S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

This episode is all about managing relationships. Join us as we take on two more “Culture Map” scales: Leading and Trusting.

S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

 
 
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Case Study of a Failed M&A—Concluding Thoughts on HP’s Acquisition of Autonomy

The Mergers and Acquisition Synergies Framework we developed includes measures from research on national culture by Geert Hofstede, Erin Meyer, and Sidney Gray. We used their data to show how cultural factors in cross-border mergers and acquisition can lead to success or failure. Our research is limited to national culture factors, yet as seen in a few instances above, corporate culture can be different from national culture. These differences can cause culture clashes of their own. Further research needs to be performed to explain the differences between national and corporate culture.

Even in the best of circumstances, M&A can be fraught with difficulties. Adding in the complexity of making deals across borders necessitates a greater level of diligence in every phase of the process. Whether the merger failed due to fraudulent accounting or incompetent management by HP,1 the HP Autonomy debacle shows how differences or even similarities in national culture can precipitate difficulties in the post-merger integration process. HP’s failure to properly integrate Autonomy exhibits how value can be destroyed when firms aren’t able to resolve cultural differences. Thus, we recommend that firms engaging in cross-border deal making include researching national culture’s potential impact on post-merger integration a part of the due diligence process.

Previous: Case Study of a Failed M&A-The Role of Accounting and Finance in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

HP had little experience managing software and found the software business unfamiliar. HP ultimately made the decision to let Autonomy function as an independent unit. Consequently, effective communication between the two companies was not developed.

Information Availability

One indicator that HP’s acquisition of Autonomy would not yield the anticipated results is communication, or lack thereof, between the two companies. A key takeaway from Why Deals Fail: And How to Rescue Them is that “A high-quality communication plan is crucial to the success of a deal….”1 Elements of a high-quality communication plan include openness and principles vs. application based learning.

Openness. Correct implementation in the beginning of a merger, including open communication and integration of the two companies, is critical to the success of the combined entity. In this case, HP had trouble fusing Autonomy into its other operations from the start. Initially, HP left Autonomy to operate as its own unit.  One source noted that, “According to [Mike] Lynch, Autonomy has been kept quite autonomous in HP…,”2 while another noted, “Mike Lynch, who founded Autonomy in 1996, will continue to be chief executive of Autonomy, which will be run as a separate business unit. He reports to Ms. [Meg] Whitman.”3 Given this information, it seems that the integration of Autonomy was not a high priority. HP wanted to create more value with Autonomy by expanding its business into the software market, yet in failing to properly integrate Autonomy, HP forfeited many of the potential synergistic gains. In another instance, a source noted, “Autonomy employees were physically barred from entering HP facilities, and Autonomy was forced to go through the tedious process of becoming certified as a ‘partner’ before it could work with other HP divisions, exactly as it would if it was a third-party company.”4 In spite of the lack of integration, many former Autonomy employees complained that HP’s bureaucratic culture “made it difficult to get things done” and that the “endless series of conference calls and form-filling felt ‘like being water-boarded.'”5

The fault doesn’t rest solely on HP, however. The CEO and founder of Autonomy, Mike Lynch, seemed difficult to work with as well:

An HP executive [stated] Lynch was not interested in moving forward once the deal was completed. “He was at every strategy session, was in person or on video for every meeting of the executive council…He wouldn’t work with anyone. Sometimes he was enthusiastic, but other times he’d say, ‘This makes no sense. I’m going back to London.’”6

It is even said that, “at a going-away party, an H.P. lawyer presented Mr. Lynch with a sweatshirt with the word ‘integration’ and a line through it.”7 By limiting communication between themselves, HP and Autonomy inhibited their chances of achieving successful integration.

Previous: Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Behavior in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Shortly after Hewlett-Packard appointed Leo Apotheker to lead the company, the board approved the acquisition of the UK-based software company, Autonomy. Hewlett-Packard, well known for its computer hardware, thought the synergies it could have with Autonomy coupled with its brand recognition would give it a strong presence in the software market. This series explores management’s cultural misstep using the Mergers and Acquisitions Synergies Framework to examine how this acquisition ultimately lead to a failed merger.

