 8)

o…………………

 

C Complete the sentence

Use an appropriate word or phrase from Exercise B to complete each sentence.

1. The company ... comprises ... three divisions-cars, trucks and commercial vehicles.

2. Each division has a lot of ………………… to decide its own strategy.

3. Companies seem to change their ………………… every few years in response to changing economic and market conditions.

4. Our total ………………… of cars from all our factories in Europe went down last year.

5. We need to develop products that meet the ………………… of the market.

6. Big car makers now produce different models based on the same platform in order to achieve ………………… .

7. All the main Japanese car makers have ………………… in Europe.

 

D Expressing degrees of meaning

Complete these sentences with the adverb or phrase used in the text.

1. For many years Ford's products differed … sharply … from region to region.

2. Individual countries had ………………… of autonomy.

3. Honda grew ………………… from its early days as a motorcycle manufacturer.

4. For many years Honda was run very ………………… out of Japan.

5. The use of multi-disciplinary teams allowed development work at Honda to take place ………………… in different parts of the company.

6. Honda expects its four regions to become ………………… self-sufficient.

7. No other car maker has ………………… of foreign output as Honda.

 

 

Unit 3. Global production

 

LOWEST COST ISN’T ALWAYS THE ANSWER

Lower tariffs and new markets opening to foreign investment have complicated the decision about how manufacturing should be organized, says Nikki Tait

 

Visit any western toy superstore, and most of the basic products will say “Made in China” or, perhaps, Malaysia or Indonesia. Until, that is, you reach the Lego section. Suddenly, the boxes are more likely to identify Denmark, Switzerland or the US as the country of origin.

               
It might seem logical that a global company, selling into a mul­titude of country markets and measuring its market share in global terms, should place produc­tion facilities wherever costs are lowest. But Lego, the privately-owned Danish company, has for years concentrated its manufac­turing in Europe and the US, argu­ing that this best satisfies design and quality requirements. For Lego the notion of cost is only a small part of the production pic­ture.

So how does a global company go about organising its manufac­turing network? The decision has become more complicated over the past two decades due to a number of factors. On the one hand, trade barriers across much of the world have declined sharply. Simultaneously, a range of new markets - notably in Asia and Eastern Europe - has opened to foreign investment.

This has made global produc­tion much more possible. But it has also reduced the need for many overseas plants. Markets that previously demanded local production facilities - because tar­iff levels made importing far too expensive - can now be supplied from other countries.

Plainly, in this newly-liberalised environment, basic manufactur­ing costs do become more signifi­cant. But there are limits to a pure­ly cost-driven approach. Many companies have built their current production structure through acquisitions over a number of years, rather than in a planned way.

                     
Another problem is that costs themselves can be subject to rapid change, making today's Indonesia, for example, tomorrow's Hong Kong. This adds a further dimension to any global company's investment decision-making. The reality is that manufacturing busi­nesses also need to think: how quickly can we pull the plug?

Some companies have addressed this issue through what is called the “part configuration” model. This involves selecting a number of regional manufacturing bases which are viewed as longer-term investments, and augmenting them with lower-skilled assembly plants, which can more easily be moved between markets.

The availability of suitable employees also needs to be exam­ined when investment decisions are being made. There may be close links between manufacturing and product innovation and if too much focus is put on low-cost assembly operations, product innovation tends to suffer.

Perhaps the hottest topic is whether a global company needs to be a producer at all. Outsourcing of production to other suppliers gives a company more flexibility, and fits well with a global strategy. A business may be better placed to supply differen­tiated products into different regional markets, and it can proba­bly adjust more swiftly to changing cost considerations. These operational advantages come in addition to the financial benefits of outsourcing, such as lower capi­tal employed.

But there can be pitfalls. Perhaps no company exemplifies the outsourcing trend better than Nike, the sports shoe group. On paper, its strategy of subcontracting the production of its shoes to local factories looks eminently sensible. But these arrangements have turned into a public relations disaster in recent years, as human rights campaigners have com­plained of “sweatshop” conditions in many of the Asian plants pro­ducing Nike products. Lack of ownership, it seems, does not bring freedom from responsibility.

