2.1. The Essentialist Concept of Culture
The concept of culture that was actively discussed after the 1980s in the field of business studies can be traced back to the essentialist concept of culture discussed primarily in the 1950s to 1960s in the field of cultural anthropology. The essentialist (“classic”) concept of culture defines culture as being stable, uniform and composed of basic assumptions that are internally homogeneous but externally exclusionary [
12]. The basic assumptions that compose the core of culture are objectively identifiable and can, thus, be observed by conducting surveys, by performing in-depth interviews and through direct observations. The earlier research attempted to understand culture by examining the so-called “cultural dimensions”, arguing that the basic assumptions of culture can be identified by looking into how people in different societies respond to various fundamental dilemmas that all societies face without exception, although in different ways.
The basic notion of the essentialist concept of culture is that culture does not change easily—if so, extremely slowly—mainly because it consists of values and norms collectively shared and approved by a group of people as an effective means of solving their problems of external adaptation and internal integration [
13]. Over a long period of time, these common values and norms are often readily accepted by group members without question and, thus, implicitly regulate their thoughts and feelings so that they eventually behave more or less in a uniform way. Consequently, not only can culture not be negotiated but also the level of impact that each individual can have on their respective culture is quite limited. In this sense, culture serves as a crucial function in the subsistence of a group. In other words, a group that does not have a common set of values and norms will inevitably be dismantled by severe conflicts amongst group members in the long run. An earlier M&A research that applied the essentialist view of culture thus argued that culture clashes between the acquiring and acquired firms inevitably resulted in the nondominant acquired firms experiencing a high level of acculturation stress [
14].
The essentialist view of culture treats national culture and organizational culture separately. National culture is generally considered as being deeply rooted in basic assumptions that are subconsciously acquired through life-long socialization processes, whereas organizational culture involves specific practices that are consciously acquired in organizations [
15]. In this vein, M&A scholars propose the notion of a “double-layered acculturation”, which signifies the difficulties that all acquiring firms in CMA must face as they deal with both a foreign national culture and a new corporate culture.
A number of prior M&A studies have empirically examined the existence of double-layered acculturations or, in other words, the negative consequences of national cultural differences in the context of CMAs, while the majority of prior studies examined it with samples of CMAs exclusively, considering them as a unique set of empirical phenomena, a handful of prior studies directly compared CMAs with DMAs as well. These studies can arguably be divided into three distinctive groups. The first group of studies looked closely into the impact of national culture on a variety of aspects of a post-merger integration, often stressing the importance of organizational learning and knowledge transfer for creating synergistic gains [
16]. The second group of studies examined the relationship between the magnitude of national cultural differences, often as proxied by the cultural distance and post-merger performance [
17,
18,
19]. The third group of studies, on the other hand, compared the post-merger performance of DMAs and CMAs [
20].
Although much has been written, the overall results seem to be somewhat mixed. For example, Ahern and his colleagues, using a sample of 827 CMAs between 1991 and 2008, showed that a greater cultural distance led to lower synergy gains [
20]. However, Chakrabarti and his colleagues, using a sample of over 800 CMAs between 1991 and 2004, found that the cultural distance had a positive impact on the post-merger performance, especially in a long-term perspective [
21]. Similar results can be found in the other groups of studies as well.
Such a mixed result of prior studies may be, at least in part, the product of methodological differences, especially in regard to the measurement of a post-merger performance. However, one can also reasonably argue that the role of national culture in CMAs may be much more complex than usually hypothesized. Here, it is safe to argue that there are at least two working hypotheses that are widely accepted by most M&A scholars but contradictory from each other. Following the essentialist concept of culture discussed above, the first hypothesis, which we would like to call “culture clash hypothesis”, predicts that national cultural differences generally have more “downsides” than “upsides”, especially during the early stage of post-merger integration.
On the contrary, the second hypothesis, which we would like to call a “cultural diversity hypothesis”, predicts that national cultural differences tend to have more “upsides” than “downsides”, mainly because they can be seen as a great opportunity for both the acquiring and acquired firms to prompt interorganizational learning and, thus, to obtain valuable resources and capabilities which they otherwise cannot easily come by in their respective country. For example, from the perspective of the acquired firms in emerging economies, being acquired by firms from Western countries can be seen as a good opportunity to learn more advanced practices in management, which in turn may positively affect the post-merger performance.