Introduction

On September 7, 2016 Hewlett Packard Enterprise Co. announced an $8.8 billion deal to sell the bulk of its software division to Micro Focus International PLC.  The deal represented the divestiture of Autonomy Corp—a software maker acquired in an $11.7 billion mega deal just five years prior. The marriage of the two firms was rocky from the onset, with HP’s shareholders decrying the 79 percent premium HP paid as abhorrently high.1 On November 20 of the following year, Hewlett-Packard announced an $8.8 billion write-down of its investment in Autonomy – citing “serious accounting improprieties… and outright misrepresentations.”2 The allegations of fraud were rebutted by Autonomy’s former CEO Michael Lynch and marked the beginning of a disastrously messy public relations battle fought by Autonomy’s ousted CEO and members of HP management.

In November 2010 Hewlett-Packard, a technology firm based in Palo Alto, California, brought in Leo Apotheker as its new CEO. Apotheker was expected to contribute to HP’s growth through completing value accretive acquisitions. Within a year of being hired, Apotheker spearheaded HP’s acquisition of Autonomy, a software company founded at the U.K.’s Cambridge University. The acquisition of Autonomy represented a marked shift in strategy for HP. While HP had demonstrated capability in the hardware market, they possessed very little prowess in software and computing. Thus, Apotheker attempted to catalyze HP’s entrance in the software market by buying an already well-established company.

Although HP claims that the write down was due to “accounting improprieties”3, there are other factors belying this failed merger. The remainder of this paper provides insight into the impact of cultural differences on the HP-Autonomy debacle, offers examples, and provides guidance about due diligence for cross-border mergers. This paper focuses on the cultural factors discussed in the M&A Synergies Framework: communication, behavior, management, environment, accounting and finance, optimism, and earnings management.

Next: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Concluding Thoughts on Microsoft’s Acquisition of Nokia

The research conducted in this paper is based upon the Mergers & Acquisitions Synergies Framework, developed by combining outside findings by Geert Hofstede, Erin Meyer, and Sidney Gray.[1] It is limited to national culture factors, which play a different role in business than organizational culture. Further studies may need to be conducted to help distinguish differences between national and organizational cultures.

In reality, Microsoft’s acquisition of Nokia was doomed to fail. The deal was an exercise in futility, governed by the rationale that any attempt to compete with Apple and Google is better than none at all. Such rationale exhibits an astonishing lack of prudence, which is key in making any deal, let alone a cross-border deal. While Microsoft’s rationale for making the deal was poor, management’s lack of patience was worse. Cutting 25,000 employees only two and a half years after acquiring Nokia’s mobile unit effectively killed any chance Microsoft Mobile had of succeeding.

Microsoft Mobile is a study of how differences in national culture can add to already poor conditions. Though differences in national culture are not the primary reason Microsoft Mobile failed, they did add to the complexity inherent in the post-merger integration process. In fact, the differences were small and could have been easily reconciled. Had Microsoft exercised a greater level of patience, Microsoft could have realized many of the sought-after synergies which can arise when companies effectively execute cross-border deals. Microsoft Mobile could have prospered as employees from different cultures came together and cooperated.

Previous: Case Study of a Failed M&A—The Role of Accounting and Finance in Microsoft’s Acquisition of Nokia

S1E6: Saving Face: Doing Business in Southeast Asia

Meet Veasna Neang, a Cambodian educated in the United States, who developed his career in Cambodia, Vietnam, Laos, and Myanmar. He tells us why a student would rather unzip his own pants than tell a teacher his fly is open and why doing business efficiently in Asia always includes significant time socializing.

S1E6: Saving Face: Doing Business in Southeast Asia
International Hub: Cultural Convers...

 
 

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Case Study of a Failed M&A—The Role of Communication in Microsoft’s Acquisition of Nokia

Language differences impede communication. But communication is much broader than having employees who speak different languages.  Microsoft discovered that not spending time to understand and adapt to differences in communication styles, mannerisms, and culture made bringing Nokia under its corporate umbrella difficult.

