Mergers and acquisitions can be like mixing oil and water when it comes to company culture. In fact, the way people behave and interact within an organization can make or break the success of the deal. By recognizing the impact of cultural influence on M&A, investors can take proactive steps to ensure cultural compatibility and mitigate potential risks as well as adopt proper strategies for bridging the gap between different cultures, which ultimately, ensures the long-term success of any M&A transaction.

Vietnam M&A at a Glance

Over the last 30 years, Vietnam has undergone a remarkable transformation, evolving from a low-income nation to one of the world’s fastest-growing economies. Along with economic growth, merger and acquisition (M&A) activities in Vietnam have also soared, driven by progress in equitization and market liberalization, as evidenced by supportive market regulations for foreign investors.

Data from Capital IQ provides captivating insights into the evolution of Vietnam’s M&A landscape, painting a picture of its awe-inspiring growth. From modest beginnings in the late 1990s, where only a handful of small-scale deals took place, the M&A market has experienced an extraordinary surge, now boasting over 500 annual transactions. Notably, transaction sizes have also experienced a substantial leap, with more than 200 deals exceeding the remarkable threshold of $50 million. This undeniable evidence showcases Vietnam’s thriving M&A environment, making it an irresistible hub of investment opportunities that captivate the imagination of investors worldwide.

KPMG Vietnam reported a decline in M&A activity in 2022, with a 35.3% drop compared to the pre-pandemic levels of the same period in 2021. In the first 10 months of 2022, the total value of M&A deals reached US$5.7 billion, with Singapore being the leading country in cross-border transactions in Vietnam with an estimated $1.2 billion, followed by the US with $570 million and the Republic of Korea (RoK) with $370 million.

However, given the recent slowdown in such activities, experts predict that the market will recover swiftly, continuing to present itself as a safe and alluring environment for investors to pursue new M&A opportunities. Moving forward, M&A activities in Vietnam will shift its focus to four key areas: digital transformation, clean energy, consumer market, and ESG awareness.

Ways cultural factors influence M&A in Vietnam

When preparing for and executing a merger, acquisition, or strategic alliance at an international level, it’s important not to neglect any of these elements: national and organizational cultures, as well as individual cultures. While Vietnamese companies usually retain some features of Asian culture, they still have their own unique values, vision, norms, and working style which might confuse foreigners. This implies the need to pay close attention to these distinctive features that differentiate inhabitants from one country to another, especially since globalization and cross-border deals become more prevalent.

Working Culture

Working culture can vary between different companies and countries. The way how people work and interact with each other will be based on either formal structure, role definitions or even informal relationships.

While the majority of Vietnamese companies place a strong emphasis on collectivism and harmonious relationships, prioritizing long-term orientation over short-term gains, this can potentially conflict with the individualistic working culture in Western companies. Without a comprehensive understanding of acquired companies’ working culture, employees from these companies might respond negatively to working with a “new team” and show reluctance to implement new strategies or embrace changes.

Decision-Making Process

Effective integration requires rapid and precise decision-making. Differences in decision-making and internal communication styles can lead to failure to implement decisions and resources being wasted.

In Vietnam, the decision-making process is heavily influenced by the hierarchy culture and is often made collectively, with a focus on group consensus and relationships. This hierarchical structure can result in a slower decision-making process compared to more democratic cultures since decisions must be approved by higher-ups before they can be implemented. This may result in longer transaction timelines and negotiation processes as decisions must be funneled up the chain of command and approved by multiple levels of management.

Leadership Style

An unfavorable shift in leadership style can impact employees’ motivation and cause uncertainty, potentially resulting in the loss of top talents.

In Vietnam, leadership culture is strongly influenced by Confucian values, with a strong emphasis on respect for authority and seniority. Since Vietnamese culture often places a much heavier emphasis on the collective, articulating high levels of commitment to their leader and the organization, this can oftentimes contrast with Western cultures, where decision-making can be more democratic and consensual. Understanding this difference is really important as it directly impacts the way businesses are structured, how decisions are made, and how employees interact with each other in the post-merger integration phase.

How to Navigate Cultural Differences for Successful Cross-Border M&A

Considering Organizational Redesign

Culture serves as the essence of both a country and an organization. It acts as a powerful adhesive that binds and unifies the entire fabric of an enterprise, creating a cohesive and interconnected system. While intangible in nature, its tangible manifestation can be observed through the organizational structure within a working environment. Therefore, to achieve successful M&A, it is crucial to understand how to effectively embed the cultural factors of foreign companies into Vietnam’s business culture at both the national and organizational levels.

At a national level, culture encompasses a country’s values, beliefs, traditions, and social norms. This understanding of cultural nuances between different countries can be achieved through thorough research and engaging in cross-cultural training, which facilitates the harmonization of organizational cultures involved in the M&A process.

On an organizational level, cultural compatibility between the foreign company and Vietnam’s local business must be evaluated. This process involves assessing organizational structures, communication channels, decision-making processes, and leadership styles. Identifying similarities and differences in these areas allows for the development of effective strategies to embed cultural factors, creating a cohesive organizational culture.

When conducted properly, organizational redesign can establish a united identity and cohesive culture, resulting in improved efficiency and agility. By aligning values, behaviors, and structures, organizations can unlock synergies and better adapt to the changing business landscape.

Codes of Ethics and Business Conduct (COEBC)

Codes of Ethics and Business Conduct (COEBC) serve as specific guidelines, outlining written rules that govern the behavior of an entire organization. However, merging COEBC during an M&A process is often challenging and if not done properly, can become a pitfall leading to failures. One significant issue is aligning leadership styles between the foreign entity and the core values and behaviors of Vietnamese enterprises. Another critical concern is navigating office politics and effective problem-solving within the company post-M&A, which necessitates the presence of an appropriate code of conduct.

Setting a unified COEBC requires careful consideration and action to bridge the cultural and behavioral gaps between the merging entities. It involves harmonizing and integrating the respective codes of conduct, ensuring that they reflect shared values and principles that resonate with both organizations. This process entails engaging in open and transparent communication to address any discrepancies, conflicting practices, or differing approaches to leadership.

Adapting Leadership Styles

The leadership should be proactive in defining, articulating, documenting, and repeating the “new culture” to all stakeholders through internal communication systems and scheduled all-hands meetings. Culture is most effective when it becomes explicit, transparent, and actionable.

Furthermore, leadership should work with all line managers to develop a decision-making philosophy that prioritizes key performance indicators (KPIs) and timelines. This approach ensures that decision-making processes remain efficient and effective, regardless of cultural differences.

Building Strong Employer Branding

In cross-border M&A, a well-crafted employer brand contributes significantly to employee satisfaction and morale. It instills a sense of pride and belonging among employees, fostering a positive work culture and higher levels of motivation. This, in turn, leads to improved productivity, collaboration, and retention rates, which are all essential factors for a successful M&A transition.

Final Thoughts

In the fast-paced business landscape, mergers and acquisitions are becoming the norm, but they bring their own set of hurdles, especially when it comes to blending different cultures. In Vietnam, cultural values and norms differ significantly from those in the SEA regions and the West, making it even more critical to address cultural differences and similarities to ensure the success of the deal.

Harnessing Viettonkin’s years of expertise in consulting services, investors can navigate the cultural complexities of the Vietnamese market with confidence. Here, we gather a team of highly-skilled experts that can assist companies in identifying cultural differences, developing effective strategies for cultural integration, and ultimately creating a more cohesive, united organization.

Don’t let cultural differences derail your M&A deal – contact Viettonkin Consulting today to learn more about how we can help you achieve your business goals.