Carla I. Koen. Comparative International Management

Подождите немного. Документ загружается.

3.4 Culture Issues in Mergers and Acquisitions

One of the most obvious situations in which corporations experience the inﬂuence of soci-

etal culture on organizational context and culture is when two or more cultures are

brought together via cross-border or domestic mergers and/or acquisitions. Foreign

acquisitions and international mergers are two intensive modes of intercultural

encounter. In foreign acquisition, a local company is purchased wholesale by a foreign

corporation. The local company’s organizational culture and, of course, elements of its

national culture are parachuted into the corporation. Foreign acquisitions offer a speedy

means of expanding, but their cultural risks are considerable. When integration is imper-

ative, cultural clashes are often resolved through brute power: key people are replaced by

the corporation’s own agents.

The international merger resembles the foreign acquisition, except that the partners

are of roughly equal size or importance. The cultural risk is even greater than in the case

of foreign acquisition because cultural problems cannot be eliminated through a one-

sided show of power. International mergers, therefore, have a very low success rate.

Leyland-Innocenti, Chrysler UK, Imperial Typewriters, Vereinigte Flugzeugwerke-Fokker,

Hoogovens-Hoesch, Citroën-Fiat, and Renault-Volvo are some of the more notorious fail-

ures (Hofstede, 2001: 445). The DaimlerChrysler case on pages 117–18 is another

example of a problematic international merger.

While mergers and acquisitions have been a dominant mode of internationalization,

they have also been an important feature of national organizational life during the last

two decades. The continuing popularity of international and national mergers and acqui-

sitions is probably a reﬂection of the widespread belief among managers that acquisitions

provide a quicker and seemingly easier route to achieving growth and diversiﬁcation

objectives (Datta, 1991). Paradoxically, however, and as indicated, mergers and acquisi-

tions – whether national or international – have a high failure rate; nearly half of all

mergers and acquisitions are rated as being unsatisfactory by managers of the acquiring

ﬁrms (see Young, 1981; Porter, 1987). On average, the proﬁtability of target ﬁrms actu-

ally declines after an acquisition (Ravenscraft and Scherer, 1989; Cartwright and Cooper,

1993).

Strategic fit?

Research into strategic management suggests that ‘strategic ﬁt’ may help explain why

some mergers or acquisitions succeed while others are dismal failures. Strategic ﬁt, or

relatedness, is the degree to which the acquired or merged ﬁrms augment or complement

the acquiring ﬁrm’s strategy, and the degree to which value is created (Jemison and Sitkin,

1986). Relatedness or ‘strategic ﬁt’ is needed in order to obtain greater synergistic beneﬁts

arising out of economies of scale and scope (Salter and Weinhold, 1979; Lubatkin,

1983). Merging ﬁrms can reduce unit costs in production, inventory holding, marketing,

advertising and distribution, integrating similar departments and functions (Howell,

1970; Rappaport, 1987). In addition, the possibility of transferring core skills across the

ﬁrms involved is associated with related acquisitions.

The ﬁndings of empirical studies, however, have not always been consistent with

ORGANIZATIONAL CULTURE RESEARCH 111

MG9353 ch03.qxp 10/3/05 8:37 am Page 111

these expectations. In fact, the considerable diversity in the ﬁndings of these studies sup-

ports the contention that strategic ﬁt, while important, is not a sufﬁcient condition for

superior acquisition performance (Jemison and Sitkin, 1986). In other words, while relat-

edness indicates that potential synergistic beneﬁts may be present, it will result in superior

acquisition performance only if synergies can eventually be realized through effective

post-merger or post-acquisition integration. Effective integration in mergers can be

deﬁned as the combination of ﬁrms into a single entity or group, generating joint efforts

to fulﬁl the goals of the new organization.

Evidence suggests that this goal is not easily accomplished (i.e. Sales and Mirvis,

1984; Buono et al., 1985). While, in theory, integration should result in beneﬁts, in reality

the picture can be very different. Impediments associated with the integration of opera-

tions can result in the acquiring ﬁrm being unable to manage the integration of the target

ﬁrm effectively. This is especially true when organizational incompatibilities exist in areas

such as organizational culture and management style, both of which are discussed below.