Information Availability

Openness. Before being acquired by Microsoft, Nokia struggled to maintain open communication. According to several accounts, Nokia rarely communicated openly with employees, which led to distrust between staff members and management. Additionally, the company failed to articulate a set of core values and an overall vision to its employees. The lack of direction and communication further contributed to the culture of opacity among Nokia’s employees as the employees felt unable to truly communicate with management.1 The disconnect affected operations on a deep level: “Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information.”2

Microsoft’s acquisition of Nokia’s mobile line only contributed to the culture of unreliable communication. As stated in the press, “neither party was legally allowed to discuss details about the acquisition in public.”3 The prohibition on openly discussing the merger undercut morale and deepened the level of employee frustration with the lack of communication within the company.

Differences in American and Finnish Culture. Culturally, Finns are not open communicators, but rather maintain quietude and distrust verbosity. In contrast, Americans tend to be more open and forthright.4 Microsoft Mobile’s CEO provides an example of Nokia’s culture of blurring bad news in his letter to employees. In the letter, Elop communicates that corporate restructuring will result in “an estimated reduction of 12,500 factory direct and professional employees over the next year.”5 While the figure representing the reduction is clear, it is buried in the latter half of an email more than 1,100 words long.

The clashing styles of communication between American and Finnish employees of Microsoft Mobile likely caused frustration among employees and hindered their ability to collaborate across cultures.

Language Barriers. Since Nokia was an established multi-national entity, English was already a language widely used within the company. Still, many Microsoft Mobile employees noted that “not being able to speak Finnish makes you somewhat of an outsider.” With Microsoft Mobile’s headquarters in Finland, management from other countries encountered challenges speaking directly with top executives. In many cases, for management to communicate with top executives, they had to travel to Finland. Thus, differences in language caused barriers to arise between those who were and weren’t Finnish.6

Communication Style

 High-Context vs. Low-Context. Both Finns and Americans communicate in a low-context style, which means that communication in both cultures is clear and direct with no implied messages. Many American employees working for Nokia noticed the cultural similarity and noted: “Working with Finns [is] good. They speak straight forward and honestly.”7 Though similar in communication styles, differences do remain between the cultures. Finnish employees tend to be more reserved, and Americans are more aggressive and talkative.8 The differences in communication styles can lead to Finns perceiving the Americans as arrogant and domineering and for Americans to perceive the Finnish employees as distant and uninterested.

Principles-Based vs. Application-Based. The United States and Finland both exhibit an inclination towards application-based reasoning. This indicates that “individuals are trained to begin with a fact, statement, or opinion and later add concepts to back up or explain the conclusion as necessary.”9 However, as pointed out by Erin Meyer in her book The Culture Map, the U.S. exhibits stronger tendencies toward application-based reasoning than Finland. Though both cultures appear to be application-based, Americans will view Finns as more “principles-based.” This means that Finns, generally, learn more by theory than application in comparison with Americans. Although Finland and the U.S. exhibit strong predilections toward application-based learning, the fact that Finns are relatively more principles-based than their American counterparts can lead to misunderstandings. The misunderstandings can arise during inter-company communication, especially when discussing rationale behind decision making. Companies faced with similar situations would do well to remain cognizant of such differences and address them as needed.

Direct vs. Indirect Negative Feedback. Finnish people are typically perceived as being direct and honest. This style of communication may appear offensive or rude (especially to Americans). However, in Finland, direct communication is viewed as a sign of honesty and respect. Additionally, Finnish employees do not like to be “monitored, followed around, interfered with, or even praised when they are on the job.”10 Praise is viewed as insincere within Finnish culture. This view is founded on the understanding that Finns rarely alter or change an already formed opinion. Thus, with any sort of feedback, it is highly unlikely for Finns to change their minds about something. Without an understanding of Finns’ resistance to feedback, Americans may mistakenly view their Finnish counterpart as obstinate.

The U.S. culture is on the opposite end of this spectrum. Americans tend to wrap negative criticism with positive feedback, which outsiders can interpret as “false and confusing.” For example, if an American manager were giving feedback about a business proposal, the manager would first list the positive aspects about the writing before launching into the negative aspects. On the other hand, if a Finnish manager were providing feedback about the same business proposal, the manager would state each negative critique without any positive add-ins.

