Open Journal of Social Sciences, 2014, 2, 70-75
Published Online September 2014 in SciRes.
How to cite this paper: Xu, B. and Jiang, X. (2014) Study of Chinese Enterprises’ Overseas M & A: Based on National and
Corporate Cultural Distance. Open Journal of Social Sciences, 2, 70-75.
Study of Chinese Enterprises’ Overseas
M & A: Based on National and Corporate
Cultural Distance
Bo Xu, Xi Jiang
Management School, Shanghai University of International Business and Economics, Shanghai, China
Received May 2014
Chinese enterprises’ overseas M & A reached $43.4 billion in 2012, and the number was 26.3 times
that of 2003. With Chinese enterprises’ increased overseas M & A cases, Chinese are facing the
challenges from culture. This paper studies national cultural distance and enterprise culture dis-
tance, and measure relevant distance for 16 Chinese M & A cases.
Overseas M & A, National Cultural Distance, Corporate Cultural Distance
1. Introduction
AS it can be seen from Table 1, in 2003, Chinese foreign investment was just $2.85 billion. But by 2012, the
scale reached $87.8 billion, which was 30.8 times larger than that of 2003. In 2003, Chinese overseas M & A
volume was only $1.65 billion. By 2012, the amount has reached $43.4 billion, and the number was 26.3 times
that of 2003. Data have shown that, China enterprises are stepping out, this is not only reflected in the newly
foundation, but also in overseas M & A.
According to the UNCTA Report 2013, a great number of M & A in the 211 cases (which money amounts
were above $500 million) failed because of competition, national security review, and cultural differences.
These kinds of failure reached $265 billion. In 2012, failed cases due to cultural issues accounted for 22%; the
number once peaked to 30% in 2010 [1].
The history of Chinese overseas M & A is not long, yet Chinese enterprises are still facing the risk of failure.
According to UNCTA, the failure rate of Chinese M & A is 11% - 12%. ReportChinese Enterprises, Global
Dreamwritten by Accenture, suggested that there are five major obstacles hindering the expansion of enter-
prises. One of the barriers is the difficulty of establishing consistent values worldwide. As to Thomson Reuters’
report, the failed M & As directly or indirectly led by cultural problems account for 80%. This shows that
cross-cultural factor is an important cause of Chinese enterprises’ overseas M & A failure.
After these years’ practices, Chinese enterprises realize the cultural gap between different countries. In this
context, the measurement of cultural distance will help to understand the national cultural difference and corpor ate
B. Xu, X. Jiang
Table 1. Chinese FDI and M & A Performance (2003-2012) (USD B).
Year FDI (A) Overseas M&A (B) B/A (%)
2003 2.85 16.5 57.8
2004 5.5 30.0 54.5
2005 12.26 65.0 53.0
2006 21.16 82.5 39.0
2007 26.51 63.0 23.8
2008 55.91 302.0 54.0
2009 56.53 192.0 34.0
2010 68.81 297.0 43.2
2011 7465 272.0 36.4
2012 877.9 434.0 49.4
Source: 2003-2012 Statistical Bulletin of China’s Outward Foreign Direct Investment; 2003 UNCTAD World Investment Report.
cultural difference. Those can also help to lower the risks from cultural differences.
2. Literature Review
2.1. Cultural Distance
Luostarinen firstly proposed the concept of cultural distance in 1980, and gave the following explanation [2]: the
cultural distance can create demand for knowledge, and can also hinder the exchange of knowledge. Professor
Lee combined cultural distance and psychological distance, and proposed that those distances represented the
differences in language, social policy, and organization structure [3].
Scholars have two different points of view for cultural distance. Berry (1983), Nahavandi & Malekzadeh
(1988), Densi on (2001) argued that cultural distance lead to success, because similar culture reduce employee
concerns and resistance. But there were scholars think long cultural d istance is beneficial. Adler found if effec-
tively managed, high cultural distance also can promote the performance.
2.2. National Cultural Distance (NCD) Measurement
Hofstede is the authority of national culture. Therefore, the national cultural distance data are sourced from
him. Hofstede built cu ltural dimension theory: power distance (PDI), individualism and collectivism (IDV),
masculine and feminine (MAS), uncertainty avoidance (UAI), long-term orientation and short-term orientation
(LTO). By scoring the five dimensions countries’ culture has been measured.