Cultural fit

Many researchers believe that the degree of compatibility between the cultures of the

partner organizations in a merger, or ‘cultural ﬁt’, is a major cause for implementation dif-

ﬁculties (i.e. Davis, 1968; Cartwright and Cooper, 1993; Newman and Nollen, 1996;

Weber et al., 1996). When organizations that have developed their own corporate cultures

acquire each other, attempt to merge or engage in various kinds of partnership, the

culture issue is at its most obvious (Schein, 1999: 8). Fundamental differences, made

manifest in differences in the thought, behaviour and actions of employees, are believed

to increase conﬂict potential and may hinder agreement over management issues (Olie,

1994: 384).

This is especially the case when the fusion or integration of some or all of the human

resources of the organizations involved is required and thus success becomes heavily

dependent on human synergy. The choice of the degree of relatedness between the ﬁrms

involved in a merger depends on the motives behind the merger. As indicated, these

motives can include achieving operating synergies in production, in marketing, and so

on. Many companies also merge in order to achieve ﬁnancial synergies such as risk reduc-

tion through diversiﬁcation and access to more favourable ﬁnancial terms (Nahavandi

and Malekzadeh, 1988). To obtain these synergies, a ﬁrm must select a merger target that

is, to a degree, related to its business. Depending on the type of merger and the motive, the

acquiring company must decide on an implementation strategy. That strategy will deter-

mine the extent to which the various systems of the two ﬁrms will be combined, and the

degree to which the employees of the company will interface.

In contrast to the great conglomerate boom of the 1960s, the wave of mergers and

acquisitions in the 1980s and 1990s was dominated by the combination of companies in

similar rather than unrelated business activities. In related mergers, the acquirer is more

likely to impose its own culture and practices on the acquired company (Walter, 1985),

thereby initiating extensive interaction among the employees of the two ﬁrms. The inte-

gration of two previously separate and often very different workforces and organizational

cultures presents a major managerial challenge to those involved. Mismanagement is

likely to result in poor morale, employee stress, increased sickness absence, high labour

112 COMPARATIVE INTERNATIONAL MANAGEMENT

MG9353 ch03.qxp 10/3/05 8:37 am Page 112

turnover and lowered productivity. The costs of ‘culture collisions’ resulting from poor

integration may typically be as high as 25 to 30 per cent of the performance of the

acquired organization. Hence, it could be argued that ‘culture ﬁt’ is of equal, if not

greater, importance than ‘strategic ﬁt’ (Cartwright and Cooper, 1993: 59).

The Japanese experience is argued to provide a good lesson. The Japanese consider

acquisition a strategy of last resort – that is, when all other alternatives are con-

sidered inappropriate. When they decide to take over an organization, in most cases

they will have previous experience working with that company on a joint venture

or collaborative project (i.e. the Sony–CBS partnership). In other words, they have

already learned their partner’s culture, and are aware of the suitability of the

‘culture ﬁt’. Moreover, in comparison with British and American negotiating

teams, which are heavily dependent on legal advisers and ﬁnancial consultants,

Japanese decision-makers are more inclined to seek the opinions of their oper-

ational and human resource managers (Cartwright and Cooper, 1993: 68).

While achieving coordination within an international merger is often obstructed by

cross-cultural as well as organizational culture differences, as indicated, achieving coordi-

nation within a national merger is also a challenging task. According to Hofstede (2001

and 1980), when faced with cultural diversity among home cultures a viable new organ-

ization can only be created through the development of a strong organizational

subculture or common identity. Merging in this sense implies the reconstruction of a new

social identity or a new, enlarged in-group. Obviously, this will take time. Identiﬁcation

with a new organization is often a product of common experiences. Nevertheless, in this

respect, it has been argued that it is probably easier to adopt new practices than to change

old ones. In fact, the simultaneous adoption of new practices at both of the previously sep-

arate organizations is likely to create less internal comparison and fewer negative attitudes

than situations where one has to conform unilaterally to the beliefs and practices of the

other side (Vaaraa, 1999: 72).

