CULTURE INTEGRATION IN CROSSBORDER MA IN FINANCE INDUSTRY IN VIETNAM

TABLE OF CONTENTS LIST OF ABBREVIATON LIST OF FIGURES AND TABLES INTRODUCTION.....................................................................................................1 CHAPTER 1: THEORETICAL FRAMEWORK .................................................7 1.1 Overview of crossborder MA.....................................................................7 1.1.1 The definition of crossborder MA ........................................................7 1.1.2 Motives for crossborder MA.................................................................8 1.1.2.1. Motives for FDI....................................................................................8 1.1.2.2. Motives for crossborder MA..........................................................10 1.1.3 The MA modes.....................................................................................12 1.2 Overview of Culture in the organization.....................................................14 1.2.1. The background of culture .....................................................................14 1.2.1.1 The definition of culture......................................................................14 1.2.1.2 Levels of culture..................................................................................15 1.2.2 National culture .......................................................................................17 1.2.2.1 The definition of national culture .......................................................17 1.2.2.2 Hofstede’s theory on national culture ................................................18 1.2.3 Organizational culture .............................................................................20 1.2.3.1 The definition of organizational culture .............................................20 1.2.3.2 Schein’s theory on organizational culture..........................................20 1.2.3.3 Types of organizational culture ..........................................................22 1.3 Culture integration in crossborder MA..................................................23 1.3.1 The definition of culture integration .......................................................23 1.3.2 The theories of culture integration ..........................................................26 1.3.2.1 Mercer’s theory about MA culture integration ...............................26 1.3.2.2 Zhu and Huang’s theory about principles of culture integration management ....................................................................................................27 1.3.3 The impacts of culture on crossborder MA performance...................28 1.3.3.1 Positive effects ....................................................................................28 ii 1.3.3.2 Negative effects ...................................................................................29 CHAPTER 2: THE ANALYSIS OF CULTURE INTEGRATION IN CROSSBORDER MA IN FINANCE INDUSTRY IN VIETNAM ..............................30 2.1 The actuality of crossborder MA in Finance Industry in Vietnam......30 2.1.1 Crossborder MA in Banking sector ....................................................30 2.1.2 Crossborder MA in Insurance industry..............................................33 2.1.3 Crossborder MA in Securities industry ..............................................35 2.1.4 Crossborder MA in Financial services sector .....................................37 2.2 The case studies of culture integration in crossborder MA in Finance Industry in Vietnam ............................................................................................38 2.2.1 The acquisition of Andersen by KPMG in Vietnam...............................39 2.2.1.1 Case Description.................................................................................39 2.2.1.2 The analysis of culture integration after MA...................................41 2.2.1.3. The results of culture integration and summary of implications from the case............................................................................................................52 2.2.2 The case of HSBC and Bao Viet.............................................................54 2.2.2.1 Case Description.................................................................................54 2.2.2.2 The analysis of culture integration after MA...................................57 2.2.2.3 The results of culture integration and summary of implications from the case............................................................................................................63 CHAPTER 3: THE RECOMMENDATIONS FOR THE BETTER CULTURE INTEGRATION IN CROSSBORDER MA IN FINANCE INDUSTRY IN VIETNAM ...............................................................................................................65 3.1 Forecast crossborder MA activity growth in Finance Industry in Viet Nam for 20162020...............................................................................................65 3.2 The recommendations for the better culture integration in crossborder MA in Finance Industry in Vietnam...............................................................68 3.2.1 The recommendations in the prestage of crossborder MA in Finance Industry in Vietnam..........................................................................................70 3.2.1.1 Culture Awareness ..............................................................................70 3.2.1.2 Effective Planning...............................................................................72 iii 3.2.2 The recommendations in the poststage of crossborder MA in Finance Industry in Vietnam..........................................................................................75 3.2.2.1 Topdown and constant communication .............................................75 3.2.2.2 Active management of the cultural integration process .....................77 3.2.2.3 Retaining key people...........................................................................80 3.2.2.4 Crosscultural Training ......................................................................82 CONCLUSION........................................................................................................84 REFERENCES

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

-o0o -

GRADUATION THESIS

Major: International Business Economics

CULTURE INTEGRATION IN CROSS-BORDER M&A IN FINANCE INDUSTRY IN VIETNAM

Student‟s name : Vu Thu Huong Student ID : 1211150061 Class : A25 – High Quality Program Course No : 51