The stark differences in feedback preferences can cause deep divides between Finnish and American employees. Finnish employees will tend to view feedback from Americans as insincere and unhelpful. On the other hand, Americans will view critiques from Finnish managers as overly harsh and, perhaps, rude.

Mannerisms. Finns hold that, unless one has something pertinent to say, they should remain silent. In fact, silence is highly valued within Finnish culture as a time to think, ponder, and reflect. Many Finns take to the forests (often by themselves) to think clearly in silence. Because of their view on silence and direct communication, Finns tend to recoil when talking to more verbose people:

“Finns are reticent, often silent, and trained not to force their opinion on others.  If they disagree, they will often remain silent. Americans cannot stand silence during meetings, so they often take the Finn’s turn to speak. Finns, who distrust verbosity, may then go into their shell. Americans, used to open debate and give-and-take argument, will often interrupt a Finn when the latter finally decides to speak. This breaks a sacred rule for a Finn, who is taught from infancy not to interrupt.”11

Another mannerism that separates Finns and Americans is smiling. As natural introverts, Finns try to keep to themselves and engage as little as possible with strangers. They find Americans’ mannerism of smiling in business meetings and towards unfamiliar individuals as insincere.12 In fact, typical Finns will only smile at people they know personally.

American companies engaging in M&A with Finnish companies need to understand and display respect for Finnish mannerisms. As Americans understand that Finns are quiet because they value silence, they will cease to view Finns as uncaring, but will instead begin to view their counterparts as insightful and respectful people.

Previous: Case Study of a Failed M&A — Introduction to Microsoft’s Acquisition of Nokia

Next: M&A Synergies Framework—The Role of Behavior in the Microsoft-Nokia Merger

Case Study of a Failed M&A— Introduction to Microsoft’s Acquisition of Nokia

On September 3, 2013, Microsoft announced that it would acquire Nokia’s mobile phone division for $7.2 billion. Through a series of missteps, many of them cultural mismanagement, Microsoft informed the public in May 2016, of its intention to write off most of the $7.2 billion it paid for Nokia and agreed to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million. This series uses the Mergers and Acquisitions Synergies Framework to explore the cultural issues that lead to Microsoft’s failed merger with a highly regarded mobile phone company.

Introduction

During the 1990’s and early 2000’s, one company dominated the mobile industry: Nokia. Established in 1871, the Finnish-born company gained a worldwide reputation for producing reliable, standard mobile phones that were internet-enabled and programmed with an array of multimedia features. Eventually, competition in the mobile phone sector rose in 2007 when Apple introduced the iPhone, and Nokia soon found its market share rapidly decreasing.1 Initially, Nokia predicted the smart phone craze would die out and consumers would return to standard mobile phones, but smart phones proved to be more than a passing trend. Nokia’s management failed to understand the wave of radical innovation that revolutionized the mobile industry—as Samsung and Apple produced and sold touch-screen phones. Nokia’s failure to react to the changing competitive climate is reflected in the precipitous fall in its share price from the iPhone’s introduction to Nokia’s own smartphone introduction: its market share faltered, losing almost 10 percent.2

On 10 September 2010, Nokia parted ways with its CEO (Kallasvuo) and hired Microsoft executive Stephen Elop. Hiring Elop was a significant move for a few reasons: he was the first non-Finn CEO in company history, and analysts predicted that hiring Elop would lead to closer cooperation between Microsoft and Nokia3.  Elop pledged to “reverse the company’s market share losses by ‘regaining [Nokia’s] smartphone leadership, reinforcing [Nokia’s] mobile device platform and realizing [Nokia’s] investments in the future.’”4

True to analysts’ expectations, it did not take long for a partnership to arise between Microsoft and Nokia.  On 11 February 2011 Nokia announced a “broad strategic partnership” with Microsoft. The partnership made a lot of strategic sense considering Microsoft’s dominance in software and Nokia’s in hardware – namely the production of mobile phones. The partnership was heralded by the media: “The deal makes Microsoft a key contender and gets Nokia back to the forefront of the smartphone revolution.”5 Despite optimism from analysts, the announced partnership was met with met displeasure among Finns, and Nokia’s share price tumbled 10 percent.6

