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International Marketing Review Customer relationship challenges following international acquisitions Christina Öberg

Article information: To cite this document: Christina Öberg , (2014)," Customer relationship challenges following international acquisitions ", International Marketing Review, Vol. 31 Iss 3 pp. 259 - 282 Permanent link to this document: http://dx.doi.org/10.1108/IMR-10-2012-0166

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Customer relationship challenges following

international acquisitions Christina Öberg

Department of Industrial Management and Logistics, Lund University, Lund, Sweden

Abstract

Purpose – An important task following international acquisitions is to coordinate customer relationships; that is, to organise customer interfaces and possibly establish new relationships between customers and the acquirer/the acquired party. Yet, such coordination may prove to be problematic, not the least since customers react to acquisitions. The purpose of this paper is to describe and discuss customer relationship coordination challenges following international acquisitions. Focus is placed on business-to-business customers in the country of the acquired party. Design/methodology/approach – The paper is based on three case studies representing overlapping customers, customers of an acquired party new to the acquirer, and customers new to the acquired party. Non-standardised, face-to-face interviews were the main data source, and were complemented with secondary data such as newspaper items and annual reports. Findings – Three main challenges are identified: internal competition and cannibalisation; customers not being interested in the new party; and the acquired party demonstrating its independence through customers. Practical implications – Managerially, any coordination of customer relationships needs to be weighted towards risks for customer losses. It is important to maintain ties to customers – sales and maintenance staff, the product/service, etc. – if customers are to continue with the firm. It is also important that sales and maintenance staff see the benefits of the acquisition. Originality/value – While international acquisitions are a frequent means to reach new markets and customers, the problems of coordinating customer relationships following them have not been previously researched. Theoretically, the paper contributes to research through categorising and contextually explaining customer relationship coordination challenges in international acquisitions.

Keywords International, Customer relationship, Integration, Coordination, Acquisition

Paper type Research paper

Introduction International acquisitions, that is, the takeover of the ownership majority of a company in a different country (Dunne and Ndubizu, 1995), are a frequent way to reach new customers or markets (Anand and Delios, 2002). Literature has mainly seen it in this regard: acquisitions as a means to internationalise a business and, in addition to motives of cost reduction in production, new capabilities, and risk diversification, describe the obtainment of customers in new geographical areas (Chen, 2008; Seth et al., 2002) or representation on such markets where the acquirer already has customers but not local presence (Stumpf et al., 2002). These motives relate to customer relationships as assets of firms (Anderson et al., 2001; Johanson and Mattsson, 1985). Customer relationships denote how a buyer engages in repeated exchanges with its supplier, and how customers and suppliers potentially adapt to one another and invest in their shared relationship (Ford and Håkansson, 2006; Hallén et al., 1991). Such relationships represent comprehensive values (defined as future cash flows, Blattberg et al., 2001; Senn et al., 2013), not the least in business-to-business market settings, where individual

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-1335.htm

Received 10 October 2012 Revised 20 August 2013

30 October 2013 Accepted 4 November 2013

International Marketing Review Vol. 31 No. 3, 2014

pp. 259-282 r Emerald Group Publishing Limited

0265-1335 DOI 10.1108/IMR-10-2012-0166

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customers may account for extant portions of a firm’s revenues (Håkansson, 1982). In the valuation of an acquisition target, such values become imprinted in the price of the firm (Koller et al., 2005).

To create further value and avoid any value destruction, the coordination of customer-related activities becomes fundamentally important when a company enters a new geographical market for customer purposes (cf. Kelly et al., 2003). Coordination refers to how to make companies and people work together (Cavusgil et al., 2004; Enberg et al., 2006; Glaro and De Oliveira Claro, 2004; Netemeyer et al., 2004), and is here used not only to capture decisions on how to organise customer interfaces (whether the acquirer is to establish relationships with customers of the acquired party, or the converse, and how to handle overlapping customer relationships), but also to highlight customer reactions thereto (cf. Boulding et al., 2005). It relates to integration in how the acquirer and the acquired party may choose to share or transfer activities (Haspeslagh and Jemison, 1991), but also marks the division of customers, markets, and their management between them.

As customers – both a company’s own and of the acquired party – remain an important motive for international acquisitions (Srinivasan and Mishra, 2007; Stumpf et al., 2002), and represent considerable values for firms (Arnett and Badrinarayanan, 2005), it is important to understand the acquisition consequences of their coordination. Rydén (1972) and Öberg (2012) show how customers may be lost following an acquisition. Acquisition literature points to how integration (or as addressed here, coordination) is the source of value creation and destruction (Haspeslagh and Jemison, 1987), and this paper therefore focuses on this phase of acquisitions, yet links it to whether the acquisition focused on the acquired or acquired party’s customers, and also whether such relationships overlapped before the acquisition. Recent literature indicates how acquisitions are conducted for many different reasons and need to be evaluated in this regard (Meglio and Risberg, 2010; Weber et al., 2009). The purpose of the paper is to describe and discuss customer relationship coordination challenges following international acquisitions. Focus is placed on business-to-business customer relationships in the country of the acquired party. The objective of the paper is to highlight and categorise such challenges. Theoretically, the paper provides a categorisation of customer relationship coordination challenges in the context of various international acquisitions and explains their potential occurrence through linking the challenges to pre-acquisition customer relationships and motives. The paper thereby broadens the scope of the traditional acquisition literature (Cartwright and Schoenberg, 2006; Meglio and Risberg, 2010) through including the customers’ point of view. Scholars such as Homburg and Bucerius (2005) have pointed to the limited amount of acquisition research that focuses on the marketing dimension of firms. Those few studies that exist on the matter (Capron and Hulland, 1999; Melewar and Harrold, 2000; Weber and Dholakia, 2000) take the acquirer’s perspective and mainly concern brand issues on consumer markets. The studies also do not focus on international acquisitions. In that international acquisitions’ motives frequently relate to markets and customers (Anand and Delios, 2002; Calipha et al., 2010), how customer relationships constitute important values of firms (Chan, 2005; Spencer, 2004), and on the risk of customer losses following acquisitions (Rydén, 1972; Öberg, 2012), customer relationship challenges are specifically important to study in their context. The coordination adds to research on internationalisation through highlighting consequences following the entry in a foreign country (Öberg and Tarba, 2013). For practitioners, the different challenges are important to

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understand and also account for how better estimates and planning can be made in international acquisitions.

