International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in the cross-border interaction process [1 ed.] 9783954895021, 9783954890026

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Patrick Daum

International synergy management

Copyright © 2012. Diplomica Verlag. All rights reserved.

A strategic approach for raising efficiencies in the cross-border interaction process

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Patrick Daum International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process ISBN: 978-3-95489-502-1 Fabrication: Anchor Academic Publishing, an Imprint of Diplomica® Verlag GmbH, Hamburg, 2013

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Acknowledgement I would like to thank my facilitator Ms Frances Trought for her guidance and advice during the development of this study. I appreciate the support of all company representatives who found the time to fill out

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the questionnaire or answer my questions.

 

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Abstract Global economic integration has changed business conditions significantly. Due to their limited financial and human resources it was initially difficult for German small and medium-sized businesses to internationalize. Nowadays, this business segment is heavily approaching foreign markets. Export is still the dominating internationalization mode, however it is supplemented by the relocation of selected business activities or entire value networks to foreign markets. Corporations operating internationally and establishing foreign subsidiaries are facing the obligation as well as the challenge to profit from cross-border interaction. However, potential synergetic benefits provided by the international environment are accompanied by even more demanding challenges. This study elaborates to which extend German small and medium-sized manufacturing businesses could benefit from the implementation of a strategic cross-border synergy management. The analysis is based on a single case study deriving the research hypotheses and a survey investigating cross-border interaction throughout a sample of small and medium-sized manufacturing businesses. Research findings indicate that headquarter - subsidiary interaction within this business segment provides unutilized synergetic potential, as barriers are blocking the optimal design of cross-border interrelationships. In contrast to the organisational requirements proposed by scientific experts, a significant part of the responding companies are not actively controlling and managing these barriers in a strategic and comprehensive way. Extensive systems thinking and a holistic management approach are required in order to profit from synergetic interaction. “Synergies are not realized by themselves – they have to be identified and actively developed within a professionally coordinate process. Management of synergy seeking organizations is asked for intensive efforts beyond daily

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operations” (Weber and Roventa, 2006).

Based on the research findings this paper proposes a holistic framework, designed for strategists of small and medium-sized manufacturing business. It outlines the establishment of the cross-border synergy management concept as part of the corporate strategy and the efficient and effective management of international interaction.



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Table of Contents Index of Figures......................................................................................................... IV Index of Tables...........................................................................................................VI Abbreviations.............................................................................................................VII 1

Introduction ......................................................................................................... 1 1.1

Research Background ................................................................................. 1

1.2

German small and medium-sized businesses as research object .............. 2

1.3

Research Problem and Objectives .............................................................. 3

1.4

Research Scope .......................................................................................... 4

1.5

Research Pertinence ................................................................................... 5

1.6

Research Structure...................................................................................... 7

1.7

Definitions .................................................................................................... 7

2

Literature Review .............................................................................................. 9 2.1

Overview...................................................................................................... 9

2.2

The concept of synergetic interaction in the business context .................... 9

2.2.1

Definition .............................................................................................. 9

2.2.2

Types of synergetic interaction ........................................................... 11

2.2.3

Positive effects of synergetic interaction ............................................ 12

2.2.4

Negative effects of synergetic interaction ........................................... 14

2.2.5

Synergetic interaction and the competitive advantage ....................... 15

2.2.6

Barriers blocking synergetic interaction .............................................. 16

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2.3

2.3.1

Synergy Management as Corporate Strategy .................................... 17

2.3.2

The Synergy Management Process ................................................... 18

2.3.2.1

Identifying potential synergetic interaction (Definition Phase) ........ 19

2.3.2.2

Quantifying potential synergetic interaction (Definition Phase) ...... 20

2.3.2.3

Coordinating ways to achieve synergetic inter. (Planning Phase) .. 20

2.3.2.4

Management Tools & Techniques (Implementation Phase) ........... 22

2.3.2.5

Monitoring of Synergetic Interaction (Control Phase) ..................... 24

2.4 3

Synergy Management ............................................................................... 17

Practical implementation of synergetic interaction .................................... 25

Methodology ................................................................................................... 33 3.1

Primary Research ...................................................................................... 33

3.1.1

Research Approach and Procedure ................................................... 34



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

3.2

Research Design ....................................................................................... 35

3.2.1

4

Research Strategies ........................................................................... 35

3.2.1.1

Case Study Research ..................................................................... 35

3.2.1.2

Survey Research ............................................................................ 36

3.2.2

Research Choice ................................................................................ 39

3.2.3

Research Time Horizont ..................................................................... 39

3.2.4

Research Techniques (Data Analysis) ............................................... 39

3.3

Evaluating primary research design .......................................................... 41

3.4

Secondary Research ................................................................................. 42

Hypotheses Derivation ................................................................................... 43 4.1

Case Study ................................................................................................ 43

4.2

Research Hypotheses ............................................................................... 49

5

Research Analysis and Discussion .............................................................. 50

6

Recommendations and Conclusion .............................................................. 58 6.1

Recommendations..................................................................................... 58

6.1.1

Synergy Management – Strategic Perspective .................................. 59

6.1.1.1

Provide Orientation ......................................................................... 60

6.1.1.2

Define Management Power and Authority ...................................... 61

6.1.1.3

Provide Chance & Incentives .......................................................... 62

6.1.1.4

Cost-Benefit Analysis ...................................................................... 67

6.1.1.5

Summary – Strategic Perspective .................................................. 68

6.1.2

Synergy Management – Operational Perspective .............................. 68

6.2

Conclusion ................................................................................................. 69

6.3

Study limitations and supplementary research .......................................... 70

References...............................................................................................................VII

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Appendix.................................................................................................................VIII



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Index of Figures Figure 1: Manufacturing SMBs - Relocation of business activities to foreign countries ..................................................................................... 5 Figure 2: Manufacturing SMBs - Campaigns to improve competitiveness ............... 6 Figure 3: Directions of synergetic interaction .......................................................... 11 Figure 4: Positive effects of synergetic interaction .................................................. 13 Figure 5: Mobilization and Synergy Management as corporate strategies ............. 18 Figure 6: Synergy Management Process ................................................................ 19 Figure 7: Approaching Synergetic Interaction ......................................................... 22 Figure 8: Interrelationship Typology Matrix ............................................................. 26 Figure 9: Interrelationship Typology Matrix – Research Stream 1 .......................... 26 Figure 10: Interrelationship Typology Matrix – Research Stream 2 ........................ 27 Figure 11: Interrelationship Typology Matrix – Research Stream 3 ....................... 28 Figure 12: Interrelationship Typology Matrix – Research Stream 4 ........................ 29 Figure 13: Interrelationship Typology Matrix – Research Stream 5 ........................ 30 Figure 14: Subsidiary roles in multinational firms ................................................... 31 Figure 15: The research onion ................................................................................ 33 Figure 16: De Groot's empirical cycle ..................................................................... 34 Figure 17: Business contact databases ................................................................... 37 Figure 18: Survey distribution via the online provider www.onlineumfragen.com .... 38 Figure 19: Individual case analysis vs. sample analysis ......................................... 39 Figure 20: Survey analysis via the online provider www.onlineumfragen.com ........ 40 Figure 21: IFM Sports – global presence ................................................................ 43 Copyright © 2012. Diplomica Verlag. All rights reserved.

Figure 22: IFM Sports cross-border interaction ...................................................... 45 Figure 23: Distribution of German SMBs by state ................................................... 50 Figure 24: Level of cross border interaction............................................................. 51 Figure 25: Level of cross border interaction (production unit only) .......................... 52 Figure 26: Unutilized synergetic potential ................................................................ 53 Figure 27: Unutilized synergetic potential - T-Test test statistic ............................... 53 

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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Figure 28: Barriers blocking synergetic interaction .................................................. 55 Figure 29: Synergy management applied within the corporate strategy .................. 55 Figure 30: Responsible entity for managing cross border interaction I .................... 56 Figure 31: Responsible entity for managing cross border interaction II ................... 56 Figure 32: Reasons confronting the implementation of a corporate synergy management ............................................................................. 58 Figure 33: Cross-border synergy management concept ......................................... 59 Figure 34: Cross-border Synergy Management – Strategic Perspective ................ 60 Figure 35: Wiki - Knowledge Management Platform ................................................ 63

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Figure 36: Cross-border Synergy Management – Operational Perspective ............ 69

X

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Index of Tables Table 1: Definition of small and medium-sized businesses ....................................... 7 Table 2: Synergy Typology ...................................................................................... 12 Table 3: Synergy on target performance monitoring template ................................ 25 Table 4: High and low synergy society – basic comparison ................................... 30 Table 5: Research techniques applied ..................................................................... 35 Table 6: Data collection methods applied in the case study context ....................... 36 Table 7: Synergy profile .......................................................................................... 41 Table 8: Unutilized synergetic potential between the IFM headquarter and the US subsidiary ............................................................................................. 47 Table 9: IFM Germany – IFM USA cross-border employee exchange and transfer 48 Table 10: Type of barriers blocking synergetic interaction....................................... 55

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Table 11: Management tools applied to coordinate cross-border interaction .......... 57



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

XI

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Abbreviations CEO

Chief Executive Officer

ERP

Enterprise Resource Planning

HQ

Headquarter

HR

Human Resources

ICT

Information and Communication Technologies

IFM

Institut für Medienanalyse

IFM

Institut für Mittelstandsforschung

KPI

Key Performance Indicator

M&A

Mergers and Acquisition

Mio

Million

MS

Microsoft Office

PDF

Portable Document Format

ROI

Return on Investment

SMB

Small and Medium-sized Business

TV

Television

US

United States of America

XII

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

1 1.1

Introduction Research Background

Every four years the global sports community follows 32 teams fighting for the World Championship in the most popular global sport, football. The best eleven players from each country are brought together to compete for the world’s most prestigious trophy. The following phenomenon occurs regularly, catching the attention of both attendees as well as media outlets: Although on an individual basis position players from one team may not physically or mentally match up with or be able to compete well against their counterpart, the inferior team may be able to outperform the favourite as such happened in the 2010 World Cup. The French team, consisting of highly skilled athletes, lost the group matches against the less competitive teams from Mexico and South Africa. Media afterwards critically asked: “When will the French players realize that there is more to football then having the foot with the ball?” (Johns, 2010) “Football is hard when you can't play together” with his reaction the French player Yoann Gourcuff has underlined the discrepancies within his team regarding the approach how to perform successfully (Soufi, 2010). In contrast, the winning teams from Mexico and South Africa took advantage of their ability to interact in a synergetic way, leading to the fact that the overall team performance was greater than the sum of the individual player performances. Interaction within businesses can be compared to the characteristics in team sports. Skilled individuals are requested to interact within a system and perform together in order to accomplish a common objective. However, efforts of individuals and entire units might lack alignment and coordination or in the worst case scenario there is not interference at all. In team sports the coach plays a central role in managing interaction between the individual players, providing the overall team direction and creating a team spirit which should prevent or reduce any form of personal exploitation, mistrust and jealousy and get everyone in the system going in the same direction. Kaplan and Norton (2006) dedicated this role within a corporation to the Copyright © 2012. Diplomica Verlag. All rights reserved.

corporate management: “Synergies will not occur unless the corporate level plays an active role to identify and coordinate opportunities for integrating the behaviour of its decentralized business units”. According to Goold and Campbell (1998) executives can obtain additional value with excising capabilities and resources if they understand how to manage synergies. Corporations expect from synergetic interaction, for example economics of scale, a better level of capacity utilization, learning effects, the elimination of double and

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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multiple activities and advantages through higher order quantities or knowledge sharing (Johnson et al., 2008). In this context Freeman (in Moran and Harris, 1982) outlines the challenges for organizations operating across borders: “Multinational organizations have a special role not only in building cross-cultural bridges. But in innovating synergies through their practical knowledge of putting together human and natural resources with the knowhow of managing both in the most effective ways”.

1.2

German small and medium-sized businesses as research object

International business opportunities are relevant for numerous companies throughout the German economic landscape. 72% of all small and medium-sized businesses (SMBs) are heavily involved in international business activities (KPMG, 2007). From an economical perspective this business segment is characterized as the backbone of the German economy as it counts for 99.7% of all German businesses, 39.7% of the total turnover generated by German corporations and 60.8% of all jobholders officially registered (IFM, 2009). Export is still the dominating internationalization mode applied within this businesses sector; however, the local presence in foreign markets becomes even more important (KPMG, 2007). Small and medium-sized businesses establishing and running foreign subsidiaries are consequently facing the opportunity as well as the challenge to benefit from synergetic headquarter-subsidiary interrelationships. Exploiting this potential effectively can add additional value to the corporate network and provide or enlarge a competitive advantage. “In addition to identifying a company’s potential sources of cross-border value, executives must identify the organizational barriers to achieving it” (Ghislanzoni et al., 2008). The McKinsey consultants Ghislanzoni, Penttinen and Turnbull emphasize the challenges in regards to synergetic cross-border interrelationships and underline the level of strategic management efforts required, in order to design an effective and efficient international corporate network.

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This research project aims to investigate to which extent German small and medium-sized manufacturing businesses could benefit from the implementation of a strategic cross-border synergy management. In order to discuss this research question a basic understanding of the specific characteristics of small and medium-sized businesses is required. Resources available to corporations of this business segment can have a restricting effect. First, the application of strategic management tools is limited due to the unity of 2

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

ownership and management which is quite common within small and medium-sized businesses. The decision making process is consequently heavily based on intuition (Amschlinger, 2011). Second, this business segment is facing insufficient financial reserves in comparison to large corporations whereby their creditworthiness might be limited. Third, small and medium-sized businesses do not have such a broad and diversified staff as large businesses, whereby specific skills might not be available within the corporation. In regards to internationalization and crossborder interaction of small and medium-sized businesses these specifics are in particular relevant and will be addressed throughout the paper.

1.3

Research Problem and Objectives

According to Johnson et al (2008) corporations can select between two major alternatives in achieving a sustainable competitive advantage. Businesses can either seek external market opportunities by positioning itself advantageously in relation to the competitors operating in the same field (market-based view) or base their competitive advantage on the application of company specific valuable resources and capabilities (resources-based view). According to Porter (1985), the competitive advantage obtained via the second option can be strengthened and developed by sharing activities / resources and / or transfer skills / competences along individual business units. Business synergies are a key aspect in the field of strategic management and strongly influence corporate decisions. Synergetic interrelationships can be established between different types of business units and implemented within different business scenarios. Interaction is obviously not limited to specific markets, in fact, multinational corporations have the chance to utilize and profit from synergetic potential provided by their international network. However, potential benefits provided by the international environment are accompanied by even more demanding challenges. In this context the strategic design and management of cross-border interaction between the corporate parent and foreign subsidiaries is specifically relevant for both parties to achieve positive effects.

