5 Critical Talent Challenges That Can Make or Break Cross-Border M&A Deals

5 Critical Talent Challenges That Can Make or Break Cross-Border M&A Deals

5 Critical Talent Challenges That Can Make or Break Cross-Border M&A Deals

In today’s era of ongoing business disruption, an increasing number of firms are embracing inorganic growth strategies such as mergers and acquisitions (M&As) to attain a competitive edge, secure new revenue streams, and drive success. Some companies are even resorting to “acqui-hiring,” an acquisition tactic aimed at obtaining talent, to address the challenges posed by a tight talent market and infuse new skills and perspectives into their workforce.

It has been widely observed that the effective management of human capitalโ€”before, during, and after an M&A transactionโ€”can be the decisive factor in its success or failure. The integration and empowerment of the acquired team are critical for them to be fully capable, motivated, and aligned with the buyer’s objectives.

However, the path to success is often fraught with challenges. Research from MIT indicates that up to 33% of acquired employees leave a company within a year, as opposed to 12% of regular hires, while Gallup‘s data suggests that up to 75% exit within three years.

Although corporate transactions are inherently complex and entail HR-related issues, the intricacies of talent engagement become even more pronounced when deals span international borders.

The following outlines some of the prevalent talent challenges that companies encounter during cross-border transactions.

Challenge #1: Communicating with the Workforce

Effective communication within a merged or acquired workforce is crucial for fostering a cohesive and productive environment. The amalgamation of different languages, cultural norms, and communication styles can pose significant barriers. To address this, organizations should prioritize implementing inclusive communication strategies that cater to diverse linguistic and cultural backgrounds. This may involve offering language training programs, providing multilingual resources, and promoting an open-minded approach to understanding and appreciating various communication styles.

Furthermore, leadership plays a pivotal role in setting the tone for effective communication. Managers and executives should actively engage with employees to understand their unique perspectives and communication preferences. By demonstrating a commitment to inclusivity and empathy, leaders can create a supportive atmosphere where employees feel empowered to express themselves comfortably. In addition, leveraging digital communication tools and platforms that support multilingual capabilities can bridge language gaps and facilitate seamless interactions among team members.

Moreover, nurturing a culture of respect and mutual understanding is essential for mitigating communication barriers. Encouraging open dialogue, active listening, and valuing diverse viewpoints fosters an inclusive environment where every employee feels respected and heard. Embracing diversity in communication styles and cultural practices not only promotes unity but also enriches the organizational fabric, leading to heightened morale, enhanced productivity, and sustained employee engagement in the long run.

Challenge #2: Maintaining Company Culture

The foundation of a thriving company lies in its organizational culture. When values and people are overshadowed during a business deal, the integrated company culture suffers, consequently impacting employee engagement.

Managing the amalgamation of two distinct company cultures in M&As can be complex due to the unique nature of corporate culture in each organization.

In cross-border deals, external cultural factors such as language, communication style, and time zone discrepancies can further influence the process of cultural integration.

Nevertheless, it’s important to note that M&As don’t have to detrimentally affect culture. The acquiring company can effectively address this common challenge by identifying and leveraging the strengths of both company cultures.

Through meticulous planning and strategic implementation, there is potential to reconstruct a more robust and unified company culture that resonates with both existing and acquired employees.

Challenge #3: Aligning Compensation and Benefits

Aligning compensation and benefits across diverse workforce groups presents a multifaceted challenge for organizations. Disparities in pay scales, benefits structures, and incentive programs can lead to discontent and hinder employee satisfaction. To address this complexity, organizations should explore strategies aimed at identifying and rectifying these discrepancies while fostering transparency in their compensation and benefits practices.

One approach to aligning compensation and benefits involves tailoring employee benefits to cater to the needs of a diverse workforce. By acknowledging the varying preferences and requirements across different generations and demographic groups, companies can create more inclusive and appealing benefits packages. This not only helps in attracting a diverse talent pool but also contributes to employee retention and satisfaction.

Furthermore, incorporating diversity, equity, and inclusion (DEI) principles into compensation management is crucial for creating a fair and equitable workplace. Organizations can involve diverse employee groups in compensation discussions to gain insights into their unique needs and preferences. Implementing a compensation philosophy that considers the demographic makeup of the workforce, analyzing employee groups, and establishing fair pay structures are essential steps in adapting compensation to the diverse workforce.

