TIME: Almanac 1993/TIME Almanac 1993.iso/time/100989/10098900.014

Text File | 1992-09-23 | 8.9 KB | 170 lines

                                                                                BUSINESS, Page 72

Special Report: Foreign Owners

I Came, I Saw, I Blundered


For bosses from abroad, the U.S. is tougher than it looks

By William McWhirter


    What could be more American than Good Humor ice cream? Or
the 60-year-old fizz of Alka-Seltzer? Or the Thermos bottle?
Well, these familiar trademarks now belong to someone else: the
Dutch and the British, the West Germans and the Japanese,
respectively. So do such U.S.-born corporate names as Smith
Corona, Brooks Brothers and Pillsbury (all British); General
Electric TV sets and home electronics (French); Wilson Sporting
Goods (Finnish); and Carnation (Swiss). Last year foreign
investors acquired nearly 400 U.S. businesses, worth a total of
$60 billion. That was 61% more than the previous year and
represented a drastic quickening of the pace five years earlier,
when overseas buyers took over 111 companies, valued at just
$2.2 billion. Foreign owners now control more than 12% of all
U.S. manufacturing assets and employ 3 million American workers.

    For those employees and millions more whose companies are
vulnerable to takeover, the influx of bosses from abroad raises
some unsettling questions. Will the new managers ask their
employees to live by a foreign corporate culture? How
successfully will they cope with the American marketplace? In
the long run, will the new bosses bring growth and prosperity
-- or losses and layoffs?

    The answer at this point is disappointing, according to
TIME interviews with dozens of executives and consultants
involved in such takeovers. Many, if not most, foreign buyers
are so far failing to meet the glowing expectations they set for
their U.S. acquisitions. In many cases, struggling U.S.
subsidiaries are being kept alive by financial transfusions from
parent companies overseas.

    Why has the U.S. proved so treacherous for foreign owners?
For one thing, mergers in general are risky propositions; an
estimated 50% of domestic U.S. takeovers later end in
divestitures. When a foreign business attempts a long-distance
marriage with a U.S. company, the obstacles to success rise even
higher. One problem is the ambivalence of U.S. workers toward
their foreign bosses. More than 75% of U.S. adults surveyed in
a poll conducted last spring for a group of Japanese firms
agreed that foreign acquisitions have boosted U.S. economic
growth, employment and competitiveness. Nonetheless, nearly 75%
viewed the increased foreign presence as undesirable.

    Several foreign owners have enjoyed almost instant success
with the U.S. companies they took over. One such corporation is
Bertelsmann, the West German media giant, which has engineered
turnarounds at RCA Records and Doubleday publishing. But a
surprising number of other foreign investors have so far proved
luckless on U.S. turf. Among the pitfalls found in TIME's
survey:

    CULTURE SHOCK. After a company is taken over, employees are
preoccupied by a sense of uncertainty about the culture of the
new owners. "You don't quite know their values, where they're
coming from or what they really have in mind for you," says
Walter Scott, who served as a director of Pillsbury and later
as U.S. managing director of its acquirer, Britain's Grand
Metropolitan. "There are lots of inducements to start working
on your resume." Scott is now a professor at Northwestern
University's Kellogg Graduate School of Management.

    A SUPERIORITY COMPLEX. Many new acquirers start lecturing
too soon. "You think because you have been successful in your
own company abroad, you can run a U.S. firm the same way just
because you have acquired the company," says Michel Besson, the
French chief executive of CertainTeed, a maker of building
materials based in Valley Forge, Pa. "You tend to underestimate
their strengths and overlook your own weaknesses." An executive
of a West German-owned U.S. subsidiary recalls a dramatic
showdown: "Their people would come here and put down our people,
our work ethics. I had a little problem with that. I finally
slammed my door shut and told my German counterpart that I
didn't need him telling us how good he was and how weak we were.
We never had any problems after that."

