Cross-border mergers face higher barriers to success because companies in different countries must operate differently, writes John Gapper

LAST TUESDAY was not a propitious day to be announcing grand plans for a cross-border merger. That morning, Alcatel-Lucent ejected Serge Tchuruk and Pat Russo, its chairman and chief executive, over its own unhappy merger.

Meanwhile, Robert Dudley was trying to run TNK-BP, the disputed joint venture between BP and some Russian oil tycoons, from a safe haven.

Neither was an advertisement for the benefits of link-ups with foreign companies. The lesson appeared to be that chief executives of failed mergers at best lose their jobs, and at worst, have to flee the country.

Yet Willie Walsh of British Airways and Fernando Conte of Iberia chose this moment to say they wanted to join forces, following the example of Air France-KLM and Lufthansa, which acquired Swissair in 2005.

Were they mad?

You would have thought so, given the history and reputation of cross-border deals. Many mergers fail but those between companies from different nations, with different legal systems, customers, investors and cultures, are notoriously risky.

It is tempting to think that some nations will never work together fruitfully in business because of cultural divides and historic enmities. The Germans are too stuffy, the French too insular, the Italians too excitable. The best-remembered British encounter with a Spanish fleet was when Sir Francis Drake fought the Spanish Armada in 1588.

In one study, German executives said they regarded Polish managers with whom they worked as corrupt and lazy. Russo was mocked for failing to speak French fluently, although she worked in Paris.

There is reason for hope. Cross-border mergers are tough to execute but that can be nothing to do with national cultures or proclivities. And more enterprises, from developed and emerging economies, are learning to make them work.

Culture does, of course, matter. "Every CEO who has been through a cross-border merger says he knew culture was going to matter but did not realise how much," says Caroline Firstbrook, head of strategy for Accenture in Europe.

That is partly to do with nationality. Western managers in Japanese companies learn the value placed on formality and harmony.

British executives have just acquired the US habit of short lunch-breaks without alcohol, only to find that Spanish ones like to thrash things out over an unhurried meal.

But cultures often differ for other reasons. Some companies are freewheeling and allow their business units autonomy, while others are rigid and bureaucratic.

In Alcatel-Lucent's case, to confuse matters, the French company was laid-back and the US company dirigiste.

What seem like national tensions are often corporate ones in disguise. Big banks built through cross-border mergers, such as Deutsche Bank and UBS, are prone to tussles among "the Germans" and "the Brits" or "the Swiss" and "the Americans".

But these fights are less about nationality than about attitudes to risk-taking.

Maybe some tension would have been dissipated by Russo learning more French, but Alcatel-Lucent's difficulties run far deeper than linguistics. The deal did nothing - and could not have done much - to prevent the downturn in the industry or rising Chinese competition.

The reason for the failure of such mergers is not that the French did not get on with the Americans, or the British with the Germans, but that practical obstacles existed.

Cross-border mergers face higher barriers to success because companies in different countries must operate differently. Legal systems and traditions vary widely. US companies accustomed to dismissing employees rapidly are sometimes baffled by French labour law.

Some have to be structured in a way that makes them hard to handle. BP wanted Russian oil and the only way to obtain it was to join forces with TNK. Enel, the Italian energy group, had to partner a Spanish group to lay its hands on Endesa and its marriage of convenience with Acciona has turned bitter.

Yet many companies make mergers work. There has been an outbreak of Spanish-British deals, including Santander's acquisition of Abbey (and now Alliance Leicester) and Ferrovial's takeover of BAA. Ferrovial initially allowed BAA's managers free rein, but then appointed Nigel Rudd, a no-nonsense Brit if ever there was one, to shake things up.

Spanish acquirers tend to get high marks from their British targets. "I've found the Spaniards very professional and financially literate," says one. "They are quite Anglo-Saxon in the way they approach business."

That could be said of a lot of companies, not only from the US and Europe but also from Asia and Latin America. General Electric is a practised acquirer but so are Cemex of Mexico and ArcelorMittal, the steel group built by Lakshmi Mittal.

Others want to operate like that and seek cross-border mergers to broaden their cultures. Nippon Sheet Glass has appointed Stuart Chambers of Pilkington, the UK company it bought in 2006, as chief executive.

These companies regard cross-border mergers not as an unfortunate necessity to gain market access but as a means of transforming themselves. They take on the difficulties because they think they will gain more from doing that than by being insular.

The more deals they do, the more global they become. It can go wrong but so can mergers in one country, as Time Warner and AOL showed.

So Walsh and Conte have a task ahead to merge. But the fact that it will mean the British working with the Spanish should not stop them. It should even spur them on.