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In order to elaborate the main research question presented above it is necessary to delineate between individual sub problems. This research project specifically aims to examine the following subordinated research objectives:

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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x First, the analysis shall provide an understanding to which extend German small and medium-sized manufacturing businesses have implemented synergetic headquarter-subsidiary interrelationships or whether this field provides further potential. For this purpose it is required to identify the degree of synergetic cross-border interaction along the respective company value chains. x Second, the project seeks to identify if and what kind of barriers are negatively influencing cross-border interaction. x Insights gathered via both sub problems presented above shall provide an understanding for the need for a strategic cross border synergy management. How this demand for management efforts is currently meet in a comprehensive way shall be investigated in a third step.

1.4

Research Scope

The majority of published books or research articles in the field of synergetic interaction are focused on specific problem areas. Insights generated via this research shall provide the basis for discussing a holistic synergy management approach specifically focusing on cross-border interaction of small and mediumsized manufacturing businesses. Factors characterizing this business segment as listed in chapter 1.2 shall specifically be considered. This integrated framework is composed of a number of interdependent modules. The underlying research focuses on the manufacturing industry which covers all elements of the standard value chain as proposed by Porter. The consideration of trading, consulting or for example logistic businesses would have limited the explanatory power of the insights gathered as those sectors function differently. This integrated system shall provide strategists of SMBs, operating in the international environment, with the most relevant information and guidance to make the best possible decision in regards to synergetic interaction between the headquarter and the foreign subsidi-

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aries. The study discusses cross-border interaction and synergy management from a corporate strategy standpoint. In this context the paper touches other disciplines such as human resources; however it cannot be classified as an interdisciplinary paper as these fields are rather mentioned in the overall context than analyzed in detail.

4

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

1.5

Research Pertinence

The relevance of this research project can be underlined as follows: First, a variety of research has investigated modes applied in the internationalizing process of small and medium-sized businesses. However, research addressing the strategic design and management of synergetic interaction between the corporate headquarter and the foreign subsidiaries within this business segment is rather limited. As, according to the German institute for research in the field of medium-sized businesses (IFM), SMBs will increase the relocation of business activities to foreign countries (Kayser et al, 2005) this aspect becomes even more relevant. Figure 1 illustrates that 33% of medium-sized businesses with 250-499 employees have already established business locations abroad, 22% are planning to go abroad over the next two years. According to the institute for research in the field of small and medium-sized businesses every fifth business carries a product portfolio which is competitive on an international level. This underlines the potential for further internationalization within this business segment, especially driven by high tech industries, such as environmental-, medical- and biotechnology, information and communication technologies. According to Ensign (1998) “coordination tends to become increasingly more important as the business environment becomes more

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competitive.”

Figure1: Manufacturing SMBs - Relocation of business activities to foreign countries (Kayser et al, 2005)

Second, as a result of globalized markets SMBs are more intensively confronted with competitive pressure. As a consequence, cost efficiency improvement campaigns, aiming for cost reduction or performance enhancement for the same price level, are even more in focus and listed by executives as the major factor in

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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increasing competitiveness (see figure 2). Efficiency of global activities has to be combined with the sensitivity for expectations of local customers. International corporate networks are often driven by heterogeneous process structures and the unequal application of business management methods on operational level. These businesses deliver a significant level of unutilized potential for performance enhancement. The coordination of those challenges with traditional hierarchical organization forms is critical. Network-, team-and process-oriented structures characterize the shape of the future business system. Johnson et al (2008) are listing four major cost drivers – economics of scale, supply costs, experience and product & process design. Cross-border interaction can have a positive impact on all factors listed above. For example, multiple studies have underlined the important relationship between the cumulative experience achieve by a corporation and its unit costs. Porter outlines that “sharing an activity or skills and competences can increase efficiency and lead to a sustainable competitive advantage” (Porter, 1985). On cross-border level this symbiotic effect can be even stronger as positive insights from a variety of markets can benefit the corporate network. Lacks in the field of managing synergies across borders were observed by the author while implementing a new department in a foreign subsidiary of a

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German medium-sized organization over the time period of one year.

Figure 2: Manufacturing SMBs - Campaigns to improve competitiveness (Kayser et al, 2005)

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

1.6

Research Structure

The research problem and the related sub problems are defined in the introduction chapter, which in addition delivers the scope and the pertinence of this research project. The second chapter reviews critically the relevant literature, published in German and English language. The methodology chapter introduces the overall strategy and techniques applied in order to answer the underlying research problem. The research hypotheses are derived in the following chapter based on a single case study. In order to test these tentative hypotheses, results gathered via a survey are presented and analyzed in chapter 5. The final chapter proposes a comprehensive approach for small and medium-sized manufacturing businesses to manage cross-border interaction and increase corporate efficiency and performance.

1.7

Definitions

Small and medium-sized businesses are defined differently by individual institutions. The German institute for research in the field of medium-sized businesses, as well as the European Union are both using two indicators in order to characterized this business sector from a quantitative perspective – the annual turnover volume and the number of employees (see table 1).

Table 1: Definition of small and medium-sized businesses (Günterberg and Wolter, 2002)

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This research paper applies the definition as proposed by the German institute for research in the field of medium-sized businesses. According to this guidline SMBs do not exceed 500 staff members and the turnover volume is limited to 50 Mio. Euros per year (Günterberg and Wolter, 2002). In the following the terms ‘’synergetic interrelationship’’ or “synergetic interaction” will refer to shared activities / resources and / or transferred skills / competences between business units located in the corporate headquarter on the one hand and

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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foreign subsidiaries on the other hand. “Synergetic potential” can be characterized as a theoretically condition attainable under ideal conditions, whereas “synergetic effects” arise in reality as a result of interaction. For example, cost advantages (economies of scope / economies of scale) or increased differentiation, leading to a stronger competitive advantage can be classified as synergetic effect. The abbreviation “IFM” is used twice within this study as it is the official abbreviation for two relevant organizations. On the one, hand it stands for the “German institute for research in the field of medium-sized businesses”, on the other hand it applies to the ”Institut für Medienanalyse” (“Institute for media analysis”). The latter is the business investigated via a case study approach in chapter 4, whereas the first is

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mentioned as a source throughout the entire text.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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Literature Review

This chapter critically reviews the academic literature related to the research problem examined within this research and delivers the initial foundation for this research project. The text first outlines the concept of synergetic interaction by contrasting the key contributions before structuring a variety of practical implementation scenarios. In order to receive a comprehensive overview selected titles written in German and English language are considered.

2.1

Overview

The topic of identifying and strategically managing business synergies is discussed throughout a variety of literature. Consequently, contributions are highly fragmented and partially limited in providing a comprehensive overview across all relevant aspects. From a chronological perspective Ansoff (1965) and Porter (1985) provided the two fundamental contributions in the relevant area. Both authorities have delivered the foundation for discussing the topic of business synergies in the scientific community. Numerous authors have repeated their thoughts and enhanced first concepts by contributing their individual findings. For example, Rodermann (1997) and Steidl (1999) argue that the heuristic contributions of Ansoff and Porter both leave “white spots” as a definition of the term “synergy” is missing and the non-distinctive delineation to related concepts is not provided. Campbell and Gold (1998) point out that “in the 1990s, scholars have continued to explore the concept of synergy, further refining its theoretical basis and practical applications”.

2.2 2.2.1

The concept of synergetic interaction in the business context Definition

The principal idea of business synergies was first introduced by Igor Ansoff (1965) within his book “Corporate Strategy” published in 1965. “2+2=5” is still the most common analogy used in order to describe synergetic effects. The term “synergy” is Copyright © 2012. Diplomica Verlag. All rights reserved.

originally derived from Greek language (syn – together and érgo – achievement) and illustrates the collaboration of individual factors which mutually boost each other in combination. Aristoteles summarized synergetic effects with the following quote: “The whole is greater than the sum of its parts” (Ansoff, 1965). In the business context this equation is based on the concept of “economies of scale”, which states that it’s possible to decrease costs across two interacting businesses for example by purchasing larger volumes. In addition, this effect occurs while

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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transferring managerial skills, leading to improved executive decisions. Ansoff (1965) does not examine the phenomenon separately as it merely functions in his concept as a key performance indicator to select between potential markets. The authoritative influence of Ansoff’s product-market strategy on his understanding about synergies limits his consideration of synergies achieved between business units operating in the same markets. Porter (1985) contributed essential insights by introducing the concept of strategic interrelationships based on his value chain framework. Although replacing the term “synergy” by the expression “interrelationship”, he continues to discuss the actual idea introduced by Ansoff (1965). He highlights the fact that interrelationships are a main driver in the process of achieving and sustaining a competitive advantage, either by reducing costs or supporting diversification. In contrast to Ansoff (1965), Porter (1985) discusses synergies as a key aspect in the context of corporate strategic management and does not limit the discussion to business expansion only. Cockerill (1995) enhances the discussion by relating the term synergy to “systems thinking”, which is the process of understanding how individual components influence one another within a whole: “One of the earliest references to systems ideas that I am aware of is in Aristotle’s ancient Greece when the notion that some wholes exhibit properties not present in any of the parts was noted. Today’s systemic equivalent is called synergy.” Itamic and Roehl (in Juga, 1996) add an additional aspect by characterizing synergy as a “free ride” because intangible assets created in certain units could be capitalized in other parts of the company. Castell, Gregory, Hindle, James and Ragsdall (in Harwood, 2000) define synergy with its demands: “Synergy comes from the Greek word “synergos” which means working together. This demands a platform for participation through the development of dialogues, between disciplines and people, the very stuff of systems thinking.” The concept of synergetic interaction can be summarized by isolating the key aspects identified throughout the individual contributions:

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x synergy comes from the Greek word “synergos” which means working together x synergy is a collaboration of individual factors which mutually boost each other in combination x synergetic interaction can be characterized as interrelationships between individual business units x synergetic interaction is a main driver in the process of achieving a competitive advantage and requires systems thinking

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

x synergetic interaction demands a platform for supporting the development of dialogues between disciplines and people x synergetic interaction is a key aspect in the context of corporate strategic management

2.2.2

Types of synergetic interaction

In regards to the direction of synergetic interaction Rodermann (1997) distinguishes between three cases (see figure 3). First, the coordination between related business units at the same production stage out of different value chains is summarized as “horizontal integration”. This is the case when for example the corporate headquarter and the foreign subsidiaries are sharing one research laboratory. The analysis of 160 scientific synergy definitions has shown that most explanations interpret the idea of synergetic interaction as an interrelationship between value adding activities of two or more individual value chains (Rodermann, 1997). Johnson et al (2011) follows this approach as he argues that “the realization of synergies involves bringing together different value networks”. This strategic approach is specifically relevant for designing the relationships between the corporate parent and the foreign subsidiary which is producing the same product or group of products. Consequently, this direction of synergetic interaction is in focus of this paper and delivers the foundation for designing specific areas of the case study and survey research (see chapter 4 & 5). Second, interrelationships can be established between upstream and downstream activities of one single value chain. For example, sales activities are coordinated with the physical delivery of goods in order to reduce deliver times. Finally, collaboration can take place within one value adding activity. For instance, marketing-mix elements within the value adding

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activity “marketing” can be coordinated in order to reinforce each other.

Figure 3: Directions of synergetic interaction (Rodermann, 1997)

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Furthermore, Rodermann (1997) introduced a systematic approach of classifying different types of synergetic interaction by reviewing them from five different dimensions in a first step and several sub dimensions in a second step (see table 2). First aspects introduced by Porter (1985, “I will discuss all forms of interrelationships […] tangible […] and intangible.”) or Ansoff (1965, “Start-up Synergy and operating synergy”) are considered and enriched by additional dimensions.

 Table 2: Synergy Typology (Rodermann, 1997)

All dimensions listed above are relevant for this research project. However, the key delineation, valuable in this context, is not considered. This approach separates between synergies achieved between business units both located within one country and units operating in different markets. The specifics, importance and relevance of this dimension shall be underlined with this research project.

2.2.3

Positive effects of synergetic interaction

Ansoff (1965) is using simple mathematical terms to illustrate positive synergetic effects. According to his theory they occur if integrated business activities across Copyright © 2012. Diplomica Verlag. All rights reserved.

two markets (A & B) decrease costs, increase revenues or require less investments and consequently influence the return on investment positively as stated via the following formula.

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Rodermann (1997) delivers an overview across the different effects of synergetic interaction based on an empirical analysis. 494 experts in the relevant field were asked to provide their insights, resulting in the following chart which displays the top 6 positive effects1.

Figure 4: Positive effects of synergetic interaction (Rodermann, 1997)

Steidl (1999) is differentiating between three types of synergetic effects. First, universal synergetic effects can be generated through every kind of interaction. This type of effect is not depending on the interacting units producing the same products or operating in the same industry. Usually it occurs in supporting activities such as finance and human resources. Interaction in the best case leads to a decrease of fix costs on both sides. Second, endemic synergy effects occur in similar industries or between businesses which are linked to each other (Rodermann, 1997). It arises for example due to a concentration of production capacity and marketing capacities. For example, paper mills often use steam while producing and drying paper. In the case of a company located in Germany the required steam is supplied from the power plant operating next door. There the steam was previously used to drive a turbine in order to generate electricity. The waste product can be sold profitably by the power plant, and the paper mill does not have to make high investment for producing the steam. This synergetic effect was already considered in the process Copyright © 2012. Diplomica Verlag. All rights reserved.

of setting up the paper mill. Third, specific synergy effects occur only in certain interaction scenarios. The combination of special assets such as patents hold by one party and an appropriate distribution channel hold by the second party can be mentioned exemplary.

  1

Answers are based on the following question: “Which positive effects do you think companies expect by realizing synergies?” Results presented consider the following answers: “yes” / “rather yes”.