    COLONIAL ATTITUDES. When Britain's Blue Arrow employment
firm took over the much larger Milwaukee-based Manpower in 1987,
the new owners made little effort to understand the market they
were entering, according to Manpower chairman Mitchell
Fromstein. He even took offense at the Blue Arrow company
newsletter, which he refused to distribute to his 1,400 U.S.
offices because it was "poor in quality, provincial and British
in nature with little articles about the soccer team in South
Wales." Friction grew to the point that Blue Arrow tried to fire
Fromstein, but in a battle for control he wound up in charge of
the combined company. Local animosity toward Blue Arrow was so
pervasive that Milwaukee's major league baseball team, the
Brewers, flashed the news of Fromstein's victory on the
scoreboard during a home game.

    COMMUNICATION BREAKDOWN. John Nevin, the crusty chairman of
Firestone, gives credit to Japan's Bridgestone for bailing out
his company with a $2.6 billion buyout last year. But that has
not removed the vast differences in the ways the two companies
communicate. "I'm seen as terribly abrupt and abrasive," says
Nevin. "If you're very direct, you're admired in American
culture. The Japanese culture is much more subtle. I can never
get them to tell me what they actually mean, and they may think
I'm rude and crass. But both sides are only behaving in ways
familiar to their own cultures."

    Such conflicts crop up in some of the most basic rituals of
working life. "If an American wants an answer, he'll pick up
the phone," says Kai Lindholst, a managing partner of Egon
Zehnder, an international consulting firm. "A European will
write a memo. The phone call will seem overly aggressive and
pushy to the European manager, but the American needs to convey
a greater sense of urgency because competition in the U.S. is
so tough."

    SEPARATE SOCIAL CIRCLES. Many U.S. employees feel left out
of the established personal networks that exist in traditional
European and Asian corporations. "Japanese managers work
ten-to-twelve-hour days, then socialize until midnight," says
James Lincoln, professor of international business at the
University of California, Berkeley. "A lot of serious business
is done, which cuts out the American manager and stirs up
residual feelings of hurt and distrust."

    LACK OF FAIR PLAY. Some foreign managers, especially those
from relatively homogeneous countries, have outmoded,
stereotypical attitudes toward women and minorities. Britain's
Grand Met angered Pillsbury's minority employees when the new
owner's cost-cutting drive led to the dismissal of several
blacks in middle-management jobs, including the head of its
affirmative-action program. A female executive of a company
bought by a European firm says she was suddenly expected to
serve coffee at the board meetings. "They will never look at me
as a member of their management as long as I'm here," she
decided. The company lost a talented executive: she quit.

    THE ENIGMATIC AMERICA. Some foreign marketing wizards,
accustomed to small and uniform markets, underestimate the
diversity and scope of the U.S. In Las Vegas, the Japanese
investors who own the Aladdin and Dunes Hotel casinos are
struggling because their management techniques do not work well
in such an eccentric environment. "They do everything by group
consensus," gripes one of their American casino managers. "It's
not the American way of doing things. In this business, you have
to make decisions fast." Miles Inc., the manufacturer of
Alka-Seltzer, based in Elkhart, Ind., suffered a drastic
downturn in market share and profits when its new West German
owner, Bayer, decided to pitch the product as a remedy for
young-professional stress, abandoning its traditional identity
as a cure for blue-collar hangovers. Bayer learned its lesson
and switched back. After nearly a decade of similar frictions,
including a 50-day strike in 1983, Miles' fortunes are
effervescent again; earnings doubled over the past two years.

    A prime reason foreign owners are having trouble is that so
many are beginners on U.S. soil. Some 85% of foreign-owned
industry in the U.S. has been acquired just within the past
decade. Like American managers who landed in postwar Europe,
foreign bosses in the U.S. will have to learn the right balance
between leadership and accommodation. By the same token, their
American workers in some cases could be a bit more hospitable.
"Hoping they will go away," says Robert Kania, a manufacturing
vice president of Miles, "is not productive." If foreign
investors and U.S. workers could forge a better alliance, the
result might be a thriving industrial melting pot.