<<

. 2
( 11)



>>

e
those cases the forty-year embargo applied. Other ¬rms such as Bacardi,
Carlsberg, Allied Domecq, Anheuser-Busch, and Hennessy denied access to
their archives.
Internal records, which provide the most reliable source about the history
of the ¬rms, were used for specialized analysis. Public records were par-
ticularly useful as sources of information about strategic events that tend
19
Brands and the Evolution of Multinationals
to come into the public domain via company histories, annual reports, or
newspaper articles, as were interviews. Despite the changes in the accounting
policies between countries and over time, annual reports were a particularly
useful source of information on total sales, sales by business activity, sales
by geographic region, operating pro¬t, net income, total assets and share-
holders capital, corporate governance, brands, and mergers and acquisitions.
Companies™ histories, where available, were very useful in providing a back-
ground on the early evolution of ¬rms, in particular the dates and the facts
behind their foundation, incorporation, mergers and acquisitions, and also
the creation and disposal of brands.
Because knowledge is fragmented throughout the ¬rm, I interviewed man-
agers from different levels and departments who were involved in taking
decisions or implementing changes, as well as industry experts. Interviews
were important to understand speci¬c aspects of the recent evolution of ¬rms
not documented elsewhere, such as the motivations behind ¬rms™ interna-
tionalization process, mergers and acquisitions, choice of system of corpo-
rate governance, branding policies, views on the use of alternative distri-
bution channels, as well as current developments in the evolution of the
industry and deals or decisions that did not succeed. The interviews var-
ied from loosely structured to semistructured, leaving some ¬‚exibility so
that questions could be geared toward the interviewee™s individual back-
ground and knowledge. Greater emphasis was given to the ¬rm™s histori-
cal development mainly when interviewing executives with long service in
the corporation. In addition, meetings served as a platform for subsequent
interviews with other managers from the same ¬rm or from competitors,
and also for accessing other sources of information about the ¬rm such
as their company archives. While most of these multiple sources of infor-
mation complemented and corroborated one another, inevitably there were
some cases where they con¬‚icted. In such cases, attempts were made to
triangulate the different accounts from alternative sources to resolve such
con¬‚icts.
Multiple sources of information were used to create an original database.
First, Fortune magazine lists of the 500 largest U.S. industrial corporations
(in all the benchmark dates), the 100 largest foreign industrial corporations
in 1960, the 200 largest foreign industrial corporations in 1970, the 500
largest foreign industrial corporations in 1980, and the 500 largest global
corporations in 1990, 2000, and 2005. Fortune™s lists, however, are biased
toward U.S. ¬rms, which appear in much larger numbers than foreign ¬rms.
To address this problem, several additions were made to Fortune™s list of
alcoholic beverages ¬rms. In particular, I added all the world™s largest ¬rms
that should have been included had the criteria used for the selection of
the U.S. Fortune 500 been applied to the top 500 companies from other
countries like the United Kingdom, France, and Japan. The database also
includes ¬rms of smaller size that ended up being acquired by larger ¬rms
20 Global Brands
included in Fortune™s list. They often had brands that were fundamental
to the growth and survival of these leading multinationals. I also included
in the database a third group of large ¬rms that do not publish accounts,
owing to their family ownership structure, but that would otherwise rank
among the world™s largest ¬rms: Bacardi-Martini, E. & J. Gallo, and Pedro
Domecq.
A number of reservations should however be noted concerning the selec-
tion criteria. First, in some cases the data about the ¬rms in Fortune did not
agree with the information in the original annual reports (e.g., because For-
tune only considered the operations of the subsidiary in the United States).
In such cases, Fortune™s data were corrected using the annual reports. Sec-
ond, the national differences in market structure and in reporting practices
(including exchange rate conversions) lead to different ways of comput-
ing and reporting ¬nancial data. Third, in¬‚ation without strictly equivalent
adjustments in the exchange rates (so that the purchasing power parity is
kept constant) distorts the rankings of the largest ¬rms and their apparently
comparable data. Fourth, many ¬rms were active in other sectors, but these
are not always distinguished in performance results. Nevertheless, Fortune™s
criteria of ranking a ¬rm in a speci¬c sector implies that it has to derive
the greatest volume of its turnover from that sector. Fifth, the names of the
¬rms frequently changed over time, as did their managing personnel, their
owners, the products they produce, their geographical location, and even
their legal form. Yet, in those cases where the identity of the ¬rms remained
the same, with alcoholic beverages accounting as the single largest business,
they were included in this book. Given these various dif¬culties, while the
upper reaches of the list provided are likely to include the world™s largest
¬rms, as one moves downwards in the list, the probability of missing candi-
dates is bound to increase. These same reservations and criteria were used
to select other ¬rms to complement Fortune™s list.62 Despite these reserva-
tions, the information in this database can be considered to be of relatively
high quality as it draws, for the most part, on companies™ original annual
reports.
As well as offering an original database on the size and performance of
the world™s largest ¬rms in alcoholic beverages, I also document distinct
aspects of the history of the ¬rms, and their process of growth and survival,
such as country of origin, date of foundation, and main mergers and acqui-
sitions.
To convert the data into constant U.S. dollars, several indicators were
used. First, original currencies were converted into current U.S. dollars, using
the average annual exchange rates for Australia, Belgium, Brazil, Canada,
Denmark, the European Union, France, Japan, Norway, The Netherlands,