Symbols and boundaries

By removing symbols of previous identities and replacing them with new identiﬁcation

symbols, management can help to deﬁne a new category in which both groups are

psychologically merged (Olie, 1994: 386). One obvious symbol of identiﬁcation is the

appointment of leaders that can symbolize the new identity. Management is a powerful

symbolic means to build organizational commitment, to convey a philosophy of manage-

ment, to motivate personnel and to facilitate socialization (Smircich, 1983; Schein,

1985). Recent research in the ﬁeld of leadership suggests that, particularly in organiz-

ational transformation processes, charismatic leadership is needed (Bryman, 1992).

Other symbols may also help with the reconstruction of a new identity, such as cor-

porate names, the appointment of key managers, the location of head ofﬁces and board

membership. Moreover, while cultural differences may decrease the perception of a

common identity, the awareness of a common set of goals and objectives, or a subordinate

goal, may reinforce integration. Intergroup cooperation for a common goal induces the

members of both groups to perceive themselves primarily as one large group rather than

separate entities, thereby transforming their categorized representations from us and them

ORGANIZATIONAL CULTURE RESEARCH 113

MG9353 ch03.qxp 10/3/05 8:37 am Page 113

into the more inclusive we (Gaertner et al., 1989). However, the effectiveness of this

strategy will depend in part on the outcomes of achieving this goal. Failure will reinstitute

the group boundaries as members search for scapegoats to justify or to explain the nega-

tive outcome.

Another tactic that aims to reduce the salience of boundaries between two or more

merging organizational groups is the creation of overlapping memberships, other than

the organizational ones. People may belong to different groups, such as pre-merger organ-

izations, yet share common identities in other respects – for example, through the creation

of a combined task force. In this way individuals owe loyalty to more than one group. If

alternative categorizations can be brought into play in mergers and acquisitions by mul-

tiple group memberships, these may help to reduce the conﬂict surrounding the original

division (Olie, 1994: 387).

Acculturation

When two cultures come together, anthropologists use the term acculturation to describe

the ‘changes induced in (two cultural) systems as a result of the diffusion of cultural

elements in both directions’ (Berry, 1980: 215). The process occurs at the group and indi-

vidual levels in the three stages of contact, conﬂict and adaptation.

Although

acculturation is considered to be a balanced two-way ﬂow, members of one culture often

attempt to dominate members of the other. In an organizational context, this implies that

people at the acquired unit often face considerable pressure to conform to the values and

management practices of the buyer.

Though the concept of acculturation was developed to explain events involving soci-

etal groups, it can be applied to the merger situation (Figure 3.2) to accommodate

different cultural dynamics and outcomes. Societal and industrial groups share many

deﬁning characteristics. Both exist and adapt within a speciﬁed environment and have

well-deﬁned (though permeable) boundaries that encompass a number of individuals

who interact and are interdependent to varying degrees (Sales and Mirvis, 1984). They

have a functional and adaptive quality, and provide their members with a system of

shared symbols and cognition to deal with each other and with the outside world.

Acculturation is argued to occur through four different modes, depending on the

extent to which organizational members are satisﬁed with and value their existing

culture, and their evaluation of the attractiveness of the other culture.

Assimilation

Assimilation is a unilateral process in which the members of the acquired ﬁrm willingly

relinquish their culture, and adopt and become absorbed into the culture of the acquirer

or dominant merger partner: they assimilate. In effect, the acquirers conduct a ‘culture-

stripping’ exercise. If members of the acquired organization resist and are unwilling to

abandon their culture, separation occurs. Resistance results in lower levels of commit-

ment and cooperation among acquired employees (Sales and Mirvis, 1984, Buono et al.,

114 COMPARATIVE INTERNATIONAL MANAGEMENT

The following discussion is based on Berry (1983); Nahavandi and Malekzadeh (1988); and Cartwright and

Cooper (1993).