The paper is organised as follows. The next section presents the theoretical point of departure. It discusses international acquisitions and customer relationships, introduces the research gap, and presents the theoretical framing of the study. The research method is outlined and followed by three cases on customer relationships in international acquisitions. These are then discussed in terms of relationship challenges and coordination in the analysis section. The paper ends with conclusions, along with theoretical and managerial implications.

Theoretical background International acquisitions The literature on internationalisation refers to acquisitions as one of several modes to reach new markets (Barkema and Vermeulen, 1998; Hennart and Park, 1993); the acquisition literature describes the motives, integration and performance of (mergers and) acquisitions (Calipha et al., 2010; Cartwright and Schoenberg, 2006). In the research that targets international acquisitions specifically, attention is brought to acquisitions as entry modes to new markets (Harzing, 2002; Slangen and Hennart, 2007), cultural differences on both a company and country level (Brock, 2005; Gertsen et al., 1998; Olie, 1994; Vaara et al., 2012), knowledge transfer (Björkman et al., 2007; Bresman et al., 1999; Javidan et al., 2005; Westphal and Shaw, 2005; Zou and Ghauri, 2006), and the value creation of such acquisitions (Morosini et al., 1998). A trend points towards globalisation, while companies become increasingly geographically and culturally diverse (Srinivasan and Mishra, 2007; Woodard and Qingli Wang, 2005), and questions centre on how to keep business local while acting in a global world (Barmeyer and Mayrhofer, 2008; Goh, 2001; Olins, 2001; Sarala and Vaara, 2010; Vaara and Tienari, 2011). Table I provides a chronological summary of literature on international acquisitions.

Motives of entering into new markets (Barkema and Vermeulen, 1998) describe pre-acquisition reasons for international acquisitions, while knowledge transfer and cultural differences relate to the post-acquisition integration between the acquirer and the acquired party, and also to the value creation. Research and practice extensively refer to international acquisitions as a means to reach new customers (Kelly et al., 2003),

Years Number of

articlesa Key foci

1963-1969 7 Internationalisation in specific countries (focus on Europe and the USA) 1970-1979 17 Multinational companies; accounting standards 1980-1989 11 Comparison of entry modes 1990-1999 39 Antecedents for choosing entry mode; value creation; culture 2000-2009 176 New markets; learning; culture: local/global 2010-2013 49 Emerging markets; HR, value; culture

Notes: aEBSCOhost Business Source Complete was used as source for the review. Publications

referring to “Consolidation & merger of corporations” in combination with “International business enterprises” were searched for through the thesaurus in the database. The review found 299 articles. The oldest was published in 1963 and the most recent one in the summer of 2013 (last update of the literature review was done on 10 July 2013). Please note that the first and the last time periods do not constitute a full decade

Table I. Literature review

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where the acquired party’s established relationships constitute important links to such new customers. Other motives include low-cost production alternatives, risk diversification through being less vulnerable to the financial situation in specific countries (Trautwein, 1990), and the attainment of a representation on a market where the acquirer already has customers, but lacks direct contact with them or administrates them from abroad (Stumpf et al., 2002).

The integration between firms includes the degree of integration: whether companies are to remain autonomous or become absorbed into a shared unit (Haspeslagh and Jemison, 1991), and what departments or activities are actually integrated (Andersson and Mattsson, 2006), where companies, for instance, may choose to integrate procurement while keeping marketing activities separate (Öberg, 2008). Integration further concerns what direction products or processes are transferred: is it the acquired party that is to learn and adapt to the acquirer, or the converse (Bresman et al., 1999), and hence relates to knowledge transfer. Knowledge transfer describes how one party learns from the other, or how knowledge is managed and distributed between the firms (Birkinshaw et al., 2010; Gupta and Govindarajan, 2000). Knowledge mostly describes the technological skills and advanced solutions (Ranft and Lord, 2000, 2002). Researchers such as Lakshman (2011), however, point to the importance of transferring cultural knowledge; that is, the acquirer and the acquired party need to understand differences in management styles, as well as national cultural differences, that impact the ways their businesses are conducted. Öberg and Tarba (2013) recently highlighted how knowledge on customers and markets also needs to be focused on. In the relation between knowledge transfer and integration, the transfer should be seen as part of the integration, while also impacted by it, as well as impacting the ability to actually take on products and processes from the other party.

National cultural differences impede the ability to transfer knowledge (Sarala and Vaara, 2010) and the general integration of firms in international acquisitions (Barkema et al., 1996; Lubatkin et al., 1998). This is so, since the basis for how to understand the other party’s knowledge should not be too separate, and since the geographical distance makes it less possible to integrate companies. As a solution, researchers discuss integration only on local levels (Kanter and Dretler, 1998) and the maintenance of local cultures rather than the creation of a global one (Barmeyer and Mayrhofer, 2008; Goh, 2001). The differences in culture may lead to lower levels of integration between firms than if there is a cultural fit between them. From the low level of integration follows fewer changes, meaning that value, while not necessarily being created, also is not destroyed, thus indicating an inconclusive relation between integration and value creation (Weber et al., 2011).