Instructor : Nguyen Thi Viet Hoa

Hanoi, May 2016

TABLE OF CONTENTS

LIST OF ABBREVIATON

LIST OF FIGURES AND TABLES

INTRODUCTION 1

CHAPTER 1: THEORETICAL FRAMEWORK 7

1.1 Overview of cross-border M&A 7

1.1.1 The definition of cross-border M&A 7

1.1.2 Motives for cross-border M&A 8

1.1.2.1 Motives for FDI 8

1.1.2.2 Motives for cross-border M&A 10

1.1.3 The M&A modes 12

1.2 Overview of Culture in the organization 14

1.2.1 The background of culture 14

1.2.1.1 The definition of culture 14

1.2.1.2 Levels of culture 15

1.2.2 National culture 17

1.2.2.1 The definition of national culture 17

1.2.2.2 Hofstede’s theory on national culture 18

1.2.3 Organizational culture 20

1.2.3.1 The definition of organizational culture 20

1.2.3.2 Schein’s theory on organizational culture 20

1.2.3.3 Types of organizational culture 22

1.3 Culture integration in cross-border M&A 23

1.3.1 The definition of culture integration 23

1.3.2 The theories of culture integration 26

1.3.2.1 Mercer’s theory about M&A culture integration 26

1.3.2.2 Zhu and Huang’s theory about principles of culture integration management 27

1.3.3 The impacts of culture on cross-border M&A performance 28

1.3.3.1 Positive effects 28

1.3.3.2 Negative effects 29

CHAPTER 2: THE ANALYSIS OF CULTURE INTEGRATION IN CROSS-BORDER M&A IN FINANCE INDUSTRY IN VIETNAM 30

2.1 The actuality of cross-border M&A in Finance Industry in Vietnam 30

2.1.1 Cross-border M&A in Banking sector 30

2.1.2 Cross-border M&A in Insurance industry 33

2.1.3 Cross-border M&A in Securities industry 35

2.1.4 Cross-border M&A in Financial services sector 37

2.2 The case studies of culture integration in cross-border M&A in Finance Industry in Vietnam 38

2.2.1 The acquisition of Andersen by KPMG in Vietnam 39

2.2.1.1 Case Description 39

2.2.1.2 The analysis of culture integration after M&A 41

2.2.1.3 The results of culture integration and summary of implications from the case 52

2.2.2 The case of HSBC and Bao Viet 54

2.2.2.1 Case Description 54

2.2.2.2 The analysis of culture integration after M&A 57

2.2.2.3 The results of culture integration and summary of implications from the case 63

CHAPTER 3: THE RECOMMENDATIONS FOR THE BETTER CULTURE INTEGRATION IN CROSS-BORDER M&A IN FINANCE INDUSTRY IN VIETNAM 65

3.1 Forecast cross-border M&A activity growth in Finance Industry in Viet Nam for 2016-2020 65

3.2 The recommendations for the better culture integration in cross-border M&A in Finance Industry in Vietnam 68

3.2.1 The recommendations in the pre-stage of cross-border M&A in Finance Industry in Vietnam 70

3.2.1.1 Culture Awareness 70

3.2.1.2 Effective Planning 72

3.2.2 The recommendations in the post-stage of cross-border M&A in Finance

Industry in Vietnam 75

3.2.2.1 Top-down and constant communication 75

3.2.2.2 Active management of the cultural integration process 77

3.2.2.3 Retaining key people 80

3.2.2.4 Cross-cultural Training 82

CONCLUSION 84 REFERENCES

LIST OF ABBREVIATON

AEC ASEAN Economic Community

FDI Foreign Direct Investment

FTA Free Trade Agreement

GDP Gross Domestic Product

MNE Multinational Enterprises

MNC Multinational Corporation

SBV State Bank of Vietnam

SOE State-owned Enterprises

TNC Transnational corporation

TPP Trans-Pacific Strategic Economic Partnership Agreement

UN United Nations

UNESCO United Nations Educational Scientific and Cultural Organization

LIST OF FIGURES AND TABLES FIGURES

Figure 1.1: Driving Forces Behind Cross-border M&A 11 Figure 1.2: Levels of culture 15 Figure 1.3: Model of organizational culture 21

Figure 1.4: The relationship between culture types in terms of the degree of restrain

they place on individuals 22

Figure 1.5: Modes of organizational and individual acculturation in M&A and its

potential outcomes 25 Figure 1.6: Eight-step cultural integration process 26

Figure 2.1: The Hofstede‟s national culture index, Vietnam in comparison with

China and the UK 57

TABLES

Table 2.1: Cross-border M&A deals in 2007-2012 32

Table 2.2: Comparison of empirical data and Hofstede„s (2005) cultural

dimensions 42

INTRODUCTION

1 Background of study

In the age of globalization, FDI is an integral part of an open and effective international economic system and a major catalyst to development The majority of FDI activities have been in relation to TNCs which penetrate into host market by two widely used modes: cross-border M&A and Greenfield Investment In practice, M&A has been adopted as a core growth and expansion strategy and made the higher-equity end of themenu Global FDI inflows jumped 36% in 2015 to an estimated $1.7 trillion, their highest level since the global economic and financial crisis of 2008-2009 (UNCTAD, 2016, p.1), which pegged the increase to a wave of cross-border M&A

M&A activities cover a variety of industrial sectors in the economy, in which global financial services sectors including: banking capital markets, insurance, wealth and asset management have experienced an increase in recent years A significant volume of M&A activity was seen within the Financial Services Industry, with over £265.1 billion of deals announced worldwide by the end of third quarter

of 2015 (Deloitte, 2016, p.1) In Vietnam, banking and insurance are considered as two potential fields for investment and M&A deals The main reason why M&A activity in Finance, especially in Banking sector in Vietnam, draws high attention is not only the upward trend of M&A on a global scale but also the banking restructuring scheme, launched by the SBV

Despite of the fact that M&A, in general, and M&A in Financial sector, in particular, have gained popularity and made up large proportion of international investment, there are some challenges to be successful M&A Many researches have underlined the high rate of failure among international M&A and the difficulty to achieve expected results The failure rate for M&A sits between 70 percent and 90 percent (Harvard 2015) The reasons for international acquisition failures derive from different issues and explained in different ways; however, it is generally agreed that there are three main factors: the financial, the strategic and the cultural The high rate of failure of M&A which has been analyzed by many researchers primarily relates to business and financial misfit; while cultural issues have been

left with less concern Nevertheless, Cartwright (2006) highlights that the successful management of integrating companies involved and their cultures is the key to attaining the desired M&A outcomes Differences in culture make integration process more difficult, resulting in dissimilarities in organizational and administrative practices and employee expectations In the case of cross-border M&A, many cultural conflicts often ariseregarding not only the corporate culture, but also the national culture corresponding to the habit, thoughts and beliefs, which has an influence on thecorporate culture depending on the country in which the company evolves, stating that one of the key factors of M&A activity is culture integration

The analysis of the impacts of cultural aspects on M&A deals in financial sector would create conditions for international integration process smoothly; more specifically, assist financial organizations to implement M&A rationally which takes cultural elements into account of making decisions: whether making a deal or not, culture-related issues during M&A negotiation and how to harmonize different culture to develop business strategy in the post –M&A stage, reaching the ultimate goals of generating more profit for the newly built entities; therefore, I would like to

write a thesis with the topic: “Culture Integration in cross-border M&A in

Finance Industry in Vietnam”

2 Literature Review

Cross-border M&A has become one of the leading approaches for financial firms to gain access to global markets Yet there has been little progress in the research exploring the role that culture may play in the success or failure of these ventures, especially the studies conducted by Vietnamese researchers

On the culture levels context, a diversity of studies was conducted based on

national culture and corporate culture In the world, researchers have begun to develop comprehensive assessment of the role of organizational culture in the M&A process (Cartwright & Schoenberg, 2006; Stahl&Voigt, 2008) One review concludes that the study of culture in M&A is still inits infancy and that current research is too inconsistent to support clearconclusions about the positive or negative role that culture can play during M&A (Teerikangas& Very, 2006) A

second line of research unique to cross-border M&A in particular isunderstanding

the effect of differences in national culture The research on this issue, however,

has been inconclusive Ahern et al (2011), Datta et al (1995), Barkema (2008), and Das (2003) have concluded that cultural differences have a negative impact on M&A transactions, whereas Chakrabarti et al (2005), Morosini et al (1998), Doukas et al (2007), Brown et al (1989) have found that cultural differences have the capacity to generate a positive impact regarding the long-term performance of the combined firm

In terms of research methodology, research can be conducted by two sorts of

research methods: qualitative method and quantitative method The culture is a broad and intangible entity which is subject to the personal opinion and preconceptions of the researchers There is no definite model to observe culture, and the author realize that the measurement, collection and interpretation of the data on culture are affected by subjective factors, whether the judgement is based on quantitative or qualitative data However, almost of researchers studying cultural aspects in cross-border M&A have used more qualitative method than quantitative one, particularly, qualitative case studies approach There are two typical master thesis analyzing culture integration in M&A and using the case study of Andersen acquisition by KPMG in Vietnam (Karol Duda – Hong Y Pham, 2009; Jing Chen –

Vi Nguyen, 2010) More specifically, the methodology in those researches is interpretive and exploratory approach They drew conclusions on the basis of similarities and differences analyzed from the qualitative data, gaining an all-round view on culture from different levels of the two companies Rather than collecting large data for statistical and generalization purpose, a qualitative study is used to present empirical investigation from real life experience and consequently search for an understanding Nevertheless, there still exists a research called “Mars-Venus Marriage: Culture and Cross Border M&A” (Rajesh Chakrabart, Swasti Gupta-Mukherjee, Narayanan Jayaraman, 2008) using quantitative method which studied the performance of over 1150 cross-border acquisitions between 1991 and 2004 involving acquirers from 43 countries and targets from 65 countries This eventually found that long-term stock market performance of the acquiring firms is positively

and significantly related to the cultural distance between the target and acquirer Besides, there are some researchers using descriptive approach, based on literature review and the typical one could be the bachelor thesis conducted by Daan (Perhlen, 2010) The information presented in the paper relied on existing knowledge which originates from respected academic journal articles, books and data from reliable and qualified organizations