Unfortunately, we do not know yet exactly how these two contradictory hypotheses can be effectively reconciled. To tackle the problem, M&A researchers so far have seemingly taken at least three distinctive yet complementary approaches. Firstly, some of them have deliberately chosen one of the two hypotheses and dismissed the other to clarify their theoretical choices. For example, Huang et al. unmistakably followed the reasoning of the culture clash hypothesis and concluded that, among different cultural values, especially power distance, value differences undermined the long-term post-merger performance [
22]. On the other hand, Ahammad et al. clearly adopted the cultural diversity hypothesis and argued that it was not national but organizational cultural differences that had an actual impact on the post-merger performance [
16]. Secondly, several researchers argued that national cultural differences had both the impeding and enriching effects simultaneously. For example, Reus and Manont, naming it “the double-edged sword effect,” showed that cultural distance was negatively related to post-merger performance through the mediating effects of integration capabilities but also moderated in a positive way through the effect that integration capabilities had on post-merger performance [
23]. Thirdly, and lastly, a handful of researchers tried to identify exactly in which circumstances cultural distance is likely to have either a positive or a negative impact on the post-merger performance (e.g., level of integration or prior experience within target countries). For example, Slangen showed that cultural distance had a negative impact at high levels of post-merger integration and a positive impact at low levels, which suggests that a considerable level of autonomy should be given to the acquired firms when cultural distance is relatively large to avoid dysfunctional outcomes during post-merger integration processes [
24].
In sum, M&A researchers seem to have failed to reach a consensus on the effects of national cultural differences on post-merger integration and performance. Nevertheless, one thing is clear: all the prior M&A studies mentioned above are fundamentally based on the essentialist concept of culture. Hence, one can possibly argue that the main effects of national cultural differences are supposed to be negative, at least in a purely theoretical sense. It does not necessarily mean that we reject the cultural diversity hypothesis. We do believe that, under certain sociocultural circumstances, national cultural differences may beneficially trigger interorganizational knowledge transfer and learning. However, following the logics of the essentialist concept of culture, we also believe it is reasonable to argue that, ceteris paribus, CMAs are likely to experience culture clashes more severely and consequently show less performance than DMAs. Indeed, the destructive aspect of national cultural differences in CMAs have been widely acknowledged and well-documented, e.g., the Daimler–Chrysler merger. Based on the discussion so far, this study thus preliminarily hypothesizes as follows:
Hypothesis 1. CMAs with both national and organizational cultural differences show, on average, a lower rate of post-merger performance than DMAs with only organizational cultural differences.
2.2. The Social Constructivist Concept of Culture
Aside from the three approaches discussed above, several M&A researchers looked for an alternative way to solve the contradiction between the two hypotheses by putting distance from the essentialist concept of culture and looking at culture from a different theoretical and ontological angle. From the essentialist concept of culture, it is possible to predict whether culture clash may occur or not—and to some extent the characteristics of them—before M&As actually take place by quantifying and classifying cultural orientations of the acquiring and acquired firms. However, a relatively small number of research papers argued that the essentialist concept of culture is too deterministic and, therefore, inappropriate in offering a comprehensive explanation regarding the complicated cultural phenomena occurring in the context of M&As. As an alternative view, the social constructivist concept of culture was offered where culture was seen not just as content but as a process. Here, culture is defined as (1) “a constantly ongoing attempt of the collective to define itself and its situation” [
25] (p. 23), (2) a “communication apparatus” [
26] or (3) the “cultural community of common meaning” [
27].
The social constructivist concept of culture assumes that culture is a social construction emerging through the relationships and interactions of group members. Consequently, depending on the consensus of group members, the constructs of culture can be constantly formed, sustained, changed or destroyed. Culture is an ever-changing theory or idea that may be commonly held by a group or not. In this sense, culture is not determined by an immutable law and, thus, cannot be defined by references such as countries, corporations, organizations or religions. Instead, cultural boundaries are always in a state of flux without any clear boundaries.
