Singapore – The risk of cultural issues derailing a company's M&A plan is higher in Asia than the rest of the world.

In a joint study by Marsh, Mercer and Kroll, 57% of companies say that the China, India and Southeast Asia region will play a significant or very significant M&A role in the next 18 months. Organisational cultural issues and human capital integration issues are also cited as the two most significant issues faced by respondents following the M&A transaction at 50% and 35% respectively.

However, cultural issues in the China, India and Southeast Asia region pose to be biggest risks compared to the rest of the world. On a scale of one to eight with eight perceived as the highest risk, the region scored a 6 for its cultural issues risk factor during an M&A.

By comparison, the Middle East and Africa also scored a 5 in its cultural issues risk, while North America and Europe scored a low 2. Australia, Korea and Japan also scored a low 3.

One way to reduce the cultural risk factor is by for investors to pay special attention to the people issues at every stage of the M&A process from due diligence all the way through to integration.

Phil Shirley, Mercer's global M&A consulting leader, Hong Kong, says that there is a trend towards companies being proactive in issues such as employee engagement, retention and cultural integration.

"In our experience, Asian companies making their first foray into Europe and North America are often shocked at the onerous employment laws, complexity of compensation and benefits and differences in organisational culture. The reverse is also true but western companies are generally more experienced in cross-border deals," Shirley adds.

Other risk factors that the China, India and Southeast Asia region were perceived to have were intellectual property risks (7), corruption (7) and red tape (6).