In Vietnam, there has been almost no study specifying the culture integration

in cross-border M&A, except for an article “M&A and cultural impacts” written

by MA.TrinhThiPhanLan and MA.NguyenThuyLinh, Vietnam National University This article was posted on Science Magazine of Vietnam National University in

2010 The content of this article mentions about the characteristics of cultural

aspects in M&A activity and the cultural factors in contributing to the success of integration process However, this article just covers the surface of the cultural issues in M&A activity without having a deep knowledge about how cultural elements affect the consolidation process and how to deal with the matters of culture to promote the efficiency of M&A transactions However, this article was

the first Vietnamese publication that addressedthe cultural aspects in M&A activity

It is clear that both Vietnamese and foreign research studies on the overall situation with a broad view, especially, do not make concentration on any specific fields in the economy, particularly finance industry Moreover, the previous studies often focus on mentioning only national culture or corporate culture, instead of both

of them Therefore, by dint of digging deeper into the culture integration process in cross-border M&A in Finance Industry in Vietnam, the author hopes that this thesis would be a good reference in the future

3 The purpose of study

The purpose of this research is to provide a deep understanding about the characteristics and outcome of cultural integration as influenced by both national culture and organizational culture in cross-border M&A in the context of financial sector in Vietnam In this way, there are three main missions within the research Firstly, the author will build theoretical framework about the cross-border M&A and the culture in the organization Accordingly, the author will analyze two M&A

case studies in finance industry in Vietnam on the basis of theoretical framework Finally, the analysis of case studies will play a basic role of important purpose which formulates some recommendations to improve the effectiveness of accommodating different culture after M&A in Vietnam

4 The scope and object of research

The scope covered by this research is the cross-border M&A in Finance Industry in Vietnam; however, the narrow object of this thesis is about cultural aspects The thesis just concentrates on two particular M&A deals: the case of Bao Viet and HSBC; the case of KPMG Vietnam and Andersen Vietnam, ultimately aiming to point out that two possibilities in the post-stage M&A may exist: successful culture integration and culture integration in failure and then draw lessons to financial firms within Vietnam to better integrating culture after M&A The thesis will focus on making evaluation over the period of 2000-2015 and give some predictions until

2020

5 The method of research

The author uses the analytic and synthetic method on the basis of information

collected from secondary data sources such as books, published articles, existing studies and documents, websites These materials provide support to analyze culture integration in cross-border M&A in Finance Industry in Vietnam Besides, the

thesis utilizes comparative methods to give implications in order for financial

institutions to have better culture integration after cross-border M&A within Vietnam

Specifically, in order to fulfill the purpose of this thesis, a qualitative case study approach which allows in-depth, multi-faceted explorations of complex issues

in their real-life settings was chosen The main reason why the author chooses this approach is that case study is considered as a productive approach to offer a deep insight into conflicting literature, as well as developing the ability to generalize from various theoretical stances Moreover, the case studies differ from other qualitative approaches due to their specific focus and the investigation of individual cases, providing an opportunity to observe and analyze a phenomenon and keep a holistic perspective

6 The thesis structure

The thesis is divided into three main parts:

Chapter 1: Theoretical Framework

There will be three main parts in this chapter The first part will be the overview of cross-border M&A from the definition to general knowledge about M&A activity The second part will show the theories on culture and the final one illustrates the theoretical framework about cultural dimensions in M&A

Chapter 3: The recommendations for effective culture integration in border M&A in Finance Industry in Vietnam

cross-This final chapter will propose some recommendations for enhacing the effectiveness of integrating both national and corporate culture between acquired and acquiring firms

CHAPTER 1: THEORETICAL FRAMEWORK 1.1 Overview of cross-border M&A

1.1.1 The definition of cross-border M&A

Together with globalization making the world smaller daily, opportunities for companies to expand across borders have become increasingly attractive As a matter of fact, the contribution of FDI to development is now widely recognized There is a perception, nevertheless, that this contribution can be affected by the way investment enters a country It can be the forms of either Greenfield investment or M&A relying on whether the transaction involves mainly newly created assets coming under control of the foreign firms, or just a transfer of existing assets from local ones, respectively A more and more popular path to the global growth and expansion is through cross-border M&A Cross-border M&A have rapidly increased in recent years, which speeds up the globalisation of industry and reshaping industrial structure on the global scale

Generally, M&A is an activity in which a business obtain the control of other firms through its ownership of part or all the share the businesses have, or companies merged together to improve the size and its operational efficiency as well The M&A, strictly defined, occurs when an operating enterprise acquires control over the whole or a part of the business of another enterprise (OECD, 2000, p.6) Thus, cross-border M&A is regarded as the combination of two or more companies belonging to the same legal entity (or not) to achieve strategic and financial objectives; companies involved in the operation may come from different economic sectors (OECD, 2004, p.2) In other words, cross border M&A is defined

as M&As that involve an acquirer firm and a acquiring firm whose headquarters are located in different countries

Look at the definition of cross-border M&A standing for merger and acquisition, these two terms are often confused and used interchangeably by business and financial executives On the face of it, the difference may not really matter since the net result is often the same: Two companies (or more) that had separate ownership is now operating under the same roof, usually to gain some strategic or financial purpose However, it is necessary to be able to distinguish

these two terms and there are some distinctions from different sources In the case

of M&A, one can draw a further distinction between cross-border mergers, which occur when the assets and operation of firms from different countries are combined

to establish a new legal identity Besides, cross-border acquisitions, which occur when the control of assets and operations is transferred from a local to a foreign company (with the former becoming an affiliate of the latter)(World Bank, 2004,

p.6) However, as stated by Vietnam Competition Law 2004 (Article 17), Merger of

enterprises is the process when one or several firms transfers all their assets, rights, obligations and legal benefits to another firm, and that firm no longer exists in the

market Besides, Acquisition of enterprises is the process that a company buys all or

an enough part of the target company‟s asset to control the whole or one division of the target company

Cross-border M&A have been regarded as a popular strategy for enterprises and an important alternative for strategic expansion The dynamics of cross-border M&A are largely similar to those of domestic M&A Yet, as a consequence of their international nature, they also involve challenges, as countries have different economic, institutional and cultural structures

1.1.2 Motives for cross-border M&A

FDI has played a major role in the increasing economic globalization and Cross-border M&A is the major source of FDI Thus, understanding the motivation FDI and globalization plays a crucial role in identifying the motives for cross-border M&A Theoretical studies on FDI have led to a better understanding of the economic mechanism and the behavior of economic agents, both at micro and macro level Accordingly, the motives for cross-border M&A must be opened This section will firstly illustrate the motives for FDI; after that; the motives for cross-

border M&A will be presented

1.1.2.1 Motives for FDI

There are four popular theories explaining basic motivations that cause a firm to invest abroad rather than export or outsource production to national firms as below:

Product cycle theory

This theory holds that a corporation will first establish itself in its home country, because of some advantage it has over its competitors and the easier accessibility to information about the home market and competitor As the market and the firm mature, it may recognize additional opportunities outside its home country (Madura, 2009, p 7) Therefore, a firm will expand internationally to retain and enhance its position over competitors and to exploit opportunities in foreign markets Corporations which engage in cross-border M&A will have instant access

to local suppliers, distribution channels, and the local market It is more time consuming for a corporation to build up an organization from scratch in a foreign country, because the business has to be set up, and differences in business practices and cultures will be encountered

