HRM 7610 Module 3 Discussion: The People Side of a Cross-Border Acquisition Example

Module 3 Discussion: HR's Role in a Cross-Border Deal

Buying a Dutch Instrument Maker: Where HR Can Save or Lose the Deal

Lenape Surgical is negotiating to buy a 120-person company in Eindhoven, the Netherlands, that makes laparoscopic instruments. The deal makes sense on paper: the Dutch firm has designs we lack and access to European hospitals. But its value lies mostly in twelve engineers who have worked with the founder for years. If they leave after the acquisition, we will have paid for a brand and a factory without the people who make it valuable. Dowling et al. (2013) observe that cross-border acquisitions raise the hardest IHRM problems, because two sets of national rules and two corporate cultures must be combined at once.

Schuler and Jackson (2001) described HR issues in three stages of mergers and acquisitions. In the pre-combination stage, HR should assess the target's culture, key people, pay and obligations during due diligence. In the combination stage, HR should design the new structure, select leaders, retain key talent and communicate. In the solidification stage, HR should integrate systems and build a common culture. Many deals fail in the people dimension even when the financial logic is sound.

For our deal, the pre-combination stage raises Dutch-specific issues. Under Dutch law, the target's works council must be asked for advice on a proposed change of control, and its advice must be considered before the decision is final. Dutch employment protections, pension arrangements and collective agreements will also differ from ours, and HR needs to understand the obligations we are inheriting. Culturally, Dutch workplaces tend to be egalitarian and direct, with consensus-based decision making, which could clash with our more hierarchical approval processes.

In the combination stage, the most important action is retention of the twelve engineers. I would recommend meeting each of them before the deal closes, explaining the plan for their product line, offering retention agreements that pay out over two years and keeping their team intact with the founder as its leader for at least the first year. Stahl and Voigt (2008) found that cultural differences affect sociocultural integration such as trust more than tangible synergies, which suggests that we should integrate finance and purchasing quickly but leave product development alone until trust is built.

Comment on Li's Post

Li, your description of the joint venture in China raises a different issue from an acquisition, because neither partner has full control. You noted disputes over who would appoint the HR manager. In a joint venture, agreeing on HR governance before signing, such as which partner controls hiring, pay and the HR director, seems as important as the commercial terms. Did your company's agreement address this, or was it left to be worked out later?

Comment on Samira's Post

Samira, I appreciated your point that small firms going abroad usually lack the HR staff that large multinationals have. For a small firm, partnering with a local employer of record or a professional employer organization might handle payroll and compliance in a new country without building an HR team there. The risk is losing touch with the local employees, so someone at headquarters would still need to own the relationship. How did your firm handle its first hires abroad?

References

Dowling, P. J., Festing, M., & Engle, A. D. (2013). International human resource management (6th ed.). Cengage Learning EMEA.

Schuler, R., & Jackson, S. (2001). HR issues and activities in mergers and acquisitions. European Management Journal, 19(3), 239-253. https://doi.org/10.1016/S0263-2373(01)00021-4

Stahl, G. K., & Voigt, A. (2008). Do cultural differences matter in mergers and acquisitions? A tentative model and examination. Organization Science, 19(1), 160-176. https://doi.org/10.1287/orsc.1070.0270