Culture is not about imposing a specific set of values and norms as to what is acceptable but is consciously created by the different thoughts and feelings that each group member has in their own positions [
28]. By being consciously created, culture is, therefore, used as a means by group members to accomplish a specific purpose. It is through culture that group members validate the existence of their group by subjectively interpreting the situations currently faced. As a result, culture is constantly being newly formed and changed. In this sense, culture cannot be seen as a way to control a group as one but, rather, is a pragmatic tool that is defined not by its properties but by its use. Hence, any culture requires a subjective interpretation of how “insiders” actually think and feel, if it is to be “truly” understood and, thus, inevitably ambiguous [
29,
30]. Culture is not simply given but is to be constantly negotiated and, therefore, cannot exist separately from the subjective consciousness of the group members.
From this perspective, the concepts of communication, identity or self-image inevitably bear a considerable weight. First, given that the social construction of culture occurs through conversations, written correspondence and other various forms of communication, one could view culture as a communication apparatus [
26]. In other words, in today’s modern world that is becoming ever more complicated, it is culture as a communication means that integrates and binds a group together. Second, people are able to enhance their social identity by attaching a “special” meaning to what seems plausible as a common goal for the group that they belong to. In this context, culture is a means of forming a common identity as a group [
25]. From the perspective of organizational change, identity can, therefore, be a powerful theoretical tool to use to explain various cultural phenomena, e.g., cultural transformation or culture clash.
Prior M&A studies that looked into the cultural aspects of M&As from the social constructivist perspective viewed a culture clash as stemming from identity conflicts rather than objective differences in value orientations [
25,
31,
32,
33]. In other words, culture clashes do not stem from differences in values and norms between the acquiring and acquired firms. Instead, there are most likely various situational reasons as to why acquired employees have an “us” versus “them” mentality in refusing to identify themselves with the members of the acquiring firms.
Of course, when cultural conflicts between the acquiring and acquired firms are severe enough, such “objective” differences in value systems may be perceived as the source for the culture clash. However, a handful of prior studies refuted this position by pointing out that the real underlying cause is rather related to identity issues. For example, Kleppestø observed this by utilizing the ethnographic research method in examining the merger between AB Bofors and FFV Ordnance in Sweden [
25]. He spent circa six months at the merged firm, namely Swedish Ordnance, tracking communication processes and changes in social relationships after the merger. Surprisingly, the results showed that the initial cultural similarities or differences between the premerger organizations had no significant impact on the integration outcomes. Moreover, any attempts to deliberately eliminate premerger identities, in fact, made it harder for employees to interact with one another, which ultimately led to deeper interorganizational conflicts [
34,
35,
36,
37].
To summarize, cultural differences between the acquiring and acquired firms cannot possibly be attributed to conflicting objective value systems as claimed by the essentialist concept of culture. Therefore, the argument that CMAs are likely to face greater difficulties than DMAs as a result of cultural differences no longer seems to have relevance. Rather, such conflicts may arise when acquired employees fail to identify themselves as members of a new group because they subjectively perceive their new group identity as being less attractive than their old group identity. It provides an alternative explanation as to why prior M&A studies failed to identify the main effects of national cultural differences defined in terms of the essentialist concept of culture.
In real life, acquired employees may be willing to keep their old identity for a variety of reasons. However, it would be safe to assume that acquired employees are highly unwilling to discard their old group identity, especially when they perceive that either (1) their firms are still doing well and, thus, do not deserve to be acquired or (2) the acquiring firms are not good enough to acquire their firms (although M&As are seen as being one of the feasible options). In other words, when the stability and legitimacy of intergroup status relations between the acquiring and acquired firms are low, the acquired employees are likely to see their post-merger status as being unjustifiable and, thus, would rather try to stick to their old group identity, which in turn may trigger a variety of interorganizational conflicts during the post-merger integration processes. Based on the discussion so far, the following hypothesis is proposed:
Hypothesis 2. The stability and legitimacy of intergroup status relations between the acquiring and acquired firms have a positive impact on the post-merger performance in both DMAs and CMAs.
2.3. The Moderating Effect of the Level of Integration: The Essentialist Concept of Culture
A vast number of prior M&A studies put great emphasis on the importance of post-merger integration processes for M&As to be successful. Many of these studies have paid particular attention to, among others, the effects of the level of integration [
38]. From a cultural perspective, it implicitly suggests that it is possible to avoid the negative effects associated with cultural differences if the “right” level of integration is pursued.