Theory of comparative advantage

A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries (Krugman&Obstfeld, 2006, p 26) Therefore, corporations in a country specialize in producing the good in which the country has

a comparative advantage which results in production efficiency Comparative advantages allow firms to penetrate foreign markets as it stimulates trade between two countries (Madura, 2009, p 6)

Imperfect markets theory

The imperfect market theory argues that in the „real‟ world production factors, such as capital and labor, are not freely transferable across countries as there are costs associated with this Moreover, there are sometimes restrictions on the transfer

of the production factors (Madura, 2009) Yet countries differ in respect with the resources that are available, this provides motives for firms to expand internationally

Differences in economic and regulatory environment

Mangold&Lippok (2008) and UNCTAD (2000) have concentrated on the differences and changes in the regulatory and economic environment in the nations that the acquiring and acquired corporation operating in UNCTAD (2000, p.182) views cross-border M&A as “strategic responses by companies in order to defend

and expand their competitive positions in a changing environment” According to Madura (2006, as cited in Mangold&Lippok, 2008) a relatively low tax rate in the country where the target firm operates in, an appreciating exchange rate of the local currency compared to the home currency, and the potential for economic growth, positively influence the decision for a corporation to engage in cross-border M&A activity UNCTAD (2000) also views the global deregulation and liberalization in the recent past as an important contribution to the increase of cross-border M&As

1.1.2.2 Motives for cross-border M&A

Why cross-border M&A instead of Greenfield?

In fact, most of the growth in FDI has been attributed to M&A rather than Greenfield investment Compared to Greenfield investment, a cross-border M&A has a number of significant advantages

Firstly, it is quicker Greenfield investment normally requires extended periods of infrastructure construction and organizational development By acquiring

an existing firm, the MNE shortens the time needed to gain a presence and a competitive entry into the market

Secondly, cross-border M&As may be a cost-effective method of gaining competitive advantages such as technology, brand names valued in the target local market, and logistical and distribution advantages, while simultaneously eliminating

a local competitor

Thirdly, specific to cross-border M&A, international economic, political, and foreign exchange conditions may cause market imperfections, which make target firms undervalued A variety of enterprises in Asia have been the target of acquisition as a result of the need of capital injections for competitive survival In general, the small companies with less effective activities will be merged and restructured by larger ones The cross-border M&As not only generate assistance for businesses to take advantage of economy of scale, increasing market share, reducing business expenses but also help businesses productively use the capital as well as other scarce production resources

Driving Forces behind Cross-border M&A

The motives mentioned above hold for explaining two modes of FDI; particularly, the domination of cross-borderM&A in comparison with Greenfield However, scholars have also identified motives which hold more specifically for cross-border M&As Amongst others, MNCs are motivated to undertake cross-border M&As by a number of other factors according to the summary from the UNCTAD in Figure 1.1

Figure 1.1: Driving Forces Behind Cross-border M&A

Cross-border

M&A activity

Changes in the Global Environment

 Technology

 Regulatory Frameworks => New business opportunities and risks

 Capital market changes

Source: UNCTAD (2005)

The drivers of M&A transaction are both macro scope - the global

competitive environment and micro scope the diversity of industry and firm-level forces and actions driving individual firm value The key forces of change in the global competitive environment includes technological change, regulatory change, and capital market change, which generate golden business opportunities for MNEs, which they follow aggressively However, the global competitive environment is really just the playing field, the ground on which the individual players compete MNEs undertake cross-border M&A for a wide range of reasons As shown in

Strategic responses by firms

to defined and enhance their competitive positions

in a changing environment

Firms undertake M&As to

 Access strategic propriety assets

 Gain market power and dominance

 Achieve synergies

 Become larger

 Diversify and spread risks

 Exploit financial opportunities

Time

Figure1.1, the drivers are strategic responses by MNEs to improve their global

competitiveness by

• Gaining access to strategic proprietary assets

• Gaining market power and dominance

• Achieving synergies in local/global operations and across industries

• Becoming larger, and then reaping the benefits of size in competition and negotiation

• Diversifying and spreading their risks wider

• Exploiting financial opportunities they may possess and others desire

1.1.3 The M&A modes

Cross-border M&A may be classified on the basis of different views either relationships for business production line, parties‟ goodwill

In terms of business production line

In terms of relationships for business production line, there are three kinds of cross-border M&A: horizontal, vertical and Conglomerate M&A

A horizontal M&A is an activity occurring between companies in the same

industry It is a business consolidation between firms who operate in the same space,

as competitors that offer the same products Horizontal M&As are common in industries with fewer firms, as the result of the fact that competition is likely to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry This kind of M&A has now gained popularity, because larger companies attempt to create more efficient economies of scale The merging of Daimler-Benz and Chrysler is a popular example of a horizontal cross-border M&A between the US auto company and German auto company

A vertical M&A is an activity between two companies producing different

goods or services for one specific finished product A vertical M&A occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations

Most often the logic behind the merger is to increase synergies of merging firms that must be more efficient operating as one By directly merging with suppliers or distributors, a firm may reduce reliance and enhance profitability There

are 2 types of Vertical M&A: Forward integration (downstream integration) and

Backward integration (upstream integration) Forward integration is a business

strategy that involves a form ofvertical integration whereby activities are expanded

to include control of the direct distribution of its products The case of Walt Disney acquiring the ABC Television in 1996 assisted Walt Disney has become the media company with the presence in 4 distribution systems: cable television, telephone

wires, filmed entertainment and broadcasting Meanwhile, backward integration is

a form of vertical integration that involves the purchase of suppliers Companies employing backward integration will lead to improved efficiency and cost savings Backward integration might not be favorable if a supplier want achieve greater economies of scale and provide inputs at a lower cost as an independent business, than if the manufacturer were also the supplier Starbucks is reputed as a chain of coffee shops and it had acquired lots of coffee farms in China in order to have abundant coffee bean sources

A conglomerate M&A is an activity between firms that are involved in totally

unrelated activities There are two kinds of conglomerate M&A: pure and mixed Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions The benefit of conglomerate merger is that it helps the company

in diversification thus a company is less vulnerable to losses due to decline in sales

in one sector or industry However, the biggest shortcoming of this type of merger

is that company is taking over another company without having any experience about the industry and thus chances of mismanagement and overpricing the target company increase significantly In conglomerate merger, firms find it extremely difficult to merge cultural value, employees and other things in comparison with merger between firms in the same industry

In terms of parties‟ goodwill

From the parties‟ goodwill context, cross-border M&A can be divided into

“friendly” and “hostile” activities Friendly M&A involves that the board of the target firm agrees to the transaction In other words, a friendly takeover occurs when the acquiring company informs the target company's board of directors that it

plans to purchase a controlling interest If the board believes the stock purchase would benefit the current stockholders, they vote in favor of the sale The acquiring company then takes control of the target company's operations and may or may not choose to keep the target company's board of directors in place For example, after a three-month takeover battle between the UK-based mobile group Vodafone AirTouch and the German Telecommunication Mannesmann AG, the agreed to a

"friendly takeover" in February 2000 Vodafone then declared that it would fully respect the corporate culture of Mannesmann, including the employees' co-determination rights

Hostile M&A, by contrast, occurs with being against the wishes of the acquired firm Particularly, a hostile takeover occurs when the acquiring corporation attempts to take over the target corporation, without the agreement of the target corporation‟s board of directors For instance, in 2009, US food company Kraft Foods launched a hostile bid for Cadbury, the UK-listed chocolate maker.Kraft needed Cadbury to provide scale for the snacks business, especially in emerging markets such as India

