Cross‐border acquisitions and the asymmetric effect of power distance value difference on long‐term post‐acquisition performance

• Published date: 01 April 2017
• Author: Zhi Huang,Daniel J. Brass,Hong (Susan) Zhu
• Date: 01 April 2017
• DOI: http://doi.org/10.1002/smj.2530

Strategic Management Journal

Strat. Mgmt. J.,38: 972–991 (2017)

Published online EarlyView 13 July 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2530

Received 15 July 2013;Final revisionreceived 27 March 2016

CROSS-BORDER ACQUISITIONS AND THE

ASYMMETRIC EFFECT OF POWER DISTANCE VALUE

DIFFERENCE ON LONG-TERM POST-ACQUISITION

PERFORMANCE

ZHI HUANG,1HONG (SUSAN) ZHU,2*and DANIEL J. BRASS1

1Department of Management, Gatton College of Business and Economics,

University of Kentucky, Lexington, Kentucky,U.S.A.

2Peking University HSBC Business School (PHBS), Shenzhen, China

Research summary: Inconclusive ndings about the effect of national cultural differences on

post-acquisition performance may be created by the failure to distinguish among the different

cultural dimensions and the asymmetry of cultural differences. To demonstrate a different

approach, this study focuses on one dimension of national cultural values—power distance value

(PDV) and developsa framework for the asymmetric effect of PDV differences in creatingtwo types

of conicts. The analysis of 2,115 cross-border acquisitions in the global information technology

industry shows that PDV differences undermine the long-term post-acquisition performance of

acquirers. This effect is stronger when acquirers are higher than targets in PDV than when

the opposite is the case. This asymmetric effect of PDV difference depends on national status

difference, business relatedness,and acquisition experience.

Managerial summary: National cultural differences can create “cultural clashes” to undermine

the value creation by cross-border acquisitions. During integration, individuals react to the

acquirer– target hierarchy according to their respective power distance value (PDV): the extent

to which they value equality (low PDV) or hierarchy (high PDV). PDV divergence results in two

types of conicts, depending on whether acquirersare higher or lower than targets in PDV. The two

types of conicts vary in the magnitude of their harmful effect on post-acquisition performance.

Both types of conicts are more detrimental when acquirers are higher than targets in country

status and when individuals need to interact more intensely.Acquisition experience can both help

and harm post-acquisition performance. These ndings offer important implications for managing

cross-border acquisitions. Copyright © 2016 John Wiley & Sons, Ltd.

INTRODUCTION

“One of the key areas of international business

research focuses on the concept of national

culture and the effects of cultural distances on

rm management and performance” (Venaik

Keywords: acquisition; national culture; power distance

value; status; post-acquisition performance

*Correspondence to: Hong (Susan) Zhu, Peking University

HSBC Business School (PHBS), University Town, Nan-

shan District, Shenzhen, China 518005. E-mail: zhuhong@

phbs.pku.edu.cn

Copyright © 2016 John Wiley & Sons, Ltd.

and Brewer, 2010: 1310). National cultural

differences present a particularly strong chal-

lenge for cross-border acquisitions (Denison,

Adkins, and Guidroz, 2011; Schoenberg, 2000).

As post-acquisition activities bring individuals

of different cultures into close contact, cultural

clashes often impede effective interactions and

successful integration (Shenkar, 2001). The popu-

larity of cross-border acquisitions as a strategy for

internationalization has made “cultural clashes”

a highly salient issue for acquirers (Weber et al.,

2009). Scholars have approached the issue by

Asymmetry of Power Distance Value and Post-Acquisition Performance 973

testing an intuitively appealing hypothesis: national

cultural differences between acquirers and tar-

gets are likely to undermine post-acquisition

performance. This hypothesis has gained central

importance in research on cross-border acquisitions

(Schoenberg, 2000), but empirical support for it has

been inconclusive (Stahl and Voigt, 2008). Some

studies provided direct or indirect support for the

hypothesis (e.g., Datta and Puia, 1995; Olie, 1990),

some failed to do so (e.g., Markides and Ittner,

1994; Schweiger and Goulet, 2000), and some

even found national cultural differences positively

correlated with post-acquisition performance (e.g.,

Chakrabarti, Gupta-Mukherjee, and Jayaraman,

2009; Morosini, Shane, and Singh, 1998).