In general, a high level of integration is required to obtain the synergy effects from related or horizontal M&As. Such an integration makes it possible to integrate functional activities that are unnecessarily duplicated and to use valuable resources efficiently. However, achieving such high levels of integration requires a reshuffling of the management structure of the acquired firm which could subsequently lead to the acquired employees feeling demoralized or worse and lead to an employee strike. By contrast, pursuing a low level of integration would lead to a relatively low level of resistance by the acquired employees at the cost of having a negative impact on the synergistic effects of the merger. The positive as well as negative impacts that the level of integration can have on the post-merger performance have been validated through numerous studies. For example, Datta and Grant showed that, while a high level of integration had a negative impact on the post-merger performance in unrelated M&As, it had no distinct impact in related M&As where the latent synergy effects were expected to be relatively larger, which in turn suggests that the positive and negative effects of the post-merger integration nullified each other [
39].
In the similar vein, prior M&A studies that utilized the essentialist concept of culture often stressed the importance of the mutually dependent relationship between cultural differences and the level of integration [
40]. Put another way, when cultural differences are clear as in the case of CMAs, a high degree of integration will significantly increase the resistance level of the acquired employees. Such cultural incompatibilities are not a matter for negotiation, and therefore, the essentialist concept of culture would suggest a low level of integration, which is limited and gradual in an effort to avoid employee resistance while also creating an atmosphere conducive to producing synergy. On the other hand, if cultural differences are relatively insignificant, the negative impact that cultural incompatibilities have on synergy is likely to be negligible. By quickly seeking a high level of integration, acquiring firms can expedite the learning process across organizations, generate synergies and improve the post-merger performance. Presuming that cultural differences between the acquiring and acquired firms are likely to be more prominent in CMAs than in DMAs, the following hypothesis is proposed:
Hypothesis 3. The level of integration has a moderating effect on the relationship between cultural difference and post-merger performance. Specifically, a high level of integration has a positive impact on post-merger performance in DMAs but a negative impact in CMAs. On the other hand, a low level of integration has a positive impact in CMAs but a negative impact in DMAs.
2.4. The Moderating Effect of The Level of Integration: The Social Constructivist Concept of Culture
As already discussed elsewhere, if the stability and legitimacy of intergroup status relations between the acquiring and acquired firms could be more accurate than “objective” cultural differences in predicting the occurrence of interorganizational conflicts and, thereby, post-merger performance, the level of integration could arguably have a moderating effect on the relationship between them as well.
From the perspective of the social identity theory, Rousseau argued that the success and failure of a post-merger integration was more dependent on the social context surrounding the acquisition (e.g., whether the acquisition was the one and only option for survival of acquired firms) rather than the details of the post-merger integration (e.g., the method, level, scope or speed of integration) [
41]. In fact, if the acquired employees subjectively perceive that the high level of integration is an organizational objective or a matter that will help the organization survive, then they are likely to welcome such a level of integration [
42,
43]. In other words, when the stability and legitimacy of intergroup status relations are perceived to be high, there is a high probability that the acquired employees will regard an organizational integration that is solely initiated by the acquiring firms as being necessary or, at the very least, unavoidable. Within this social context, it becomes possible for the acquiring firms to implement various organizational changes with very little resistance, which will, in turn, have a positive impact on the post-merger performance. However, when the stability and legitimacy of intergroup status relations are low, there is a high probability that the acquired employees will consider an organizational integration as being irrational and even excessive interference. This will eventually lead to complicated social cultural problems such as culture clashes and interorganizational conflicts [
36]. In such cases, the acquiring firms should seek to implement a low-level or gradual organizational integration in order to minimize the negative effects of such problems on the post-merger performance. Hence, the following hypothesis is proposed:
Hypothesis 4. The level of integration has a moderating effect on the relationship between the stability and legitimacy of intergroup status relations and post-merger performance. Specifically, a high level of integration has a positive impact on the post-merger performance when stability and legitimacy is high but a negative impact when low. On the other hand, a low level of integration has a positive impact when stability and legitimacy is low but a negative impact when high.