In 2012 Nokia released its new smartphone, the Lumia, which ran on Window’s newly released OS – Windows 8. Initially, the release of the Lumia led to increasing, albeit tepid, sales for Nokia. Two years after announcing the partnership, Nokia was still losing market share to Apple and Samsung.  Microsoft’s performance during the period didn’t fare much better than Nokia’s. Microsoft’s poor performance was primarily caused by vehement resistance of Windows 8 from PC users, who detested its optimization for mobile devices. With both companies struggling to keep up in the fast-paced smartphone market, they were left to search for a more drastic solution than mere partnership.

On 3 September 2013, Microsoft CEO Steve Ballmer announced that Microsoft would acquire Nokia’s mobile phone division for $7.2 billion.7 Microsoft had been looking for a way to enter the mobile phone industry to better compete with Apple and Google. In acquiring Nokia’s services and devices unit, Microsoft took control of Nokia’s mobile phones and smart devices, design team, licensing agreements, and approximately 32,000 new employees. Given Microsoft’s prowess in software and Nokia’s in devices, the acquisition was anticipated to be a smooth, successful transaction. Furthermore, both CEOs (Ballmer and Elop) acknowledged the acquisition as something that would build upon the existing Nokia-Microsoft partnership.8 In a press release in 2013, Elop told reporters,

“‘Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing, and manufacturing. With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.’”9

February 2014 marked the beginning of the newly formed Microsoft Mobile (a subsidiary of Microsoft). Later, in October 2014, Microsoft Mobile announced that Microsoft Lumia would replace the iconic Nokia on the smartphones.10

Despite Microsoft Mobile’s best efforts, the union proved to be tenuous at best, with job cuts of 12,500 and 7,800 occurring in July 201411 and July 201512 respectively.  Finally, on 18 May 2016, Microsoft informed the public of its intention to write off most of the $7.2 billion Nokia deal and an agreement to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million.13 The company also announced that it would no longer produce new phones. What had seemed to be a promising venture had feebly wilted.

Differences in national culture severely affected Microsoft’s deal with Nokia. The M&A Synergies Framework identifies the relevant cultural aspects of the Nokia-Microsoft merger and offers insight into what caused the acquisition to fail. These insights point us to things to consider when preparing for cross-border deals between American and Finnish companies.

M&A Synergies Framework

The M&A Synergies Framework was created to analyze culture’s effect on cross-border deal making. Differences in national culture can lead to increased creativity within companies; however, they can also incite bitter conflict. The framework directs dealmakers to better understand how culture can affect their ability to realize synergies, which are the primary rationale for deal making. The framework elaborates on the following cultural elements: communication, behavior, management, environment, and accounting and finance. The M&A Synergies Framework is discussed fully in another series that can be found on InternationalHub.org. This case studies uses the Framework as the basis to understand the cultural reasons why Microsoft’s acquisition of Nokia was not successful.

Next: M&A Synergies Framework—The Role of Communication in the Microsoft-Nokia Merger

Case Study of a Successful M&A—Concluding Thoughts on Lenovo’s Acquisition of IBM PC

Lenovo

Lenovo has yet to resolve all its cultural issues. As one global director said, “Until now, I think… [cultural integration] has not been completed…there still remain many cultural problems…I think this part is the most difficult one for the whole acquisition.”1This is an important reminder that the cultural integration process is measured in years, not months.

