AS Indian companies cross global borders to satisfy their growing ambitions, they are increasingly realising the worth of this Chinese proverb. While commercial synergies gain priority, softer issues concerning people typically take a backseat when companies go shopping abroad.

Indian companies flex their financial muscle when acquiring companies. However, the critical factor for a successful takeover is the much less talked about softer issues. Financial accounting fails to value the intangible part of the relationship between two companies or the enduring sustainability of the merged organisations. Different levels of human and cultural integration unlock immense value for the organisations that cannot be discounted by financial jugglery.

India Inc has been building its portfolio of acquisitions over the years. These include the Tata-Jaguar and Land Rover deal, Tata Steel-Corus deal, Aditya Birla group’s (Hindalco) acquisition of Novellis and Avantha Group’s acquisition of companies in Malaysia and Europe. When companies acquire foreign entities, they also acquire a lot of diverse talent. For instance, when the Aditya Birla Group bought Novellis, it acquired about 12,500 people spanning five continents.

Employees of the acquired company are usually insecure about their jobs, pay packages and reporting structures. Concerns like ‘Will I continue to have my job’, ‘Will I be able to grow’ etc crop up as employees face an uncertain future.

“Integration is the greatest source of error in M&A and overcoming human capital challenges is more important for successful integration than any other aspect,” says Shiv Agrawal, CEO, ABC Consultants. When merger & acquisition (M&A) deals fail to achieve the anticipated synergies, there is every chance of talent fleeing the company. In case of a failure, there is always an inherent risk of a mass departure.

So, are Indian companies avoiding these pitfalls to emerge as employers of choice in alien settings? With some large business houses going through the rigmarole of acquiring companies abroad, it has become much more easier now for most Indian companies to carry out cross-border acquisitions. Most companies conduct due diligence before and during the process of acquisition. Tata Group’s approach of ‘post-merger integration before due diligence’ assesses how the combined entity is likely to create value.

“Our first attempt at integration is to get to know about the company. The learnings from TCS have been of huge value for the entire group and have made us respect what the other company has to offer,” says Satish Pradhan, Head - HR, Tata Group. He points out that certain aspects about beliefs, acceptance and culture have to be sensed as they are not tangible. Through their cultural due diligence tool kit, the management plays an inclusive role in the acquired entity — motivating people into accepting a particular job role, rather than using power, authority or control.

Hostile takeovers are generally not a great way to start a new relationship. The Tatas, which have some of the biggest acquisitions to their credit, believe in the philosophy of ‘respectful intrusion’ and prefer continuity of management. Lupin, which acquired five foreign companies in the past one year, has maintained its policy of allowing the same management to continue. Most companies try not to make many changes in the reporting structure to boost confidence of the workforce.

Does this mean that changes don’t occur? Obvious and subtle changes keep taking place as the process of interaction increases between people. Mr Pradhan clarifies that the existing management is responsive to the new stakeholders. Like in nano technology, as the surface area increases, the contact with the catalytic agent rises.

A series of changes takes place during the adaptation process. After the acquisition, the HR policies of the parent entity change to accommodate the cultural differences in the work force. For instance, Tata Steel has retained the two-day weekend in London, compared to single-day weekend in India.

“Although the group HR policy does not undergo a change, it adapts itself to the culture and norms followed by the newly acquired entity,” says DB Gupta, Chairman Lupin. Some changes also occur in the acquired entity, suggestive of the changed parentage. Since Indians have different food palates, suitable changes are brought about in the cafeteria menus at many foreign locations.

However, the Indian parent company also faces many challenges in this process. “The biggest challenge for us while going for acquisitions has been the dearth of global managers — managers who can work at the global level,” says SM Trehan, Managing Director, Crompton Greaves. The ability to retain old talent and employ fresh one in the merged entity has been voiced as one of the most daunting tasks for the acquirer company.

The cost of living in each country is also different. Hence, compensation and benefit planning becomes country-specific. In many cases, an MoU takes care of the pay packets of foreign employees. Global HR firms are hired for global talent search. In fact, there’s a joke doing the rounds in Tata Steel that every second guy one meets in the Tata Steel guesthouse is either a consultant or someone from a benchmarking company.

Managing business, despite the huge distance, also becomes a key challenge. The distance factor has a major impact — be it geographical or cultural — on leadership, policies and practices. Although no major change occurs in the travel policy, frequent short visits between executives take place. Lav Kumar Shelat, HR Head, Avantha Group, says Indian executives are globetrotters and adapt themselves to travel throughout the day.

Cultural integration is perhaps, the most difficult part of the integration of two or more organisations of varied cultures. In Europe, the degree of openness has been found to be higher in some areas, and lower in others. On the other hand, openness and frankness comes easy to Americans, but it is difficult to touch upon their softer side. For instance, unlike in India, asking questions on personal details like marital status during interviews is not acceptable in many western cultures. “Ego problems also crop up in such cross-culture scenarios,” says Anil Sachdev, CEO of Grow Talent.

Hence, corporates arrange regular exchange visits of their employees to send out a message about their work culture and create bonding. “Orientation and workshops are conducted to create a global mindset to take up issues and arrive at common objectives,” says Mr Shelat. Personal coaching and counselling sessions are conducted to solve problems. The parent companies engage in different modes of communication with acquired companies of various regions, depending on their cultures.

Besides the legal contractual relationship, there is a psychological contract between the employer and employees. This contract represents the mutual beliefs, perceptions and informal obligations between an employer and employee. It sets the dynamics for the relationship and defines the practicality of the work to be done.

Denise M Rousseau, in her book ‘Psychological Contracts in Organisations: Understanding Written and Unwritten Agreements’, highlights that if employees believe the management has broken promises or failed to deliver on commitments, it has a negative effect on job satisfaction, commitment and the psychological contract as a whole. This is particularly the case where managers themselves are responsible for breaches, for instance, where employees do not receive promised training, or performance reviews are badly handled.

The HR departments of the two companies play a catalytic role in instilling these changes. As Mr Pradhan puts it, “The HR personnel’s role is not to come out as the hero or star of the company, but rather, bring out the other functional stars or heroes.” A successful integration produces the ‘we did it’ feeling across the organisation.

The good image of Indian companies abroad has also made it easy for them to acquire companies. “Our good reputation precedes us,” says Mr Sachdev. He points out that most Indian companies are prudent and don't resort to extreme measures like downsizing. Much more money is made by achieving economies of scale, rather than employee cost reduction.

Mr Pradhan attributes the success of the Tata Group in forging successful cross-border M&As to the leadership of Ratan Tata and the values that the group represents. The group follows a policy of transparency and faith. There are no surprises for employees who are clearly made aware of their job profiles and the ensuing appraisal process.

And these are not recent measures. ETIG chanced upon a 1904 document of the Tata Group’s mining department, which turned out to be a crude form of employee evaluation. This shows that the philosophy of concern for people has existed in the organisation for more than century.

It is these very organisations that are successful in handling human issues in a humane way. “Economic prosperity is the common currency across the globe and every individual understands this,” says Mr Shelat.

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