The Role of Outgroups in Constructing a Shared Identity: A Longitudinal Study of a Subsidiary Merger in Mexico

Both scholars and practitioners agree that constructing a shared organizational identity is necessary for successful outcomes in mergers and acquisitions. Yet the process of constructing shared identity is not an easy path. We report findings of a longitudinal in-depth case study of merging Mexican subsidiaries—part of two European Multinational Corporations. The study took advantage of a rare opportunity that includes prior knowledge of the merger and permission to follow-up until post-merger integration concluded. Particularly, in the studied case, status differences between pre-merger organizations were removed, external boundaries were reinforced and new outgroups emerged, namely the Head Offices and Latin American divisions. Our study contributes to the M&A literature, to the stakeholder approach to organizational identity and to identity construction in nested organizations. We shed light on how intergroup dynamics change over time during interactions between internal and external stakeholders, and whose status changes in the post-merger organization. Based on these findings, we argue that considering both intragroup and intergroup dynamics can refine the concept of shared organizational identity. Intragroup dynamics refers to employees of the post-merger organization, and intergroup dynamics refers to outgroup—outside the post-merger organization. We coin a concept of an optimal shared identity, defined as the members’ shared belonging to the post-merger organization and to the Multinational Corporation (on the global or regional level) in the face of salient outgroups.