62 See, e.g., Fortune (August 2001): F-11.
21
Brands and the Evolution of Multinationals
South Africa, and the United Kingdom. Second, the “export unit values for
the industrialized countries” index was used to convert the data from U.S.
dollar current prices into U.S. dollar constant prices: unit value (prices) in
terms of U.S. dollars of 2000.63


Levels of Institutional Analysis
As already noted, this book takes into account three different levels of insti-
tutional analysis “ the country, the industry, and the ¬rm. These levels are
not disjointed but instead overlap and complement each other, with each
level providing important determinants to explain the survival and growth
of ¬rms.
Country-speci¬c determinants include systems of corporate governance
and thus involve the structures, processes, and cultures that engender the
successful operation of organizations. They also include the institutional
environment, regulation, and the regimes of taxation that have for a long
time distinctly affected the countries™ industries and their ¬rms.
Industry-speci¬c determinants are predominantly exogenous to the ¬rms
and are considered to affect all the ¬rms in the industry equally. Factors such
as the way consumption evolved over time according to levels of income and
changes in consumers™ lifestyles also impact the growth and survival of ¬rms.
Industry structure is also a determinant, in the sense that although concen-
tration may ¬rst have been determined by some ¬rms, it often determines
or at least restricts the choices of all the ¬rms operating in the industry as a
whole.
Yet, as I will attempt to show, it is the ¬rm-speci¬c determinants that most
in¬‚uenced the ¬rms™ competitive positions. These factors include those that
are endogenous to the ¬rms and that differentiate one from another, promot-
ing and limiting individual success. They may refer to ¬rm characteristics or
strategic choices. Brands, alliances in distribution networks, and marketing
knowledge are some of the factors that have had the most signi¬cant impact
on survival and growth.
I explore in this inquiry the different forms of corporate governance. In
general, studies of this subject tend to oppose family control and ownership
and laud professional management. This book, however, draws attention
to a form of business system that blended family control and professional
management. It shows how, through the kinds of marketing knowledge they
generate, family ¬rms are particularly good at creating enduring brands in
sectors such as alcoholic beverages, while public companies are more adept
at developing these brands.

63 International Monetary Fund, International Financial Statistics Yearbook (Washington,
D.C.: IMF, 1990, 2002, 2006).
22 Global Brands
The last chapter of this book looks deeply into the ¬rm, analyzing the
life of brands rather than the life of the ¬rms. This enables me to analyze
the role of entrepreneurs as relevant mechanisms for acquiring marketing
knowledge. By placing the ¬rm and the brand in an industrial and political
context, I hope to advance the study of business history and the analysis of
international business in the modern global economy.
2

Leading Firms “ The Historical Legacy




Leading Firms Since 1960
I am looking at seventy-¬ve ¬rms, twenty-one from North America, seven-
teen from the United Kingdom, twenty-one from Continental Europe, six
each from Asia and South America, three from Australia and New Zealand,
and one from Africa. Several of these ¬rms have ranked among the largest
industrial enterprises in the world at different times. For instance, between
2001 and 2004, there were three alcoholic beverage multinationals “ Allied
Domecq (Allied), Diageo, and Anheuser-Busch “ among the top eight multi-
nationals in food and drinks industries, ranked according to total sharehold-
ers return.1
Table 2.1 provides a list of the world™s leading multinationals in alcoholic
beverages by 2005, their predecessors, and the ¬rms merged and acquired at
six benchmark dates.2 In addition, it provides information about the dates
of foundation or last merger of these ¬rms, the year they were dissolved,
merged, or acquired, their country of origin, and their sales volume stated
in millions of U.S. dollars.3
In 1960, 70 percent of the sales generated by the world™s leading alco-
holic beverages ¬rms were from North America, 23 percent from the United
Kingdom, and 7 percent from other parts of the world. As Figure 2.1 shows,
however, over time there was a decline in the importance of North American