1.2 Overview of Culture in the organization

1.2.1 The background of culture

1.2.1.1 The definition of culture

The definition of culture has long been a controversial term used in a variety

of ways There are many definitions of the term culture given by anthropologists

and sociologists, and it is difficult to define in a way that gives a delimited and unambiguous meaning However, culture is a very general concept and the definition varies depending on the use and the environment in which we observe

it Culture is not only about nationalities and ethnic groups, but it concerns also communities, organizations, and other systems Indeed, culture is a complex set

of connections and each person belongs to several cultures at the same time, where each culture has subcultures (Helgesson, 1996)

The most important definition of culture is probably offered by Hofstede (1991, p.5) “Culture is a collective programming of the mind that distinguishes the members of one group or category of people from another” Another

commonly used definition is accepted from UNESCO: “Culture is that complex whole which includes knowledge, beliefs, arts, morals, laws, customs, and any other capabilities and habits acquired by a human as a member of society.”Furthermore, Kotler (1991), well known as consultant of big companies such as IBM, General Electrics and Coca Cola, explains that: “The society that people grow up in shapes their basic beliefs, values, and norms People absorb, almost unconsciously, a world view that defines their relationship to themselves,

to others, to nature, and to the universe”.So as to get a comprehensive picture of the society to which a culture belongs, cultural schemes which involve all the cultural components have been created This scheme studies the varieties of culture and attempt to understand them (Cateora, 1991, p.73):Material culture, technology, economics,Social institutions, social organization, education, political structures; Humans and the universe, belief systems; Aesthetics, graphic and plastic arts, folklore, music, drama, and dance;Language

1.2.1.2 Levels of culture

The influence of culture on business practices can be observed in several aspects Alvesson and Berg (1992) mentioned six levels of culture which are illustrated in Figure 1.2

Figure 1.2: Levels of culture

The key challenge is to find out which dimensions of culture are relevant, assess their possible impact, and think up strategies for using them in an ingenious way The need to predict culture is obviously necessary in mergers and joint ventures, because managers from different countries, industries, and companies need

to collaborate to achieve the benefits and goals from the strategic alliances The cultural aspects of influence and their interactions give an insight to the impact of culture on cross border management

Every aspect of influence has its own set of objects and behaviors, beliefs and values, and underlying assumptions They have their own solutions to problems of external adaptation and internal integration Those various solutions may coincide or clash All the aspects may influence the business at hand to some extent

National culture

People of a nation who have specific shared values, preferences and behaviors interact with each other or with an external factor (doing business or managing companies) (Alvesson&Berg, 1992)

Regional culture

The culture is formed in a certain geographical (territory), commercial (market) or ethnic (country) area (Alvensson& Berg, 1992, p.67) Regional cultures have experienced the evolution through geography, history, political and economic forces, language and religion Regional identities may sometimes compete against the national identity Differences may also appear between firms situated in cities and others areas within the same country Those have negative effects on the organizational culture regarding its values andpractices

Industrial culture

Numerous firms in the same industry have much in common from a cultural perspective (Alvesson& Berg, 1992) Industrial culture sets a shared principal assumptions, values and beliefs behind the industry„s institutionallogic

brings together the application of practices and ways of working accumulated in the work context experience

Department Culture

Inside a company, different departments have different cultures because of the environment in which they evolve and tasks they are executing For instance, the marketing department does not have the same perspective and point of view as the

financial department concerning the launch of a newproduct

Social groups in the Organization

Social groups are those which are set up informally in the organizations.It is believed that the cultural patterns attain the form and character as a result of the opposing interests in worker-management relation (Alvesson& Berg, 1992)

1.2.2 National culture

1.2.2.1 The definition of national culture

Among many different definitions available, national culture could be defined

as “the collective programming of the mind which distinguishes the members in one human group from another” (Hofstede, 1991, p.21) Culture represents the way people interact in a group with each other or react with an external outsider The national culture rely people on common history, beliefs, values that are specific to theirculture

Many differences may be found between national cultures due to the fact that those cultures are shaped by common experiences, beliefs and organizations according to national values and orientations Therefore, global organization find it vital to understand how national differences affect links between headquarter and subsidiaries There could be the case that different cultures prefer different rules and behaviors or procedures, and are not willing to change their way of doing things Thus, while executing a M&A, it is essential for the acquiring company to have a basic understanding of the national culture of its target because it will greatly be helpful during the acquisition process while negotiating and start working together,

as well as in the post-acquisition stage while the acquirer have to plan the integration

of its management system as well as shaping the corporate culture together

Organization activity and national culture are closely related Indeed, the national culture where a company is located has influence on many business factors from nation to nation, on which it has consequences Differences in the organizational configuration, work structure and coordination, as well as in the career system will be different from a country to another This is why it is important to study differences and variations in management, practices and attitudes across countries

1.2.2.2 Hofstede’s theory on national culture

With the aim of differentiating national cultures, Hofstede (2001) developed a model through a study in 50 countries, which shows four primary dimensions of cultures This model had emphasized four dimensions of differences among national value systems: Low vs High Power Distance, Individualism vs collectivism, Masculinity vs femininity, Uncertainty avoidance Michael Harris Bond and his colleagues then found a new dimension which was initially named Confucian dynamism Hofstede then incorporated this into his framework as the fifth dimension: Long vs short term orientation

Power Distance

This dimension emphasized people‟s beliefs about uneqal distribution of power and status, and their acceptance of this inequity In countries with a high powerdistance culture, individuals with higher positions receive significant power and employees

in these cultures are likely to accept such centralized power, which implies that they rely on their superiors for direction because they are less likely to participate in the decision-making process On the other hand, in countries with a low power distance culture, people assume to be involved in decision-making, and do not accept easily centralized decisions and power Indeed, employees‟ participation is part of lower distance culture (Hofstede, 2001)

Individualism/Collectivism

Individualism implies to the extent to which everyone is expected to look after himself and his immediate family In a collectivist culture, the interest of the group prevails over the interest of the individual One distinction is reflected in who is in charge of when you set goals In individualist cultures, goals are set with

minimal consideration given to groups In collectivist cultures, other groups are taken into account in a major way when goals are set

In the workplace, in individualist cultures, the employer-employee relationship tends to be established by contract, and hiring and promotion decisions are based on skills and rules; in collectivist cultures, the employer-employee relationship is perceived in moral terms, like family link, and hiring and promotion decisions take employee„s in-group into account

Masculinity/Femininity

Masculinity means that societies where social gender roles are clearly separated Masculine cultures poses assertiveness and give importance to material success, while feminine cultures value modesty, tenderness and quality of life, as well at the workplace (Hofstede, 1991)

Uncertainty Avoidance

Hofstede (1991, p.113) defines this dimension as the “extent to which the

members of a culture feel threatened by uncertain or unknown situations” With

cultures employing high uncertainty avoidance, organizations and individuals used

to doing things in a traditional approach and tend to resist to new technologies because of the potential risks By contrast, with countries posing a low uncertainty avoidance culture, there is less need to predict things and a lower reliance on rules This shows that people are more disposed to adopt and implement new technologies in their work