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Porter (1985) is discussing effects of synergetic interaction in regards to the competitive environment a business is operating in. According to his theory individual positive effects (e.g. decrease costs, reduce process durations) finally result in a competitive advantage. As this is a major argumentation for seeking synergies chapter 2.2.5 “Synergetic interaction and competitive advantage” will review this linkage in detail and outline arguments provided by different authorities.

2.2.4

Negative effects of synergetic interaction

In contrast to a variety of contributions only a limited number of authors have mentioned the negative effects of synergetic interaction, also referenced to as “dysergy” or “dysynergy”. The term “dys” is originally derived from the Greek language (dys – poor) and illustrates a poor collaboration between business units (Hofmann, 2004). Following the approach Ansoff (1965) applied to illustrate the effect of synergetic interaction, dysynergies can be explained with the following metaphor „2 + 2 = 3“. Campbell and Goold (1998) emphasize that the attempt to achieve synergetic interaction leads to problems within a majority of corporations. Shaver (2006) and Furrer (2010) underline that synergetic interaction between individual units can limit the company’s ability to react on favorable or changing conditions in the business environment as the level of interdependences increases, limiting flexibility and decision making autonomy. Rodermann (1997) points out that synergies do not necessarily have to have a positive impact. He rather underlines the existence of “negative synergies” as unavoidable effects in the process of realizing positive synergies. Consequently, he characterizes synergetic interaction as the net total of numerous positive and negative effects. Even before, Cockerill (1995) argued in the same direction. “A football team may comprise 11 individual stars but may not necessarily perform as a team. Synergy can be positive […] or negative, that is to say we gain less opportunities and more “interference” with regard to our plan.” In contrast, Klemm (in Rodermann, 1997) characterizes negative synergies as avoidable and classifies them as mismanagement. Campbell and Goold (1998a) Copyright © 2012. Diplomica Verlag. All rights reserved.

agree with this argumentation: “Avoiding such failures is possible, but it requires a whole new way of looking at and thinking about synergy”. Ansoff (1965) and Porter (1985) emphasize that benefits of synergetic effects have to outweigh costs, produced in the process of seeking, establishing and keeping them. Rodermann (1997) adds two additional aspects, delivering the following classification of negative synergetic effects.

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Synergetic interaction - Negative effects on costs Porter (1985) delineates three types of costs which might occur while sharing activities or resources. a)

Costs of Coordination (Caused by the increased need for coordination required in the sharing process.)

b)

Costs of Compromise (Caused by the fact that activities cannot be performed as optimal as under isolated circumstances.)

c)

Costs of Inflexibility (Caused by the fact that corporate strategic flexibility is reduced as dependencies have to be considered.)

Synergetic interaction - Negative effects on revenues Synergetic interaction might have a negative effect on revenues. Rodermann (1997) specifically links this implication to Mergers & Acquisition, which is not in focus of this research paper whereas a detailed outline shall not be undertaken at this point.

Synergetic interaction - Negative effects on risk levels According to Rodermann (1997) synergetic interaction can increase the unsystematic as well as the systematic risk level organizations are facing. The latter rises if profits of the interacting units correlate, which can be assumed in the case of operative synergies. On the other hand, synergetic interaction may increase the level of unsystematic risk. This could be the case if for example a natural disaster destroys physical resources which are for synergetic reasons centrally stored.

2.2.5

Synergetic interaction and the competitive advantage

According to Johnson et al (2008) corporations can select between two main alternatives in achieving a sustainable competitive advantage. Businesses can either seek for external market opportunities by positioning itself advantageously in relation to the competitors operating in the same field (market based-view) or base

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their competitive advantage on the application of company specific valuable resources and capabilities (resources based-view). According to Porter (1985), the latter can be strengthened and developed by sharing activities/resources and/or transferring skills/competences among individual business units: “Sharing leads to a competitive advantage if it reduces costs or enhances differentiation”. Ensign (1998) specifies this statement, stating that the process of sharing activities can results in a competitive advantage under the following preconditions: First, interaction must take place between (units) activities which produce a significant part of

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the overall operating costs. Second, cooperation has to decrease costs of running shared activities. Third, sharing has to support differentiation either by reducing differentiation costs or by supporting the uniqueness of an activity. Sharing skills can result in a competitive advantage under the following preconditions: First, interaction has to take place in key value adding activities. Second, skills exchanged must be unknown or lead to an improvement in the receiving department. Rowley (2002) follows Porter, stating that a corporation has to outperform its competitors in one or several value chain functions in order to achieve a competitive advantage. This can be achieved by implementing interrelationships between individual units and the synergetic effect resulting out of these linkages. On the other hand, dysynergies could weaken a company’s competitive position (Hofmann, 2005). If dysynergies outperform positive effects obtained via interaction processes the overall synergy balance and the effect on the corporation will be negative.

2.2.6

Barriers blocking synergetic interaction

Synergetic interaction between individual business units can be blocked by certain barriers. Campbell & Goold (2002) underline the relevance of “synergy killers”. They list rivalry between unit heads and mistrust of senior managers as the major barriers and call for “corporate managers to clear away these synergy killers” and establish a “family feeling” within the corporation to support synergetic interaction. Johnson et al (2011) point out the self-interest of managers which are supposed to interact. For example, performance related compensation systems limit the willingness of unit managers to follow and invest in the overall objective and follow the overall corporate direction. Cross-border interrelationships are facing additional barriers in contrast to collaborations taking place purely on a domestic level. “In addition to identifying a company’s potential sources of cross-border value, executives must identify the organizational barriers to achieving it” (Ghislanzoni et al, 2008). The McKinsey consultants Ghislanzoni, Penttinen and Turnbull emphasize the challenges in regards to the

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management of synergetic cross-border interrelationships and underline the level of management efforts required in order to limit negative effects.

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2.3 2.3.1

Synergy Management Synergy Management as Corporate Strategy

In general business literature (Rodermann, 1997) separates between two forms of coordination – central vs. peripheral. A management approach can be classified as “peripheral” if individuals involved have equal rights and can decide autonomously. In contrast, coordination can be associated as “central” if the decision is made by a higher authority and is consequently binding for all individuals involved. In the latter case the decision maker could be an individual person or a group of people. Businesses have the opportunity to manage synergetic interaction on corporate level via the corporate management or on unit level via the individual managers directly affected. Expert interviews conducted by Rodermann (1997) delivered an understanding about how heads of individual units consider this issue. According to this study unit managers refuse being dictated and underline that their detailed expertise is required in order to successfully evaluate and utilize synergetic potential. On the other hand, Rodermann (1997) states that literature provides the overall direction that only the top management is obligated to decide about the implementation of synergetic interactions. This assumes that the corporate management has a broader overview across all fields of potential synergetic interaction and is less influenced by the respective interests of the individual units. Ensign (1998) agrees by stating that synergy management should be part of the corporate level strategy. Top management should be concerned with the overall direction for making the corporation worth more than the sum of its individual parts. He clearly separates its purpose from other strategy levels by underlining that “corporate strategy must center on creating value that is independent of business unit value” and points out that corporate strategy “must organize and manage business units so that each can benefit from its link with the rest of the corporation”. Kaplan and Norton (2006) even sharpen this direction by stating that “synergies will not occur unless the corporate

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level plays an active role to identify and coordinate opportunities for integrating the behaviour of its decentralized business units”. Steidl (1999) is discussing the topic of synergetic interaction in the context of corporate strategy by outlining two value adding strategies, namely “mobilization” and ”synergy management” (see figure 5). The first is based on “the process of making latent energy available via more effective and efficient usage of resources within individual business units” (Steidl, 1999). The second approach is characterized by the sharing of valueable activities

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and skills between independent business units, actively managed by the corporate management.

Mobilization

Synergy Management

Figure 5: Mobilization and Synergy Management as corporate strategies (Steidl, 1999)

Clark (in Ensign, 1998) agrees with the direction provided by the authorities listed above, however, points out that many corporations failed in developing an effective synergy management on corporate level. The major challenge for corporate strategists is to find the optimal balance between realizing synergies and keeping business unit responsiveness. Responsiveness in this context is defined as the ability to respond to the competitive requirement of external or internal stakeholders in a timely and adequate manner. The contradictoriness of both directions is outlined by De Wit and Meyer (2004) as the “paradox of responsiveness and synergy”. The authors are presenting the example of Philips. During the 1990s different CEOs struggled to find the right balance on corporate level between synergetic interaction and unit responsiveness and drifted from one extreme to the other side.

2.3.2

The Synergy Management Process

The following paragraphs gather various aspects contributed by different authors in regards to the process of managing synergetic interaction. In order to structure the individual insights this paper links the different insights to the four phases of the

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general management process (see figure 6).

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Figure 6: Synergy Management Process (Own figure based on Felden, 2006)



2.3.2.1 Identifying potential synergetic interaction (Definition Phase) The first step in the process of managing each kind of synergetic interaction is the identification of synergetic potential which could provide additional value to the corporation. In this context Cockerill (1995) promotes the process of systems thinking which can be summarized as the understanding of how individual components influence one another within a whole. “Systems thinkers take holistic views of the system and try to determine the emergent (the resulting synergy) purpose of the system” (Cockerill, 1995). The author outlines that that the smallest non dividable parts of each corporation are micro systems such as staff members or material expenses (natural resources or machines). A value creating business system is created out of interacting sub-systems that are based on a variety of micro systems. While initiating the interaction of sub-systems synergies can be utilized in those areas in which the purpose of the individual subsystems is equal. According to Rodermann (1997) the existence of synergetic potential can be based Copyright © 2012. Diplomica Verlag. All rights reserved.

on two different reasons. First, the surplus of a material production factor which, due to its physical indivisibility, can only be obtained in larger quantities as currently required. Second, every immaterial factor is dedicated to obtain synergies due to the fact that this type of asset will not be burned up and will not lose value in the production process. In order to identify material and immaterial factors which could be used in a synergetic way scientific literature provides object related search

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strategies. The most common systems are provided by Ehrensberger (1993) and Ropella (1989), whereas the latter shall be outlined exemplarily below. Ropella (1989) delivers an approach which categorizes production factors based on their potential to be used across several production processes. According to his strategy only “potential factors” fulfill the precondition to be used in a synergetic way as “consumption factors” disappear after being used once. Potential factors are categorized by Ropella into homogenous vs. heterogenous on the one hand and simultaneous vs. successive factors on the other hand. Homogeneous factors can only be applied for certain exercises, whereas heterogeneous factors can be used on a universal level. Simultaneous factors can be applied in several production processes simultaneously, whereas successive factors can only be assembled in a certain point in time within one single production process. In response to Porter, who states that “a business unit can potentially share any value activity with another business unit in the firm”, Rodermann (1997) introduces an approach which increases efficiency in seeking for synergetic potential. He advises to concentrate the analysis on important value activities which are responsible for high cost levels.

2.3.2.2 Quantifying potential synergetic interaction (Definition Phase) Scientific literature delivers quantitative and qualitative concepts of measuring synergetic potential. As the application of quantitative methods (e.g. net present value method) is rather limited in practice (Rodermann, 1997) this paper focuses on the qualitative systems such as scoring models. In order to outline the synergetic potential between an existing system and a potential investment Wissema (1985) introduced the “synergy profile analysis”. As this concept is applied within this paper please consider the methodology chapter 3.2.4 for a detailed explanation. More recently Bachmann (2001) and Ebert (1998) approached this field by introducing synergy / dysynergy calculation models which shall be listed in this context,

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however, will not be outlined in detail.

2.3.2.3 Coordinating ways to achieve synergetic inter. (Planning Phase) Campbell and Goold (1998) outline that the destruction of value, as a result of uncoordinated attempts to achieve synergies, is widely spread. According to their research a strategic consideration of pros and cons is rather increasingly replaced by management snapshots driven by four mental biases. The two authorities developed a framework which provides a strategic approach for planning the course 20

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

of action in regards to synergetic interaction (see figure 7). The following paragraphs will deliver an overall outline of the concept rather than discussing individual steps in detail. In order to identify strategic options in achieving objectives in the field of synergetic interaction managers are in a first step asked to challenge potential opportunities. According to Campbell and Goold (1998) corporate managers frequently see “valuable” synergetic potential which in reality does not exist. Decision makers are asked to evaluate benefits and costs before tackling a potential opportunity and apply “a healty does of skepticism […] to distingguish real opportunities from mirages” (see figure 7 step a). Kaplan and Norton (2006) agree and underline that the corporate parent has to be clear about the synergies it seeks to create. Johnson et al (2011) point out the danger of “illusory synergies” at this level as expected value often cannot be obtained when putting synergetic interaction into practice. Following an illusion might distract managers from their core business and result in a decrease of the overall value. Second, Campbell and Goold (1998) cite that corporate level managers presume that individual units’ heads will not cooperate without being pushed by the corporate hand. They suggest that “corporate executives should start with the assumption that when it makes good commercial sense, the individual unit managers will usually cooperate without the need for corporate involvement”. Decision makers are asked to intervene on operational level only if a specific problem is preventing unit heads from interaction (see figure 7 step b) Third, research undertaken by Campbell and Goold has delivered the insight that corporate managers presume to have the required skills to utilize synergetic potential. After the synergetic effect is classified as beneficial, the parenting role is defined and the required skills are identified in house and available, corporate managers should consider a fourth point while planning the synergy action map: Corporate managers tend to ignore the side effects which occur while linking

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individual units (see figure 7 step c).

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Figure 7: Approaching Synergetic Interaction (Campbell and Goold, 1998)



2.3.2.4 Management Tools & Techniques (Implementation Phase) .

Gentles (1984) underlines the challenge “to get everyone in the system going in the same direction at the same time to accomplish a common and well defined goal”. According to Ensign (1998) it is no longer satisfactory that only top management understands and lives the corporate direction: “If all people at all levels understand horizontal strategy […] it will help to sustain a competitive advantage”. Alexander Copyright © 2012. Diplomica Verlag. All rights reserved.