MG9353 ch03.qxp 10/3/05 8:37 am Page 114

1985), greater turnover among acquired managers (Hambrick and Cannella, 1993;

Lubatkin et al., 1999), a decline in shareholder value at the buying ﬁrm (Chatterjee et al.,

1992) and a deterioration in operating performance at the acquired ﬁrm (Weber, 1996;

Ver y et al., 1997). Often, acquirers seek to escalate assimilation and avoid the problems of

resistance and separation by displacing resistors.

Deculturation

When members of the acquired organization are dissatisﬁed with their existing culture,

but unconvinced as to the attractiveness of the other culture, deculturation occurs.

Deculturation thus involves losing cultural and psychological contact both with one’s

group and with the other group, and it implies remaining an outcast from both. As a

consequence, employees experience a great deal of confusion, as well as feelings of alien-

ation, loss of identity, and what has been termed ‘acculturative stress’.

Integration

Integration occurs when the interaction and adaptation between the two cultures spon-

taneously result in the evolvement of a new culture. However, this requires change and

ultimate balance between the two cultural groups, which, as merger is rarely a marriage

between equals, seems to occur infrequently in practice. This situation represents con-

siderable potential for culture collisions and fragmentation.

There is some evidence that collisions and fragmentation can be avoided when the

buying ﬁrms rely on ‘social controls’. It is argued that, by participating in such activities

as introduction programmes, training, cross-visits, retreats, celebrations and similar

socialization rituals, employees will create, of their own volition, a joint organizational

ORGANIZATIONAL CULTURE RESEARCH 115

Figure 3.2 Modes of organizational and individual acculturation in mergers and acquisitions, and their

potential outcomes

Perception

of the

attractiveness

of ‘one other’

culture

Very

attractive

Not at all

attractive

Very willing Not at all willing

ASSIMILATION INTEGRATION

Potentially Culture

collisionsmooth

transition

Satisfactory

integration/

fusion

DECULTURATION SEPARATION

Alienation

collision

Culture

collision

Satisfactory

tolerance of

multiculturalism

Willingness of employees to abandon their old culture

Source: Cartwright and Cooper (1993: 65).

MG9353 ch03.qxp 10/3/05 8:37 am Page 115

culture, regardless of expectations of synergies, the relative organization size, and differ-

ences in nationalities and cultures (Larsson and Lubatkin, 2001).

Separation

Separation occurs when members of the acquired organization resist any attempt at

adaptation to the culture of the acquirer, and they try to remain totally separate from the

acquirer. Overall, separation means there will be minimal cultural exchange between the

two groups, and each will function independently. The consequent maintenance of sep-

arate cultures is likely to result in culture collision and a lack of cohesiveness.

The concept of acculturation addresses the different ways through which the culture and

systems of two companies can be combined. It is suggested that when two groups come

into contact, total absorption of one into the other is by no means the only mode of adap-

tation. The course of acculturation depends on the way in which the acquirer and the

acquired companies approach the implementation of the merger. From the acquired

company’s point of view, the degree to which members want to preserve their own

culture and the degree to which they are willing to adopt the acquirer’s culture will deter-

mine their preferred mode of acculturation.

In the case of the acquirer, the culture – that is, the degree to which an organization

values cultural diversity and is willing to tolerate and encourage it – and the diversiﬁca-

tion strategy regarding the type of merger (i.e. the degree of relatedness) will, to a large

extent, determine the preferred mode of acculturation. As indicated, if the merger is with

a ﬁrm in a related business, the acquirer is more likely to impose some of its culture in an

attempt to achieve operating synergies. On the other hand, an acquirer is less likely to

interfere with the culture of an unrelated acquisition. This mode corresponds to the orig-

inal goal of an unrelated merger, which is to achieve ﬁnancial rather than operating or

managerial synergy.