Value from an acquisition could be regarded both in terms of cost reduction and revenue enhancement (Calori et al., 1994; Zollo and Singh, 2004). Cost reduction following international acquisitions could follow from how productions or resources are achieved at a lower price (relocation to low-cost countries, Nocke and Yeaple, 2008), but would normally refer to the integration of firms. The literature on international acquisitions for the most part refers to revenue enhancement as the creation of value (Weber et al., 2011). This indicates that value relates to how a firm manages to increase its sales. Increased sales would be achieved through how the acquirer sells, also to the acquired party’s customers or vice versa. Studies on consumer marketing and brand management have discussed how brands, sales forces, and marketing expertise may be redeployed between firms (Balmer and Dinnie, 1999; Capron and Hulland, 1999), while a focus on customer relationships would concern how such relationships are coordinated. Recent research has drawn attention to how acquisitions are performed

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for many different reasons and should be studied in that regard (Meglio and Risberg, 2010). Through linking coordination to motives and pre-acquisition customer relationships, a better understanding of such coordination challenges can be gained.

Customer relationships Customer relationships target how a customer repeatedly turns to the same supplier (Grönroos, 2000; Munksgaard, 2010) and have been described as creating benefits (O’Malley, 2003). This is due to the lower cost of maintaining than establishing relationships, and leads to less uncertainty for both customers and suppliers (O’Malley, 2003; Reinartz et al., 2005). In business-to-business marketing, customer relationships are referred to as each representing considerable (monetary) values, and as often leading to mutual adaptation between the customer and the supplier (Blois, 2004). Adaptation in the relationships further point to a resistance of replacing them and create inertia (Håkansson et al., 2009).

Researchers such as Reinartz et al. (2005), Blattberg et al. (2001), and Rust et al. (2004) discuss customer acquisition and retention and relate them to customer value or profitability. Conclusions are that it is important to develop a communication strategy to maximise customer profitability (Reinartz et al., 2005), something that underlines the management of the relationships (Payne and Frow, 2005; Reinartz et al., 2004). Palmatier (2008) discusses the influence of contact density, relationship quality, and authority on customers’ perception of the relationship. He indicates that if there are frequent shifts in contact persons, it is important to have several contacts with the customer, thus pointing to the importance of creating continuity in the relationship (Öberg, 2012). Acquiring a firm to access its customers would constitute a hybrid between customer acquisition and customer retention in how present relationships of one party may be intended to become relationships of the other party. Following the acquisition, the customer relationship management would entail decisions and implementations of how to coordinate customers. This includes possible cross-selling, the separation of relationship management between firms, and the transfer or replacement of products, sales staff, and service activities (Öberg, 2008). In the international dimension of customer relationship management, such issues as cultural differences, whether to treat all customers alike or act locally rather than “globally” (Atanasova and Senn, 2011; Harvey et al., 2003; Millman and Wilson, 2001), would need to be taken into consideration.

While decisions may be made by the acquirer, it is not certain that customers follow these intentions (Öberg, 2012). In the understanding of customers as part of business relationships, they are described as actors that impact the ongoing interaction and make choices related to it, while also acting on their behalf and potentially reacting to any change in the business relationship (Halinen et al., 1999; Harrison and Prenkert, 2009; Munksgaard, 2010). Such reactions include choices to complement a relationship with a new one, dissolve a relationship, or increase or decrease its magnitude (Havila and Salmi, 2000; Tähtinen and Halinen, 2002) and impact the outcome, and hence the value creation of an activity such as an acquisition.

This paper uses customer relationship coordination as a phrase to capture the integration of customer-related activities between the acquirer and the acquired party (cf. Homburg and Bucerius, 2005) and decisions on how to organise parallel sales, etc. while also including customers’ impact on such activities. Coordination (Cavusgil et al., 2004; Enberg et al., 2006; Glaro and De Oliveira Claro, 2004; Netemeyer et al., 2004) hence expands beyond the integration of the acquirer and the acquired party (Barmeyer and Mayrhofer, 2008; Weber et al., 2009). As described by Piercy (2009),

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external relationships need to be reflected in the internal coordination, and the relationships with external parties also need to be coordinated (Agarwal et al., 2012). This is in line with Boulding et al. (2005) who describe customer relationship management implementation as including the coordination of channels, technologies, customers, and employees, and indicate how several parties need to be considered.

The coordination is based on goals and is interwoven into structures and processes (Nadler and Tushman, 1997; Nordhaug, 1998), yet results from the various parties’ reactions (Andersen and Drejer, 2009; Andersen et al., 2009; Casciaro and Piskorski, 2005; Pearce and Robbins, 2008). This means that while the acquirer may present its intentions and provide structures and processes to accomplish them, other parties will impact the outcome (Agarwal et al., 2010).

A lack of research on customers in international acquisitions As stated above, certain areas dominate research on international acquisitions: research on entry modes, integration including knowledge transfer and cultural issues, and value creation. In the studies, focus remains on the acquirer, or the combined acquirer and acquired party, and a shareholder perspective prevails (Harris and Ravenscraft, 1991; Markides and Ittner, 1994). A lacking marketing perspective has previously been indicated in acquisition studies that have also pointed to its relevance (Anderson et al., 2001; Homburg and Bucerius, 2005). Such relevance would not the least be present in international acquisitions, since they often are conducted to increase market exposure or comply with present customers’ internationalisation (Stumpf et al., 2002; Öberg and Holtström, 2006), and since customer relationships represent important values of firms (Chan, 2005) while their continuation is not ascertained (Rydén, 1972; Öberg, 2012).

When acquisitions are discussed in the marketing literature, focus largely remains on brands and their integration (Capron and Hulland, 1999; Homburg and Bucerius, 2005; Melewar and Harrold, 2000; Weber and Dholakia, 2000). These studies also mainly focus on consumer marketing, and thereby emphasise market shares rather than relationships with individual customers. Customer relationships of the acquirer or the acquired party are rarely discussed in the acquisition literature (Öberg, 2013). A literature review presented in Öberg (2013) points to how o2 per cent of the acquisition research includes customers (183 out of 11,220 articles) and describes that customers for the most part are seen as consumers affected by unjustified price raises in quantitative, economic modelling.

The reasons that few acquisition studies concern marketing perspectives and customer relationships may be explained by the theoretical approaches taken in most acquisition studies: finance, organisational theory, and strategy, and the dominance of quantitative research (Meglio and Risberg, 2010), which makes it difficult to grasp complexities of customer relationships (Holmlund, 2004). To capture individual relationships, how customers respond to acquisitions, and how different pre-acquisition relationships and motives may create diverse coordination challenges, methods that allow for in-depth studies of acquisitions, customer relationships, and their consequences are needed, as is the creation of a link between research on customer relationships and acquisitions.