(2002) strengthens this argument, outlining that “once you get your entire team seeking synergy the entire organization will have reinvented itself”. The corporate parent has the opportunity to take advantage of several management tools and techniques to stimulate synergetic interaction. The following paragraph does not have the intention to provide a complete picture of all options available; it rather summarizes groups of management tools and techniques in order to outline

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potential directions supporting the implementation of the theoretical synergy concept. Human resources (HR) provide a variety of tools in order to activate and support synergetic interaction. According to Moss Kanter (1998, “cooperation flourishes on a foundation of shared experiences”) and Thompson (2001) synergetic effects can be generated by initiating employee exchange programs and transfering staff memebers between different units of an organisation. Corporate strategists can initiate this type of internal networking in order to link individuals within the company. Meetings and networking events provide the opportunity to connect people, whereby expatriation is an excellent option in order to create cross-border relationships. On the compensation side HR has the opportunity to stimulate synergetic interaction via the promotion of incentives. In the context of achieving synergetic interaction this tool can be applied on executive level as well as on employee level in order to reward the achievement of synergy goals. “Joint incentives, which give everyone something if anyone reaches high levels of performance, make cooperation even more likely” (Moss Kanter, 1998). According to Moss Kanter (1998) “communications is key to achieving synergies”. Computer networks and information systems can enhance communication which is required in order to obtain positive synergetic effects and accompany face to face interaction. Business information and communication technology (ICT) provider offer a variety of systems which support internal collaboration. For example, “iThink is a powerful tool for communicating interdependencies between processes and problems. Your entire business team will understand the variables that impact your business. Shared insight enables teams to work together, further ensuring that decisions are fully implemented and mitigating risk” (isee systems, 2011). Video and telephone conference software systems become relevant especially in the context of cross-border interaction and provide the potential to keep interrelationCopyright © 2012. Diplomica Verlag. All rights reserved.

ships between individuals and units located in different areas. This type of organization is called “virtual team“ and is joint by members which collaborate temporary or permanent, but not face-to-face basis. Kaplan and Norton (2006) outline that most businesses are seeking for synergies, however, rather in a fragmented and unstructured way without any corporate alignment. In line with Ensign (1998), Steidl (1999) and Johnson et al (2008) they point out the importance of an overall corporate approach in regards to synergetic

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interaction, however underline that the implementation phase is key in achieving beneficial synergetic interaction: “The alignment strategy must be completed with an alignment process” (Kaplan and Norton, 2006). As Porter (1985) is using his value chain framework in order to structure potential synergetic areas Kaplan & Norton are structuring their approach based on their four dimensional management concept – the balanced scorecard. 1. Financial Synergies 2. Customer Synergies 3. Internal Process Synergies 4. Learning and Growth Synergies The strategy map and the balanced scorecard concept are positioned as management tools to generate value through synergies as they support the clarification of corporate objectives and can be used to communicate them to the individual business units (Jones, 2011). Kaplan and Norton (2001) call for employees which understand corporate strategy and design their daily business in accordance to the success of the overall direction. Consequently, the scorecard tool can support the corporate management in designing interrelationships between induvidual units and ensuring that they occure (Kaplan and Norton, 2001).

2.3.2.5 Monitoring of Synergetic Interaction (Control Phase) As important as the implementation of management tools in order to coordinate cross-border interaction is a regular progress and on target performance monitoring process. It points out if synergies achieved match with the target value set as objective. Often positive synergetic effects do not occur as predicted as they are overshadowed by unanticipated integration costs or dysynergies. The following matrix sets the basis for a continuous controlling process of key performance indicators in the context of achieving synergies. It defines the relevant KPIs per

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department, delivers the actual and target values, outlines the monetary value generated and points out risks and responsibilities. While synergy controlling is focused on maximizing value via cost degression and revenue progression dysynergy controlling on the other hand is simultaneously aiming to minimizing the decline in value via cost progression and revenue degression (Hofmann, 2004). The introduction and the optimal design of a synergy on target performance monitoring allows the reduction of errors while assessing and realizing cross-border synergies. In conjunction with the corresponding reporting obligations this type of 24

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

synergy controlling supports corporate strategists in the process of designing interrelationships (see table 3).

 Table3:Synergyontargetperformancemonitoringtemplate(LechnerandMeyer,2005) 

2.4

Practical implementation of synergetic interaction

In order to structure the variety of literature discussing the synergy concept and to identify the relevant contributions for the purpose of this research project, it is beneficial to introduce an overview across the different scenarios in which the implementation of synergetic interaction is relevant. According to Rodermann (1997) most contributions are discussing interrelationships either with a focus on a specific type of relationship between the interacting units (e.g. M & A, Alliances), a specific business type (e.g. corporate group) or business area (e.g. gastronomy). In order to structure the individual directions in the context of this paper figure 8 provides a matrix, illustrating different interaction scenarios between independent business units based on the dimensions “Type of relationships between interacting units” and “Location of interacting units”. The second dimension is specifically relevant for the purpose of this research project as interrelationships across borders are even more challenging than purely domestic ones. Based on the matrix below different research streams can be identified discussing different aspects of implementing synergetic interaction. Individual research streams will be outlined in the following, whereas the level of detail is based on the scenario relevance for this

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research paper.



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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Figure 8: Interrelationship Typology Matrix (Own Figure)

Literature discussing synergetic interrelationships is predominantly base on scientific research on the one hand, on the other hand practitioners as Holt (2001) and Alexander (2010) are providing their perspective via contributions which are predominantly based on individual management experience. Moreover, the field of literature in the context of business synergies can be enhanced by sources which do not discuss synergetic interrelationships directly as outlined above. However, from a content perspective these contributions cover topics which are directly linked to synergetic aspects such as corporate branding or corporate financial management. This type of literature shall be mentioned, however, it is not discussed in detail at this point as this would go beyond the scope of this research project which focuses on the strategic identification, implementation and management of synergetic cross-border interrelationships. Research Stream 1 – Synergy Management universally valid

Figure 9: Interrelationship Typology Matrix – Research Stream 1 (Own Figure)

Essential contributions of Ansoff (1965) and Porter (1985) have introduced the discussion about business synergies in a comprehensive way, whereby insights Copyright © 2012. Diplomica Verlag. All rights reserved.

can be applied to all dimensions listed in figure 9 (see area marked in orange). More recently Rodermann (1997) has pointed out and criticized limitations of additional contributions in the relevant field and follows the main direction established by the two business authorities listed above (“The research in hand presents a synergy concept, which can be applied independently from its context of practical implementation.”). With the identification and discussion of several areas Ansoff and Porter have left untouched Rodermann (1997) made a relatively systematic

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and comprehensive effort to contribute further insights in developing the general idea of managing business synergies. In contrast to previous heuristic contributions, as described above, his work is based on empirical analysis via expert interviews and company surveys. This research stream provides essential insights which are relevant for the context of this research paper.

Research Stream 2- Synergy Management in the context of M & A

Figure 10: Interrelationship Typology Matrix – Research Stream 2 (Own Figure)

Analyzing the application of the term “synergy” in regards to business relations often leads to large acquisitions and mergers - for instance, the merger of DaimlerBenz and Chrysler as the new Daimler Chrysler Group. A dedicated research stream is focusing on synergetic effects within this context (see figure 10, area marked in orange). Bocker (2011 “Synergieeffekte und Integration bei Mergers and Acquisitions”) or Haspeslagh and Jemison (1998, “Creating value in symbiotic acquisitions”) refer to the basic concepts introduced by Ansoff and Porter, however, discuss synergetic interrelationships specifically in the context of joining businesses. “Synergy is the increase in performance of the combined firm over what the two firms are already expected or required to accomplish as independent firms” (SirowCopyright © 2012. Diplomica Verlag. All rights reserved.

er, 1997). Haspeslagh and Jemison (1998) state that synergetic interaction processes between joining business units might be even harder to implement and manage in comparison to relationships between business units which grew from the beginning with the same or a similar corporate concept and control. This type of research stream benefits the current research project as mergers & acquisition are frequently taking place on a cross-border level, leading to circumstances whereby joining business units are entering the corporate network in the position of a

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“foreign subsidiary”. Theoretical concepts created in this context can to some extend be applied within the field this paper is approaching. Research Stream 3 - Synergy Manag. in the context of ongoing-processes

Figure 11: Interrelationship Typology Matrix – Research Stream 3 (Own Figure)

Additional research is dedicated to synergetic interrelationships between business units already legally belonging to the same corporation for a prolonged time period (see figure 11). Steidl (1999) characterizes this direction by its common ground to examine synergies generated in the context of “ongoing-processes” and is contrasting it to literature focused on on mergers & acquisition. For example, Steidls contribution examines synergy management applied in the context of corporate groups. He positions the management of synergetic interaction as a major top management challenge. In contrast to previous examinations he does not only focus on the classification of synergy types or the identification of potential interrelationships, moreover he outlines various organizational structures which are key in

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realizing synergies in “ongoing-processes”.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Research Stream 4 - Synergy Management in the context of alliances

Figure 12: Interrelationship Typology Matrix – Research Stream 4 (Own Figure)

Business synergies are not limited to being achieved between individual units which legally belong to the same corporation; rather any type of partnership provides the potential to achieve superior value via interaction. Contributions of Badaracco “Managing Alliances” (1998) and Bery and Bowers “Rebuilding an Alliance” (1998), both published in Campbell and Sommer (1998), discuss the field of synergetic interaction between legally independent units and underline its relevance: “In alliances the challenges are even greater”. Basic ideas and synergy concepts discussed within this context are similar compared to other streams mentioned above, however, this direction is listed separately in order to underline it specifics in certain areas and to provide a comprehensive but detailed and structured literature review. This field will not be further outlined in this context as this research project

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does not specifically examine alliances (see figure 12).

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Research Stream 5 - Synergy Management across borders

Figure 13: Interrelationship Typology Matrix – Research Stream 5 (Own Figure)

A fifth research stream covers interrelationships between business units located in different countries, however, legally belonging to the same corporate parent (see figure 13). Cannon (2008) and Segal-Horn and Faulkner (1999) justify the isolated examination of this direction as ”synergies realized in a particular collaboration depend in part of the culture of the collaborators” and “national cultures are a highly significant element in international strategy, affecting the mindset which the corporate headquarters brings to its dealings with staff in another country”. According to Harris (2004) research delivered by the anthropologist Ruth Benedict differentiates cultures into more synergistic societies on the one hand and individualistic communities on the other hand which tend to be more competitive and conflicting. For example, Serbia and the Iraq are classified as less synergetic while Japan and Sweden are societies which are high synergistically. Table 4 outlines the major

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characteristics of each direction.

Table 4: High and low synergy society – basic comparison (Harris, 2004)

Contributions of Johnston “Headquarters and Subsidiaries in Multinational Corporations” (2005), Ghislanzoni et al “The multilocal Challenge: Managing cross border functions” (2008) or Bartlett and Ghoshal (1998 & 2000) specifically outline the

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

variety of challenges and advantages in managing multinationals. Johnson et al (2011) identify three types of parenting roles in the context of adding value to the corporate system 1. The portfolio manager 2. The parental developer 3. The synergy manager The portfolio manager and the parental developer shall not be outlined in detail in this context. Headquarters acting as synergy manager are supposed to ”enhance value for business units by managing synergies across business units”. The degree to which the corporate parent can function accordingly on a cross-border level and achieve beneficial interaction is related to the characteristics of the foreign counterpart. Bartlett and Ghoshal (1998) have proposed a framework which considers the key measures in defining subsidiary roles in multinational firms: ”Strategic importance of the local environment” and “Level of local resources and capabilities”. Both dimensions in combination lead to four different subsidiary role types (see figure 14). The delineation and classification is specifically relevant for this research project as it provides an understanding of the strategic subsidiary position, heavily influencing the level of synergetic interrelationship with the corporate parent. For example, if the foreign subsidiary has to classified as “Implemeter” the headquarter is required to act as parental developer. However, if the subsidiary can be ranked

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as “Strategic Leader” the corporate parent is likely to perform as synergy manager.

Figure 14: Subsidiary roles in multinational firms (Bartlett and Ghoshal, 1998)

Based on the insights presented above, the McKinsey consultants Ghislanzoni et al (2008) have more recently pointed out the aspect of organizational barriers blocking

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synergetic interrelationships, specifically in the context of cross-border interaction. “In addition to identifying a company’s potential sources of cross-border value, executives must identify the organizational barriers to achieving it.” Their research in and around large European players has delivered three main barriers: Lack of awareness, poor motivation and inability to execute. Johnson et al (2008) dedicated one chapter within their comprehensive contribution “Exploring Corporate Strategy” to the strategic rational of the corporate parent, covering its role as synergy manager. This text considers a key aspect which shall not be underestimated in the context of discussing synergetic interrelationships between the corporate parent and foreign subsidiaries in specific: “Business politics” might be a major factor in

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blocking this type cross-border interaction.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

3

Methodology

This chapter outlines the research purpose and justifies the research approach and design.

3.1

Primary Research

Existing research about German small and medium-sized businesses provides an understanding about the internationalization in and around this business segment, however, it is mostly focused on elaborating motives for approaching new markets or the entry modes selected (Sölter, 2007 / Brenken 2006 / KPMG, 2007). Secondary insights about synergetic interaction between the corporate headquarter and foreign subsidiaries are rather limited. Consequently, data in order to examine the research question will predominantly be obtained via primary research, accompanied by selected secondary data which might be beneficial in interpreting and evaluating primary output. Based on the research onion approach introduced by Saunders et al (2009) figure 15 provides an overview of the individual research approaches, strategies, and techniques and points out (in red) the methods applied within this research project. The project combines a deductive and inductive approach, applies a single case study and the survey research strategy, combines quantitative and qualitative data collection techniques and analysis procedures and can be classified as a cross sectional research project. The following paragraphs will outline the individual areas and provide a comprehensive project overview by

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reviewing each research onion layer separately.

Figure 15: The research onion (Own figure based on Saunders, 2009)

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3.1.1

Research Approach and Procedure

Scientific research method literature delivers two different research approaches (Saunders et al , 2009). Inductive reasoning moves from specifics to generalization and is based on observations and measures, detecting patterns and regularities, which lead to the emergence of tentative hypotheses. With deduction those hypotheses can be further explored and accepted or rejected based on empirical evidence. Saunders et al (2009) classify the combination of induction and deduction within the same piece of research as “perfectly possible” and “advantageous”. De Groot's (Mellenbergh and Ader, 2008) outlines this procedure with the empirical cycle as illustrated in figure 16. According to his concept a theory generates testable hypotheses, whereas the outcome of the hypothesis testing process will further specify the research.



