Negotiation and Conflicts resolution

Negotiation and Conflicts resolution


I. The assessment stage

1. The problem of complementarity of corporate cultures, openness and similarity in business values to build trust across national cultural differences

2. Openness to work co-operatively across national cultural differences

3. Similarity of business values, ethical standards and corporate values

4. Assessment of the economic situation of the environment ( refers to the contingency approaches) and of that of the firms in order to define the repartition of power

5. Expectations of both companies ( employees+ managers) have to converge

II. The negotiation stage: the 4 step method

1. Building genuine trust across national cultural differences: PREPARE

2. Defining ownership arrangements leading to a multicultural steering structure with the different parts concerned : the States, the employees and the trade-union representatives: ARGUE

3. Evaluating fears: PROPOSE

4. Choosing deadlines: CLOSE

III. Implementation stage

1. Post M&A organizational design and the "5%" of management...

2. ...making a post M&A design work in practice is the "remaining 95%"

3. The importance of developing people with cross-cultural skills

4. Continuous rotation of people across borders is key to achieve speed of execution


In 1987, Harvard professor Michael Porter observed that between 50 and 60% of acquisitions were failures. More recent studies observed that this percentage is quite the same actually.

Most of failed merger didn't take into account the different cultures of the companies involved. Does companies asked them self if their organization are compatible?

Generally speaking, mergers objectives are financial or commercial, more precisely strategic choice.

One reason of a M&A failure is the non-consideration of corporate culture as a whole convictions. This culture defines how the firm is running trough values and beliefs.

That's why we are going to answer to the following problematic: What negotiation skills does it take to manage a cross-cultural merger and acquisition?

In order to respond to this problematic we are going to studying the merger and acquisition of three international companies (Daimler-Chrysler, Renault-Nissan and Air-France-KLM) through each stage of a merger: ASSESSMENT, NEGOTIATION, IMPLEMENTATION.

I. The assessment stage

What do we mean by "assessment"?

Assessment is a pre-evaluation concerning the degree of fit between the merging companies' values, managerial styles and personalities and their ability of cooperation, which can be measured through first-hand previous common working experiences. Most important is the self-assessment of the execution skills of the companies, which depend on the capacity of their leaders to implement changes in their firms. In other words, essential factors are the company's

  1. ability to appraise its own troops
  2. specific capabilities
  3. overall experience to handle implementation complexities related to international mergers and acquisitions.

We are going to develop the critical notions which have to be envisaged during the assessment process.

1. The problem of complementarity of corporate cultures, openness and similarity in business values to build trust across national cultural differences

Differences in top management styles have a negative impact on performance even if there is a high level of post-integration. Cultural distance increases the complexity of issues (i.e. the problem of communication when the language is different). The degrees of compatibility depend on the target's specific national cultural characteristics and will influence a target company's responses during the integration phase.

Are recommended: small countries, whose characteristics foster people's historic openness towards global co-operation or countries reliant on export or international access to key technologies .

This has an influence on the people's openness to work with individuals from different countries, in diverse national cultural environments and to communicate in foreign languages. We can assert that the success of a French-Japanese merger was really uncertain because of the weight of traditions in Japan in opposition with the French idea of flexibility. Japanese people were however ready to change their traditions into a more modern view of business, and it is that key point that allowed the merger, along with the tradition of import/export of Japan.

Regarding KLM and Air-France, both firms will remain in their own country.

Before the merger, 100 cultural problematic areas had been identified by Daimler. The latter hoped to derive synergies from mixing both cultures. Daimler would bring very high standards of technical quality and Chrysler would bring its dynamic and fast-moving management of brand - associated with a smaller staff - to the table.

Many observers saw these two cultures as simply too different to open up to each other, and the different market positions held by both companies made industrial goals unclear. This recalls the problem of the clarity of the goals which are given to groups, and which is essential according to the social-psychological approach of organizations. Schrempp had misjudged Chrysler's image : his view was based on its success of the 90s.

However, key chief executives such as the directors of manufacturing and engineering (Pawley and Castaing) had changed, thus Chrysler wasn't as dynamic in terms of culture as it had once been. On the other hand, clear manufacturing synergies were difficult to create because of the difference in brand positioning.

2. Openness to work co-operatively across national cultural differences

Contrary to Schrempp who managed the merger between Daimler and Chrysler from Stuttgart and underestimated cultural

differences, Shweitzer sent for Renault several teams to Japan in order to have a concrete idea of Japanese business methods .