Given that the members of the two organizations may not have the same preferences

regarding a mode of acculturation, the degree of agreement regarding each one’s prefer-

ence for a mode of acculturation will be a central factor in the successful implementation

of the merger. Indeed, when two organizations agree on the preferred mode of accultura-

tion for the implementation of the merger, less acculturation stress and organizational

resistance will result, making acculturation a smoother process (Nahavandi and

Malekzadeh, 1988: 84).

Because of the time, energy and sunk costs involved in merger and acquisition nego-

tiation, there is strong reluctance on the part of management to abandon a deal because

of potential cultural incompatibility. In practice, ﬁnancial and strategic considerations are

always likely to outweigh any selection criteria based on cultural compatibility. It is

important, however, that managers make some cultural assessment of the target

company or potential merger – international as well as national – in advance of any legal

combination. A culture audit is a valuable source of information, with implications not

only for partner selection but also for long-term management.

The Atos Origin case study at the end of this chapter is an example of such an audit.

The case shows that organizational culture can differ signiﬁcantly between companies

that are located in the same country and that operate in the same sector. The case points

116 COMPARATIVE INTERNATIONAL MANAGEMENT

MG9353 ch03.qxp 10/3/05 8:37 am Page 116

ORGANIZATIONAL CULTURE RESEARCH 117

to potential problem areas, offers directions for avoiding potential problems but also

stresses the opportunities for learning from cultural differences.

Indeed, while cultural differences are often causes of organizational problems in post-

merger change processes, we would like to comment here that they can also be sources of

value and learning. Different ways of doing things can provide an opportunity to develop

‘best practices’ that can be the core of the emerging new culture of the developing large

organization. Too little research has focused on these positive aspects, however.

Management styles

As already indicated, a noteworthy element of ‘cultural ﬁt’ in mergers and acquisitions is

the extent of compatibility in the styles of management of the acquiring and the acquired

ﬁrms (Datta, 1991: 283–4). Management style has been described as an element of the

managerial or the subjective culture of an organization (Bhagat and McQuaid, 1982;

Sathe, 1985). It has been conceptualized in the organization’s literature as comprising a

number of factors, including the management group’s attitude towards risk, its decision-

making approach, and the preferred control and communication patterns.

Management styles are unique to organizations and may differ considerably across

ﬁrms – for example, management groups may have very different risk-taking propensities.

It is, therefore, not unusual to ﬁnd that policies and procedures, which seem to be reckless

and extremely ‘risky’ to one management group appear to another to be justiﬁable

approaches. Similarly, one management group’s tolerance for change may be much

greater than another’s. Top management groups may also differ in their approach to

decision-making.

As pointed out by Mintzberg (1973), while some management teams rely almost

exclusively on common sense, gut feeling and ‘rules of thumb’, others emphasize formal-

ized strategic planning systems, market research and various management science

techniques. Consequently, rather like what has been argued for ‘cultural ﬁt’ in general,

compatible management styles facilitate post-acquisition assimilation, while major differ-

ences in management styles and philosophies can prove to be serious impediments to the

achievement of acquisition success.

Moreover, like cultural ﬁt, in general, the extent to which management styles impact

acquisition performance is likely to vary depending on the level of interaction required

among the two management groups in the post-acquisition management of the com-

bined entity. The potential for conﬂict due to differences in management style is likely to

be greatest in acquisitions followed by considerable operational integration, given that

such acquisitions invariably involve much higher levels of managerial interaction. Since

integration of operations makes the coexistence of two different styles virtually infeasible,

it inevitably raises the issue of whose style will dominate (as indicated, generally it is the

style of the acquiring ﬁrm that prevails).

