Killian McCarthy is a Professor of Strategy at Radboud University. He has studied the performance of more than 500,000 mergers and acquisitions and, in this series of articles, highlights some of the key factors behind their success and failure.
By Killian McCarthy
Mergers and acquisitions (M&A) are inherently risky: research consistently suggests that around seventy percent fail. A simple indicator of success or failure is whether the deal is cross-border or domestic—one of the most established predictors in academic literature.
The grass is greener on the other side
Cross-border deals can be appealing: they offer opportunities for economies of scale, market diversification, and growth in high-potential sectors or regions. For example, in 2018, Heineken acquired a 40 percent stake in China Resources Beer (CRB), the largest beer company in China, to expand its position in Asia and benefit from CRB’s distribution networks and production scale.
As a result, Heineken was able to reduce costs while simultaneously strengthening its market position in the world’s largest beer market. In 2023, Heineken’s sales rose by five percent, and the premium segment—including Amstel and Heineken—grew by nearly twenty percent.
The burden of being foreign
However, such international opportunities come with significant risks. Studies suggest that failure rates rise to ninety percent when companies move from the domestic to the international market. This added risk is referred to as the liability of foreignness.
Foreign companies operate in unfamiliar environments, with different regulations, competitive dynamics, and—most importantly—cultural norms. This leads to more delays, disruptions, and additional costs. Research suggests, for example, that acquisitions involving large cultural distances result in up to 40 percent higher integration costs. Hofstede’s famous cultural dimensions help visualize how foreign targets differ from what domestic buyers are used to and thus highlight potential problems.
The consequences of such soft factors can be significant: a Harvard Business Review study reports that up to thirty percent of senior managers from acquired companies leave within the first year due to cultural clashes, resulting in substantial knowledge loss and operational disruptions.
A good example of this is ING’s acquisition of the American insurance company ReliaStar in 2000. The cultural conflicts and operational difficulties ING encountered led the company to withdraw from the U.S. insurance market in 2010, incurring a loss of around four billion dollars.
Balancing risk and reward
However, research shows that companies can succeed internationally if they develop integration capabilities. And that’s not rocket science: studies suggest that simple things like clear, structured communication can improve performance by fifteen percent and increase employee retention by up to 20 percent. The secret lies in preparation and recognizing that deals in Berlin, Boston, or Beijing don’t yield the same synergies with the same level of integration effort as a deal in Breda. But they can generate superior synergies—provided the buyer is willing to put in the extra effort.
Key Takeaways:
• More than seventy percent of acquisitions fail to deliver the desired results.
• Cultural challenges are as relevant in Berlin and Boston as they are in Beijing.
• Cultural challenges increase the chance of failure by up to twenty percent, potentially pushing the failure rate to ninety percent.
• Cultural distance can raise integration costs by up to forty percent.
• Up to thirty percent of senior managers leave within a year due to cultural clashes.
• Effective integration can reduce the failure rate by fifteen percent and increase employee retention by twenty percent.
Dr. Killian J. McCarthy is a Professor of Strategy at Radboud University, an institution ranked among the global top 100 universities. Killian’s research focuses on the impact of corporate tools—such as corporate venture capital, strategic alliances, divestitures, and especially mergers and acquisitions—on the financial and innovation performance of firms. He has studied the outcomes of more than 500,000 acquisitions, primarily in high-tech sectors such as the pharmaceutical industry. His work has been published in leading academic journals such as Research Policy and influential outlets like the Harvard Business Review.