 

From the Financial Times

Reading tasks

A Understanding main points

 

Read the text about how global companies organise their production and answer these questions.

1. Where are most simple toys manufactured and why?

2. Why does Lego do things differently?

3. What is the reason for a global company to have a “part configuration” model?

4. According to the text, what are the advantages and disadvantages of “low-cost assembly plants” ?

5. What are the operational advantages of outsourcing?

B Understanding details

Mark these statements T (true) or F (false) according to the information in the text. Find the part of the text that gives the correct information.

1. The main reason to have overseas plants is to be close to local markets. F

2. A lot of plants are now being located in Eastern Europe.

3. Imports to many markets are now cheaper.

4. The number of overseas plants is increasing.

5. Cost is the main factor in choosing the location of a foreign plant.

6. Outsourcing production to subcontractors gives a company more flexibility.

 

C How the text is organised

What do these words refer to in the text?

1. its (line 6) a global company 2. its (line 8) 3. this (line 9)   4. this (line 16) 5. this (line 25) 6. it (line 41)

 

 

Vocabulary tasks

A Synonims

1. The article deals with the question about where to locate “production facilities”. Three other words are used in the article with a similar meaning to “facilities”. What are they?

2. What other word is used in the article with the same meaning as “production”?

B Word search

Find a word or phrase in the text that has a similar meaning.

1. amount in percentage terms of a company's sales compared to its competitors (para 2) …market…share

2. organisation of a company's production facilities around the world (para 3) m………………… n…………………

3. legal or financial regulations to protect a country's domestic producers (para 3)

t ………………… b…………………

4. amount of taxes on imports (para 4)

t………………… l…………………

5. strategy based mainly on keeping costs low (para 5)

c ................... -d ................... a ...................

6. companies bought as part of a strategy of expansion (para 5}
a …………………

7. factory which puts together parts of a machine manufactured elsewhere (para 7)

a………………… p…………………

8. products that are specially prepared for different market needs (para 9)
d ………………… p…………………

9. getting other companies to make products to your specification (para 9)
o…………………

10. money invested in the business operations of a company (para 9)

c ………………… e…………………

11. extremely bad working conditions, with low pay (para 10)

s………………… c…………………

C Definitions

Match these terms with their definitions.

1. notably (line) 2. augmenting (line) 3. links (line) 4. swiftly (line) 5. exemplifies (line) 6. eminently (line)   a. is a typical example of something b. especially c. a relationship or connection between two things d. quickly e. very, extremely, completely f. increasing something by adding to it

D Complete the sentence

Use an appropriate word from Exercise C to complete each sentence.

1. The success of the engineering company ABB …exemplifies… the ability of an organisation to think globally and act locally.

2. We recruit our future international managers from the top business schools, ………………… Harvard, INSEAD and London.

3. Many business schools and management faculties have close ………………… with industry.

4. Our new Chief Executive was easily the best candidate for the job. In fact, he is ………………… suitable for this position.

5. During the busy months of the year we deal with the extra work by ………………… our full-time staff with temporary employees.

6. If incorrect and potentially damaging news is reported about the company in the press, it is important to move ………………… to deny it.

 

Unit 4. Entering a foreign market

 

DELL TRIES TO CRACK SOUTH AMERICA

John Barham examines the US computermaker’s strategy for expansion using a Brasilian base

   


Dell Computers, the Texas-based computer-maker that was among the pioneers of online ordering, is preparing to attack the difficult Latin American market.

Soon, Dell will start making computers at a new factory in the small, southern Brazilian city of Eldorado in its first manufacturing venture in South America. Within a few hours' flying time of Eldorado lie four of the conti­nent's main metropolitan regions - Buenos Aires, Rio de Janeiro, Sao Paulo and Santiago - which gener­ate about half the region's wealth and where most of the computer-using populace is concentrated. Dell hopes to serve all these markets - including more distant regions in northern Brazil and the Andean countries from Eldorado.