Additionally, tying executive compensation to DEI goals can serve as a powerful incentive for promoting inclusivity and equity within the organization. By aligning executive compensation with diversity, equity, and inclusion objectives, companies send a clear message about their commitment to fostering a diverse and fair workplace culture.

Ultimately, the alignment of compensation and benefits across diverse workforce groups requires a comprehensive and strategic approach that prioritizes fairness, transparency, and inclusivity.

Challenge #4: Onboarding Employees

Efficient onboarding plays a pivotal role in integrating new employees into the organizational structure and acquainting them with the companyโ€™s policies, procedures, and expectations. However, in the context of cross-border M&A, standardizing the onboarding process across different geographical locations poses a significant challenge.

One of the key hurdles in cross-border M&A onboarding is aligning the onboarding experience with the diverse legal and cultural landscapes of each location. This requires a deep understanding of local labor laws, compliance regulations, and cultural nuances to ensure that the onboarding process is not only consistent but also tailored to meet the specific requirements of each region.

Moreover, language barriers and communication differences can further complicate the onboarding process in cross-border M&A. Effective communication is essential for conveying critical information to new employees, and accommodating various languages and communication styles is crucial for ensuring that the onboarding process is accessible and impactful for all employees, regardless of their location.

Additionally, navigating the intricacies of benefit packages, payroll systems, and other administrative processes across different regions demands meticulous attention to detail. Harmonizing these aspects of onboarding while complying with local regulations and market practices is essential for creating a seamless and equitable onboarding experience for all new employees, regardless of their location.

In essence, successful onboarding in cross-border M&A necessitates a comprehensive approach that integrates legal compliance, cultural sensitivity, effective communication, and harmonized administrative processes to ensure that new employees feel welcomed, informed, and empowered to contribute to the organization from day one.

Challenge #5: Mitigating Regulatory Compliance Risks

The pressure on companies to achieve rapid growth and cost savings often leads to short-sighted decisions, which can prove to be expensive for the acquiring company post-deal closure. Similarly, these decisions can also result in substantial costs for the seller if deficiencies emerge during the due diligence process.

For instance, while opting for independent contractors may seem to offer cost containment, it may not always be a suitable alternative to permanent employment. Improper management of this relationship can expose a company to legal and operational challenges, potentially transferring liabilities and costs to the buyer if misclassification issues arise. Sellers should also carefully assess this aspect before entering into an asset deal.

Furthermore, even after establishing a legal entity in the target country, the HR team faces new responsibilities related to tax, payroll processing, benefits, and more. Each of these tasks carries its own intricacies. For instance, managing cross-border payroll processing can be further complicated by diverse payment methods, bank fees, currency exchanges, and other factors. These complexities demand careful consideration to ensure compliance and operational efficiency.

Solution: Is an Employer of Record (EOR) Right for Your M&A Strategy?

Amidst the myriad talent management challenges that may arise in a cross-border M&A deal, there exists a potential solution. Numerous companies have discovered that engaging with an Employer of Record (EOR) can effectively enhance employee engagement and address common pain points in regulatory compliance, onboarding, benefits, company culture, and communication.

An EOR, such as GoGlobal, is an entity with established legal presence in the target countries where a company (the EORโ€™s client) intends to recruit talent. It assumes the legal employment of local workers on behalf of the hiring company, relieving the hiring company of direct employment responsibilities. The EOR manages payroll processing and other HR tasks, while the worker remains under the management of the hiring company, carrying out day-to-day duties as any other team member.

The EOR hiring model proves valuable in specific scenarios, including deals involving assets spanning multiple countries, orphaned employees, and misclassified workers. This model ensures that hiring and compliance are duly addressed, allowing companies to focus on integrating their business activities. Meanwhile, critical HR processes such as onboarding, payroll, and benefits are efficiently managed by the EOR.

An EOR solution can serve as a temporary bridge to facilitate a transaction or as a long-term strategy to support global operations. Given its numerous advantages, many prominent global enterprises are adopting the EOR hiring model to position talent management as a cornerstone of their M&A strategy.

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Jennifer Tierney

Jennifer Tierney

Jennifer comes from a discipline of Operations, including Finance and Technology. Having worked in operational and financial management for more than fifteen years, Jen has a distinct set of skills and is known for complex analysis of operations, finance, and technology to improve core business strategies.

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