Scholars then started to question a simple

relationship between national cultural differences

and post-acquisition performance as originally

hypothesized, pushing this line of research in two

particular directions (Schweiger and Very, 2003).

Some studies sought to identify moderators for

the relationship (Calori, Lubatkin, and Very, 1994;

Stahl and Voigt, 2005; Very et al., 1997). However,

examined moderators themselves often do not show

consistent effects (Stahl and Voigt, 2005; Teerikan-

gas and Very, 2006; Weber et al., 2009). Taking a

different route, other studies suggested that the long

causal chain between national cultural differences

and post-acquisition performance might defy a

direct effect (Schweiger and Very, 2003). They

then sought to open the black box of integration

processes to examine either mediation effects or

consider less distal outcomes (e.g., Birkinshaw,

Bresman, and Hakanson, 2000; Björkman, Stahl,

and Vaara, 2007; Larsson and Finkelstein, 1999;

Reus and Lamont, 2009; Sarala and Vaara, 2010;

Weber et al., 2009). These studies together have

expanded cross-border acquisition research by

going beyond the original hypothesis to consider

processes and dynamics. Nonetheless, in relation

to the original intuitive hypothesis, the contingent

approach seems to add even more ambiguity

whereas the process approach gradually seems to

sidestep the question.

This study revisits the original hypothesis, sug-

gesting that a possible solution may require a better

conceptualization and modeling of national cultural

differences (Stahl and Voigt, 2008). Shenkar (2001)

noted two particular drawbacks in prior studies of

national cultural differences. First, prior studies

mostly relied on a composite score of various

dimensions (e.g., Kogut and Singh, 1988), resulting

in an “invalid assumption of equivalence;” i.e.,

all dimensions are equal (Shenkar, 2001: 525).

Research thus might need to examine “the exact

dimensions of culture that exert a critical inuence

on eventual performance” (Schoenberg, 2000: 56).

Second, prior studies often assumes the symmetry

of national cultural differences (Shenkar, 2001);

i.e., assuming the equal standing between the two

parties involved in cross-border transactions. This

is a questionable assumption when we consider the

differences between home countries vs. host coun-

tries or acquirers vs. targets. Because of possible

differences in their roles or other aspects such as

resources, whether acquirers or targets are higher in

the value of a given cultural dimension may affect

how they interact to affect post-acquisition integra-

tion. Therefore, we suggest that these two issues

may prevent us from correctly identifying the effect

of national cultural differences on post-acquisition

performance and result in the inconsistent ndings

noted above.

The aim of this study is to propose a new

approach premised on the distinctiveness of each

dimension of national culture and the asymmetry

of cultural difference. As a start, we demonstrate

the promise of this approach by focusing on power

distance value (PDV) because of its direct impli-

cations for how acquirer and target individuals

behave in reaction to a structural condition fun-

damental to any acquisition— the acquirer –target

hierarchical role relationship (Hambrick and

Cannella, 1993; Nahavandi and Malekzadeh,

1993). PDV refers to the extent to which a national

culture accepts hierarchy or equality as a norm of

social life (Hofstede, 1980). By inuencing how

individuals react to formal and informal hierar-

chies, PDV may also affect how acquirer and target

individuals react to the acquirer– target hierarchy

during post-acquisition integration. We develop a

framework to explain how the asymmetric PDV

difference between acquirers and targets may affect

post-acquisition performance integration— a pro-

cess through which rms combine decision making,

resources, and functional operation to realize pro-

jected synergies (Haspeslagh and Jemison, 1991).

We rst propose that PDV difference may create

two distinct types of conicts: (1) when acquirer

PDV <target PDV, acquirer individuals prefer to

interact as equals but target individuals tend to

be submissive; (2) when acquirer PDV>target

PDV, acquirer individuals exert their superiority

but target individuals seek to be treated equally. We

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 972–991 (2017)

DOI: 10.1002/smj