                         
According to Dell's plan, aircraft from Miami will land at a nearby international airport car­rying computer components that will be sent straight to Dell's facto­ry. Together with parts delivered from suppliers in Brazil, they will be assembled to order, packed and delivered to consumers across the continent.

The challenge for Dell is not only to mount an effective marketing campaign to educate cus­tomers about online ordering, it must also manage a complex logis­tics system and deal with the problems of unreliable road and air transport networks. And it must operate in half a dozen volatile Latin countries, with unpre­dictable governments and consumers as well as well-established competitors.

Dell could not afford to ignore the South American market much longer. It currently exports computers to a few Latin American countries such as Mexico and Colombia, but has never sold to markets in Argentina or Brazil. Latin American consumers last year bought 5 million PCs and demand is growing at 15 per cent a year. Growth is likely to remain strong for some time to come: in Brazil, the region's largest market, only 3-4 per cent of the population owns a PC.

                 
Dell is not the first company to view South America as a single market. For a decade, Ford and Volkswagen and many other multinational companies have operated in the region's main countries as if they formed one integrated market. That was a natural reaction to falling import tariffs and consolidation of the Mercosur customs union linking Argentina, Brazil, Paraguay and Uruguay. However, the distances, the red tape and the animosities between national governments often make fulfilment of this strat­egy difficult.

Dell decided to locate in Brazil because it is the region's biggest market and because the govern­ment gives computer companies substantial tax incentives as part of its plan to develop local high technology industries. If Dell meets Brazilian local content crite­ria and attains agreed production volumes, its products are consid­ered to be 100 per cent locally made and automatically gain duty-free access to Mercosur countries.

However, there is little Dell can do about the internal transport networks in Brazil or the bureaucracy in neighbouring countries. Although roads, air transport and delivery systems are tolerably effi­cient in south eastern Brazil and parts of Uruguay, Chile and 100 Argentina, Dell may still find it is struggling to co-ordinate opera­tions and sales over a vast region.

From the Financial Times

 

Reading tasks

A Understanding main points

Read the text about Dell's plans to assemble PCs in South America and answer these questions.

1. Is the writer generally positive about Dell's chances of success in its South American venture?

2. Why has Dell decided to attack the South American market?

3. Based on the information in the text, which country is the odd one out, and why?
a) Colombia b) Argentina c) Brazil d) Paraguay e) Uruguay

4. Why has Dell chosen to locate its manufacturing plant in Brazil?

5. Which of the following “challenges” facing Dell are mentioned in the article?

a) unreliable transport networks e) large distances

b) poor productivity f) high import tariffs

c) political instability g) terrorism

d) high inflation h) well-established competitors

B Understanding details

Mark these statements T (true) or F (false) according to the information in the text. Find the part of the text that gives the correct information.

1. Dell will sell only in the big cities. F

2. Dell already sells computers in South America.

3. The company also produces PCs in Mexico.

4. It plans to import all the components it needs.

5. Ford and Volkswagen have been operating in South America for some years.

6. Considering South America as a single market is not an easy strategy.

7. To meet “local content criteria” Dell must use a certain percentage of components produced locally.

8. Dell hopes to sell its computers duty-free in many countries.

9. Delivery systems in Brazil are better than in other parts of South America.

D How the text is organised

These phrases summarise the main idea of each paragraph. Match each phrase to the correct paragraph.

a. the challenge for Dell

b. reason for choosing Brazil

c. an overview of Dell's intentions paragraph I

d. reason to enter the South American market.

e. how Dell's plan will work

f. other companies' experiences

g. problems Dell may face in Brazil and elsewhere

h. advantages of Eldorado's location

A Word search

Find a word or phrase in the text that has a similar meaning.