Long-term versus short-term orientation

Long Term Orientation means fostering of objectives oriented towards future rewards, in particular, perseverance and thrift, while Short Term Orientation stands for the fostering of goals related to the past and present, in particular, respect for tradition (Hofstede, 2001, p.359) Commonly, countries with the influence of Confucianism like China, Japan, South Korea and Vietnam has a higher long-term

orientation level

1.2.3 Organizational culture

1.2.3.1 The definition of organizational culture

According to Hofstede (1991, p.237), organizational culture can be defined

as “the collective programming of the mind, which characterize the members of one organization from others” In some way, corporate culture can be defined as the company‟s shared values, beliefs, business traditions, trading principles and operating ways in the internal work environment, which are embraced by the members of this corporation (Lodorfos and Boateng, 2006)

Additionally, the relevance of the corporate culture has been undoubtedly recognized as a major driver of organizational performance and results, and even of individual performance inside the organization This is why it is undeniable important not to ignore or neglect it while planning and executing cross-border M&A

The organizational culture is mainly affected by the national culture in which the company is established, as well as its headquarters or founders nationality Nevertheless, the national culture part of a firm cannot be directly managed Organizations are small entities and sub-cultures of the wider national culture in which they involve

1.2.3.2 Schein’s theory on organizational culture

The concept of Schein is one of the most remarkable theories of organizational culture He defines organizational culture as the "the basic tacit assumptions about how the world is and ought to be that a group of people share and that determines their perceptions, thoughts, feelings, and, their overt behavior" (Schein, 1996, p.11)

Schein (2004) created a model to represent the elements of organizational culture Schein„s model include three different levels: artifacts, the espoused values, and the basic underlying assumptions shown in Figure 1.3

Figure 1.3: Model of organizational culture

Source: Schein (2004, p.26)

Artifacts

Artifacts contain visible, tangible or verbally identifiable elements in the corporate They may be architecture of its physical environment, furniture, dress codes, working environment, level of formality in authority relationships, technology, products, rites, rituals, myths and stories People may find it difficult

to have a deep understanding about dimensions of artifacts, particularly, fully understand what the artifacts mean, why they have been found, how they interconnect and what deeper patterns they reflect (Schein, 2004)

Espoused Values

When a group cope with a new task, the first solution recommended to solve it which reflects some member„s own assumptions is not yet a shared basis among the group members The group can not feel the same degree of conviction until it has taken some cooperative actions and collectively observed the outcome

of that action If the solution succeeds and continues to work in the group„s subsequent problems, the value will be transformed first into a shared value or belief, and ultimately into a shared assumption

Espoused values can be found in such places as organizational vision, mission, core values, strategy descriptions, performance standards and expectations, and new employee orientation programs (Schein, 2004)

Basic Underlying Assumptions

Underlying assumptions is considered as the deepest level The essence of culture is reflected by the basic underlying assumptions, which are difficult to identify because they exist at an unconscious level When a solution to a problem

is proposed by a leader or a core team, the shared assumptions which are not necessarily related to the espoused values are reinforced and, gradually become taken for granted and treated as a reality (Schein, 2004)

1.2.3.3 Types of organizational culture

According to Harrison (1972), there are four basic culture types (power culture, role culture, task/achievement culture, support culture) for organization To find out the differences, the relationship between culture types is established on the basis of the degree of restraint they place on individuals

Figure 1.4: The relationship between culture types in terms of the degree of

restrain they place on individuals

High individual constraints Low individual constraints

job description for the tasks

Source: Catwright& Cooper (1996)

Power Cultures

It is argued that in power cultures, employees are expected to accept

that the boss knows best, they impose a high level of constraint on the

individuals, and hence they tend to insist on compliance-based level of

organizational commitment from their members (Cartwright & Cooper, 1996)

In M&As, Cartwright & Cooper (1996) again argue that power cultures are

potentially easily displaced in comparison with any other culture categorises,

and tend to be willing partners to any traditional marriage with an acquiring

merger partner of another culture categorises

Role Cultures

Role cultures impose less constraint on the individual than power culture In M&A, if a traditional marriage involves the acquisition of a role culture by a power culture, the acquirer tends to undertake significant resistance to change, argued Cartwright & Cooper (1996)

Task/achievement Cultures

In M&A, as a result of the fact that task cultures are normally experienced by their members to be highly satisfying and require a high degree of commitment, they do not make ideal or acquiescent partners to traditional marriage involving power or role cultures (Cartwright & Cooper, 1996)

1.3 Culture integration in cross-border M&A

1.3.1 The definition of culture integration

When two firms involves in a cross-border M&A, a new culture has to be developed out of two individual cultures during the integration process The processes, resources and operations have to be integrated and cultural integration

is the most important kind of integration

Cultural integration may be defined as a process in which the cultural differences of organizations are recognized and coordinated Cartwright and Cooper (1996) stated that there is interaction and adaptation between the cultures involved in the process Since adaptation is required in this process, they also warn for potential culture clashes and conflicts because sometimes a firm does not want

to change their own culture While two corporations are merging, cultural incompatibilities may exist at different levels:

 Management (Individual, centralized and formal vs Teamwork, decentralized, Informal)

 Authority (Individual decision making vs Groupconsensus)

 Reward system (Based on performance vs Based onloyalty)

 Communication (Exceptional vs.Continual)

The aim of „cultural integration‟ is to eliminate conflicts originated from cultural differences and to make the different cultures co-exist (Zhu and Huang, 2007 Therefore, a successful cultural integration is vital to a successful cross-border M&A, because if the cultural integration is not successful, cultural differences will cause cultural conflicts, followed by loss of productivity Hence, cross-cultural management or acculturation is effective and feasible method to achieve cultural integration

Acculturation is defined as changes induced in two cultural systems as a

result of the diffusion of cultural elements in all of directions According to Cartwright & Cooper (1996), to predict if the combination tends to be a good culture match, people must consider the possible response of the employees of the target firm Many M&As cope with serious problems because one of the partners has a very dissimilar perception of the other„s culture (Cartwright & Cooper, 1996)

It is seriously essential that in an integration situation, organizational members should make evaluation and draw conclusion for the future

The implications of this cultural evaluation process in terms of potential outcomes for the firm are presented in Figure 1.5

Figure 1.5: Modes of organizational and individual acculturation in M&A and

its potential outcomes

Source: Catwright& Cooper (1996)

As per model above, individual is likely to decide:

 That he/she prefers the other culture to his/her existing culture, and thus is

willing to abandon his/her own culture and absorbed completely into the culture of

the other If almost employees of one firm have this attitude, assimilation will

occur (Cartwright & Cooper,1996)

 That he/she has a strong desire to preserve his/her own culture and identify

while perceiving the other culture attractive As a result, he/she would like to

maintain many of the basic assumptions, beliefs, cultural elements, and

organizational practices and systems that make them unique, and at the same time

and is willing to accommodate some aspects into his/her existing culture If almost

employees of one firm have this attitude, integration will occur However,

integration has a high rate for culture collisions because successful integration

requires change and balance between two cultural groups which hardly occur in

reality (Cartwright & Cooper, 1996)

 That he/she wants to preserve own culture and refuses to become a similar

with the other and would not wish to change If the other partner is not ready to

respect this desire and is intolerant of multiculturalism, any effort to change that

culture will face substantial resistance If almost employees of one firm have this attitude, separation will happen If the separation is accepted by the other party, culture collisions would unavoidably happen (Cartwright & Cooper, 1996)

 That he/she does not value his or her own culture, and they do not perceive the other culture as attractive at all If almost employees of one firm have this attitude, deculturation will take place (Cartwright & Cooper, 1996)