Customer relationship coordination following international acquisitions Coordination would, based on how it includes integration, but also reactions thereto, constitute a major source for value creation or destruction following an acquisition

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(cf. Haspeslagh and Jemison, 1987). It is proposed in this paper that coordination of customer relationships would be impacted by whether the acquirer and the acquired party shared customers before the acquisition, and whether motives target the acquirer’s or the acquired party’s customers (cf. Chen, 2008; Stumpf et al., 2002). The coordination would centralise around whether new relationships should be established between the acquirer and the acquired party’s customers, the converse, or be kept separate (cf. Andersson and Mattsson, 2006; Haspeslagh and Jemison, 1991 on degree and direction of integration). The content of such relationships – what is offered, who represents the firm – and how the relationship can be characterised – density and quality of interaction, shifts in authority (Håkansson and Snehota, 1995; Palmatier, 2008) – might be changed to achieve synergies (cf. Capron and Hulland, 1999), but may lead to revenue losses (Homburg and Bucerius, 2005) as a consequence of reactions. Palmatier (2008) discussed contact density, relationship quality, and authority as impacting customers’ perception of the relationship, while Öberg (2012) indicates how continuity in staff, products, and other customer relationships is important if the relationship is to remain.

In the international acquisition, the customers, and the acquirer or acquired party, are placed in different countries. Compared to a domestic acquisition, this anticipates challenges of how to internationally coordinate customer relationships. Based on the literature on international acquisitions, cultural differences would impact integration decisions and knowledge transfer (Barkema et al., 1996; Sarala and Vaara, 2010). Figure 1 depicts this and possible items related to coordination as proposed in this paper. The following questions are asked:

. What coordination challenges arise from international acquisitions in regard to customer relationships?

. How are the challenges connected to different customer-related motives and pre-acquisition relationships?

Research method The empirical data collection adopts a multiple case study approach as the research method (Eisenhardt, 1991). The reason for choosing the case study methodology is that

Cultural differences

Pre-acquisition customer relationships

Motives

Coordination

Customer relationship

• Separate • Overlapping

• Acquired party’s customers

• Acquirer’s customers

• Establish relationship between acquirer and acquired party’s customers • Changed content

• Changed characteristics

• Keep separate

Customer reactions

• Establish relationship between acquired party and acquirer’s customers

Figure 1. Coordination items

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it enables the capturing of companies’ context (Welch et al., 2011), and is well suited for grasping changes on business relationship levels (Holmlund, 2004). Multiple case studies enable the comparison between cases, and also enrich the data through providing additional explanations and examples. In the rejuvenation of research on acquisitions and international business, case studies complement the dominance of quantitative studies through providing new insights and perspectives (Meglio and Risberg, 2010; Welch et al., 2011) that allow for (tentative) developments of theory (Eisenhardt, 1989; Eisenhardt and Graebner, 2007).

In order to capture different aspects of customer relationship coordination in international acquisitions (cf. Pratt, 2009 on sampling), acquisitions with different pre-acquisition compositions of customer relationships (overlapping and separate) and motives (motives targeting the acquirer’s and the acquired party’s customer relationships, respectively) were chosen. The acquisitions studied are Toyota’s acquisition of BT Industries, NetSys’ acquisition of Verimation, and BT Industries’ acquisition of Raymond. Toyota’s acquisition included how the acquirer and the acquired party acted on overlapping geographical markets. NetSys’ acquisition was performed to make the acquired party’s customers become customers of the acquirer. BT Industries’ acquisition of Raymond aimed to establish a global presence for the acquirer’s customers, and thereby allow for the acquired party to act as a local representative in the relationships with the acquirer’s international customers. Table II outlines the three scenarios in terms of new or existing customers of the acquirer and the acquired party. Since the focus is on present customer relationships of the acquirer and/or the acquired party (or rather customer relationships that existed prior to the acquisitions), the scenario of reaching entirely new customers is not discussed in the paper.

Data sources consisted of interviews with managers, maintenance, and sales staff representing the acquiring and acquired companies, and managers, procurement staff and users representing their customers. Customer relationships were chosen to represent small and large firms in different industry contexts. Since representatives of product users and sellers, and managers of customers and the acquirer/acquired parties, were included among the interviewees, a strategic and operational focus was captured (Öberg, 2010). Choices of interviewees aimed to provide as diverse a picture as possible, include multi-informants from each company, and enable generalisation beyond industry-specific challenges for customers. In total 58 interviews were conducted between 2003 and 2012, which allowed for the capturing of instant and delayed challenges of the acquisitions.

The interviews were performed using semi-open question frames (McCracken, 1988), which allowed for follow-up questions and clarification. Questions targeted, without being limited to, the following areas: motives of the acquisition, customer relationship management of the companies and as part of the acquisitions, length and importance of individual customer relationships, customer reactions, changes in terms of magnitude and frequency of exchanges, changes in interfaces (staff, products),

Customers of acquirer Existing New

Customers of acquired party

Existing Scenario I: Toyota/BT Industries Scenario II: NetSys/Verimation New Scenario III: BT Industries/Raymond

Table II. Three customer scenarios and the three cases

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and whether the customer started to look for and use alternatives. In addition to interviews, documents, including protocols, annual reports, newspaper items, and press releases were utilised (Welch, 2000). These aimed to verify descriptions provided by the interviewees (Denzin and Lincoln, 2000) and also decrease risks of time-lapse effects (Huber and Power, 1985).