1 The other multinationals in this ranking of the top eight in food and drinks were Yum!Brands,
Procter & Gamble, Kellogs, Altria, and Unilever. Total shareholder return measures relative
return from the movement of share price together with the dividends received. It is measured
from 1 July 2001 using the average of the share price from 1 July 2000 to 30 June 2001 as
the starting point and using the last months up to 30 June 2004 as the end point. (Source:
Diageo).
2 See Appendix 3 with the annual sales of each of the leading multinationals in alcoholic
beverages and their predecessors, from 1960 to 2005. Seagram is an exception. Even though
it no longer existed in 2004, its process of growth through mergers and acquisitions of
other ¬rms had been very important in shaping the structure of the global alcoholic drinks
industry.
3 More details about this table and how the sample was selected can be found in Appen-
dix 4.



23
Table 2.1. The world™s largest multinationals in alcoholic beverages and their predecessors, 1960, 1970, 1980, 1990, 2000, and
2005

Country of Year of Foundation / Year of Merger /
1960 1970 1980 1990 2000 2005
Group (¬rms)* Origin Last Merger Acquisition

1852 1,186 2,696 3,762 10,242 12,499 12,069
Anheuser-Busch US
1925 1998 2,129 3,911 3,650
Modelo MEX n/a n/a n/a
1889 291 533 933 4,452 12,983 10,414
Asahi Breweries JPN
1862 2,800 2,632
Bacardi CB/BER n/a n/a n/a n/a
1847 1993
Martini-Rossi IT n/a n/a n/a n/a “ “
1870 392 744 772 1,150 2,146 2,191
Brown Forman US
1847 1,021 1,269 2,158 4,272 5,092
Carlsberg DEN “
1894 1970
Tuborg DEN n/a “ “ “ “ “
1879 2004 1,010
Holsten GER n/a n/a n/a n/a “
1945 58 159 2,162 3,281
Constellation Brands/ US n/a n/a
Canandaigua
1997 17,053 14,506
Diageo UK “ “ “ “
1962 1997 1,979 6,854 14,713
Grand Metropolitan UK “ “ “
1971 138 231
Truman UK n/a “ “ “ “
1958 1972 1,290
Watney Mann UK n/a “ “ “ “
1872 1962
Gilbeys UK n/a “ “ “ “ “
1962 1972 863
International Distillers & UK “ “ “ “ “
Vintners
1875 1987 395 1,992 2,194
Heublein US “ “ “
1873 1980 2,085 2,368
Liggett & Myers US “ “ “ “
1759 1997 737 1,482 2,079 5,499
Guinness UK “ “
1825 1985 54 178 538
Arthur Bells UK “ “ “
1877 1986 2,512 3,046 2,680
Distillers Company UK “ “ “
1920 1971/1987 1,467 2,275
Schenley US n/a “ “ “
1933 926 1,650 1,366
E. & J. Gallo US n/a n/a n/a
1864 5,068 9,092 7,765 11,444 5,845 5,668
Fortune Brands/American US
Brands/American
Tobacco
1795 1966 305
Jim Beam US “ “ “ “ “
1924 1986 2,228 3,516 1,770
National Distillers US “ “ “
1888 2,149 2,860 10,475 1,835 2,436
Foster™s Group/Foster™s AUS n/a
Brewing/Elders IXL
1907 1983
Carlton United Breweries AUS n/a n/a n/a “ “ “
1864 117 545 1,855 3,915 7,469 10,778
Heineken NL
1870 1968
Amstel NL n/a “ “ “ “ “
2004 11,637
Inbev BEL/BRA “ “ “ “ “
1988 2004 1,485 5,212
Interbrew BEL “ “ “ “
1366/1717 1988
Artois BEL n/a n/a n/a “ “ “
1853 1988
Piedbouef-Interbrew BEL n/a n/a n/a “ “ “
1847 1995 250 998 1,137 3,539
John Labbatt CAN “ “
1777 2000 431 2,794 3,351 6,987
Bass UK “ “
1742 2000 321 1,650 1,959 3,897 6,619
Whitbread UK “
1873 2001 372 289 928 811
Brauerei Beck/Haake GER n/a “
Beck-Brauerei
2000 2004 2,706
Ambev BRA “ “ “ “ “
1885 2000
Companhia Antarctica BRA n/a n/a n/a n/a “ “
Paulista
1888 2000 381
Companhia Cervejeira BRA n/a n/a n/a “ “
Brahma