3. Similarity of business values, ethical standards and corporate values

Similar business values enable to create collaborative relations and a sense of trust, which is a key factor : ethical standards must be coherent to each other . As for corporate values, it appears that mergers are very difficult in culturally-distant or unfamiliar countries, for which acquisitions are recommended.

4. Assessment of the economic situation of the environment ( refers to the contingency approaches) and of that of the firms in order to define the repartition of power

Air France-KLM : worldwide, and in particular in Europe, the flight industry experiences a slowdown.

KLM is in debt :

  • Debt/Gearing = 195 %
  • 2002 revenue = - € 146 million
  • Market share (between 1998-2003) = - 12.40%

Air France is making profit :

  • 2002 revenue = € 120 million
  • Market share (between 1998-2003) = + 28%

This could lead to a struggle for power. JC Spinetta will be the President of the Strategic Management Committee: if a decision has to be made and none of the counterparts agree on the solution , he will give his final word.

DaimlerChrysler : neither of them dominated its market in any region.

5. Expectations of both companies ( employees+ managers) have to converge

Air France-KLM : French trade-unions such as SUD and CGT want to have more details on social outcomes. They also want to have the same job security that KLM- Schiphol's employees will benefit from for 6 years, as defined in the Social Code of Conduct.

Jean-Cyril Spinetta ( CEO of Air France) declares that this merger is bound to create value thanks to synergies : about € 405 million within 5 years but maybe more on the long-term.

  • Distribution network : more travel agencies
  • Flight network : streamlining, flight hours to coordinate and harmonize, more destinations (complementary flying networks) & more connecting flights. KLM expects to save more than € 600 million through its downsizing plan and to take advantage of the combined potentials of both HUBs : Paris + Amsterdam.
  • Good freight : about €35 million to be saved
  • Maintenance : common purchase of spare parts, excellence centres, storage
  • Common information systems : scale economies
  • Improvement of prices for consumers thanks to synergies

In the case of DaimlerChrysler, the strategic vision behind the merger was to make a coherent automotive giant out of two very different organizations. Daimler was involved in luxury automobiles, trucks and the military industry. Chrysler was the number 3 car manufacturer in North America.

II. The negotiation stage: the 4 step method

What is the point of negotiating?

The potential partners are in direct contact. They must go through various execution mechanisms such as : the ownership arrangement, the establishment of a common managerial steering structure, the determination to generate mutual trust in order to create a multicultural organization.

1. Building genuine trust across national cultural differences: PREPARE

Necessary steps :

  1. A proactive assessment approach
  2. Long-period negotiation activities : "merging before the merger" in order to produce a post-merger integration plan
  3. DaimlerChrysler : between Jurgen Schrempp's first meeting with Bob Eaton and the agreement, only 5 months went by.

  4. Secrecy
  5. For example, there was very little information given by Air France to its employees concerning the acquisition of KLM during the negotiation phase : "We only started to receive memos from the headquarters in Paris in November" says Thierry de La Prade, commercial in Bordeaux for Air France.

2. Defining ownership arrangements leading to a multicultural steering structure with the different parts concerned : the States, the employees and the trade-union representatives: ARGUE

Establishing a fair ownership structure for cooperation in practice is a positive signal for the rest of the organization. In the case of M&As, the repartition of power clearly depends on the economic situation of the firms, in other words on the environment in which the merger takes place, which is precisely the theory developed by the strategic-contingency model of power.

Despite Daimler's clear leadership in establishing the merger, the project was to create a merger of equals, with Eaton and Schrempp becoming co-presidents. The board of the new company would be composed of 50% of Chrysler directors. With this initial stance and the guarantee that executive pay would go up to American standards instead of going down to European standards, the deal was quite well received.

Air France-KLM : both companies will keep their own CEOs but Jean-Cyril Spinetta will be the chairman of the Strategic Management Committee. J-C Spinetta is a charismatic leader (charismatic authority >>Weber) . He is well-known, good at negotiating and also has a clear vision of social relations : he understands and makes clear that profit does not necessarily mean forgetting about social progress. He carried out individual interviews with trade-union representatives to explain why he was considering this merger with KLM : thus trade-unions understand better what he aims at doing through this merger and employees keep in touch with what is going to happen . In KLM, the CEO Leo Van Wijk explained the coming agreement to KLM's 250 senior executives and to the Dutch government.

