Managing the Multinational Acquisition in the Aspect of Power Distance

【Abstract】Cultural differences are one of the biggest problems in managing multinational acquisition. In the study of Globe （Global Leadership and Organizational Behavior Effectiveness）’ s cultural dimensions， the United States have low power distance while China have rather high power distance which lead to totally two different management styles. In this paper， it analyzes difference leadership styles， organizational cultures and provide possible solutions to manage Chinese organizations which buys foreign companies from the aspect of power distance.

【Key words】Cultural differences； multinational acquisition； low power distance； high power distance

1.Introduction

In recent years， it is noted that many Chinese companies conduct large multinational acquisitions. These cases arise much attention. Some of them are every successful， but the majority of them result in failure due to the cultural differences. Therefore， Integration of the cultural differences in multinational acquisitions is especially important in management. Among all cross-cultural studies， GLOBE project established nine cultural dimensions that make it possible to know the similarities and differences among countries. The nine cultural dimensions include performance orientation， future orientation， assertiveness， power distance， humane orientation， institutional collectivism， in-group collectivism， uncertainty avoidance， and gender egalitarianism. These cultural dimensions reveal the leadership styles of many countries. These will help the study of leadership styles after the corporation’ s acquisition. This paper tries to find the balance between the United States and China in leadership styles at the aspect of power distance and gives some possible solutions about how to manage subordinates.

2.Literature Review

GLOBE is a multi-phase， multi-method project in which investigators spanning the world are examining the interrelationships between societal culture， organizational culture and organizational leadership （House et al， 2002）. In early 1990s， close to 150 social scientists and management scholars from 61 cultures representing all major regions of the world are engaged in the GLOBE project， the long-term programmatic series of cross-cultural leadership studies （House et al， 2002）. The GLOBE study gave scores for six leader styles， charismatic-based style， team-oriented style， participative style， humane style， self-protective style and autonomous style. It also found that there are some leader characteristics that are universally endorsed or universally undesirable. Different from Hofstede’s four cultural dimensions， GLOBE project established nine cultural dimensions that make it possible to know the similarities and differences among countries. The nine cultural dimensions include performance orientation， future orientation， assertiveness， power distance， humane orientation， institutional collectivism， in-group collectivism， uncertainty avoidance， and gender egalitarianism. Each dimension has two kinds of scores. The first score is for values， which researches what people should be. The second score is for practices， which researches what people actually be. This research project contains many surveys which include 17，000 managers representing 951 organizations in 62 cultures （Dorfan et al， 2012）.

In this study， power distance is defined as the degree to which members of an organization or society expect and agree that power should be unequally shared. In the aspect of power distance， the United States has a relatively low score in values， but a high score in practices. High power distance cultures accept power differences as part of society， stress coercive and referent power， do not question their superior’s order and expect to be told what to do. In this culture， power is centralized and the society has a wide salary gap. Countries like Egypt， Mexico， Arab countries， Japan and India belong to high power distance culture. On the contrary， low power distance cultures stress expert and legitimate power and do not accept superiors’ order at face value. In this culture， power is relatively evenly distributed. Canada， Denmark， Sweden and Norway are typical countries.

3.Organizational Structure

Organizational structure is comprised of functions， relationships， responsibilities， authorities， and communications of individuals within each department （Sexton， 1970）. In other words， organizational structure is the apportionment of responsibility and power among members of an organization. With distinctive features and characteristics， different organizations have different distribution styles of power. Those cultures that emphasize the quality polarity， such as Canada， Sweden， Australia and the United States， tend to minimize the power （Ferraro， 2006）. On the contrary， in some Asian countries， people tend to expect that status and power hierarchies should be maintained. Generally Speaking， hierarchical inequalities are seen as essential for the society’s well-being. Organizational structure can partially determine the degree of power centralization， style of decision making， communication approaches between authority and subordinates as well as methods adopted to manage conflicts.