In the analysis procedure, interview transcripts or notes, and the secondary data sources, were provided with first-order codes (Pratt, 2009) that targeted activities as part of the acquisitions and allowed for the production of general case descriptions. For instance, an interview statement describing the reasons for the acquisition, referred to the motives for the particular acquisition. Descriptions of the acquirer or acquired party were coded as contextual data, while accounts on their customer relationships were coded as pre-acquisition and post-acquisition customer relationships depending on whether the interviewee described conditions before or following the acquisition. Additional codes were developed based on what the interviewees described. The general case descriptions were structured to cover the acquirer and the acquired party in terms of industries, market positions, geographical markets, and pre-acquisition customer relationships, motives, integration (general and in terms of customer relationship coordination), customer reactions, acquisition challenges, and outcomes. The different sources (individual interviews or other sources) here functioned to support one another or possibly describe various perspectives (the acquirer, the acquired party, customers). The case descriptions were then provided to the interviewees to discuss their accuracy, and to colleagues of the author to discuss their theoretical scope (Guba and Lincoln, 1989; Hirschman, 1986).

In a second-order coding, focus was placed on coordination and its challenges following the acquisitions. Different issues that occurred during and following the coordination were extracted from the case descriptions and categorised, to then be compared with the items in Figure 1: cultural issues, changes in relationships, changes in ways to interact, and customer reactions. If coordination meant product replacement, for instance, this was related to changed relationship content. Difficulties that highlighted how the acquirer and acquired party, or their customers, did not share an understanding for the ways to do business were categorised as cultural issues. Additional codes were created for items that could not be referred to any of the categories in Figure 1 (cf. Locke and Golden-Biddle, 1997). Each issue that meant coordination did not work to plan was described as a coordination challenge. This part of the analysis was performed in several cycles moving between the case descriptions, the raw data, and previous research (Dubois and Gadde, 2002). In a final step, the cases were compared to find similarities and differences in challenges among them (cf. Eisenhardt, 1989; Eisenhardt and Graebner, 2007) and provide contextual explanations based on individualities of the acquisitions. This part of the analysis hence provided links regarding the challenges to pre-acquisition customer relationships and motives (cf. Welch et al., 2011), and also meant that main challenge categories were produced. The links were established using backward tracing of explanations through comparing the individualities of the acquisitions and their challenges, and also using the raw data material to find any type of explanations provided by interviewees in each case. This part of the analysis allowed not only to highlight whether challenges differed based on motives and pre-acquisition customer relationships, but provided explanations to these differences (such as what motives or pre-acquisition customer relationship explained a specific coordination challenge) in the studied acquisitions.

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Three cases on customer relationship challenges Case I: Toyota’s acquisition of BT Industries Toyota Industries Corporation acquired BT Industries in 2000. The products that the acquirer and the acquired party represented were lifters, while they focused on complementary product variants (counterbalanced and warehouse lifters, respectively). BT Industries was a company with a position in most European countries, and through a recent acquisition (see Case III) also had a presence in the USA. Toyota was located in Japan, but was represented through a dealer network throughout most of the world. Recently, before the acquisition, both companies had started to act within each other’s product niches. Toyota acquired BT Industries to create world-market leadership in the lifter market, and specifically to penetrate the European market further:

BT Industries has a competitive edge in warehouse equipment. Developing its business on a global scale, BT Industries has established firm bases, particularly in Europe and North America. Toyota and BT Industries complement each other in market and product lineup. With a view to becoming the world’s leading forklift manufacturer, this is a perfect match of strategic importance (Toyoda Automatic Loom Works Ltd, 2000, p. 10).

Following the acquisition, decisions were made that the acquirer and the acquired party would continue with separate sales representation and products. Toyota and BT Industries would continue to sell to previous customers, rather than establish relationships with the other party’s customers, and shared customers would need separate contracts with the two firms. Hence, the coordination aimed for a division of market with as little as possible disturbance of present customer relationships. BT Industries would, however cross-facilitate its products to Toyota. These products were branded Toyota, but in addition to colour and brand, they were the same as those BT Industries produced in its own name.

Following the acquisition, Toyota dealers began to approach BT Industries’ customers with the BT-manufactured lifters at a low price. Since they were independent dealers, they grasped the opportunity created by the cross-supply, while the acquirer had intended a separation of customers. This caused internal competition within the Toyota/BT Industries group. Large customers of BT Industries acted in a similar way. They openly tried to play Toyota and BT Industries off against each other regarding the BT-manufactured lifters:

They [large customers] can turn to both BT and Toyota asking for the same offer, and then try to compare the prices, service offered, and so on, from both of us. They know that the warehouse lifter they receive from Toyota is actually a BT lifter dressed in other colours, and the reverse. They try to put themselves above the rules of BT and Toyota (MD, BT Industries).

We saw that they had not talked enough with each other. It was cheaper to buy BT products from Toyota than from BT. This we pointed out for them (Procurement manager, Volvo Group, customer of Toyota and BT Industries).

The case points to how a non-integration strategy may lead to customer reactions (Öberg, 2012). It indicates how cannibalism and internal competition (Keller, 2003; Melkonian et al., 2006) may follow from an international acquisition when geographical markets and customers overlap before the acquisition. The coordination mechanisms provided by the acquirer were challenged by the other parties’ (customers and the acquired party’s dealers) goals of lowering costs and increasing sales, respectively. In the particular case presented here, the acquirer and the acquired party did not manage

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to reach any cost synergies in terms of shared distribution, nor did they achieve any increased sales (cf. Trautwein, 1990). The sales that did increase for Toyota were basically the same that BT Industries lost in terms of number of lifters, while total revenues decreased when margins were lowered. Customer reactions offset the intended positive effects of the division of market (Warnaby, 1999) between the acquirer and the acquired party.

Case II: NetSys’ acquisition of Verimation NetSys acquired Verimation in the late 1990s. NetSys was a sales agent for an IT solution and acted on the Norwegian market. Verimation had developed an e-mail system and established customer relationships with several large companies in Sweden, and was in the 1980s the dominating supplier of such systems, but had since seen its position decline. Many of Verimation’s customers were international firms, allowing Verimation to expand abroad. NetSys planned for a geographical expansion and wanted to reach Verimation’s customers:

Verimation fits us like a glove, and for us the acquisition means both financial and industrial synergies. [y] Our products complement each other well, and through using Verimation’s 2.5 million customers, we will become an effective international group in the software market (MD, NetSys, in Schander, 1998).