1. one of the first to do something (para 1)

…pioneer

2. buying something through the Internet (para 1)

o………………… o…………………

3. business activity with some element of risk (para 2)

v…………………

4. general population in a country (para 2)

p…………………

5. difficult task which needs skill and determination (para 4)

c…………………

6. describes something or someone that can change quickly and suddenly (para 4)

v…………………

7. lots of rules and regulations, which often seem to have no purpose (para 6)
r………………… t…………………

8. strong dislike between people or groups (para 6)

a…………………

9. reach or achieve an objective (para 7)

a…………………

10. trying very hard to do something under difficult conditions (para 8)

s…………………

B Collocations

1. Match these nouns as they occur together in the text.

a. tax b. manufacturing c. import d. customs e. production f. logistics   venture incentives system tariffs volumes union

2. Match these verbs and nouns as they occur in the text.

a. Mount b.serve c. generate d.gain e. meet access criteria a campaign a market wealth

C Complete the sentence

Use an appropriate phrase from Exercise B to complete each sentence.

1. Many countries offer companies …tax incentives…to encourage investments.

2. When we launch our new Internet service we will need to ………………… a big marketing ………………… .

3. In order to be successful, the new manufacturing plant will have to reach target ………………… within six months.

4. Assembling to order and delivering direct to each customer means managing a complex ………………… .

5. When importing is expensive due to high ………………… , the alternative is to manufacture locally.

6. In order to have free access to the EU market, Japanese car manufacturers in the UK need to ………………… minimum content ………………… .

7. In some countries the only way to ………………… well is to have local production.

8. Most countries in Europe are now part of a ………………… which allows free movement of goods.

Unit 5. International mergers

 

AFTER THE DEAL

Doing deals is easy. As mergers hit record levels, now comes the hard part

The merger wave, which in 1998 was a predominantly American affair, is now sweeping over Europe. Cross-border deals, such as Daimler-Benz's takeover of Chrysler, accounted for a quarter of mergers in 1998; more are expected as firms go global.

           
In many cases this consolida­tion makes sense - at least on paper. But just as certain as the flow of deals is that most will be failures. Study after study of past merger waves has shown that two out of every three deals have not worked.

Success in the future will depend more than ever on the merged companies' ability to cre­ate added value. And that will depend mainly on what happens after the deal has been done. Yet many deal makers have neglected this side of the business. Once the merger is done, they simply assume that computer programmers, sales mangers and engineers will cut costs and boost revenue according to plan.

Yet, just when post-merger integration has become decisive, it has become harder to pull off. Not only are modern firms complicated global affairs, but executives are putting today's deals together in a hurry. Few give enough thought to the pitfalls.

One set of obstacles is “hard” things, such as linking distribution or computer systems. In par­ticular, many recent mergers have been undone by the presumption that information technology is easy to mesh together.

More difficult are the “soft issues”; and here the same word keeps popping up - culture. People never fit together as easily as flow charts. Culture permeates a com­pany, and differences can poison any collaboration. After one large US merger, the two firms had a row over the annual picnic: employees of one company were accustomed to inviting spouses, the others were totally against the idea. The issue was resolved by inviting spouses only in alternate years.

               
Two new things have made cul­ture clashes harder to manage. The first is the growing impor­tance of intangible assets. In an advertising agency, for instance, most of the value can walk out of the door if key people leave.

The second new thing is the number of cross-border mergers. In this area DaimlerChrysler may prove to be an interesting case study in differing management cultures. One worry is compensa­tion: Chrysler's pay levels are much higher than the German company's. So a US manager post­ed to Stuttgart may end up report­ing to a German manager who is earning half his salary.

Nor is pay the only difference. Chrysler likes to pride itself on its flexible approach, where speed and ingenuity are prized. When designing new models, teams of engineers, designers and market­ing people work on each model. Daimler-Benz has a more tradi­tional structure, in which design­ers and marketing people mix less and engineers are in charge.

Some recent deals will no doubt prove a stunning success. Nevertheless, there are three omi­nous signs about the current merger boom. First, much of the attention seems to be on the deal itself rather than the integration that must follow. Second, many deals are rushed. And third, mergers have too often become a strate­gy in their own right.

So the things that are so impres­sive about today's mergers - their size, complexity and daring - could count against them if the economy turns down.

 


Date: 2015-01-12; view: 3249


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OBJECT AND AIM OF INTERNATIONAL LAW | From The Economist
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