Patience!

Even a mature company like Unilever recently learned by trial and error how to restructure its acquisitions in Europe to optimize regional efficiency and learning while remaining locally responsive to customer needs. It eventually implemented an appropriate mix of pay schemes and human resource policies, organizational structures and processes, with the clearly articulated support of senior executives. It takes time – half a century in the case of Unilever – to build a corporate culture. For instance, grooming young managers into senior executives can take years, as can synchronizing norms and values and building information networks within the company.

Wise Probing

Heineken, the fourth brewer in the world, began by licensing the Heineken brand or by buying a small stake in a foreign brewer. After its initial success, Heineken would enlarge its stake by bringing in technological and marketing knowledge and by sending in managers. Under new leadership, Heineken recently acquired a large company, BBAG in Austria, which held 14 percent of the beer market in Central and Eastern Europe. Heineken managed to keep a healthy balance sheet. It also avoided the problems of its closest competitor, Interbrew, which grew faster through acquisitions (surpassing Heineken as the third-largest brewer), but recently ousted its CEO for lowering profitability and market value.
 
Another example is Starbucks, which has a policy of granting licenses to local partners who find excellent locations. Starbucks motivates its partners by giving them the option to sell their stake back to Starbucks at a favorable price if (and only if) the venture is a success.  Of course, this strategy is not a panacea for all problems, since there are currency swings and global forces and global slumps to deal with. The price of buying back the shares is also costly for Starbucks, but this strategy allows the company to capture upside potential while limiting local risks.

Toyota’s entry into China started with a relatively small operation, well below the minimum efficient scale. Only after it established that it had successfully adapted its capabilities to the local market and that they implied a competitive advantage did Toyota step up its production capacity, as planned from the start should the entry prove a success. Paying a price in case of success – due to waiting lines for its products and excluding the possibility to sell even greater quantities from the start – but avoiding disasters incurred by companies such as Ahold upon entering a new and risky market.

Mutual Learning

Banco Santander Central Hispano and Banco Bilbao Vizcaya Argentaria entered Latin America by acquiring retail banks in the Spanish-speaking countries and by using their capabilities for privatizing and innovations such as lotteries. The banks´ knowledge of the Spanish culture made the jump to Latin America a natural one. They sent managers to Spain for training to support the successful integration of their acquisitions. They also acquired capabilities from their acquisitions such as Internet portals and quite effectively blocked mass retail banks from other continents.

Problems at Home

The international supermarket operator Ahold collapsed. Its demise was partly due to the fact that its organic growth was lower than it claimed because it reported small acquisitions as organic growth. There were also signals suggesting imperfect links with internal departments. By paying less attention to external growth and more attention to internal affairs, Ahold might have more carefully monitored existing businesses and the deep internal networks within the company. In short, it might have had fewer problems.

Wrong Decisions

Ahold's board of directors condoned its expansion policy. The results were disastrous and led to the departure of the CEO and a dozen other executives. Furthermore, its top team included the head of its main acquisition, U.S. Foodservice, who exchanged little information with the CEO and was unlikely to be criticized by the young executives that he had hired. A strong, independent and diverse board might have prevented some of the mistakes, as well as the executives´ downfall.