Following the acquisition, NetSys intended to establish relationships with Verimation’s customers. The coordination hence focused on establishing relationships between the acquirer and the acquired party’s customers. Intentions were further to replace Verimation’s system with NetSys’ solution, thus changing products for the acquired party’s customers. These intentions failed, however. The customers wanted to continue as before the acquisition, actively worked against the acquirer and managed to achieve support from the acquired party:

We had a close relationship with IKEA and had had for years. So one day when I came to them after we had been merged with NetSys for a while I was told that: “You have to make sure that we do not get any visits from anyone from NetSys. You are greatly welcome, but none of them. We do not want them here.” And that is not funny after having had a customer relationship with IKEA since 1985 (Sales manager, Verimation).

Verimation continued to do business with its customers, but shut out the acquirer from the customer contacts. The acquired party distrusted its acquirer and cultural differences surfaced:

It was a marvellous clash between different cultures. “Marvellous” underlined twice. There were discrepancies all over. [y] We continued with our business, but with limited acceptance from the management team (Sales manager, Verimation).

The case describes an acquisition conducted to provide new customers to the acquirer (Trautwein, 1990; Walter and Barney, 1990). The acquired party had customer relationships on its domestic market, while the acquirer aimed to establish customer relationships on that market ( Johanson and Mattsson, 1985). Since it is the acquired party that has the relationships with customers, two types of relationships need to be coordinated to accomplish this; the acquirer and the acquired party need to coordinate their activities, and the acquired party’s customers need to connect to the acquirer. The case indicates how customer reactions disabled the acquirer’s integration intentions. The rational for the customers to react to the acquirer was how the acquirer forced a change on them in terms of products (Öberg, 2008). How interaction was

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pursued, the trust established between the acquired party and the customers (Andersen and Kumar, 2006; Blankenburg Holm, 1996; Huemer, 2004) – that as a consequence meant that the acquired party felt a stronger commitment to its customers than the new owner, and customers’ investments into present solutions (Håkansson et al., 2009; Johanson and Mattsson, 1985) impacted those decisions. The acquired party’s decision was also impacted by cultural differences (Fealy and Kompare, 2003; Weber and Tarba, 2012) between the acquirer and the acquired party that in turn negatively affected coordination (Kanter and Corn, 1994). As in the case of overlapping markets, the customers’ goals, but also investment in present structures, challenged intentions.

Case III: BT Industries’ acquisition of Raymond BT Industries acquired Raymond in 1997. BT Industries held the position of third largest warehouse lifter manufacturer in Europe at that point, while Raymond was the largest supplier of such lifters in the USA. The acquisition was the result of BT Industries’ customers internationalising their businesses. Customers had established themselves in the USA, while BT Industries also partially experienced how US customers increasingly entered the European market:

We experienced globalisation, meaning that some customers started crossing the Atlantic, whether it was Wal-Mart/Home Depot moving outside the US, or IKEA to North America or Ahold to South America. Here we experienced trends that would make a global presence an advantage (Financial manager, BT Industries).

The acquirer wanted to strengthen its position on the US market. Intentions were to connect BT Industries’ customers in the USA (which were mainly subsidiaries to European firms) directly with Raymond. This required coordination of BT Industries’ and Raymond’s activities, but more importantly the establishment of relationships between BT Industries’ customers and Raymond. BT Industries negotiated global deals with its customers based on these plans. The deals meant that Raymond would provide lifters to the customers in the USA, while BT Industries would do so in Europe. Some customers did want to connect to Raymond as part of these deals, but Raymond was not interested in actively participating in them. Raymond’s rational for not connecting to these customers (and encompass themselves according to the intended coordination between BT Industries and Raymond) was to demonstrate its independence. The management of Raymond also claimed that customer preferences differed between Europe and the USA so as to avoid any integration of manufacturing:

When entering areas such as the right to manage product development, or how customer relationships are treated, or even purchasing – where inches or centimetres should be applied, and such matters – then it instantly becomes more difficult (Financial manager, BT Industries).

You feel that Raymond is self-righteous; that they are “that” good. But here they lose from being that way. They should approach Volvo and ask: “How can we get Volvo?” [y] I think that Raymond feel that they should take care of their own business. “This is what we do; we do not want any Swedes [BT Industries] telling us” (Procurement manager, Volvo NAP; customer of BT Industries).

As for the global deals, the customers either wanted to have the US-type lifters on that market and European variants in Europe, or they asked for similar variants on all geographical markets. This largely related to whether the customer’s representation abroad was the consequence of acquisitions (e.g. Volvo that had acquired Mack in the

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USA and asked for local variants) or organic growth (e.g. IKEA, where European variants were asked for on all geographical markets).

The case illustrates an acquisition as response to customers’ internationalisation (Andersson and Mattsson, 2006; Öberg and Holtström, 2006). In the acquisition, the aim was to connect the acquired party with the acquirer’s customers. As in Case II, this required coordination between the acquirer and the acquired party, and between the acquired party and the acquirer’s customers. This case points to the difficulties of coordinating activities with acquired parties. In this particular case, the geographical distance played a part as did the relative size of the acquired party (BT Industries and Raymond had a similar number of employees before the acquisition). Compared to the other two cases, revenues, costs, and investments into present structures (Håkansson et al., 2009) were not the principal goals that challenged coordination, but rather self-interests of the acquired party and for customers: how they had internationalised their businesses.

Customer relationship coordination challenges in international acquisitions The three cases described above indicate coordination challenges connected with customer relationships in international acquisitions. Figure 1 described different items of coordination (cultural issues, changes in relationships, changes in ways to interact, and customer reactions). The cases are discussed in relation to these issues below and also to see what coordination challenges could be explained by specific pre-acquisition customer relationships and motives.