Figure 16: De Groot's empirical cycle (Mellenbergh and Ader, 2008)

Based on the two approaches introduced above the research purpose for this study can be outlined as follows: The inductive (theory building) part of the research process is characterized by its exploratory nature, aiming to gather preliminary information that shall help to define the problem and deliver suggestions to formuCopyright © 2012. Diplomica Verlag. All rights reserved.

late the hypotheses. Awami (2011) lists the case study as one strategy to diagnosing a situation from an exploratory standpoint. As an extension to the exploratory research approach, empirical research, undertaken via a survey, shall deliver an accurate profile about synergetic cross-border interaction in medium sized businesses. This deductive approach shall test if the theory proposed via the case study approach occurs in other firms. The individual research strategies applied on the deductive as well as on the inductive side are outlined in the following chapter.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

3.2 3.2.1

Research Design Research Strategies

Scientific research literature provides a range of research strategies, each characterized by its pros and cons (Leedy and Ormrod, 2005). For the purpose of this study two strategies are applied. First, a case study shall outline the relevant topic in detail as within this concept one single unit is extensively analyzed within a real life context (Thomas, 2011). The researcher’s connection to the company under investigation delivers the foundation for undertaking this research strategy. Tentative hypotheses derived with this approach shall be empirically analyzed via a survey distributed to a sample of small and medium-sized businesses. The survey strategy is the most appropriate tool for this purpose as it provides the potential to approach closed enterprises and to collect a large amount of data in an economical way. Table 5 provides an overview about both strategies applied within this paper.

 Table 5: Research techniques applied

3.2.1.1 Case Study Research A case study is defined as “a kind of research that concentrates on one thing, looking at it in detail, not seeking to generalize from it” (Thomas, 2011). A case study is particularly good for examining “why”, “how” and “what” questions. The case study carried out within this research project can be classified as a local knowledge case as its origin is based on the researcher’s familiarity with the company under investigation. The purpose of this case study is exploratory as it aims to organize a perplex issue and explanatory as its objective is to “offer Copyright © 2012. Diplomica Verlag. All rights reserved.

explanations based on the interrelationships between individual bits”. In order to achieve this objective the case follows an illustrative and interpretative approach. The single case design is expected to provid the basis for the hypotheses which shall be tested via the survey applied. For this purpose a variety of data collection methods are used in combination, gathering the required insights (see table 6). Indepth interviews were conducted with employees and executives on headquarter as

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well as on subsidiary side. In addition data files such as brochures, advertisements and newspapers as well as magazine articles were collected. 

 Table 6: Data collection methods applied in the case study context



3.2.1.2 Survey Research In order to answer the research question a survey was designed as a combination of quantitative and qualitative questions. Qualitative aspects were dominating, however, selected questions have collected numerical data and are consequently characterized by a quantitative nature. In addition, quantitative elements were tangent via the statistical analysis of the questionnaire output.

Survey Target Group In order to gather the required insights via the selected research method the researcher had to filter for contact details of relevant businesses. One privately owned and two public databases were identified, providing the required information (see figure 17). Applying the definition of mediums-sized businesses, corporations with an annual turnover volume of less than 50 Mio. Euros, less than 500 employees and at least one foreign subsidiary were filtered. The questionnaire made high demands on the respective respondents as a broad overview across the companies Copyright © 2012. Diplomica Verlag. All rights reserved.

value chain and the headquarter relationships to the individual subsidiaries was required in order to answer the questions appropriate. Consequently, the questionnaire was targeting in a first step executives as they are expected to have the required knowledge.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

ƒ

IndustryundHandelskammer(ChamberofCommerce),Bayern http://www.firmeninbayern.de/sites/fitby/welcome.aspx

ƒ

IndustryundHandelskammer(ChamberofCommerce),BademWürtemberg http://www.bwfirmen.ihk.de/sites/fitbw/welcome.aspx

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BureauvonDijkPrivateDatabase http://www.bvdinfo.com/Home.aspx Figure 17: Business contact databases

Survey Design The survey was created based on a variety of relevant theories, contributed by several authors who already examined the field of business synergies and/or multinationals and has addressed all individual research sub problems listed in chapter 1. The respondents were asked to examine the interrelationship between the corporate parent and one individual subsidiary which is (first) controlled by the corporate headquarter with at least 51% and (second) considered as the most relevant foreign location within the corporate portfolio. The population has provide sufficient potential as according to research undertaken by the Deutsche Bundesbank (Base 2003) 70% of all foreign investments are undertaken in the form of total control and 20% as majority holding (Amschlinger, 2004). These constraints are required in order to accomplish the research and receive feedback from the individual companies. Approaching businesses with the request to evaluate each individual headquarter-subsidiary relationship within the corporate network would probably have lead to a non-participating reaction. Simultaneously, both constrains limit the research’s explanatory power which will be discussed in chapter 6. The first survey section is concentrated on characterizing the subsidiary whose interaction with the German headquarter is examined. The second section is based on Porter’s value chain (1985) and is focused on analyzing the cross-border

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interaction of the German HQ with the selected subsidiary per department. The third part is designed in order to elaborate the barriers negatively influencing this cross- border interaction. The fourth part is focused on the application of synergy management processes within the corporate strategy of SMBs operating internationally and the last section is asking for general details about the individual corporations.0

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Survey Distribution The survey was distributed to the individual participants via the online platform www.onlineumfragen.com (see figure 18). The tool provides a professional distribution management system and has simplified the survey handling for the respondents. The funnel question technique, which was heavily applied within this survey, would have created confusion while asking respondents to provide feedback via a PDF document. As the survey was ready for distribution during the summer holiday time, vacation schedules of the individual German states were considered in order not to let external influences further decrease the responds rate.

Figure 18: Survey distribution via the online provider www.onlineumfragen.com

Sampling In order to understand internal company structures in regards to synergetic crossborder interaction across the population under investigation it is required to survey a subset of individual observations. Figure 19 outlines the two research strategies applied within this project. First, one single case was analyzed in detail before several units out of the population were investigated via the survey method. Research literature provides several sample design options such as random, systematic or cluster sampling. For the purpose of this research the proportional

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stratified approach was selected, which defines the sample in accordance with a proportional allocation within the population. The sample shall specifically display the uneven allocation of small and medium-sized businesses across the individual German states. Within each state a random selection has provided survey participants. According to the extent and significance of this research project it was the author’s objective to achieve a sample size of 100 observations. Figure 23 (see chapter 5) outlines the sample composition as finally achieved after the field work was completed. 38

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

 Figure 19: Individual case analysis vs. sample analysis



3.2.2

Research Choice

The research choice refers to the combination of data collection techniques and analysis procedures (Saunders, 2009). In this context multiple methods “use more than one data collection technique and analysis procedure to answer the research question”. This approach is applied for undertaking the case study analysis. As a subgroup of this category mixed-model research combines quantitative and qualitative data collection techniques and analysis procedures. Qualitative data delivered via the survey research strategy applied within this paper are quantified for statistical analysis.

3.2.3

Research Time Horizont

From a timing perspective Saunders et al (2009) distinguish between two different research types. As “cross-sectional” they classify research projects which are seeking for a snapshot, analyzing the relevant question at a particular point in time. In contrast, longitudinal research investigates the research object over a particular time period. This research project follows the cross sectional approach as it investigates the topic under investigation at a particular time across a selected

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sample of out of the population.

3.2.4

Research Techniques (Data Analysis)

Data collected via the survey are processed and analyzed in three different ways. First, descriptive summaries deliver a quantitative overview of the individual insights gathered. Second, raw data delivered via selected questions are analyzed via a modified version of the synergy profile as proposed by Rodermann (1997). Third, selected insights are investigated by applying inferential statistical methods.

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Descriptive and Inferential Statistical Analysis Descriptive statistics aims to summarize sample data and present aggregated facts. Methods of analyzing data on a single variable at a time are applied in a first analysis step in order to receive basic data insights (univariate analysis). The online survey management platform (www.onlineumfragen.com) includes a statistical analysis tool which has delivered the required data summaries and aggregations (see figure 20).

Figure 20: Survey analysis via the online provider www.onlineumfragen.com

Statistical inference has to be distinguished from descriptive statistics. The first approach applies techniques which take advantage of small samples collected in order to generalize and to make conclusions about the large population (Leedy and Ormrod, 2005). This type of confirmatory data analysis has the objective to test whether a hypothesis is statistically significant. Synergy Profile Analysis The survey provides the required output in order to run a modified version of the

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synergy profile as proposed by Rodermann (1997). Insights were filled into this scoring model (see table 7) in order to measure the synergetic potential the individual companies deliver and accordingly have not utilized yet. In a first step unutilized synergetic potential between both systems (headquarter and subsidiary) is assessed on a unit per unit level via a point scale of 10 (low) to 30 (large). Every department will be weighted according to its relevance for the overall company performance (share on total costs). The product of points and weightings delivers the weighted score which will be summed up across all depart40

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

ments resulting in the total company score. This measurement illustrates the unutilized synergetic potential for the corporations under investigation and delivers an objective comparison. Than higher the final score than higher the unutilized synergetic potential.

Table 7: Synergy profile (Own figure based on Rodermann, 1997)

3.3

Evaluating primary research design

From a scientific perspective measurement instruments should be questioned in regards to their validity and reliability (Leedy and Ormrod, 2005). Thomas (2011) points out that those measures ”have been important for particular kinds of research, however there is no need to worry about them in regards to the case study mothod”. However, validity and reliability are specifically relevant in regards to survey research. Reliability is defined as the degree to which any measuring procedure delivers the same result on repeated trials. As answers of selected survey questions are

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depending on subjective assessment rather than on unquestionable facts there is a chance that results might differ slightly although two respondents are considering the same corporation. Validity refers to the degree to which the measurement tools measures what the researcher has set out to measure (Leedy and Ormrod, 2005). External validity refers to the extent to which the results of a sample study are generalizable to the population. The limited number of observations might not deliver representativeness, however a general direction should be identifiable. In regards to internal validity one certain authority might question whether the survey

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actually measures the level of synergetic interaction. Ensign (1998) points out that pure interaction between individual businesses units not automatically leads to the utilization of synergies, he rather calls for the analysis of individual processes and activities established between both units in order to understand whether synergies are finally achieved. This detailed analysis level however would not have been accomplishable without access to internal information of each individual business analyzed. Consequently, this study analyses the existence of interrelationships between individual departments as proposed by Porter (1985) and Rodermann (1997).

3.4

Secondary Research

Secondary research specifically focusing on cross-border interrelationships of German small and medium-sized businesses is rather limited. However, secondary data is available on a general level in regards to the two major fields this research project is addressing (1. medium-sized businesses, 2. headquarter subsidiary relationships) and is considered in order to develop the research objective and complete and interpret the primary output. General research about German SMBs is well developed and publically available. The German research institute for medium-sized businesses (Sölter, 2007), banks (Brenken, 2006) and consulting companies (KPMG, 2007) are continuously publishing research about this business segment in general and about the internationalization tendencies in specific. The statistics website published by the research institute for medium-sized businesses can be classified as the major source in regards to secondary data (http://www.ifm-

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bonn.org/index.php?id=56).

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4

Hypotheses Derivation

This chapter outlines the hypotheses which shall narrow down and focus the research direction. They are derived from a single case study about the crossborder interaction of a German medium-sized business (IFM Sports) with its US subsidiary.

4.1

Case Study

Company Background IFM Sports is a research and consulting company operating in the field of sports communications. The corporation was founded in 1988 in Baden-Baden, Germany. Today IFM Sports is headquartered in Karlsruhe, Germany and operating internationally across twelve subsidiaries with a total staff of 150 employees (see figure 21). Locations are concentrated in central Europe, accompanied by operations in Asia, Australia, South Africa and North America. Selected subsidiaries cover the entire headquarter value chain and could consequently operate independently, whereat others only function as business development office for the headquarter. IFM offers products and services to all sports sponsoring market participants – rights holders such as Formula 1 or football teams, sponsors such as Barclays or Red Bull or marketing agencies such Just Marketing International. The corporation is positioned to provide services to clients acting in global sports sponsoring markets and to clients who are focused on local niche markets only. In order to keep the image as “sports marketing experts” across a variety of markets a high level of knowledge sharing, between the individual employees located in different subsidiaries, is required. The corporation claims to “think and act on an international

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basis and consider globalization as a chance”. (IFM, 2011)

Figure 21: IFM Sports – global presence (IFM, 2011)

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IFM Products IFM products can be classified into two categories: Research products and consulting services. Research products on the one hand are based on the IFM core disciplines - media and market research analysis. The documentation and analysis of sports coverage and sponsor brand presences delivered via global TV broadcasts, print, radio and the Internet provides the foundation for a dedicated evaluation of the media impact generated via specific sports properties or sponsorships (Lichti, 2011). Qualitative market research analysis on the other hand provides an understanding about the impact on target groups achieved via the brand media presence and additional sponsorship assets. Consulting services as the second product category are marketed separately, however are based on media and market research insights. The production of those essential media data requires production processes as common in the manufacturing industry, including for example production planning, capacity planning and quality control. Consequently, processes and structures are similar in comparison to the manufacturing industry. US Market IFM entered the US market via a business development agent in 2005. The North American sponsorship market provides strong potential as many sports properties are managed in a professional way, requiring IFM insights. In a first step the US product portfolio has only contained the IFM core products, media and market research analysis. In order to achieve an appreciable market share, sustain its competitive position and continue to grow IFM had to enhance the product portfolio with overnight analysis and consulting services. Both product categories required the establishment of production processes and additional value chain segments in the US office. In 2008 IFM Sports invested heavily in its US subsidiary in order to transfer the required know-how, facilities and processes. As a result IFM North America became more independent from the German headquarter and the precon-

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dition to analyze the US media landscape comprehensively was established. However, the increased number of US clients concentrating on non-US markets still asked for an intensive interaction with the headquarter, which has the capabilities to cover those markets as well (Eisenbeis & Lichti, 2011).

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Value Chain The IFM’s business performance is highly correlated with the utilization of synergetic potential between the individual offices located in different markets. Synergies can either be achieved internally on process level or externally by reselling immaterial research insights multiple times. Figure 22 outlines the value chain of the German HQ and the US subsidiary respectively. The individual departments which have established a cross-border relationship are marked in blue, the units which are currently not interacting are colored in orange. The following paragraphs outline the interaction per department and the synergetic potential which is currently unutilized.

Figure 22: IFM Sports cross-border interaction (Lichti & Eisenbeis, 2011)

Organization & Human Resources Cross-border interaction between the German HQ and the US subsidiary does not take place in regards to “organization and human resources” as value is mainly driven on a local basis. However, interaction would deliver a low level of synergetic potential as for example insights about recruiting processes and test could be shared (Eisenbeis, 2011).