From the result of GLOBE project， we could find that China is a high power distance country. In China， organizations have a centralized structure which has several layers of management that control the company by maintaining a high level of authority. In this kind of organizations， subordinates should always report to their direct upper managers， who also does the same to their boss until to the highest level of the ladder. It would be difficult to carry out any decisions without approval of the senior management. Subordinates respect their managers and follow the mangers’ orders. With such an authority-respected environment， employees tend to wait for instructions from their superiors before they start to work. It is perceived to be the safest way to follow instructions of one’s bosses in order to make as fewer mistakes as possible. All rules， regulations， or even principles of the organization are passed down from the decision-making level to the grass-roots. This kind of management style is hierarchical.

However， from the study of GLOBE study， the United States are lower power distance country. The management style of the United States is horizontal. With a multi-dimensonal structure of cross-functional departments， each employee has several managers concurrently. There is no strictly defined reporting line， all employees are responsible for more than one bosses. Since power id diffused to a delegation of team members. Power is not so highly concentrated. Each department or subsidiary is granted with sufficient autonomy in making decisions. Therefore， the relations between subordinates and their bosses turn out to be more relaxed and flexible. All members are equal. The team members function as peers with mutual respect to one another. And bosses’ open-minded， prepared-to-listen attitude makes it at ease for subordinates to propose either suggestions or criticism， and when they meet their bosses， they would find themselves being received with fair hearing.

4.Possible Solutions

When Chinese companies merge foreign companies， it is usually hard for them to ignore the cultural differences. Sometimes in the case of multinational acquisition， cultural differences are the key to the success of the company. If the company decides to conduct multinational acquisition， we could assume that this company is open-minded and inclusive. A major innovation should be taken in the company. Firstly， two companies should prepare to the cultural differences before acquisition. For example， the company should send some managers to study abroad to learn the the leadership styles， organizational structures as well as the market conditions in that country. On the other hand， let foreign employees visit and learn the Chinese cultures， leadership styles and so on. In the first place， both of the companies could not change its own organizational cultures. If one company is forced to follow the other company’s model， it could be resulted in conflicts and pressure. Therefore， it should adopt the solution of cultural integration and the first solution is the first step of integration process. The managers from both countries should familiar with the current conditions of each other. Then they could communicate the organizational cultures， the future directions and pass it to the subordinates. Another effective way is to train cross-cultural knowledge to the employees. It could be those manages or a professional training companies. It is better to use managers studied from abroad to teach cross-cultural knowledge because they understand the condition of the company and it could also save money.

Secondly， the leadership styles adopted by both companies should also be integrated. For example， the United States tend to use horizontal structure while China usually use hierarchical structure. If the leaders focus on the company’s vision and big objectives， and give much freedom for the managers to decide the specific methods. Each manager will listen the order from their bosses， but in each manager’s team， the members of the team is relatively equal. They could corporate and decide each decision together. This leadership style is not as free as that of the western and not as stiff as that of the China. The power distance is relatively lower among each team which improves employee’s passion and energy.

Power can never be distributed equally no matter within a family， a school， an organization， or even the whole society. The gap of power distance between the United States and China is big， so when multinational acquisition occurs between these two countries， many problems and conflicts could emerge. It is therefore of vital significance to adjust the corporate culture to the target country.

【References】

[1] Dorfman， P， Javidan， M.， Hanges， P.， Dastmalchian A.， House， R. （2012）.

GLOBE： A Twenty Year Journey into the Intriguing World of Culture and

Leadership. Journal of World Business， 47， 504-518.

[2] Feearo， G， P，. （2006）. The Cultural Dimension of International Business. New Jersey： Prentice Hall.

[3] House， R.， Javidan， M.， Hanges， P.， Dorfman， P. （2002）. Understanding Cultures

and Implicit Leadership Theories across the Globe： An Introduction to Project

GLOBE. Journal of World Business， 37， 3-10.

[4] Sexton， W， P，（1970）.“Organization structure” in William P. Sexton， ed. Organization Theories. Columbus， OH： Charles E. Merrill.