MG9353 ch03.qxp 10/3/05 8:37 am Page 117

118 COMPARATIVE INTERNATIONAL MANAGEMENT

Case: Culture Clash at DaimlerChrysler

n January 1998, Jürgen Schrempp, chairman of the DaimlerBenz management

board, and Robert Eaton, chairman and CEO of Chrysler Corporation, met to

discuss a possible merger. Within four months, there was a signed merger

agreement. The merger was announced on 7 May 1998 and, within ten months,

the first DaimlerChrysler stock was trading on stock exchanges worldwide. The

merger was announced to be a joining of equals. The driving force behind the

merger was the need to create ever larger globally based enterprises, which could

compete in all the major markets of the world. The goal was to create synergies

based on complementary product and geographic markets. Before the merger,

Chrysler and DaimlerBenz were essentially regional producers – Chrysler with the

third-largest market share in North America, Daimler-Benz with the majority of

its sales revenues made in Europe. Immediate growth opportunities would be

created through using each other’s facilities. The united corporation would also

develop a low-cost car to conquer the Asian market.

However, after four years, it turned out that the merger did not pay off as was

expected and propagated by the management boards in 1998. Sales did not

increase, synergy effects were minimal and stock prices declined dramatically in

the years following the merger. The New York Times called the Daimler–Chrysler

marriage ‘one of the most disastrous mergers in history’. The US partner was in

serious trouble. Chrysler’s profits fell from US$4.9 billion to US$1.2 billion, and

its shares from US$109 to US$48 over the second half of 2000. Daimler’s oper-

ating loss for 2001 may be as large as 1.7bn euros.

The question to answer of course is what went wrong with this merger. The

potential for synergies and growth looked promising. Of course, during the

merger there were several hurdles that had to be negotiated, but it seemed that

the companies were prepared for that. The biggest hurdle, it turned out, was

related to cultural differences and the inequality between the two parties. Despite

the announcement that it was a marriage between equals, it was clear that

DaimlerBenz has been the ‘more equal’ partner and that it was imposing its own

corporate imprint on the merged company. In fact, Chrysler’s shareholders could

do nothing else than approve the merger since the company was at that time

already in serious problems. Hence, Daimler has been the dominant partner from

day one. The fact that German employees took over many key positions in the

organization and that Chrysler top manager Robert Eaton resigned in 2000 made

it evident that DaimlerBenz in fact acquired Chrysler.

The main problems arose during the integration phase. Top management did

not experience cultural clashes in 1998. Only after that did middle and lower man-

agement clash severely. Chrysler managers resisted the dominant role of

DaimlerBenz and defended their own interests and culture. The corporate clash

came down to a confrontation between the engineering culture of Daimler, with

its systems, precision, safety- and quality-orientated approach, as opposed to the

This case study draws on Blasko et al. (2000).

MG9353 ch03.qxp 10/3/05 8:37 am Page 118

3.5 Organizational and Industry Culture

Until now we have discussed how organizational phenomena are inﬂuenced by societal-

level culture. However, aside from the inﬂuence of the societal level, organizational

culture is also strongly affected by the characteristics of the industry in which the

company operates. Industries are argued to exert inﬂuence that cause organizational cul-

tures to develop within deﬁned parameters. By implication, within industries, certain

cultural characteristics will be widespread among organizations, and these will most

likely be quite different from the characteristics found in other industries (Gordon, 1991:

396). Theoretical support for the existence of industry-based mind-sets is found in diverse

strands of the literature (i.e. in institutional theory, industrial economics, marketing,

organization behaviour and strategy).

Strategy theorists, who traditionally focus on the industry level, propose that com-

monly held mind-sets exist across ﬁrms within industries and drive decision-making by

individuals within those ﬁrms (Phillips, 1994: 386). In particular, industry-driven

assumptions

are argued to lead to the development at the organizational level of value

systems that are consistent with these assumptions. These value systems, in turn, prevent

the company from developing strategies, structures or processes (hereafter referred to as

‘forms’) that would conﬂict with these assumptions and be ‘antagonistic’ to the culture

(Gagliardi, 1986). Such conﬂicts are argued to arise only in the relatively rare situations

where very signiﬁcant changes in the environment mean that the assumptions are no

longer valid. Under such circumstances, cultural change involving changes in assump-

tions is required (see Section 3.9).

