Cultural Problems in International Business

Martinez Construction Company in Germany – Cultural Problems 2. 2. 1 PROBLEMS Cultural barriers to integration The considerable differences between the Spanish and German business practices could have been diminished through a sound pre-assesment made by Martinez Co. Since this understanding process was not pursued, a cultural conflict occured which may significantly hinder the processes of strategic and operational management of the two companies as a whole. The most important barriers of cultural dimension include: Barriers to cultural integration| Suggestion for limiting the impact| 1. Cultural shock’ as a consequence ofstrong cultural diversity of companiesconstituting a holding group;| Cultural transformation, respectingcultural values and customs of a targetcountry. | 2. ‘Cultural maladjustment’ of boardmembers delegated by a parent company;| Management through values, systems formonitoring social feelings of the targetcompany. | 4. Management style d ifferencesbetween companies. | Management through goals as a basisfor work appraisal of the managementpersonnel and employees| Financial issues Martinez Co. ’s representatives are involved in a process of Merger and Acquisition which they discover gradually.This means that they have allowed themselves to be unaware of the exact risks and implications, especially from the financial point of view, from the moment they accepted a contract that did not contain enough information related to this topic. Now they are facing unpredicted expenses, and the possibility of new ones to occur cannot be excluded. Ensuring that an acquisition is a good fit, not only on paper, but as an integrated business, calls for going beyond traditional financial assessments, to detailed value analysis, especially within an international business context. As Treuhandanstalt rushed the process and Martinez Co. imply went with the flow, requirements that should have been included in the contract are now th reatening the Spanish company’s financial capacities. 3. 2 Causes of the problems The problem regarding cultural contradiction became difficult to cross due to the following errors: -Martinez representatives’ did not make an appropriate due diligence as no research regarding business practices in Germany had been made. Juan Martinez was sent to conduct negotiation just because he was genuine and had a practical thinking, but his lack of information proved to have a great negative impact on the deal obtained. Their reasoning to expand in Germany is poor. Diego Martinez took into account only the fact that Germans enjoy Spanish atmosphere and often choose Spain as a target market for business. On the other hand, they did not take into account that differences in leadership approach and culture in general can affect their interest. It is very important to be aware that if companies from a specific country conduct successful affairs in your country, it does not necessarily mean that you will benefit from the same success there. The financial problem occurred mainly because some of the steps within negotiating the merger were skipped.Firstly, Martinez accepted to sign a contract without enough details about Konstrukt’s financial position. They requested, indeed, a Phase Contract which made Germans unclear and, moreover, gave them little perspective about future financial risks. In fact they bought a company without knowing exactly what they are getting. The second main contribution to the synergy’s financial issues was brought by Treuhandanstalt. Although THA must have focused on evaluating the firms, especially their financial soundness and the cost for the buyer, it had, in this case, as main concern the speed of transaction.Therefore, they pressured Martinez during this process, without focusing on future risks and arrangements for upgrade. 3. 3 Negative effects that occur If problems will not be solved The cultural dissonance will ha ve the following consequences: * Management will face severe problems in providing incentives for employees, therefore their productivity will go downwards; * Employees will become confused about their role in the company so their lack of initiative and responsibility will worsen.In addition, this synergy attempt will face challenges caused by financial problems: * The plans of stability and progress will be severely hampered in the case of Martinez Co. ; if they fail now, they will find it extremely hard to expand even on another foreign market (a financial fiasco would make Martinez unconfident and the idea of international expansion would definitely be seen as a peril). * Company might become insolvent if the new expenses emerged are not handled at time and properly. 3. SOLUTIONSCultural barriers – a first solution would be to map out the chain of command (employees must understand their exact role in the company and must be informed about the participative leadership appr oach specific to the Spanish company) –communication based * Strategic focus – agree on the goal (â€Å"enrichment†) and find the right cultural approach to achieve it ( certainty needed, more like Germans) * Mix useful elements from both cultures in such manner that leadership and employees can move together towards their goal ( keep the† all about work policy† but make them involve in decision making through incentives) Financial issues Cash injection , as expense on regulations is compensated by the opportunities offered on this new market ( raw materials at hand, low wages required and brown field investment advantages) *Assess the co’ future growth rate and profitability in order to understand if the acquisition is a good option * Require a renegotiation of the contract, which should imply these extra- expenses. 4. CHOOSING the OPTIMAL SOLUTION . Culture – Mix useful elements from both cultures in such manner that leadership and em ployees can move together towards their goal ( keep the† all about work policy† but make them involve in decision making through incentives) * b. Financial – Assess the co’ future growth rate and profitability in order to understand if the acquisition is a good option ( discuss with third parties and experts) . IMPLEMENTING the OPTIMAL SOLUTION a. Communication: employees must be informed about policies adopted, about their role exactly. This way, they will be less inclined to reject the new management and their approach. b. Studies of the market ( it has potential since raw materials are available an also is labor) , discussion with experts and third parties.