Regardless, Lenovo truly is an example of a successful cross-border M&A and is regarded as such in academic literature. Through attentive care and cultural awareness, Lenovo has been able to achieve cultural synergy. The current appointed “Chief Diversity Officer,” Yolanda Lee Conyers, is quoted on the company website saying, “We succeed when each of us respects and appreciates the diversity of the individuals we work with. We transcend traditional geographic and cultural borders to better anticipate and serve the complex needs of our customers around the world.”2 This synergy between the companies has been reflected financially. In 2003, Lenovo had income of $129 million3 and a global market share of 2.0%.4 In the same year, IBM PC Division had losses of $258 million5 and a market share of 5.3%.6 By 2016, although Lenovo was struggling with a $128 million loss due to economic fluctuations and restructuring costs, it had captured the largest global market share of the PC industry at 20.7%7 and had earned net income of $829 million the previous year, remarkable growth for what was once considered an underdog company.8

The Lenovo case is very useful for understanding the cultural issues that are central in M&A transactions and what integration looks like in practice. The lessons learned in the Lenovo-IBM acquisition can—and should—be applied to companies pursuing similar endeavors. To successfully prepare for an M&A transaction, further detailed research would be necessary to understand applicable cultural nuances, gain an educated perspective, and prepare to successfully integrate.

Previous: M&A Synergies Framework—The Role of Accounting & Finance in Lenovo’s Acquisition of IBM PC

First in Series: M&A Synergies Framework—Introduction to Lenovo’s Acquisition of IBM PC

Case Study of a Successful M&A—The Role of Communication in Lenovo’s Acquisition of IBM PC

Lenovo management quickly learned that communication would be a key to successful integration. The combined company decided to make English the official language. Other communication issues, ranging from information availability to communication style, emerged as potential obstacles. The new management team recognized these issues and took proactive steps to help the entire organization learn and adapt to new communication styles and reduce misunderstandings.

Information Availability

 Openness. As Lenovo began its integration with IBM PC, early misunderstandings alerted leaders that clear communication would be critical to the acquisition’s success. The reality of integration required all workers to start at “ground zero,” meaning they were to avoid overvaluing past personal successes and instead focus on current issues.1 Thus, integration was purposefully set at a cautious pace.

Through this process, Lenovo placed priority on transparency and openness.  For example, Lenovo announced that compensation would continue as previously set and that there would be more opportunities for promotions. Clear and timely communication of this sort was intended to put employee concerns at ease.2 Other effective actions included encouraging senior vice presidents to communicate directly with the HR department—an unusual practice in the corporate world—as well as carry out executive retreats focused on open, sometimes brutally honest discussions of company issues.3

Language Barriers . Communication is severely inhibited in the presence of a language barrier. Lenovo set out to approach this difficulty head on. Soon after acquiring the IBM division, Lenovo established English as the official language of the whole company and encouraged employees at all locations to use it on a daily basis. The company began sponsoring English lessons at a training center to allow Chinese employees to improve their English abilities to better comply with this goal. As one Chinese executive said, “You know, our English was not very good at the beginning…then the company sponsored us to learn English at a training centre… now we can frequently deal with daily operations in English.”4 As time has passed, this language issue has been lessened at least to a degree, although it still causes some difficulties for non-proficient executives.5 In exchange, many English-speakers attempted to learn at least a few Chinese words. This is an act that demonstrates respect for foreign counterparts in any cross-boarder situation: “You do not have to learn an entire language. Phrases such as ‘hello’, ‘how are you’ and ‘please’ and ‘thank you’ are a real help in making the right impression.”6

However, it should be noted that even when both sides did understand the same words, there were still miscommunications based on different contextual meanings. One misunderstanding originated in the definition of “workers’ unions.” To the Chinese, the word simply meant workers’ councils that occasionally set up employee activities, while to the Americans, it meant strong political groups that had to be negotiated with.7 This definitional language barrier required patience and explanation when there were points of misunderstanding.

Communication Style

High Context vs. Low Context. High vs low context communication styles can be particularly troublesome between Chinese and U.S. employees since the two countries have very opposite styles. In fact, the U.S. is considered to be the lowest context culture in the world, meaning that communication is straightforward, literal, and repetitious. China is the opposite; the Chinese tend to use hidden meanings and contextual references.8

These contrasting communication techniques are taught in early childhood. Americans are often instructed that an effective presenter must “Tell them what you are going to tell them, then tell them, then tell them what you’ve told them.”9  On the other side of the world, Chinese children are taught to “read the air” of a conversation: “In Chinese culture, pang quao ce ji [beating around the bush] is a style that nurtures an implicit understanding. In Chinese culture, children are taught not to just hear the explicit words but also to focus on how something is said, and on what is not said.”10

Western Lenovo employees explained frustration with this difference: “When [the Chinese] say ‘yes’ they mean they understand, not that they agree.”11 This tendency confused Americans since to them, “yes” was understood as unambiguous agreement.