This model is introducedto understand the integration in terms of its potential results; howmembers of the acquired want to acculturate to the acquirer

1.3.2 The theories of culture integration

Many scholars around the world have built theoretical studies about culture integration in cross-border M&A However, in this section, the writer just mentions two theories which have gained popularity; they are Mercer‟s theory and Zhu and Huang‟s principles about the management of culture integration in the whole

process of the deal These theories show the general aspects and have the high

applicability for all deals

1.3.2.1 Mercer’s theory about M&A culture integration

Mercer‟s eight-step cultural integration process created a framework for developing an executable process to improve the probability of successful culture integration

Figure 1.6: Eight-step cultural integration process

Source: Mercer(2009)

Step 1 is about creating an overview of the transaction background and

rationable It makes sure that all parties have a full and comprenhensive insight of the context of the deal and the outcomes that nedd to be obtained

Step 2 identifies the degree of integration in two parts First and foremost, it

translates understanding of the deal into a statement of the degree of operational integration at the organizational level, as well as geography, by function and even by program Second, it is about determining the extent of cultural integration required to achieve those outcomes

Step 3 determines the specific behaviors asked to run the combined business

and contain a behavioral assessment of each organization and assessment of their combined future status

Step 4 is about proposing the culture change hypothesis, what changes in

bahaviors have to take place to successfully run the post-deal stage

Step 5 clarifies that the drivers needed to affect those behaviors Step 6 is

about designing the drivers, and Step 7 involves implementing those drivers through an effective change management process Step 8 presents

appropriate measurement and reinforcement of those cultural changes

1.3.2.2 Zhu and Huang’s theory about principles of culture integration management

The construct of cross-cultural management refers to a system that an enterprise, in the course of M&A, chooses adaptive strategy of cross-culture management, eliminates conflicts and unfavorable influences, turn the negative factors into positive ones, and obtains power of the cultural synergy (Zhu and Huang 2007, p.42) According to Zhu and Huang, 2007, cross-cultural management consists out of four interdependent principles to solve cultural incompatibilities: localization strategy, employ the culture of the parent company, cultural innovation,

or evasion tactics

Localization strategy

Together with this strategy, each subsidiary is regarded as independent Thus, each entity can make decision for itself, without being oriented by the parent company, what culture it wants to pursue The subsidiary adapts in this principle to the local culture and customs (Zhu and Huang, 2007)

The employment of the culture of the parent company

There is a case that the acquirer forces its culture on the acquired firm It is being directed, controlled, and supervised by the dominant firm Often employees

of the parent company are appointed to manage the target firm and to ask the local employees to accept the parent company‟s culture (Zhu and Huang, 2007)

Cultural innovation

A new culture is developed through the integration process of the two separate cultures of the organizations involved in the international M&A The two cultures will co-exist and the best of each will be chosen (Zhu and Huang, 2007)

Evasion tactics

This principle is applied when there is a considerable difference between the cultures of the acquirer and the acquired firm The key cultural differences must be avoided; so the problem will not be addressed

Each principles can be combined, which relies on the characteristic of the culture and the demands of the acquiring and target corporation, to deal with cultural clashes

1.3.3 The impacts of culture on cross-border M&A performance

Culture can affect organizations as well as individuals in different ways While some results may be positive, some other may be negative

1.3.3.1 Positive effects

Regarding the potential pros that can arise from culture diversity in a firm, a merger or an acquisition would encourage the partner to learn from each other and their differences Issues may then be approached in a new way or more innovative

by learning from the other, for instance in technologies This can be seen as a knowledge transfer from one company to another, concerning a new market, new technologies Cultural differences may have influence on the extent to which synergies can be realized by enhancing the combination potential of M&A Synergistic complementarities may include different products, R&D know-how, market access, or managerial synergies from applying complementary competencies

Many researches have a positive attitude toward cross-border M &A Morosini, Shane and Singh (1998) studied 52 cross-border M&As between

1987 and 1992, and found thatMNEscanenjoy performance improvement through entering the target market and getting variouspracticesand skills in their national culture Chakrabartiet al (2009) stated that cultural differences may enhanceM&Aoutcomes, and they are sources of synergies Duncan and Mtar(2006), Zaheeret al (2003) referred that the recognition and awareness of cultural conflicts, and several relevant measures will decrease the conflict of cultural pluralism GuWeiping(2004) found that national culture and corporate culture incompatibilitiesnotonly result inculturalconflict, but also the value of cultural innovation

1.3.3.2 Negative effects

Nevertheless, although advantages may arise in a cross cultural alliance, cultural diversity seems to disturb the progress of cohesiveness within the company among its members This low degree of cohesiveness may be problematic for both companies and individuals within those firms Normally, cohesiveness in the company motivates cooperation and more will to come to an end while negotiating

So, if cultural diversity has negative influences on cohesiveness, it will reduce the performance of individuals and the company will suffer from it In addition,this lack of attraction and commitment often promotes conflict in the company, influencing people‟s will to leave the new corporation.Many researchers put their interest on the impacts of culture shock on employees‟ status, psychological actionsandmissions.CartwrightandCooper(1996)emphasizedthatmanagement philosophy and values differences would result in a lot of problems, including senior executives‟ demission

Jemison &Sitkin (1986) stated that the great cultural differences between the two firms tend to result in cultural ambiguity The differences

in organizational culture tend to be the main reason for acquisitions which

is not able to reach the previously desired goals The lack of coordination and measures of conflicts is the key determinant for the poor outcomes of operations caused by cross-border M&A

CHAPTER 2: THE ANALYSIS OF CULTURE INTEGRATION IN

CROSS-BORDER M&A IN FINANCE INDUSTRY IN VIETNAM

2.1 The actuality of cross-border M&A in Finance Industry in Vietnam

Cross-border M&A activities in finance industry in Vietnam are mainly categorized into four sectors: banking, insurance, securities and financial services The deals are conducted under the form of the sales of shares to play role as strategic alliances or 100% acquisition among financial institutions

2.1.1 Cross-border M&A in Banking sector

Cross-border M&A in banking sector in Vietnam has experienced many differently fluctuated periods; however, this section just presents its characteristics from 2005 until now, a period of over ten years Generally, the author divides into three main phases; particularly, the gradually and positively initial point of 2005-2010; the aggressive wave of 2011-2013 and a promising boom of 2014-2016 as discussed in detail as below:

2005-2010 The gradually and positively initial point

On the occasion of Vietnam‟s joining the WTO on 07 November 2006, M&A market in Vietnam strongly attracted foreign investors due to the implementation of international commitments on investment in Vietnam together with positive improvements in the legislation system and policies on foreign investment and investment environment Because foreign banks coming to Vietnam

in accordance with the commitments to open the banking sector to join the WTO, domestic banks have to improve competitiveness So, one of the fastest route and the most effective way to improve the competitiveness of domestic banks is conducting M&A among banks As a result, the wave of acquisition of shares of joint-stock commercial banks of Vietnam occurredactively

2007-2008 could be considered a boom period of the M&A in the field of banking in Vietnam, with more than 10 M&A transactions recorded Obviously, Vietnam banking sector experienced many business co-operation activities between domestic banks with foreign banks, such as the collaboration between HSBC and Techcombank, Habubank and Deutsche Bank, ANZ and Sacombank, Standard Chartered Bank and ACB Foreign banks look for and co-operate with partners that

are joint-stock banks in Vietnam, because these banks are dynamic and have the ability to adapt quickly Besides, Vietnam‟s banks also have golden opportunity to take advantage of modern management technologies from partners, the finance capacity and highly-qualified human resources