3. Evaluating fears: PROPOSE

Both the French and the Dutch trade-unions such as UNSA or CFDT-Air France fear.

  1. that the human factor might not be taken into account
  2. that would-be synergies be inferior to what they are supposed to be
  3. the uncertainty around the group's revenue in 5 years time
  4. a quest for hyper-profitability (lay offs, relocation, plant closings...)

Criticism in the Netherlands shows that this merger is considered as the loss of a national symbol.

Defining the status of the employees:

- KLM's employees are due to be protected at least for 5 years but those of Air-France also want to have the same advantages concerning job security

- Lay-offs will be led in KLM

4. Choosing deadlines: CLOSE

Air France-KLM : synergies are expected to occur in 5 years time so it is a medium-term vision of business.

DaimlerChrysler : between Jurgen Schrempp's first meeting with Bob Eaton and the agreement, only 5 months went by.

III. Implementation stage

Why is the implementation phase important ?

"The thing lies in execution. Implementation. Actually doing it. Not getting stuck"

"You say that about 50% of acquisitions fail. But I think that in the case of cross-border acquisitions the percentage of failure is higher : in our experience, maybe as much as two thirds of them fail . Not because of the pre-acquisition analyses or the strategic fit- it's how to handle the merger, how to implement it- problem of managerial skill-, how to make the merger, how to run the processes, how to make people come together after the merger"

"What plays an important role in the end is the ability to carry out the practical things, such as rotating people or implementing the work methods and procedures"

(Barnevik ABB)

Example : ABB's book of values :

  • "What works well in one local and cultural context may not work equally well in another"
  • "We must be aware of the risks of miscommunication and misunderstanding . English is a foreign language to a majority of our employees . We therefore need to spend time on communication, repeating key messages and checking that they are understood as intended"
  • "With its broad multicultural scope and its complex organization, the group requires upper-level managers with skills that go beyond technical competence and managerial efficiency. ABB managers must have an exceptional grasp of differing traditions, cultures, and environments"
  • "We must speed up the flow of managers across organizational and geographical borderlines . At higher levels horizontal moves should be used to create challenges and opportunities"

What does this phase require ?

It is the ability to continuously identify and develop a critical number of professionals with a unique set of skills and multicultural outlook which leads to practical advantages of a multidomestic structure.

Moreover, during the implementation phase, it is necessary to

  • keep thin headquarters base
  • avoid duplications across national markets and business
  • eliminate potential internal competition in overlapping areas

Thus the key notions to be underlined are : speed, communication, practice and developing people.

1. Post M&A organizational design and the "5%" of management...

In the new structure, a) global control : scale economies

b) degree of local autonomy : flexibility, responsiveness to the environment

It is the "think global and act local" motto.

Renault-Nissan : Ghosn tried to convey a new view of global business for the Nissan Japanese teams. He implemented a global strategy, with connections and a real centralization. He favoured cooperation and complementarities in implementing common production means between Nissan and Renault - Renault cars are indeed compatible with Nissan motors - in order to make scale economies.

On the contrary, DaimlerChrysler failed in such cooperation : Mercedes motors were too expensive for Chrysler cars.

2. ...making a post M&A design work in practice is the "remaining 95%"

However in practice, Chrysler's executives quickly found themselves outmanoeuvred in joint executive meetings: Daimler had much more staff available to prepare and brief directors for meetings, while Chrysler's executives were used to coming into meetings to thrash out agreements in a much less administrative - intense manner. This created resentment in Chrysler's ranks, which was not dealt with quickly enough. Chrysler also found itself in difficulty from 2000 onwards on the American market, due to ferocious Japanese competition on its favoured market segments (e.g.: SUVs), conflicts with its suppliers and a sales policy of not participating in the price war, which left it vulnerable to Ford and GM.

Faced with dissension from senior Chrysler executives and losses on the other side of the Atlantic, Schrempp decided to switch to a take over strategy: hardly any Chrysler executives from before the merger remain on DC's board, and Dieter Zetsche is now in charge of Chrysler. This was the end of an unclear, badly implemented strategy.

3. The importance of developing people with cross-cultural skills

Who are they ?

"People who have demonstrated the ability to lead others, with humility and respect for other cultures. Extremely patient and open-minded to understand, appreciate and work within the diversity of traditions and ways of doing things in different countries (...) . With working experience in several countries, incentives, good language ability" : they act as real insiders in the location.

