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Cultural awareness in the tyre industry

Cultural awareness in the tyre industry

In most of cases of mergers, the biggest issue will be the extent to which the acquiring company can identify the competent managers, or consultants in the target country, and trust them to do a job they have been hired for

By David Shaw

Those who, like me, have been around the tyre industry for a decade or three will remember the 1980s. That was the period when Bridgestone bought Firestone; when Sumitomo bought back many of the rights to the Dunlop name during the break-up of the old BTR group, and when Pirelli bought US tyre maker Armstrong.

The point of this column is to look at which of those ventures succeeded and which failed, and then to pin the blame on lack of cultural flexibility.

I want to do that, because I am seeing the same kind of events happening in the late 2010s.

History teaches us that cross-border acquisitions – and especially cross-cultural acquisitions – do not always bring the value that the accountants might have predicted.

Just a quick reminder of the situation in the 1980s. The tyre industry was essentially a regional business. Michelin had built a strong business in Europe on the back of its invention of the development of the radial tyre. Because US companies were slow to adopt the radial, Michelin had expanded quickly into North America and was seeking to build more business there.

Meanwhile, Goodyear had expanded into Europe and was trying to attack Michelin on its home soil.

Behind the scenes, many of the great tyre companies of Europe and North America had suffered from chronic under-investment having been run by moribund managements who were largely reactive, rather than pro-active.

The battles appeared to be all about dominance in North America and Europe. However, the Japanese companies were growing and wanted to stamp their own mark on the tyre industries in the old world.

As we know, Bridgestone bought Firestone. That deal went through some tough times, and Bridgestone had to invest huge sums to bring the old Firestone factories up to date, but I think most of us now would agree that it was a successful acquisition.

Unfortunately, I think Sumitomo did not make the most of its Dunlop acquisitions. As with Firestone, the factories were not good for much more than scrap-value. While Sumitomo has some of the most modern facilities in Japan, its plants in Tonawanda and in France retain much of the character of their mid-20th century roots.

I think it is fair to say that Pirelli’s acquisition of Armstrong was an unmitigated disaster.

The common theme linking the failed acquisitions was lack of cultural flexibility, and most critically, a lack of willingness to trust the local managers to run the business.

Instead, the acquiring managers placed themselves in charge and made a series of decisions that may well have been appropriate in their own cultures, but were far from sensible in the new business environment.

New wave of East Asian acquisitions

We are seeing history repeat itself. Korean companies typically find it very hard to give the local managers full freedom. A Korean has to be in charge, not just as a figurehead, but really making high-level decisions, when his skillset is not really appropriate.

Managers in China know and understand the Chinese way of doing business. Managers from Korean companies have learned how to succeed within the Korean system. As they have risen to the top, these managers know that they are competent and successful. But their skillsets do not always equip them to make good decisions in other environments

But compared to Koreans, the Chinese have an even more rigid social and management culture

Anyone who has worked around the tyre industry long enough has a stock of anecdotes about competent Indian or European or American managers advising their Korean or Chinese boss about important matters, only to be over-ruled.

Now we hear that Kumho Tyre will be up for sale again. At the same time, we see that a number of Chinese companies are seeking to set up in the United States.

Just a couple of years ago, ChemChina acquired Pirelli and the former Pirelli truck tyre division is merging with the Aeolus operations. The critical part of the Pirelli deal was for Chinese managers to gain some degree of understanding of non-Chinese management culture.

Cultural flexibility

In most of these mergers, the biggest issue will be the extent to which the acquiring company can identify the competent managers, or consultants in the target country, and trust them to do a job they have been hired for.

Managers in China know and understand the Chinese way of doing business. Managers from Korean companies have learned how to succeed within the Korean system. As they have risen to the top, these managers know that they are competent and successful.

But their skillsets do not always equip them to make good decisions in other environments.

It is incredibly hard, as a confident, successful manager from one culture, to allow someone else, who has a different culture and different language skills to make decisions that would be completely inappropriate in your own culture.

Yet that is what the successful managers have to do to make the cross-cultural acquisitions work.

Making it work

The key is trust. That takes time. The top managers from the acquiring company have to learn to trust the managers they have selected to run the acquired company. That means working with them for months, maybe even years, before the top managers can leave their team to get on with it, and trust the team’s judgment, even when it appears to conflict with their own hard-won experience.

In a business world where acquisitions take place and then are expected to deliver results quickly, that is becoming an increasingly difficult challenge.

It helps of the top management have lived outside their own culture and have some experience of different ways of thinking, different ways to reach a decision and different perspectives and motivations.

At present, there are very few executives from China who are in a position to do that. However, that is not true of Indians, who often send their sons and daughters overseas for a more rounded education.

In every case I have seen, it requires a Chinese national who has the trust of the Chairman and who can work in both cultures to act as champion for the non-Chinese team.

I have a feeling that this applies to many other cross-cultural deals as well.

In this, I have to favour Indian companies as more likely to succeed in the international race for integration than the Chinese or Koreans.

  • David Shaw is the founder CEO of UK-based Tire Industry research

(Appeared on February-March , 2018 issue of Tyre Asia)

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