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Research & Development Research & Development is predominantly driven by activities taking place in the German HQ. Insights and new developments are shared, whereas additional potential could be utilized if both departments would coordinate their efforts more effectively (Eisenbeis, 2011).

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Procurement Essential data which are required to complete IFM research projects, however, are not generated internally are purchased from external sources. In the field of media research IFM Sports generates the majority of insights in house, limiting the external purchases to TV-audience ratings only. In addition, IFM does not have its own field institute to conduct primary market research, whereby those insights are purchased entirely from external sources. IFM Germany and the US subsidiary are cooperating in both fields in order to achieve a stronger bargaining power and profit from the long lasting partnership of the German HQ with its suppliers. Additional synergetic potential on a medium level could be generated if both units would intensify their cooperation (Eisenbeis, 2011). Production Due to the fact that IFM products are immaterial individual research components could be produced in different locations around the world. Transportation and combination costs of individual parts would be minimal as data could be transferred online. Currently, IFM Germany and the IFM subsidiary located in the US do not interact in regards to the actual data production as well as know-how or best practice sharing. A split production scenario would be beneficial as the US team is more familiar with analyzing US media and the German team with analyzing European media respectively. Intensified cross-border interaction of both production units could deliver high level of additional synergetic potential (Lichti, 2011 & Eisenbeis, 2011). Marketing & Sales IFM offers media and market research insights as its core product. These products are provided independently or in combination with consulting services. Media and market research insights are immaterial goods which are not disregarded during the consumption process. Consequently, the product has the potential to be resold Copyright © 2012. Diplomica Verlag. All rights reserved.

multiple times. On the external side several market participants are interested in the same sponsorship platforms which create high demand for the same research product. International sales meetings are held regularly in order to coordinate sales efforts, however, additional synergetic potential could be utilized on a medium level while interacting more strategically (Ullrich, 2011).

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Consulting Services The US and German consulting units share basic know-how, however, not on a regular basis. Executives on both side state that additional value could be generated via improved interaction and the sharing of best practices. In specific, the crossborder communication of local market insights, which might be requested by foreign clients willing to invest in the respective foreign market, could generate additional value (Eisenbeis, 2011). Measuring unutilized Synergetic Potential The application of the synergy profile as proposed by Rodermann (1997) allows the quantification of unutilized synergetic potential between the German HQ and the US subsidiary. The model weights unutilized potential per department according to the share on total costs delivered by the respective units (for a detailed concept explanation see chapter 3.2.4). The interaction between the IFM headquarter and the US subsidiary totals 22.2 points, indicating a medium level of unutilized synergetic potential (see table 8 and chapter 5 for benchmarking purposes).

Table 8: Unutilized synergetic potential between the IFM headquarter and the US subsidiary

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Barriers Blocking Synergetic Interaction Executive interviews, undertaken in German headquarter as well as on US subsidiary side, deliver the feedback that synergetic interaction between the IFM headquarter and the US subsidiary is negatively influenced or blocked by multiple barriers. Both parties have agreed independently that interaction is inhibited by differences between the culture of both organizations, missing language skills on both sides and the lack of personal relationships between the staff members. Executives working in the German HQ specifically emphasized that heads of

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individual departments might be afraid of losing control and power if they would be involved in cross border interaction with the American subsidiary. In contrast key employees on the US side specifically point out the time difference as a blocking barrier (Lichti & Eisenbeis, 2011). Attempts to counter barriers blocking synergetic interaction IFM Sports has made several attempts to improve cross-border interaction between the German headquarter and the US subsidiary. In 2008 the first expatriate was sent to the US office in order to transfer expertise and function as a link between both corporations. Table 9 shows the cross-border employee transfers, initiated in order to improve the personal relationships between both corporations. English language courses, given in the German HQ, should support external client and internal cross-border communication. Employees on both sides however criticized that individual arrangements did not follow an overall strategy, were limited to individual departments and lacked coordination, internal promotion and sustainability (Ullrich, 2011 & Eisenbeis, 2011).

Table 9: IFM Germany – IFM USA cross-border employee exchange and transfer (Eisenbeis, 2011)

Corporate Synergy Management A continuous synergy management approach has not yet been established within the IFM corporate strategy. Employees on both sides agree that overall company performance could be improved while strategically managing synergetic crossborder interaction along all value chain activities. This applies to the relationship of

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the German HQ with the individual subsidiaries as well as the interaction in between the subsidiaries itself. Corporate management has not yet set the framework which guarantees that individual departments located in different countries can perfectly profit from each other, making IFM Sports worth more than the sum of its individual parts.

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4.2

Research Hypotheses

Based on the main research question and sub problems presented in chapter 1 and the case study outlined in this chapter, the following tentative hypotheses can be drawn. They narrow down and focus the research direction in order to provide guidance for the kind of data which should be collected during the empirical research process. Hypotheses gathered via the inductive reasoning shall be supported or rejected through the research approach presented in the following chapters.

1.

Interaction between the corporate parent and foreign subsidiaries of German small and medium sized manufacturing businesses provides unutilized synergetic potential.

2.

The utilization of synergetic potential is blocked or negatively influenced by multiple barriers.

3.

Strategic synergy management with the purpose of utilizing synergetic crossborder potential and reducing the negative impact of blocking barriers is not sufficiently applied by German small and medium-sized manufacturing busi-

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nesses.

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5

Research Analysis and Discussion

This chapter analyzes, presents and discusses the cross-border interaction insights gathered via the research survey (see appendix A), presented to 637 small and medium-sized manufacturing businesses which are running a foreign subsidiary. The research was conducted between the 1st and 29th of August 2011. 42 companies provided feedback, resulting in a responds rate of 6.59%. Demographics of participating businesses are displayed in appendix B.

Small and medium-sized, predominantly family owned, businesses have a long tradition in German states such as Bayern, Baden Württemberg or NordrheinWestfalen, whereat their number started to grow in the east of the country after the German reunion. Based on the proportional stratified approach the proportional allocation of medium-sized businesses across all German states was the objective in designing the research sample. Figure 23 displays the actual distribution of SMBs within the population (blue) and the final distribution of the sample analyzed (red). Although corporations located in specific states did not respond, the major allocation could be approximated. In the following paragraphs each hypotheses, as proposed in chapter 4, is discussed separately based on the insights collected via

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the survey.

 Figure 23: Distribution of German SMBs by state (IFM, 2011a)

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Research Hypothesis 1: Interaction between the corporate parent and foreign subsidiaries of German small and medium sized manufacturing businesses provides unutilized synergetic potential. Before discussing the degree of unutilized synergetic potential between the German headquarter and the selected subsidiaries, based on a common valuation approach, the actual level of cross-border interaction along the value chain shall be outlined in figure 24. For this purpose respondents were asked to define the level of interaction between the individual departments along the value chain located in the German HQ and the foreign subsidiary. Insights displayed in figure 24 are filtered for the scenario that provides the basis for cross border interaction - both departments analyzed exist in headquarters as well as in foreign offices. Responses which indicate that a specific department in focus is only located in the headquarters but not in the foreign subsidiary are not considered at this place. Results presented in figure 24 are based on 162 interrelationships between departments located in the German headquarter and their counterparts abroad. Insights are averaged across all types of departments analyzed (procurement, production, research & development, marketing & sales). 8% of the respondents mentioned that cross-border interaction is not required. 18% point out that currently no interaction is taking place, from which however 21% would classify a future cooperation as very valuable. Cross-border interaction is already taking place between 74% of all departments analyzed, whereas 45% of those respondents state that a high level of additional value could be generated by interacting more

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coordinated and intensively.

45% 21%

21%

Figure 24: Level of cross border interaction (averaged across all departments analyzed)

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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Results presented in figure 25 are purely based on the value chain activity “production” as the main body of the manufacturing industry. 71% of responding businesses stated that cross-border interaction on production level between the HQ and the foreign subsidiary under investigate is taking place. 76% of those departments already interacting mentioned that additional value on a high level could be achieved by a more intensified form of interrelation.

Figure 25: Level of cross border interaction (production unit only)

In order to quantify the overall synergetic potential each individual company under investigation has not utilized yet a modified version of the synergy profile as proposed by Rodermann (1997) is applied. Insights gathered via the research survey deliver the foundation for running this evaluation approach. The concept is explained from a theoretical standpoint in chapter 3.2.4. The following paragraphs focus on the output generated while applying the tool. Appendix C provides the detailed scoring model calculations for selected companies. A high level of unutilized synergetic potential could not be measured in any corporation analyzed. A medium level was identified in 79% and a low level of unutilized potential was Copyright © 2012. Diplomica Verlag. All rights reserved.

tracked in 21% of all responding businesses (see figure 26).

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Figure 26: Unutilized synergetic potential

In order to test if this outcome is statistically significant a T-test with the following hypothesis is applied.

H0: The mean of the weighted total synergy profile score is smaller (or equals) 14 points. (14 points and less equal a low level of unutilized synergetic potential)

H1: The mean of the total synergy profile score is greater than 15 points. (15 points equal a medium level of unutilized synergetic potential)

Figure 27 delivers the test statistic based on a level of significance of = 5%, which indicates that the finding has a five percent chance of not being true. According to the test output a synergy potential score greater than 14 is statistically significant and is unlikely to have occurred by chance. As the analysis is based on more than 30 companies the T-test can be classified as statistically robust. Consequently, unutilized synergetic potential across the population of medium-sizes manufacturing businesses is expected to be at least on a medium level, for which reason the

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research hypothesis 1 (as presented on page 42) is accepted.

Figure 27: Unutilized synergetic potential - T-Test test statistic

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Research Hypothesis 2: The utilization of synergetic potential is blocked or negatively influenced by multiple barriers. The existences of unutilized synergetic potential between the corporate headquarter and the foreign subsidiary leads to the assumption that certain factors are influencing this type of cross-border interaction. 58% of all responding companies have stated that interrelationships between the corporate headquarter and the selected subsidiary are blocked or negatively influenced by several barriers (see figure 28). In contrast, 42% do not face or do not realize any negative impact limiting cross border interrelations. This ratio does not change while separating and contrasting businesses with less than 300 and corporations with 300-500 employees. Responding companies identified “differences between the cultures of both organizations” (78%) as the most relevant barrier negatively influencing synergetic interaction. 67% of all businesses mentioned “the lack of a structured synergy management approach” on corporate level as one major barrier. In addition, “missing language skills” and “the lack of awareness for the potential of crossborder interactions” on HQ as well as on subsidiary side are influencing the realization of synergetic potential (see table 10). Based on the descriptive summaries derived from the research sample the research hypothesis 2 outlined above can be

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accepted.

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Figure 28: Barriers blocking synergetic interaction 1.

Differences between the cultures of both organizations

78%

2.

Missing cross-border synergy management

67%

3.

Missing language skills in the foreign subsidiary

56%

4.

Differences between the cultures of both organizations

50%

5.

Missing language skills in the German headquarter

50%

6.

Missing personal relationship between the employees of the both organizations

50%

7.

Missing awareness for the potential of cross-border interaction on HQ side

39%

8.

Missing awareness for the potential of cross-border interaction on subsidiary side

33%

Table 10: Type of barriers blocking synergetic interaction

Research Hypothesis 3: Strategic synergy management with the purpose of utilizing synergetic cross-border potential and reducing the negative impact of blocking barriers is not sufficiently applied by German small and mediumsized manufacturing businesses. The identification of barriers blocking synergetic cross-border interaction leads to the assumption that they are not managed sufficiently. Survey research has delivered the result that 44% of all responding companies are not actively managing factors influencing cross-border interaction in order to reduce their negative impact. Out of those corporations however 80% mentioned that a structured approach of coordinating interrelationships would benefit their company and increase the overall

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performance level (see figure 29).

Figure 29: Synergy management applied within the corporate strategy

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Corporations which actively manage cross-border interaction are applying different organizational structures in order to coordinate their efforts. The majority (63%) stated that interrelationships between the corporate parent and the foreign subsidiaries are managed on corporate level via the top management (see figure 30). However, simultaneously only 28% of these respondents that are experiencing this synergy management approach are confident that the top management has the relevant insights into processes and structures in order to manage synergetic potential sufficiently (see figure 31). 26% of all participating businesses manage synergetic interaction on unit level in conjunction with the top management. On the other hand 11% are applying an approach which concentrates the responsibility for coordinating subsidiary interrelationships on one centralized department which is linked to the top management.

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Figure 30: Responsible entity for managing cross border interaction I

Figure 31: Responsible entity for managing cross border interaction II

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

Corporations are taking advantage of different tools in order to manage crossborder interaction (see table 11). Software systems as a cost intensive alternative are used most frequently (48%). 41% of all businesses coordinating cross-border interaction take advantage of an approach which can be realized without heavy financial investments – an internal mission and vision statement covers the synergetic interaction approach and provides an overall direction in order to get everyone in the system going in the same direction. Expatriation (10%) and the promotion of incentives for employees who have explored synergetic potential between the HQ and individual subsidiaries (6%) are not sufficiently applied yet. Software System (e.g. SAP)

48%

Mission and Vision Statement covering synergetic interaction

42%

Internal cross border networking events

42%

Headquarter subsidiary phone and video conferences for the purpose of improving interaction independent from actual project discussions

32%

Expatriation

10%

Rewards for employees discovering synergetic potential

6%

Management Scorecards

3%

Table 11: Management tools applied to coordinate cross-border interaction

49% of all corporations under investigation declare that there are no arguments which confront the implementation of a corporate synergy management. Besides the positive effects which can be generated by cross border interaction, this type of intra company relationship management can be accompanied by aspects negatively influencing the overall performance level. 27% of all respondents consider the fact that dependencies between departments located in different countries might negatively influence the independent decision making process. 22% argue that additional value generated will not justify the costs for setting up a structured approach of coordinating cross-border interaction (see figure 32). To conclude, about half of the businesses analysed have not yet established a Copyright © 2012. Diplomica Verlag. All rights reserved.

strategic cross-border synergy management program. 80% out of those however stated that it could improve their business performance. For both reasons research hypothesis 3 is accepted.