Principles Based vs. Applications Based. “Principles Based” cultures prefer to view situations first in a broad, “big picture” perspective. Alternatively, “Applications Based” cultures seek first to see ideas in action through specific examples.12 As Meyer phrases it, “Chinese people think from macro to micro, whereas Western people think from micro to macro” (111).

Lenovo management quickly realized this difference in perspective:

…Many Eastern colleagues [felt] that their Western counterparts were discussing only one case and not seeing the larger context, while many Westerners felt that the Easterners were less interested in solving the immediate problem. We started incorporating ways to do both: define the problem in a particular case and explain why it was important and relevant. Not only did this make collaboration much easier, it also helped both sides have a fuller and more detailed understanding of an issue, leading to better decision making for both the short and the long term.13

Lenovo’s understanding of this cultural differences allowed them to make the needed adjustments in order to proceed with intelligent decision making.

Direct vs. Indirect Negative Feedback. Although not nearly the most direct of the world’s countries, by comparison to China the U.S. is relatively more direct in its approach to negative feedback. To Chinese ears, a more straight-forward American approach could come off as harsh or insensitive.14 The Chinese prefer an indirect, softened communication style. For example, an American Lenovo executive described a Chinese employee beginning a conversation with many compliments, such as “you are a very nice person,” “you are kind,” and “your intentions are good,” before even beginning her actual purpose of breaking bad news regarding some human resource issues.15

It should be understood that “Using the word disagree comes across as too strong to the Chinese, and is also considered disrespectful. In general, when you don’t agree with someone, the matter must be handled with the utmost sensitivity. The Chinese call this ‘saving face.’”16 This means avoiding actions that could cause them to be embarrassed or dishonored. Gaining or losing “face” could occur through “their own actions, public knowledge of their actions, showing respect for others, compliments or criticism from third parties, mistakes (making them or avoiding them), experience, and age.”17 Thus, U.S. Lenovo employees had to learn the art of “saving face” in intercultural interactions.

It should be noted that language barriers complicate this element. As employee Gina Qiao stated, “While we Chinese can be sensitive about many things, sometimes we come across as a little too direct in translation. This stems partly from the structure of our language, which conveys information in fewer words, without all the preamble and poetry of English.”18 Thus, the distortions caused by translation must also be considered in order to communicate appropriately and avoid causing offense.

Mannerisms. The Chinese tend to use body language that can be hard for Westerners to comprehend: “Westerners sometimes have difficulty understanding this aspect of the Chinese culture, and may interpret nodding of the head as an affirmation, when in fact it is not […] Visitors would be wise to pay attention to key nonverbal clues such as the breaking of eye contact, looking down, or any hesitation to discuss an issue when a topic is brought up.”19

Lenovo employees experienced this variety of misunderstanding when initially beginning work between the American and Chinese cultures:

In the meetings, the American staffs like to express their ideas, especially when decisions need to be made…while the Chinese employees always keep silence… In American culture, if you don’t express your idea, people assume you agree with the decision, and the proposal would be passed… However, in Chinese culture, if you keep silence, that means you don’t agree… so at the beginning, we have made a few wrong decisions in joint meetings due to cultural differences.20

Silence for Chinese can mean thinking or doubt, while Americans are accustomed to interpreting the silence as either unanimous agreement or an awkward pause. Another Chinese manager complained: “I used to find it hard to get a word in on conference calls with American colleagues. … They’d say ‘I’m thinking out loud,’ but they aren’t thinking—they are speaking.” Lenovo encouraged workers to slow down the pace of meetings to allow for equal participation, as well as to seek first to understand and then be heard.21

Previous: M&A Synergies Framework—Introduction to Lenovo’s Acquisition of IBM PC

Next: M&A Synergies Framework—The Role of Behavior in the Lenovo-IBM Merger