In the method of measuring, there are four main kinds of claims:
(1) Laszlo’s distance calculation formula (Equation (1)) [4]:
i5( )/C/D 5
ij iui
U: mother country; CDj: cultural distance between country u and Coutry j; Iiu: country u’s score in dimension
I; Vi: the variance of dimension i.
(2) Qu Xiaoru’s distance calculation formula (Equation (2)) [5]:
1 12222552
101 010
(CC )(CC )(CCD)C −+−+…+ −=
C C:
dimension i’s cultural score (i=1, 2, 3…),
: mother country’s cultural score.
(3) Kogut and Singh’s distance calculatio n formula (Equation (3)) [6]:
( )/C/D 4
ij iui
CDj: cultural distance between country u and Coutry j; Iiu: country u’s score in dimension I; Vi: the variance of
dimension i.
B. Xu, X. Jiang
(4) Morosini and Shane’s distance calculation formula (Equation (4)):
It is worthy to emphasize, the last two methods, only use four cultural dimensions. The main reason is that at
the time of conducting research, Hofstede had not come the fifth dimensions long vs. short term orientation
(LTO). We can clearly see that the first, third and forth kinds of methods have the same ideas. So the thesis will
follow this way, while taking into the fifth cultural dimensions [7].
2.3. Corporate Cultural Distance (CCD) Measurement
In the quantitative analysis area, there are several representatives which use questionnaire survey and statistics.
a, OCAI scale:
Quinn and Rohrbaugh raised OCAI (OCAI, Organizational Cultural Assessment Instrument). It is based on
the competing values framework and competing values model. According to the survey, there were obvious dif-
ferences in organizational effectiveness, organizational strategy, and decision process. The argument existed that
whether the existing dimensions can be completely covered all aspects of corporate culture?
b, OCP scale
Professor Chatman from the University of California defined organizational culture as members of the shared
value system. He built the organizational values scale (OCP scale) [8]. However, due to the OCP scale’s no de-
scriptive topic specific stem, interviewees need to know the testing professionals and need to be trained.
c, MMOC enterprise culture model
MMOC (Multidimensional Model of Organizational Culture) model was founded by Hofstede. The qualita-
tive measurement methods are based on the collective values and practices. This culture model is worthy of be-
ing discussed in the place where, missing the questionnaire as recognized customer oriented, innovation of the
academic value dimension. Secondly, some descriptions were too vague, which may give respondents confu-
d, DOCQ scale
Professor Denison constructed DOCS scale (Denison Organization Culture Survey). Denison makes full use
of the convenience of the network, through the establishment of a dedicated website:,
to collect data. DOCS’ answers were scored by Likert method. This model provides enterprises with a total of
four kinds of culture-adaptability, consistency, participation, and mission. Each kind of cultural traits corres-
ponds to three dimensions, each dimension corresponds to the 5 problem.
e, Domestic study
Taiwan psychology professor Zheng Boxun, on the basis of previous research, built enterprise cultural values
scale (VOCS scale). Zhang Mian of Tsinghua University based on the research of Quinn, combined with the ac-
tual culture China enterprises, established a special project group, developed by the 5 dimensions, and 20 items
scale [9].
3. National Cultural Distance (NCD) Measurement
We picked Laszlo’s format as measurement method:
( )/CD /5
ij iui
= −
U: mother country;
CDj: cultural distance between country u and Coutry j;
Iiu: country u’s score in dimension I;
Vi: the variance of dimension i.
Also, as is shown in Table 2 below we collected the national cultural scores from Hofstede’s website:
Table 2. National cultural distance between China and sample countries.
USA UK France Australia New Zealand
Japan Korea Brazil Chile
NCD 5.486 5.723 4.703 5.486 4.774 5.158 2.233 2.102 2.313
Source: Hofstede’s cultural dimension theory and Laszlos format.
B. Xu, X. Jiang
4. Corporate Cultural Distance (CCD) Measurement
We referenced Zhang Mian’s measurement model to measure the cultural distance. The measurement model
starts from 5 dimensions: harmony, creation, short-term results, competition, control. We conduct the interviews
through telephone, face-to-face, email, and media report. Then according to the statement, we score their corpo-
rate cultural distance. The results are displayed in Table 3.