Pre-acquisition customer relationships While an international acquisition mostly would mean that the acquirer establishes itself on a new geographical market, it may already have customers and representation there. Toyota’s acquisition of BT Industries illustrates this, as does BT Industries’ acquisition of Raymond in regard to customers. In the former, overlapping customers needed to be coordinated and a division of market was suggested. In the latter, the motive was to acquire a local representation for the customers, and thereby connect them to the acquired party. Pre-acquisition relationships hence link to coordination. As for challenges and in the circumstance of overlapping pre-acquisition representation, risks seem to be internal competition and cannibalism (Keller, 2003; Melkonian et al., 2006) follow. In the case of Toyota’s acquisition of BT Industries, double representation occurred on local markets and with cross-facilitation of products, the acquirer and the acquired party became competitors. Customers tried to play the companies off against each other, and the acquirer’s independent dealers did not act in compliance with the coordination structures and processes provided by the acquirer. This in turn indicates how non-integration may also lead to customer reactions, and points to how customers are actors that make their own decisions (cf. Harrison and Prenkert, 2009; Munksgaard, 2010).

Overlapping geographical markets would, on the other hand, mean that less cultural issues emerge, both between the acquirer and the acquired party, and between these parties and customers, thus pointing to how pre-acquisition customer relationships link to cultural difference (if the acquirer is unfamiliar with the market of the acquired party, more cultural related issues would be expected).

Motives The motives of an international acquisition suggest guiding the degree and direction of integration. If intentions are to reach customers on a new geographical market,

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the acquired party’s customers would be the key concern, as illustrated by NetSys’ acquisition of Verimation. If the aim is to provide local representation to customers on a foreign market, as depicted in BT Industries’ acquisition of Raymond, focus would be on the acquirer’s customers and how to connect them with the acquired party. Both these circumstances mean that new customer relationships are intended. The cases indicate challenges related to the acquired party and the customers in these circumstances.

NetSys’ acquisition of Verimation demonstrates that customers were not interested in connecting to a new party. Transferability of customers anticipates that customers follow the intentions of the acquirer (Anderson et al., 2001), but if customers do not see any benefit in doing so, it is not probable that the customers will connect to a new party or start using that party’s products. Verimation’s customers did not see the benefit of becoming customers of the acquirer. This was partially the consequence of how the product was to be replaced, and partially the result of how the culture of the acquirer was different than what the customers expected from its supplier. The former is the consequence of how customers have invested in present structures and adapted to suppliers’ products and systems (Hallén et al., 1991), while the latter relates to shared values between customers and suppliers, commitment, and trust.

In the creation of new relationships, there is the further risk that the acquired party demonstrates its independence through not connecting with the acquirer or new customers. Following NetSys’ acquisition of Verimation, the acquired party and its customers allied; this further disabled relationships between the acquirer and the acquired party’s customers. Here, the acquired party would lose its market presence and independence had the customers been transferred to the acquirer. The acquired party fighting for its independence was also seen in BT Industries’ acquisition of Raymond, where the acquired party claimed that its customers were different to BT Industries’ US customers. The acquired party did not want to follow the guidelines provided by the acquirer in global deals. Hence, when the acquired party might also benefit in terms of accessing new customers, the acquired party may work opposite to the acquirer’s intentions.

Cultural differences Cultural differences have been said to impact the intended degree of integration (Barkema et al., 1996), but the cases do not point to such considerations from the acquirer’s point of view. Cultural differences only became visible once the integration was put into practice. As stated previously, cultural differences that impact coordination seem to be connected to whether or not the companies had pre-acquisition representation on the geographical market, and whether or not they had customers on the same geographical market before the acquisition, both of which add explanations to the literature on integration and cultural differences. Opposed to previous research, it also seems to have less to do with the geographical distance between the acquirer and the acquired party. NetSys’ acquisition of Verimation indicates the largest cultural differences, although the acquirer and the acquired party were located in the two countries with the least geographical distance (Norway and Sweden, to be compared to Japan and Sweden, and Sweden and the USA, respectively). The cultural difference could be regarded as a corporate cultural difference, however, and points to how corporate culture may have as decisive impact on coordination in an international acquisition as would national culture (cf. Weber et al., 2009).

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Customer reactions Coordination was impacted by customer reactions to different extents. Either customers created their own rules and thereby offset the intentions of the acquirer, zor they opposed those intentions by objecting to them. This points to customers as actors and reactors (Öberg, 2013). Toyota’s acquisition of BT Industries indicates how customers opposed the idea of separate contracts with the acquirer and the acquired party (reaction), and how they played the parties against one another to negotiate the best deals (the customer as actor). In NetSys’ acquisition of Verimation, customers reacted to the integration through allying with the acquired party, and telling that party that it did not want to have anything to do with the acquirer (see, e.g. the IKEA quotation in the case description). In BT Industries’ acquisition of Raymond, customers either preferred the USA or the European variants of the products, here linking customers’ actions to how they themselves had internationalised their businesses. Coordination was affected in its realisation in all these cases.

The customer relationships changed as a consequence of the coordination (including also customer reactions). Such changes could involve both the content of the relationship (what is offered and who represents the firm) (Öberg, 2008), and the characteristics of the relationship (density, quality, authority) (Palmatier, 2008). Here, the cases suggest that changes to the content of the relationships resulted from the integration and were based on the acquirer’s decisions, while impacted by customers’ and the acquired party’s reactions, while changes in the characteristics followed from how customers acted and reacted. For instance, the acquirer would decide to also provide the acquired party’s products to the acquirer’s customers (as in Toyota’s acquisition of BT Industries), or replace products (as in NetSys’ acquisition of Verimation). The acquirer would also decide whether to keep sales representatives, or integrate them. Customers’ and the acquired party’s reactions impacted whether such changes were realised. As customers reacted, the characteristics of the relationships changed. The changes to characteristics included how a customer chose to change how it interacted with the acquirer/the acquired party, how it used its authority not to, and how it changed the magnitude of buying as a consequence of the changes (cf. Palmatier, 2008).