Moreover, in order for a new company to survive, both the culture and the forms that

ORGANIZATIONAL CULTURE RESEARCH 119

pay-for-performance culture of Chrysler, with its sales, marketing and risk-

orientated approach. Discussions of a new corporate culture had been avoided

deliberately at the start of the merger. Later in the integration process, employees

were unexpectedly confronted with this issue and resisted any form of adaptation.

Questions

1. Explain how national culture affects organizational culture at DaimlerBenz

and Chrysler.

2. During the integration phase the cultural clash became evident. Explain

whether and how this could have been foreseen and avoided.

3. In what mode of the acculturation process do you situate the merger? Explain

whether and why any other mode of acculturation would have been more

appropriate in this case.

As a reminder, the concept of ‘assumptions’ has been introduced by Schein to indicate the deepest cultural

level. Most authors, however, prefer values to indicate the deepest cultural level.

MG9353 ch03.qxp 10/3/05 8:37 am Page 119

it develops must be appropriate to the industry imperatives. Under these conditions the

company’s survival and prosperity are limited only by that of the industry. It must be

noted, however, that within the context of the industry assumptions, various compatible

strategies, structures or processes are available. Thus, culture is not argued to be deter-

ministic of speciﬁc forms, but to exert an inﬂuence upon the nature of the forms that will

be developed (Gordon, 1991: 398).

There are two main approaches to studying the effect of industry characteristics on

organizational or corporate culture. The ﬁrst approach focuses narrowly on top man-

agers’ mental models for strategic decision-making (see Huff, 1982; Porac et al., 1989;

Spender, 1989; Caroll and Thomas, 1994). It argues that top managers of organizations

active in the same industry reveal the same patterns of thinking. They have similar opin-

ions about their environment and think in the same way about how their organizations

should function. Managers active in a certain industry think the same because they have

experienced the same developments (Huff, 1982; Spender, 1989). In particular, in indus-

tries that have enjoyed long periods of stability, the thought patterns of management

become a copy of institutionalized interaction patterns (Caroll and Thomas, 1994). In

contrast, within dynamic industries uniformity cannot be found, which suggests the

existence of differences in the thought patterns of management.

The second approach considers broad-based assumption sets, comprising the cul-

tural knowledge shared widely among organizational participants within industries.

Rather than concentrating only on those members of the industry who are responsible for

positioning their individual organizations in relation to their competitors, a focus on the

broader spectrum of industry participants is advised (Phillips, 1994). An industry is per-

ceived in this literature as a community with its own structure and culture (i.e. Räsänen

and Whipp, 1992; Whitley, 1992). The way in which different parties and stakeholders

within a certain industry deal with each other is regarded as a consequence of a process

of institutionalization. Institutionalization implies the development of regularities in both

patterns of thinking and behaviour. The institutionalized patterns of thinking are

regarded as industry culture.

Industry-shared values and beliefs have both negative and positive consequences.

They might facilitate negotiation among top managers, increase trust, and generally

reduce transaction costs. Moreover, in more homogenous industry cultures, top man-

agers tend to pay attention to the same strategic issues, recognize the same challenges to

their industry, more readily see their common interest, and, therefore, may have greater

capacity to engage in the collective strategies necessary to counter threatening events and

trends (Abrahamson and Fombrun, 1994).

Authors pointing to the potential negative consequences of industry-based assump-

tions and beliefs argue that industry-shared assumptions may cause future collective

inertia and technological traditionalism. Industry-shared assumptions and beliefs are

said to encourage managers of member ﬁrms to interpret environments in similar ways,

to identify similar issues as strategic, and so to adopt similar competitive positions

(Abrahamson and Fombrun, 1994). An illustrative example is the US car industry during

and after the oil crisis of 1973–74. At that time, the US car industry collectively denied

the fact that increased sales of small cars was a structural rather than a temporary

phenomenon. As a consequence, in the 1980s, European and Japanese competitors cap-

tured 25 per cent of the total market. Moreover, despite the fact that the US car industry

120 COMPARATIVE INTERNATIONAL MANAGEMENT

MG9353 ch03.qxp 10/3/05 8:37 am Page 120