Corporate culture measurement scale apply Linkert scoring method, the respondents have to score from com-
pletely conforms to the totally incompatible with the given 1 - 5 points. Through to the horizontal comparison of
domestic and foreign enterprises, the absolute value is culture distance between enterprises.
Through the 16 cases, we get national cultural distance and cooperate cultural distance. Each set of data can
be put into NCD-CCD matrix (Figure 1).
5. Application of NCD and CCD in Cross Cultural State and Enterprise Culture
Distance in Chinese Enterprises’ Overseas M & A Prudence Stage
At the beginning of M & A, in addition of making strategy, searching target, choose a professional intermediary
agencies, more priority should be on investigation the enterprise, namely cultural due diligence. At this stage,
Chinese enterprises should consider establishing cultural due diligence team. The specific work can be done
from the two aspects.
The differences between Chinese and western culture make Chinese enterprises attached great importance to
the national cultural difference. Through the national cultural distance measurement, culture group can roughly
assess cultural differences [10]. Therefore, by Hofstedes culture theory, Chinese enterprises can find the na-
tional cultural distance.
Cultural differences between China and the West are relatively easy to attract attention, but neglected the cul-
tural differences of peripheral countries such as Japan to overseas M & A process. Japan's culture IS born out of
China, it has very deep origin. But due to the different process of political and economic development, Japan
and other countries whose culture are derived from China, transformed to Western cultural essence. By previous
analysis, 2.233 is China and Korean cultural distance. However, China and Japan cultural distance is up to 5.158.
Therefore, in overseas M & A, cultural prudential group should attach great importance to the cultural differ-
ences between different countries.
Table 3. Overseas M & A NCD & CCD score.
BOE-Hyundai Display 2.233 15
Wanda-AMC 5.486 24
Shanghai electric-Japan Akiyama 5.158 27
China LAN-STAR-France Andy Sue 4.703 31
TCL-Thomson, France 4.703 17
Bright Food-UK WEETABIX 5.723 21
Bright food-Mamathan 5.486 32
SAIC-Ssangyong 2.233 32
Meidi-Carrier Latin America 2.102 39
Lenovo-Brazil CCE 2.102 51
Vigor-MLS 2.313 33
Vigor-SAM 2.313 57
Vigor-Maricunga 2.313 5
Vigor-TOKM 4.774 45
Vigor-Maori tower Rui 4.774 42
Vigor-Etika 4.774 11
Source: NCD figures are based on the M&A related two countries and Laszlos format; CCD are based on the Zhang Mian’s measurement model.
B. Xu, X. Jiang
Figure 1. NCD-CCD Matrix. Source: NCD-CCD matrix is based on the numbers which are calculated with Laszlo’s format
and Zhang Mian’s measurement model.
The M & A in same country may experience failure caused by cultural difference. In different countries, dif-
ferent cultural background in two businesses will be more significant.
Investigation and Analysis on the enterprise culture is generally divided into two stages: before the informa-
tion release and after information release. Before the M & A announcement, enterprises often have a number of
candidate target, prudential group need to conduct research for each target enterprises, so as to find out the per-
fect fit in culture. At this stage, because the information is closed, the investigation team can not directly contact
with other enterprises. Only through various channels can they find the information. To be specific, information
collection can be announced material, company website, advertising, management mechanism, annual report,
commercial article, etc. Through all the channels of information collection, culture prudential group can locate
the target enterprise culture. According to the culture measurement scale, CCD can be concluded. Then the team
can make the budget for the integration of various feasible schemes. When the company announced acquisition
information, the cultural enterprises of the investigation can be carried out. To obtain more accurate data, cultur-
al survey information can be published results for inspected and corrected.
6. Summary
We calculated the 16 cases’ NCD and CCD, and come to the matrix. In future work, we will use NCD-CCD
matrix to study Chinese enterprises’ overseas M&A process in different quadrant and the coping strategies.
Supported by Innovation Program of Shanghai Municipal Education Commission (12ZS172), Humanities and
Social Science Research Program Foundation of Ministry of Education of China (11YJA630162), and the re-
search achievement also belongs to the Research Platform (Think-tank) Project of SUIBE in 2014.
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