Concluding discussion This paper describes and discusses customer relationship coordination challenges following international acquisitions. It categorises and explains their potential occurrence in various acquisitions through linking the challenges to pre-acquisition customer relationships and motives. The paper points to how it is not enough to consider the integration between the acquirer and the acquired party (cf. Hopkins, 2008; Melkonian et al., 2011) nor cultural differences, but how decisions are impacted by other parties’ reactions, how coordination thereby is less about control and more about mutuality in goals and structures, and how multiple parties – the acquired party as well as external ones – need to be considered in international acquisitions.

The theory section raised two questions: what coordination challenges arise from international acquisitions in regard to customer relationships? How are the challenges connected to different customer-related motives and pre-acquisition relationships? Three main customer relationship coordination challenges emerge following the international acquisitions studied: internal competition and cannibalism, the acquired party demonstrating its independence, and customers not being interested in the new party. They represent those different parties that need to be coordinated: the acquirer,

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the acquired party, and customers. According to the cases, different challenges may appear together in an international acquisition; the acquired party may want to demonstrate its independence at the same time as customers are not interested in connecting to a new party, and the acquirer may make its decision on whether or not to integrate based on these parameters.

The challenges relate to pre-acquisition customer relationships in terms of how competition and cannibalism may be the consequence of overlapping relationships and decisions not to integrate sales, while the acquired party demonstrating its independence, and customers not being interested in the new party, are linked to the motives and the consequent aim to connect the acquirer with the acquired party’s customers, or the converse. Cultural differences would impact the severity of the challenges on customer relationships through the reactions of the customers, but also the acquired party. Figure 2 presents the challenges, what parties they concern, and how they relate to pre-acquisition customer relationships and motives, respectively.

Theoretical implications While international acquisitions are a frequent means to reach new markets and customers (Anand and Delios, 2002), the problems of coordinating customer relationships following them have not been previously researched. Theoretically, the paper contributes to research through providing a categorisation of customer coordination challenges in the context of different international acquisitions. The paper links internal coordination between the acquirer and the acquired party to external coordination with customers (Pearce and Robbins, 2008), while pointing to the importance of considering individualities of acquisitions (Meglio and Risberg, 2010) through linking challenges to pre-acquisition relationships and motives (cf. Welch et al., 2011). Findings point to how international acquisitions are embedded in present structures, how business relationships may be stronger than ownership ties accomplished through an acquisition (cf. Håkansson et al., 2009), how goals need to

Pre-acquisition customer relationships

Acquirer

Motives

Separate Cultural differences

Internal competition Playing the acquirer and acquired party off against each other; Cannabalism

Overlapping

Acquirer’s customers

Acquired party’s customers

Demonstrates independence

Allies with customers

Not interested in new party Reactions to changed content of relationships (customers dissolve their relationships; decrease magnitude of exchange)

Acquired party Customer

Figure 2. Customer relationship coordination challenges and relation to pre- acquisition customer relationships and motives

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cohere, and how coordination intentions need to be accepted both by acquired parties and customers to actually accomplish intended integration. It further indicates how acquisitions become less like integration plans and more the result of multi-parties’ activities and reactions, and that different challenges do emerge based on pre-acquisition conditions and motives of acquisitions. This in turn provides new insights to strategy literature that focuses on the acquirer, and to studies that treat acquisitions as homogeneous groups.

Managerial implications Managerially, any coordination of customer relationships needs to be weighted towards risks for customer losses. Challenges lie in making the acquirer and the acquired party work for the same goals, transferring knowledge about customers, but also analysing whether it is actually possible to connect customers and parties the customers have not previously had relationships with. The degree of freedom of the acquired party needs to be weighed against conforming to global deals and the risks of customer relationship losses. It is important to maintain ties to customers – sales and maintenance staff, the product/service, etc. – if customers are to continue with the firm. It is also important that sales and maintenance staff see the benefits of the acquisition. Additionally, the acquisition needs to be weighted towards the establishment of a subsidiary on one’s own (Clark and Geppert, 2011; Finnerty et al., 1986), as well as other ways to enter new geographical areas and obtain customers.

There are a number of questions that should be addressed before any international acquisition. First, what customers do the acquired party have and how are they tied to the acquired party in terms of contracts, retention, and longevity of relationships? Second, how do they overlap with our own customers? Third, how do we handle any kind of internal competition? Fourth, what is our motive with the acquisition and what integration is required to accomplish this motive? Fifth, what content of relationships – products, sales staff, etc. – can be maintained to minimise interruptions in customer relationships, and how does this affect expected cost synergies? Sixth, what items of the customer relationships are specifically critical to maintain? Seventh, how do we create communication plans to customers and acquired party representatives to ensure that they get an as positive as possible view of the acquisition, the acquirer, and those potential changes that are planned? Eighth, what reactive activities can we provide, and how do we follow up changes to individual relationships?

Further research This paper indicates challenges with coordination of customer relationships following international acquisitions. Future studies could expand this field further through studying how different acquisitions may highlight different coordination issues, add to the present findings, and verify ideas presented in the paper. Such studies could target other industry contexts than the ones presented in this paper, additional customers, and international acquisitions including for instance establishments in developing countries. The connection between different issues that challenge coordination could be explored further, where the present paper suggests links between pre-acquisition customer relationships, culture, customer reactions, and coordination. In-depth studies of individual customer relationships would provide further insights, where case studies may capture and compare large, international customers with local ones, for instance. It would also be interesting to measure customer retention and transferability in a large number of cases. This would enable the prediction of how severe various outcomes are.

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About the author

Dr Christina Öberg is a Reader at the Lund University. She obtained her PhD in industrial marketing from the Linköping University and has a background from industry where she held such positions as financial manager and advisor/consultant. Her research interests are mergers and acquisitions, customer relationships, and innovation management. She has previously published in such journals as Industrial Marketing Management, The Service Industries Journal, Journal of Business Research, Journal of Business-to-Business Marketing, European Journal of Marketing, Thunderbird International Business Review, and Scandinavian Journal of Management. Dr Christina Öberg can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

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