(continued)
Table 2.1 (Continued)

Country of Year of Foundation / Year of Merger /
1960 1970 1980 1990 2000 2005
Group (¬rms)* Origin Last Merger Acquisition

1907 806 3,569 4,813 8,636 9,959 8,992
Kirin JPN
1988 1998 456 1,237
Lion Nathan NZ “ “ “ n/a
1987 3,212 10,670 13,887
Mo¨ t-Hennessy Louis
e FR “ “ “
Vuitton
1743 1971 41
Mo¨ t & Chandon
e FR “ “ “ “ “
1971 1987 340 790
Mo¨ t Hennessy
e FR “ “ “ “
2004 4,420
Molson-Coors CAN “ “ “ “ “
1876 2004 1,018 1,358 1,928 1,181
Molson CAN n/a “
1877 2000
Bavaria BRA n/a n/a n/a n/a “ “
1873 1,014 1,309 2,414
Adolph Coors US n/a n/a “
1975 986 2,727 4,037 3,668
Pernod Ricard FR “ “
1805 1975 1 3
Pernod FR “ “ “ “
1932 1975
Ricard FR “ “ “ “ “ “
1799/1961 2005 3,128 5,837 7,410 3,842
Allied Domecq UK “ “
1932/1961 1968
Showerings UK n/a “ “ “ “ “
1871 1966
Harveys UK n/a “ “ “ “ “
1926 1986 1,742 2,328 2,466
Hiram Walker CAN “ “ “
1730 1994
Pedro Domecq SPN “ “ “ “ “ “
1884 1975
Teacher UK “ “ “ “ “ “
1991 674 797
R´ my Cointreau
e FR “ “ “ “
1724 1991
R´ my Martin
e FR n/a n/a n/a n/a “ “
1849 1991
Cointreau & Cie FR n/a n/a n/a n/a “ “
1890 1,771 3,579
San Miguel PHIL n/a n/a n/a n/a
1876 509 1,081 1,393 3,127 5,234 4,100
Sapporo JPN
1749/1960 1,094 1,321 1,942 5,419 5,233
Scottish & Newcastle UK n/a
1787 1995 292 940 1,433
Courage UK “ “ “
1895 133 713 2,526 4,517 4,806 10,355
SAB Miller / South SA
African Breweries
1855 2002 675 2,903 3,117 4,375
Miller Brewing US n/a “
1850 1999 331
Stroh US n/a n/a n/a “ “
1858 1982 637 1,572 1,024
Schlitz Brewing US “ “ “
1853 1996 824
G. Heileman Brewing US n/a n/a n/a “ “
1844 1985 576 1,233 974
Pabst Brewing US “ “ “
1924 2001 2,950 4,886 3,294 4,923 15,686
Seagram CAN/US “
1899 1,280 3,469 4,851 7,879
Suntory JPN n/a n/a
1903 3,760
Tsingtao CHI n/a n/a n/a n/a n/a

Notes: Amounts stated in millions of constant US dollars (2000 = 100). ˜“™ “ not applicable (either was not formed yet or had been merged or acquired); n/a “
not available.
—The ¬rms highlighted in bold are those that survived until the beginning of the twenty-¬rst century. The ¬rms below (not highlighted in bold) were merged
or acquired.
Source: Database prepared using companies™ archives, annual reports, and other published sources.
28 Global Brands

100%

80%
Rest of the world
60% Continental Europe
UK
40%
North America
20%

0%
1960 1970 1980 1990 2000 2005
Fig. 2.1. Percentage of sales of the world™s largest multinationals by country/conti-
nent of origin.
Source: Prepared by the author using companies™ annual accounts.