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Figure 32: Reasons confronting the implementation of a corporate synergy management



6 6.1

Recommendations and Conclusion Recommendations

The following paragraphs recommend an overall cross-border synergy management approach, focused on the special characteristics of small and medium-sized manufacturing corporations. The concept can be separated into two perspectives – the strategic level on the one hand and the operational level on the other hand (see figure 33). Both perspectives combined provide a holistic framework for strategists of small and medium-sized manufacturing businesses to establish the cross-border synergy management concept as part of the corporate strategy and manage international interaction effectively and efficiently. Cross-border Synergy Management – Strategic Perspective: This perspective delivers the foundation for establishing the cross-border synergy management concept as part of the corporate strategy. It is based on the insights generated by

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the case study outlined and the survey research undertaken within this research project. Cross-border Synergy Management – Operational Perspective: This approach aims to coordinate cross-border interaction on a daily basis via the synergy management process. The concept is based on a variety of aspects already proposed by several authors. However, this paper delivers additional value as it

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structures and links the individual insights based on the four phases of the general management process.

Figure 33: Cross-border synergy management concept (Own figure)

6.1.1

Synergy Management – Strategic Perspective

While discussing the internationalisation process of small and medium-sized businesses Eden (2001) points out the enourmus cross-border coordination efforts which are required along all value chain activities in order to colaborate effectively. Semlinger (2004) differentiates and outlines that the required cross-border management efforts increase, based on the type of internationalization mode chosen by multinational companies. An increase in the geographic and cultural distances leads to growing demands on the management level. According to his research international business activities, purely focused on importing and exporting, are less demanding. In contrast, foreign subsidiaries require high levels of management efforts. Cross-border synergy management aims to fulfil this demand for coordination in order to fully utilized synergetic potential and minimize the negative impact of blocking barriers between the corporate headquarter and its foreign subsidiaries.

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Corporate strategists are consequently asked in a first step to incorporate the cross-border synergy management approach into in the corporate strategy. For this purpose this paper is proposing a four step framework as outlined in the following paragraphs (see figure 34). 1. Provide Orientation: Strategists are asked to provide an overall orientation for the entire organization in regards to the strategic direction and daily handling of cross-border interaction.

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2. Define Management Power and Authority: Strategists are asked to define responsibilities in regards to the coordination of cross-border interaction. 3. Provide Chance & Incentives: Strategists are asked to provide staff members access to cross-border synergy management tools and stimulate their application by providing incentives. 4. Cost-Benefit Analysis: Strategists are asked to control concept costs and benefits in order to understand overall value achieved and redesign the approach if required.

 Figure 34: Cross-border Synergy Management – Strategic Perspective (Own figure)

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6.1.1.1 Provide Orientation According to Johnson et al (2011) a mission statement is a “general expression of the overall purpose of the organization, which, ideally, is in line with the values and expectations of the major stakeholders and concerned with the scope and boundaries of the organization”. A vision or strategic intent is the “desired future state of the organization”. It is an aspiration around which a strategist, perhaps a chief executive, might seek to focus the attention and energies of members of the organization”. In order to turn the theory into action and provide orientation via the commu60

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

nication of the corporate direction strategists can take advantage of a vision statement to align people, systems and structures towards a shared destiny. Li’s research (2005) has highlighted that trust and shared vision are important indicators in stimulating cross-border interaction. Moss Kanter (1998) requests the promotion of “a culture in which everyone gravitates towards working together to create synergy”. Alexander (2010) agrees and underlines that employess can achieve superior performance while interacting and “synergy allows everyone to say “us” instead of “us and them””. Only 42% of all businesses responding to the survey research are currently taking advantage of a vision statement which covers the aspect of cross-border interaction. As this tool does not require a high level of financial resources it can be classified as an efficient approach and should be used more frequently by small and medium-sized businesses. It has the potential to provide an overall orientation in regards to the cross-border interaction and concisely convey the direction of the organization. Furthermore, it allows the communication of intentions and beliefs to the entire organization, regardless of where the individual units are located. On the internal side it provides employees with motivation and guidance as well as it should deliver an overall idea about the corporate strategy. Jones (2008) characterizes the vision statement as “the framework or context within which the company's strategies are formulated”. Both, the headquarter as well as the foreign subsidiary staff members can be aligned and stimulated based on this overall guideline summary and a systems thinking culture can be established. This approach is characterized by its holistic view on the entire organization. Employees are asked to consider their direct environment as well as other parts of the organization which might be affected by their actions. Ideally staff members internalize the idea of understanding the organization as a system consisting of “interacting sub-systems”.

6.1.1.2 Define Management Power and Authority In order to manage synergetic cross-border interaction sufficiently, both sides involved, the corporate headquarter as well as the foreign subsidiaries have to have Copyright © 2012. Diplomica Verlag. All rights reserved.

a clear picture about the position in charge for managing the collaboration. Kaplan and Norton (2006) dedicated the role for managing synergies within a corporation to the corporate management: “Synergies will not occur unless the corporate level plays an active role to identify and coordinate opportunities for integrating the behaviour of its decentralized business units”. Survey research has delivered the result that 63% of participating businesses are following this approach (see chapter 5), however approximately two thirds are not confident that corporate management

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alone can identify synergetic potential sufficiently. 34% of all responding businesses apply a mixed concept in order to manage synergetic interaction. This approach links the top management, as the position with the ultimate system overview, and an operating partner who can support the overall direction with detailed process knowledge (see chapter 5). On the one hand, interrelationships are coordinated decentralized on unit level in cooperation with the corporate management. On the other hand interaction is managed by a specialized department/position which is directly linked to the corporate management. The combination of different hierarchy levels shall guarantee that the system thinking, as applied by the corporate management, can be combined with the detailed knowledge which exists on unit level. Key in order to manage cross-border interaction effectively is an understanding of the structures, processes and key decision makers in the foreign subsidiaries and on corporate parent levels respectively. As a precondition to manage cross-border interaction personal relationships on headquarter as well as on subsidiary side have to be built by the position in charge. The responsible cross-border synergy management staff member(s) should apply the individual synergy management tools as introduced in the next chapter in order to initiating the triggle down effect to the entire organization.

6.1.1.3 Provide Chance & Incentives The comprehensive synergy management approach as introduced in figure 34 is based on the four pillars which are derived out of the survey responses. Each category can be reviewed individually; however it is rather important to consider each field in the overall context, perfectly linked to and supporting each other. 1. Knowledge Management 2. Relationship Management 3. Information and Communication Technology Management 4. Soft Skills Management

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Corporate synergy management has the opportunity to provide employees with the chance to access a variety of tools for managing cross-border interaction. This can be accomplished via the provision of time, resources or open space as well as the organization of occasions. Second, incentive programs should be set up and communicated to the staff members in order to motivate and stimulate them for international cooperation processes. These tools provide the potential to support the systems thinking culture across units, borders and throughout several hierarchy levels. The four pillars introduced above do not only address employees who have 62

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

experienced the corporate headquarter as well as the foreign subsidiary. In fact, employees who have not yet worked in a foreign location can profit if they take advantage of the chances provided and identify valuable sources of cross-border interaction. In the following each pillar is outlined in detail.

Knowledge Management Three terms are frequently used in order to characterize the current era of economic development and new dimension of international economic interaction: globalization, new media and the transition to a knowledge society (Semlinger, 2004). Cross border interaction covers the process of sharing material resources and / or transfer immaterial knowledge, skills and competences. In this context knowledge management in specific is a key discipline in order to promote and support the latter. It can be defined as the efficient procurement, distribution and application of valuable insights (Wöhe, 2011). From a synergy management point of view any type of immaterial information which could be valuable for foreign subsidiaries and the corporate parent vice versa has to be documented and organised in order to make it transferable across borders. Knowledge management and information and communication technology are two pillars out of the framework proposed which are closely related. In-house Wikipedia platforms (WIKIs) aim to provide all staff members access to the aggregated corporate knowledge (Buch, 2009 – see figure 35). Every staff member located in the corporate headquarter or in a foreign subsidiary has the chance to enhance the corporate knowledge with his contribution as well as to search for required insights. Articles can be expanded, improved and grouped into individual categories such as

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“research and development guidelines” or “production error sources”.

Figure35:WikiKnowledgeManagementPlatform

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According to Bonache and Brewster (2001) to motivate employees for contributing knowledge to the corporate pool or taking advantage of this source besides everyday workload is challenging. The following options shall be introduced to confront this tendency.

1. Corporate synergy management has the obligation to establish a corporate culture that stimulates the distribution of knowledge and frowned upon the hording of valuable information. One way to achieve this objective is to establish rewards for the active distribution of knowledge which can lead to synergetic effects. 2. New Wiki articles contributed to the corporate knowledge will be sent via mail to staff members who might be affected and could benefit by this piece of information. 3. Article text could be replaced by a video message providing the same content. The compilation might be less time consuming in comparison to written text.

Out of the three elements transferred within multinational companies products, capital and knowledge, the latter is, according to Bonache & Brewster (2001), the most closly linked to the field of human resources. Expatriates have the potential to function as a “knowledge transfer mechanism”. Besides the fundamental role of controling the foreign subsidiary or acting as relationship manager expatriates can heavily push the knowledge distribution throughout the entire organisation. Semlinger (2004) differentiates between two types of knowledge: First, technology knowledge in the broder sense which covers “products” and “processes” and market insights on the other hand. In order to avoid information overload corporate synergy management is asked to limit the cross-border transfer to relevant and valuable knowledge. Consequently, synergy management has to define which type

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of information fulfills these functions for each individual department.

Relationship Management Relationship management is defined as the aggregation of coordinated efforts with the objective to initiate, design and maintain business relationships (Ehrenberger 1993). The concept can be applied on the external side in order to function as sales tool as well as on the internal side with the objective to develop a friendly level of interaction, expose reliability and demonstrate competences. 64

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Expatriation is a tool heavily applied by large corporations in order to manage foreign subsidiaries. Gutmann (2000) however outlines the limitations of SMBs in comparison to large corporations in regards to the cross-border transfer of employees. According to his research large companies frequently send qualified employees to foreign subsidiaries or train local staff members in the corporate headquarter. Organizational flexibility of small and medium-sized businesses is often not sufficient in order to apply this management tool. In addition, this business sector might not be able to carry the enormous investments required in order to send employees abroad. Under these circumstances SMBs are specifically requested to fully utilize the potential delivered by the limited number of employees who experienced a foreign subsidiary. During their expatriation time, and in specific after their repatriation, corporate management can position this person strategically between both organizations in order to function as a link between both sides. Knowledge about processes, structures, clients and markets of both corporations and the personal relationships expatriates could build within the organization should be fully utilized by the corporation. Furthermore, this person can initiate valuable relationships between staff members who have not yet visited any subsidiary as he or she can strategically connect people with similar functions on both sides. Additional tools for creating cross-border relationships are internal events. Large corporations often have budgeted financial resources for applying this method on corporate level. Small and medium-sized businesses might not be able to cover the costs and management efforts involved. The combination of necessary business trips with relationship building events might be an option for the business segment under investigation with its limited resources.

Information and Communication Technology (ICT) Management Cross-border interrelationships can heavily profit from the availability of an ICT infrastructure which connects the corporate parent with the foreign subsidiaries. 48% of all responding businesses have already provided their employees the Copyright © 2012. Diplomica Verlag. All rights reserved.

chance to profit from this source, while interacting on a cross-border level (see chapter 5). Enterprise resource planning software (ERP) programs provide the individual features in order to perform accordingly. Providers such as SAP specifically offer products for small and medium-sized business (SAP, 2011). However, financial investments in order to acquire, tailor and run such a system are enormous. Small and medium-sized businesses might not always be able or willing to make the required investments. Alternatively, office standard software systems as

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65

for example Microsoft Outlook are equipped with functions such as the shared calendar. This tool can obviously not reach the performance level as provided by any ERP system, however, it can be used as an information system in order to transport for example procurement or sales insights. Individual unit calendars can be set up in order to be accessible, modifiable and analyzable from headquarter as well as from subsidiary side. Cross-border synergy management has the obligation to stimulate the identification of synergetic potential via ICT systems with the promotion of an appropriate incentive system. Employees across departments shall be motivated to use the ICT infrastructure as a source to identify potential sources of cross-border synergy. For example, employees working in the procurement department of the corporate headquarter, who have the chance to review the procurement activities of their individual subsidiaries, shall be motivated to check these insights for potential synergies. One third of small and medium-sized businesses investigated within this research project have stated that they are taking advantage of phone and video conferencing systems for the purpose of improving cross-border interaction (see chapter 5). They use this type of communication system independently from actual project discussions in order to improve interaction. Skype as a freeware can be classified as an inexpensive solution for small and medium-sized businesses. Software equipped with outlook calendar and mail invitation functions is available on the market for an acceptable monthly fee. Simultaneously, video conferencing can support the creation of personal relationships between employees located in different countries as a first face-to-face contact might be initiated.

Soft Skills Management Synergetic interaction across borders requires the application of certain soft skills. In specific, collaboration between the corporate parent and foreign subsidiaries located in different time zones requires time management skills. The time window for interaction between both organizations might be limited to a couple of hours. For Copyright © 2012. Diplomica Verlag. All rights reserved.

example, assuming a 8 am to 5 pm working day – employees operating in an US subsidiary (located for example in Chicago) of a German headquarter have about 2 hours in order to accomplish their tasks related to their European counterpart. Employees on both sides have to utilized this limited time window in the most efficient and productive way. Consequently, time management as a method of self management, should be a fixed part of the overall soft skills training mix established within the synergy management approach.

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Research has provided the understanding that about half of the businesses under investigation classify missing language skills on headquarter or subsidiary side as a major barrier blocking synergetic interaction (see chapter 5). Consequently, the decision makers on corporate parent as well as on subsidiary side should provide employees with the chance to study relevant foreign languages. In order to consider the limited financial power of SMBs the overall company language, while corresponding across borders, can be limited to English only.

6.1.1.4 Cost-Benefit Analysis 22% of all businesses responding to the survey research have argued that the additional value generated via an officially established synergy management approach would not justify costs (see chapter 5). This argument could be disproven by applying a cost benefit analysis to the synergy management concept. This tool determines whether the benefits achieved excuse the cost level. If benefits outperform costs the project should be accomplished as it delivers a potential “Pareto improvement” in comparison to the initial condition (Wöhe, 2011). Profits as well as costs should be measured in monetary terms in order to make them comparable. Problems mainly arise while evaluating non-market traded goods such as for example time or goods whose qualitative benefits are not measurable quantitatively (e. g. image, customer satisfaction, quality, employee satisfaction). In the process of collecting and comparing costs and benefits in regards to the synergy management approach several points have to be considered. 1.

