The Hidden Factor in Global M&A Success: English Language Proficiency
Global merger and acquisition (M&A) activity in the first half of 2016 topped $1.71 trillion, down from $2.09 trillion in the first half of 2015 but still a prodigious volume. Of that, $580.9 billion came from global cross-border deals, with 35% targeting companies in the US ($205 billion), the highest first-half total on record. China was also exceptionally active, accounting for 54% of targeted volume in the Asia-Pacific region ($243.9 billion) and a 21% share as an acquiring nation, both also record highs.
Many factors are driving global consolidation. Plenty of mergers make sense due to superior economies of scale and the ability to increase productivity by eliminating redundant capabilities in compatible companies. Multinationals can gain access to protected markets by purchasing a prominent local player. Incumbent leaders in industries dependent on rapid innovation can break internal bottlenecks in product development or fill gaps in their product roadmaps through acquisition. Multinationals jump across borders in search of tax advantages or lower labor costs, diversification, or access to resources.
Global M&A Activity Will Continue Despite Headwinds. Even as the world moves into a period of uncertainty regarding trade policy and globalization, M&A is likely to remain a driving force in the global economy as either a primary strategy or a tactical hedge against protectionism in particular countries or regions.
However, in order for cross-border consolidation to pay expected dividends, there needs to be compatibility between the partner organizations in the merger at the operational level. Executives need visibility into the newly-acquired business unit, managers need to be able to identify complementary and redundant capabilities, and line-level workers need to communicate and collaborate with their new peers.
These tasks are challenging enough in any M&A scenario, even within the same country. The challenge is amplified when the two organizations must not only bridge cultural and operational divides, but also linguistic ones.
Communication is Critical to the Success of Cross-Border Mergers and Partnerships. Harvard Business School professor Tsedal Neely, in an influential 2012 article in HBR entitled “Global Business Speaks English,” wrote:
Negotiations regarding a merger or acquisition are complicated enough when everybody speaks the same language. But when they don’t, nuances are easily lost, even in simple e-mail exchanges. Also, cross-cultural integration is notoriously tricky; that’s why when Germany’s Hoechst and France’s Rhône-Poulenc merged in 1998 to create Aventis, the fifth largest worldwide pharmaceutical company, the new firm chose English as its operating language over French or German to avoid playing favorites.
Neely also cited the example of Japanese e-commerce giant Rakuten, which in 2010 mandated that English become the company’s official language, despite the fact that the majority of its workforce was Japanese. One specific reason for the switch was to assist in the integration of global acquisitions and joint ventures.
Neely observes that “the English mandate has allowed Mikitani to create a remarkably diverse and powerful organization. Today, three out of six senior executives in [the] engineering organization aren’t Japanese; they don’t even speak Japanese. The company continues to aggressively seek the best talent from around the globe.”
Companies Can’t Make the Transition Alone. In this case, and in several earlier case studies cited frequently in the literature, the company initially made the task of learning English the responsibility of individual employees. In Rakuten’s case, facing a two year deadline to achieve English competency or risk demotion, employees reacted with anxiety and even took the extraordinary (for Japan) step of considering going to work for another organization.
KONE, a Finnish elevator company with operations worldwide, undertook an English language corporate policy a generation earlier in the 1970s. Company executives were quick to adopt English, but the practice did not spread evenly through the depth of the organization, and much of the rank-and-file workforce developed workarounds to address the ongoing communications problems.
Eventually both companies saw value in providing structured learning assistance to workers to overcome adoption barriers and move the English language policy from ideal to reality. Neely, offering prescriptive guidance for companies looking to benefit from English standardization, explicitly endorses this approach:
Companies need to contract with language vendors who specialize in helping employees at various levels of proficiency. The vendors need to be intimately familiar with the company context so that they can guide employees’ learning, from how best to allocate their time in improving skills to strategies for composing e-mails in English.
Prepare for a Global Future with Global English. Changes in national policy toward globalization may influence patterns of M&A activity in the coming years, but the general trend toward increasing consolidation and interconnectedness remains strong in the long term. The spread of information networks is connecting the global population and distributing expertise more evenly. Entrepreneurial activity in both established and emerging economies is attracting global investment; many of those promising startups mature into acquisition targets for multinationals. The need to bring together talent and resources from different points on the globe, and then manage that consolidation gracefully, underscores the need for a common language for business.
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