¬rms and an increase in the importance of ¬rms from the United Kingdom,
continental Europe, and the rest of the world.4
Over time, the proportion of ¬rms from the United Kingdom and Con-
tinental Europe (especially France, the Netherlands, and Denmark) grew in
terms of total sales. The proportion of sales generated by ¬rms from the
rest of the world, in particular South Africa, South America, and the Far
East (especially from Japan) also increased. U.S. ¬rms lost the dominant
position they had held in 1960. While most leading U.S. spirits ¬rms disap-
peared, wines ¬rms such as E. & J. Gallo (Gallo) and Constellation Brands
(previously called Canandaigua) ¬‚ourished, ensuring that the United States
continued to be home to a major alcoholic beverages industry.
Apart from having complex histories resulting from multiple mergers,
acquisitions, and cross-border network arrangements, the world™s leading
alcoholic beverages multinationals also diversi¬ed into unrelated businesses,
from chemicals to entertainment.5 Of the U.S. ¬rms, only Anheuser-Busch,
Brown Forman, Constellation Brands, and Gallo, all family controlled, sur-
vived independently until the beginning of the twenty-¬rst century. National
Distillers, the world™s largest alcoholic beverages ¬rm in 1912,6 was acquired
by American Brands in 1985 (renamed Fortune Brands in 1997), which had
owned Jim Beam since 1966. The North American breweries, Stroh, Schlitz,
G. Heileman, and Pabst were also of signi¬cant size early in the twentieth

4 This ¬gure should, however, be analyzed with caution, as the total sales for each ¬rm often
include all their business activities. For example, the data for 2000 for North America and the
Rest of the World appears distorted due, respectively, to the high percentage of sales generated
by Seagram in the media and entertainment business, and Japanese ¬rms such as Kirin and
Asahi, which also have interests in other nonalcoholic beverages businesses.
5 Appendix 5 provides brief biographies of the world™s leading multinationals in alcoholic
beverages.
6 See Table 1 (“Largest Industrials in 1909”) in Alfred D. Chandler Jr., Strategy and Structure
(Cambridge, Mass: The MIT Press, 1962): 5.
29
Leading Firms “ The Historical Legacy
century. They survived until the early 1970s, when technological advances
increased the minimum ef¬cient scale relative to the size of the market, and
greater emphasis was placed on advertising, creating an environment where
fewer ¬rms could operate pro¬tably. During the 1980s, these brewers went
through several mergers and acquisitions and by 1999 had all become part
of Miller Brewing. Miller, traditionally a family ¬rm, was acquired in 1970
by Philip Morris, a tobacco company, as part of its diversi¬cation strategy.
However, in 2002, Philip Morris sold Miller to South African Breweries,
which was renamed SABMiller.
There were other American alcoholic beverages ¬rms that since the mid-
1960s had become part of the tobacco conglomerates, which, like Philip
Morris, diversi¬ed as a result of the litigation over the harmful effects of
smoking. Liggett & Myers, originally also a tobacco company, acquired
several U.S. wines and spirits distributors. However, it ended up being taken
over by Grand Metropolitan from the United Kingdom in 1980. In 1986,
Grand Metropolitan bought the American ¬rm Heublein, which owned the
famous vodka brand Smirnoff.7
The Canadian ¬rms also lost their relative importance in the world™s rank-
ings. By the beginning of the twenty-¬rst century, none were surviving inde-
pendently. The Canadian brewer Molson had merged with U.S. Coors in
2004. Molson™s ownership had been shared with Miller and Foster Brew-
ing until 1997 and 1998, respectively, when they sold their stakes. It had
again brie¬‚y become family owned before merging with Coors in 2004. Sea-
gram, also a family-controlled ¬rm in wines and spirits, which from 1960 had
always ranked among the top three alcoholic beverages multinationals in the
world, was acquired by the French entertainment and water group Vivendi
in 2000. Vivendi kept Seagram™s entertainment and media businesses, but
sold the alcoholic beverages business to Diageo and Pernod Ricard.8 Hiram
Walker, another Canadian family ¬rm, producer of the whisky brand with
the same name, was acquired by Allied Lyons in 1986. Interbrew acquired
the Canadian brewer John Labbatt, in 1995.
In South America, two leading brewers, Companhia Cervejeira Brahma
and Companhia Antarctica Paulista, merged in 2000 to form Ambev. This
new ¬rm, which became the largest brewer in Latin America, continued con-
solidating its position on this continent, by merging and acquiring breweries
in other neighboring countries, for example, Quilmes in Argentina.9 In 2004,
Ambev merged with the old-established Belgium family ¬rm, Interbrew, cre-
ating Inbev. Two other large groups from South America are Grupo Modelo