Cost in order to establish for example expatriation programs or implement new information and communication technologies cannot be allocated 100% to the synergy management concept as those tools are fulfilling additional functions as well.

2.

Benefits generated via synergetic interaction might be measurable easily as for example the combination of procurement activities might increase total bargain-

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ing power which results in a decrease of procurement costs per unit. On the other hand, synergetic benefits might be non-market traded (e.g. time) or their positive effect might not be isolatable as it is a combination of several variables. 3.

The identification of costs and benefits in regards to the cross-border synergy management concept might be easier if the corporate strategist decide to make one single unit responsible for managing foreign interrelationships across the entire value chain. If interaction is coordinate decentralized financial insights

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required will need to be captured across a variety of individual departments, which complicates the overall process. The idea of calculating the economic value of the cross-border synergy management concept shall be introduced at this place and discussable points from a strategic perspective shall be mentioned. However, a detailed outline and structured approach would go beyond the purpose of this research paper and would rather be a subject for a new research project. Furthermore, the cost-benefit analysis has to be separated from the control phase as proposed in the synergy management process in chapter 6.1.2. The latter rather controls whether synergy objectives were reached on operational level whereat the cost-benefit analysis compares total benefits achieved with costs for managing and adjusting the strategic direction.

6.1.1.5 Summary – Strategic Perspective After the strategic approach for managing synergetic interaction is defined and established within the corporate strategy it is key to communicate its principles and ideas and the unit/staff members in charge to the headquarter as well as the subsidiary staff. The strategy map is a graphical representation which describes as a cause-effect diagram how an organization creates value by connecting strategic objectives. According to Kaplan and Norton (2006) “strategy mapping can help greatly in describing the strategy and to communicate it to the employees.” This tool can be applied in the communication process, consequently each employee should be aligned und understand what his or her contribution to the overall synergy management strategy implementation process is.

6.1.2

Synergy Management – Operational Perspective

Corporate strategists have set the foundation for managing cross-border interaction with the implementation of the strategic synergy management concept as part of the corporate strategy. The unit/staff members who are made responsible on

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operational level for transferring the strategic direction into daily business should be provided with the required management power and authority. Consequently, corporate strategists do not necessarily have to be involved in detail on operational level; they rather supervise the synergy management process. The unit/staff members in charge for coordinating cross-border interaction initiate and coordinate the actual synergy management process as derived in detail in chapter 3.1.1 and outlined in figure 36. Key is that they follow the strategic synergy management direction as provided by the corporate strategists. After synergetic potential is 68

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

identified (phase 1) and quantified (phase 2) they should take advantage of the variety of management tools provided by the corporate strategists in order to implement the strategic direction (phase 3) and verify whether the implementation delivers the expected results (phase 4).

 Figure 36: Cross-border Synergy Management – Operational Perspective 

6.2

Conclusion

“Synergies are not realized by themselves – they have to be identified and actively developed within a professionally coordinate process. Management of synergy seeking organizations is asked for intensive efforts beyond daily

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operations” (Weber and Roventa, 2006).

The findings of this study provide evidence that small and medium-sized manufacturing businesses deliver unutilized cross-border synergy potential, which results out of the existence of barriers blocking the optimal arrangement of cross-border interaction. A corporate cross-border synergy management approach (as requested by Weber and Roventa, 2006), contradicting this tendency is not sufficiently applied within this business sector. The comprehensive cross-border synergy management

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concept introduced within this paper aims to close this gap. It supports the process of aligning different value networks of the same corporation located in several markets for making the business “worth more than the sum of its individual parts”. The concept of cross-border synergy management as proposed within this research project follows the basic idea of stimulating the consideration of the corporation as a holistic system which can reach an outstanding performance level by interact in a synergetic way across borders. An organization which applies the cross-border synergy management theory should aim for the integration of processes across borders as long as business units are keeping their responsiveness and can respond to requirements of external and internal stakeholders in a timely and adequate manner. Concepts such as lean management, total quality management or business process reengineering are part of the overall synergy management theory.

6.3

Study limitations and supplementary research

The most significant problem while analyzing cross-border interaction is that many corporations are interacting with a variety of foreign subsidiaries. Approaching those businesses with the request to provide a comprehensive picture of each headquarter-subsidiary relationship would probably result in a low responds rate due the enormous input required. Consequently, this research project considers only the cross-border interaction between the headquarters and their subsidiaries located in the most relevant foreign market. The project assumes that this type of interaction is developed on a higher level in comparison to the HQ relationships to subsidiaries located in less important markets. Other research projects which hold personal contacts to a variety of businesses have a better chance for investigating any individual interrelationship an organization holds with its subsidiaries. An additional limitation of this study is that the cross-border interaction is reviewed from both perspectives within the case study, however, not by the survey conducted. The limited time provided for this project and the lack of personal contacts on Copyright © 2012. Diplomica Verlag. All rights reserved.

executive level limited the empirical part to the scenario of approaching headquarters only. This paper has provided the overall concept of managing cross-border interaction of small and medium-sized manufacturing businesses from a strategic point of view. The purpose of sub components, such as the incentive program or the cost-benefit analysis is introduced, however, these concepts are not outlined in detail within this

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context. Additional research could develop those areas and complete the overall

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approach from an operational perspective.

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References Alexander, C. (2002) Synergizing your Business. Synergy Executive Education. Alexander, C. (2010) Synergy - Strategic Planning. 1+1=3 Publishing. Amschlinger, M. (2011) Internationalisierung im Mittelstand. BoD. Ansoff, H. (1965) Corporate Strategy 1st ed. New York: Wiley. Awami

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Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



 APPENDIX A: Survey Processing Instructions The questionnaire in hands examines headquarter-subsidiary interrelationships of German medium-sized manufacturing businesses in regards to their synergetic potential, barriers blocking international interaction and cross-border synergy management. The time to complete this questionnaire totals approximately 6 minutes. All information provided from your side will be kept strictly confidential. You and your corporations’ participation in this research study will not be apparent from final data output. Participation in this research project will be awarded with the supply of the overall results inclusive a short executive summary and references to relevant literature. The following link guides you to the questionnaire: For the purpose of answering this questionnaire please select one subsidiary out of your corporate network which is 1. controlled by the German headquarter with at least 51% of total outstanding shares and 2. located in the most important foreign market Please base your answers below on the interaction between the subsidiary selected and the corporate parent located in Germany. Thank you for your support and cooperation.

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Patrick Daum

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Part 1: Specification of the subsidiary under investigation

Q1.

Where is the subsidiary under investigation located?

Q2.

How would you describe the role of the selected subsidiary within your corporation? Holds valuable resources and capabilities and is located in a key market Holds low level of resources and capabilities but is located in a key market

Part 2: Headquarter-subsidiary interaction

Q3.

Please consider the production unit located in the German headquarter and its counterpart in the foreign subsidiary. Does any cross-border interaction between both units take place? Unit does not exist in the foreign subsidiary No – not required as value is driven on a local basis No – however interaction would be beneficial Yes

Q4a.

[Considerif“No–howeverinteractionwouldbebeneficial”istickedinQ3]

To which degree are processes applied in the production unit of the corporate parent and the foreign subsidiary similar? Low level of similarities Medium level of similarities High level of similarities

Q4b.

[Considerifany“Yes”answeristickedinQ3]

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To which degree could interaction between the headquarter and subsidiary production units be intensified in order to utilize additional synergetic potential? Low potential for intensification Medium potential for intensification High potential for intensification

Q5.

Please consider the research & development unit located in the German headquarter and its counterpart in the foreign subsidiary. Does any cross-border interaction between both units take place?



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

 Unit does not exist in the foreign subsidiary No – not required as value is driven on a local basis No – however interaction would be beneficial Yes

Q6a.

[Considerif“No–howeverinteractionwouldbebeneficial”istickedinQ5]

To which degree are processes applied in the research & development unit of the corporate parent and the foreign subsidiary similar? Low level of similarities Medium level of similarities High level of similarities

Q6b.

[Considerifany“Yes”answeristickedinQ5]

To which degree could interaction between the headquarter and subsidiary research & development units be intensified in order to utilize additional synergetic potential? Low potential for intensification Medium potential for intensification High potential for intensification

Q7.

Please consider the procurement unit located in the German headquarter and its counterpart in the foreign subsidiary. Does any cross-border interaction between the procurement units take place? Unit does not exist in the foreign subsidiary No – not required as value is driven on a local basis No – however interaction would be beneficial Yes

Q8a.

[Considerif“No–howeverinteractionwouldbebeneficial”istickedinQ7]

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To which degree are processes applied in the procurement unit of the corporate parent and the foreign subsidiary similar? Low level of similarities Medium level of similarities High level of similarities

Q8b.

[Considerifany“Yes”answeristickedinQ7]

To which degree could interaction between the headquarter and subsidiary procurement units be intensified in order to utilize additional synergetic potential?

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Low potential for intensification Medium potential for intensification High potential for intensification

Q9.

Please consider the marketing & sales unit located in the German headquarter and its counterpart in the foreign subsidiary. Does any cross-border interaction between the marketing & sales units take place? Unit does not exist in the foreign subsidiary No – not required as value is driven on a local basis No – however interaction would be beneficial Yes –

Q10a.

[Considerif“No–howeverinteractionwouldbebeneficial”istickedinQ9]

To which degree do you think interaction between the headquarter and subsidiary marketing & sales units could be intensified in order to utilize additional synergetic potential? To which degree are processes applied in the marketing & sales units of the corporate parent and the foreign subsidiary similar? Low level of similarities Medium level of similarities High level of similarities

Q10b.

[Considerifany“Yes”answeristickedinQ9]

To which degree could interaction between the headquarter and subsidiary marketing & sales units could be intensified in order to utilize additional synergetic potential? Low potential for intensification Medium potential for intensification

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High potential for intensification



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

 Part 3: Barriers blocking headquarter-subsidiary interaction Q11.

Do you think that the implementation of synergetic interrelationships or the utilization of the maximum synergetic potential between your corporate parent and the selected subsidiary is blocked by individual barriers? Yes No

Q12.

[Considerif“yes”istickedinQ11]

Which blocking barriers can you identify in your corporation in regards to crossborder interaction? Checkasmanyasapply. Differences between the cultures of both countries Differences between the cultures of both organisations Time difference Lack of language skills in the German HQ Lack of language skills in the foreign subsidiary Lack of personal relationships between the HQ and subsidiary staff Missing corporate synergy management Lack of awareness of beneficial effects which could be obtained by cross border interaction on HQ side Lack of awareness of beneficial effects which could be obtained by cross border interaction on subsidiary side Lack of Management motivation (in HQ) to push cross-border interaction Fear of department heads to lose independency and flexibility while incorporated into cross border processes Corporate policy reasons Others – Please specify here:

Part 4: Cross-Border Synergy Management Q13.

Is the cross border interaction between the German HQ and the foreign subsidiary actively managed in order to achieve synergies? Yes No

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I do not know

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



Q14.

[Considerif“no”istickedinQ13]

Do you think that the implementation of a cross-border synergy management could benefit your cooperation? Yes No

Q15.

[Considerif“Yes”istickedinQ13]

Who is managing the cross border interaction within your corporation? Centralized on Top Management Level Decentralized on unit level in cooperation with the Top Management Centralized via a separate department in cooperation with the Top Management Others – Please specify here:

Q16.

[Considerif“CentralizedonTopManagementLevel”istickedinQ15]

Do you think that the management by itself has the relevant insights to fully identify synergetic potential? Yes No

Q17.

[Considerif“yes”istickedinQ13]

Are there any specific tools or management techniques applied in your corporation in order to manage cross border interaction? Checkasmanyasapply. Mission and Vision Statement covering synergetic interaction Software System (e.g. SAP) Rewards for employees discovering synergetic potential Expatriation Headquarter subsidiary phone and video conferences for the purpose of improving interaction independent from actual project discussions

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Management Scorecards Others – Please specify here:

Q18.

[Considerif“Yes,decentralizeonunitlevel”istickedinQ10]

Which reasons could confront the implementation of a corporate synergy management from your point of view? Checkasmanyasapply.



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

 Additional value generated will not justify the costs The integration and dependency of units not located in different countries might slow down the decision making process HQ Know-How shall not be distributed to the individual subsidiaries Others – Please specify here:

Part 5: Questions about your corporation Q19.

Please rank the following HQ departments based on their expenditure levels. Where 1 is “causes lowest cost level” and 5 being “causes highest cost level”. Please use every number only once. (e.g. Production=1 > Delivers the highest costs) Please provide an estimate if actual insights are not available. Potential interrelationship areas between the German HQ and the foreign subsidiary

Ranking based costs cause in the value chain

Organisation & HR Research & Development Procurement Production Marketing & Sales

Q20.

How many people are employed by your corporation? (Please consider the corporate HQ and all foreign subsidiaries.) 1-100 101-200 201-300 301-400

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401-500

Q21.

In which industry is your corporation operating?

Q22.

What is your annual turnover?



Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in



APPENDIX B: Survey Research Demographics Size of participating businesses

Industry of participating businesses

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Annual turnover of participating businesses

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

 APPENDIX C: Synergetic potential scoring model (Rodermann, 1997)

Example Company 1: Case 8 Type of Interrelationship Organisation & HR

Low Potential (10)

Medium Potential (20)

Large Potential (30)

x

Score

Weighting

Weighted Score

10

30%

3

Production

x

30

20%

6

Research & Development

x

30

10%

3

10

15%

1.5

20

25%

5

100%

18.5

Score

Weighting

Weighted Score

10

10%

1

20

20%

4

10

30%

3

30

15%

4.5

10

25%

2.5

100%

15

Procurement

x

Marketing & Sales

x Sum

Example Company 2: Case 10 Type of Interrelationship Organisation & HR

Low Potential (10)

x x

Procurement Marketing & Sales

Large Potential (30)

x

Production Research & Development

Medium Potential (20)

x x Sum

Reading Instructions:

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Company 1 delivers a higher potential of unutilized synergetic potential as the total weighted score is higher in comparison to company 2.

Daum, Patrick. International synergy management: A strategic approach for raising efficiencies in the cross-border interaction process : A strategic approach for raising efficiencies in

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