Human qualities to carry out people issues (redundancies...) .With cross cultural teams : the organization has to cope with short-term misunderstandings, efficiency losses, additional costs. "We have to understand the people first . How they think, what is it they like to do, etc. The human content is crucial for an organization, and we do not manage it like an army."

Capability to translate complex global designs into commonly accepted practices.

Example : what ABB has implemented :

  1. Common official language
  2. Common reporting system/headquarters/currency
  3. Common set of company values
  4. Regular global managers meetings/communication events
  5. International assignments/rotation programs/cross-cultural teams
  6. Sharing best practices/trainees/seminar-discussions
  7. Recognition for behaviour that helps the group
  8. Standardization rules

4. Continuous rotation of people across borders is key to achieve speed of execution

The critical tasks must be completed within 100 days - one should quickly implement changes and integrate merging companies : this requires a well-thought plan of action. But cultural/language barriers mean that there is a need :

  • for internationally exposed managers with the capacity to carry out assignments across borders
  • to rely on local people and existing employees (especially in unfamiliar cultures)
  • for cross-cultural teams
  • for cross-cultural rotation
  • for centres of excellence

Air France currently encourages its managers to work abroad, and plans to create cross-cultural teams. We asked Thierry de La Prade whether he would mind working with Dutch staff and here is his answer : "I might soon be in charge of a Dutch team and I must say that I have absolutely no apprehension concerning such a multicultural cooperation".

It is also essential to respect local staff to be sure that it will contribute to the success of the merger (see figure below). This is why there was no demand of Japanese obedience on behalf of Renault : the work is based on Nissan internal forces, which is motivating for the Japanese because they are really empowered. Moreover, French teams refused to disturb the hierarchy in the organization of Nissan : they created new roles and functions for themselves so as to avoid to replace some Japanese people, and they also promoted some Japanese managers.

Whereas staff rotation was not organised on a big scale at DaimlerChrysler.

This measure refers to the idea that one should "share power to expand it": to empower followers increases the efficiency of the whole organization. Delegation does not mean abdication, and it is essential to show that employees participate in the well-being of the organization to motivate them (Human Relations School).


There must be :

  • Effective top management communications "walk the talk" and lead by example
  • Articulating communications and coaching programs to create global values. "We need to make sure that our company mission, goals and customer service approaches are shared amongst every one of our employees" through means of communication such as internal TV, magazines, formal cascade communication
  • Global manager meetings which lead to building company values across diverse national cultures

In Air France, "priority is given to the harmonization of customer services" (Thierry de La Prade).

For Renault, it was essential to bring softly a new business ideology to Japanese managers. The Japanese paid only attention to sales figures, contrary to the French who thought in terms of profit, rentability, performance and market shares. That is why Ghosn decided to teach the Japanese how to be more efficient and quick, to share and to exchange. He favoured communication and tried to get closer to workers by visiting plants for example, so as to show that he acted for them and with them. But Ghosn was also severe and made the most of his strong leadership and charism to motivate the workers.

We can link this idea to the theory of group formation: at the forming stage, the Japanese organization was irregular and not always rational (subsidiaries were not clearly organized, the firm lost money because of a lack of communication concerning financial costs for example...). The French teams sent to Japan implemented the storming stage thanks to a clear methodology and a clarification of the common goal (profit). The norming stage began when French and Japanese teams succeeded in working together in clarifying common actions and this led to the performing stage, which allowed to save Nissan.


The negotiation and conflicts resolution tolls are taken from the course given by Dr. Leslie J. Shaw.


  1. Après la fusion, sept clés pour réussir l'intégration HABECK, KROGER, TRAM
  2. Taken for a Ride: How Daimler-Benz Drove Off With Chrysler VLASIC and STERTZ
  3. Managing cultural differences PIERO MOROSINI


  1. The Standard, Nov 8 2003
  2. The Detroit News, Oct 15 2003
  3. Les Echos, Oct 2003
  4. Le Figaro Economie, Oct 2003
  5. Le Temps, Oct 2003
  6. L'Express,"L'entretien: Carlos Ghosn", Sept 2003
  7. Businessweek, Sept 29 2003
  8. Observatoire des groupes Daimler-Chrysler, 2002
  9. Challenges, "Nissan, l'effet Ghosn", Feb 2001
  10. Challenges, "DaimlerChrysler: les sept erreurs de Schrempp/les sept mérites de Schweitzer", n°159.




  1. Lexis Nexis
  2. Chloé


Thierry DE LA PRADE: sale position in AIR FRANCE

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