In general, M&A market in banking sector in Vietnam in 2005-2010 was not orientated by the central bank or any other author agency, banks come together simply to get benefits from their partner banks

2011-2013 The aggressive wave of M&A banking

The financial sector had been constantly interested by foreign investors during 2011-2012, foreign investors still looked forward to strategic investments in large equitized financial institutions

The positive policies of the central bank about M&A were the important driving forces to promote this activity On 11/02/2011, the SBV issued Circular No 04/2010 / TT-NHNN on the merger, consolidation and acquisition of credit institutions In addition, on 18/10/2011, the SBV had information about the four opinions and direction to implement the policy of restructuring the banking system that was made by the Central Committee of the Communist Party of Vietnam Specially, the 3rd opinion about the merger, consolidation of banks is based on the principle of voluntary, to ensure the interests of depositors and the rights and obligations of all economic stakeholders The SBV said that the merger or consolidation of banks was now objectively inevitable trend to improve competitiveness Merger or consolidation of banks must offer greater added value than individual banks by achieving economies of larger scale, enhancing reputation, brands, reducing costs, mining maximum business advantage of stakeholders, developing customer base, distribution network

In 2012, the Decision No 254/QD-TTg dated 01 March 2012 of the Prime Minister and contents of the Scheme on “Restructuring the credit institutions system

in the 2011-2015 period” was issued in conjunction with the Decision No 254/QDTTg of the Prime Minister (SBV, 2012) According to the roadmap for restructuring credit institutions, the number of commercial banks would be reduced from over 30 to some 15 to 17 by the end of 2017 Key objective of Scheme 254 is

to restructure fundamentally and comprehensively the system of credit institutions

to develop a modern, safe, sound efficient system compliant with international banking standards and practices Weak banks are required to have restructuring plans or merge/consolidate With the strong support of the central bank, M&A in general and inbound M&A in particular in banking sector would surely grow strong

The notable point in cross-border M&A in 2011-2012 was the positive attitude of the bank management board toward M&A activity Instead of trying to against the risk of takeover, the bank had actively looked for M&A partners to survive

Table 2.1: Cross-border M&A deals in 2007-2012

01 1/2007 Citigroup Inc acquired 10% shares of Dong A Bank

02 6/2007 HSBC acquired 15% shares of Techcombankvà rose to 20% in 2008

03 7/2007 Sumitomo Mitsui Bank acquired 15% shares of EximBank, with the

07 8/2008 France's SocieteGenerale acquired 15% of Seabank

08 7/2008 Standard Chartered Bank acquired 15% shares of ACB

09 10/2008 United Overseas Bank acquired 15% shares ofPhuong Nam Bank with

the value of $15.6 million

10 2008 OCBC of Singapore acquired 15% sharesof VP Bank

11 4/2010 VIB sold 15% sharefor Commonwealth Bank of Australia

12 3/2011 IFC acquired 10% shares of VietinBank with the value of 182 million

13 12/2011 The acquisition ofthree banks SCB, TinNghiaBankvàFicombank

14 2011 Mizuho acquired 15% shares of Vietcombank with the value of 567,3

million

15 12/2012 Bank of Tokyo-Mitsubishi UFJ aquired 20% shares of VietinBank with

the value of $743 million

Source: http://www.tapchitaichinh.vn/

In 2013, the number of M&A transactions in banking sector was far more than previous years In particular, two typical cases involving foreign elements were: Two branches of Laos-Vietnam Bank in Vietnam were transferred to BIDV LVB Another acquisition did not disclose the value and was the first case between

a local bank with a foreign group: HD Bank acquired 100% SocieteGenerale Viet Finance (SGVF) belonging to the SociétéGénérale Group of France

2014-2016 A promising boom

In early 2015, the Government asked the SBV, authority agencies and ministries to create conditions to accelerate M&A plans on the basis of voluntary and in accordance with law Instead of the consolidation mainly taking place by the small and weak bank mergers as in the past, the M&A activities in 2015 were mainly the mergers of small bank and national commercial banks The majority of M&A was supported from authority agencies, with aims to merge the banking system, tackle cross-ownership between banks and reduce systemic risks Although the increase in the number of M&A transactions, the goal of reducing the total number of commercial banks to 15-17 banks in 2017 remains a challenge.Besides, referred from WB report (2015), there have been provisions adjustments allowing exceptions about the foreign ownership ceiling; however, foreign banks are not directly involved in recent M&A deals in baking industry This fact is likely to be the result of many factors, such as local banks do not have enough attraction and supportively legal mechanisms Thus, in 2015, M&A between domestic banks mainly took place without focusing on the cross-border M&As

In 2016, the banking sector is expected to continue to be heat up by more M&A transactions, still mainly domestic M&A but inbound M&A when foreign institutions tend to acquire local banks However, cross-border M&A deals still plays an important role Recently, the WB also recommended that Vietnam should increase foreign ownership of domestic banks, loosening up room excess the current level of 30% for the purpose of promoting cross-border M &A in banking sector

2.1.2 Cross-border M&A in Insurance industry

Cross-border M&A activities in the insurance sector in Vietnam market has not been longer a new business strategy These transactions usually takes place at

the corporation level and the result of each deal can affect the subsidiaries operating

in Vietnam, depending on the value and scope of the deal.Vietnam also encourages insurers to implement restructuring plans in order to improve their financial capacity, solvency, the quality of human resources and administration, service and risk management Together with the globalization by promoting the signing of valuable international agreements, Vietnam insurance market is also opening up and offers the most attractive policies for foreign investors

From 1999 to 2005, there were only a few successful deals such as: Allianza Group sold shares of ALLIANZ VIETNAM Insurance (company 100% owned by the German and French) for Australian partners - QBE Insurance Company In 2005, the BIDV purchased the insurance joint-venture between Vietnam and Australia to set up BIDV insurance company (BIC), but then on 28/12/2005, BIDV officially acquired this joint venture BIC with 100% of the capital of BIDV, officially put into operation in early 2006 Another case in this stage was that Japanese Dai-ichi Life purchased Bao Minh CMG to establish the successful Dai-ichi Life Vietnam.In2007, HSBC acquired 10% shares ofBao Viet Corporation and then increased its ownership to 18% At the beginning of 2010, British Prudential announced its acquisition of AIA belonging to the US AIG Finance Group

In recent years, M&A activity in the insurance sector has been powerfully increasing with an upward trend in both the number and value of deals One of the main reasons is because of the scheme "Restructuring the securities market and insurance firms', with the aim to raise financial capacity, corporate governance, risk management and service quality, approved by the Prime Minister through Decision

1826 / QD-TTg dated on 12/06/2012 That becomes the motivation for the insurance companies to urgently seek strategic partners for restructuring In terms of scale of the group, it may be mentioned the deal in 2012, insurer German -Talanx readily poured additional $27 million to increase the holding percentage from 25%

to 31.82% in joint-venture with PVI In late 2012, when the macroeconomic situations even faced to a lot of drawbacks, the leading insurer Sumitomo Life Japan paid $340 million for acquisition of 18% shares that HSBC had invested in Bao Viet for 5 years and officially became a strategic partner of Bao Viet In the