7 William J. Reader and Judy Slinn, Grand Metropolitan (unpublished manuscript, 1992).
8 After the joint acquisition of Seagram by Diageo and Pernod-Ricard, Samuel Bronfman II, a
family member and former chairman of Seagram, was appointed as chairman of global wine
operations at Diageo PLC, which became Seagram™s parent company, The Wall Street Journal
(9 July 2001).
9 “Ambev buys stake in Quilmes for $346m,” Financial Times (2 May 2002). This acquisition
was later opposed by Templeton Emerging Markets Fund.
30 Global Brands
from Mexico, producer of Corona beer, and Santo Domingo from Colombia,
a conglomerate with interests in brewing, owner of Aguila. Anheuser-Busch
acquired an interest in Modelo in 1993, and later increased that stake.10
Bacardi, originally from Cuba, developed essentially out of its sales of a
single product (rum) and a single brand, Bacardi.11 In 1993, Bacardi acquired
Martini-Rossi from Italy, yet another family ¬rm whose sales also relied
essentially on a single product and brand “ Martini vermouth. Martini had
good distribution networks in Europe, a market Bacardi needed to pene-
trate.12 Since then, it acquired several independent brands such as Dewar™s
Scotch whisky, Bombay Sapphire gin, and Grey Goose vodka.
In the United Kingdom the industry concentrated since very early. Grand
Metropolitan, which entered the alcoholic beverages business during the late
1960s with the acquisitions of Truman and Watney Mann (Watney had just
acquired International Distillers and Vintners [IDV]), became the world™s
largest multinational in the industry as a result of its aggressive growth
strategy during the 1980s and early 1990s. Arthur Bell and Distillers were
acquired by Guinness in, respectively, 1983 and 1985 (Distillers™ acquisi-
tion caused a celebrated corporate scandal).13 The merger in 1997 between
Guinness and Grand Metropolitan, which produced Diageo, represented a
major turn in the way competition was played in this global industry: in
terms of the scale and scope of the activity of ¬rms and also in the way in
which brands were managed internationally. The new world leader in alco-
holic beverages became a new force in branded food and drinks, with a truly
global scope of operations. Diageo was also able to obtain substantial cost
savings due to marketing synergies (such as shared consumer understand-
ing and management skills), reduction of head and regional of¬ce overhead

10 Even though this additional stake gave majority of the shares to Anheuser-Busch, the found-
ing family of Modelo and its employees in Mexico retained the voting control of the ¬rm.
This investment by Anheuser-Busch, together with the deregulation of the Mexican market
and the “peso crisis,” led to a rapid increase of exports by Modelo.
11 See, e.g., the lists provided by Impact International, Vol. 13 No. 4 (Feb. 1998): 40, on the
world™s largest spirits ¬rms in volume.
12 Interview with Jos´ Luis Martin, President Bacardi-Martini Spain, and with Xavier Serra,
e
General Manager Bacardi-Martini, Barcelona, 22 July 1999.
13 Guinness™s takeover of Distillers was helped by a substantial rise in its share price during the
period of the acquisition. After the merger, it came out that Guinness™s Chairman, Ernest
Saunders, had been manipulating the share price. After he was accused of offenses under the
Companies Act, Saunders was ¬red. Then in 1990, along with other senior managers, he was
charged and convicted of fraud, false accounting, and theft in a highly public and, for the
company, embarrassing trial. Nick Kochan and Hugh Pym, The Guinness Affair “ Anatomy
of a Scandal (London: Christopher Helm, 1987). Christopher Schmitz, “The World™s Largest
Industrial Companies of 1912,” Business History, Vol. 37, No. 4 (1995): 89; Leslie Hannah,
The Rise of the Corporate Economy (London: Methuen, 1976): 102, 189; Ronald Weir,
“Managing Decline: Brands and Marketing in Two Mergers, ˜The Big Amalgamation™ in
1925 and Guinness-DCL 1986,” in Geoffrey Jones and Nicholas J. Morgan (eds.), Adding
Value: Brands and Marketing in Food and Drink (London: Routledge, 1994): 139“61.
31
Leading Firms “ The Historical Legacy
expenses, and production and purchasing ef¬ciencies. With the merger, the
new multinational Diageo was able to achieve a complementary and broad
product and brand range; obtain greater geographic breadth, enhanced mar-
keting capability, greater cost ef¬ciency, and the ¬nancial capacity to develop
the businesses. The merger was followed by a process of integration, and pri-
oritization, of brands according to their strategic role in the portfolio of the
company, and the disposal of those brands that were not strategic.14 This
merger led to a new wave of mergers and acquisitions in the industry that
has continued to the present day.
Allied Breweries (Allied), also from the United Kingdom, made several
important acquisitions beginning in the 1960s. In 1968, it acquired Shower-
ings, a family ¬rm that owned a famous cider brand, Babycham, and that had
also acquired Harveys, another wines merchant and owner of Harveys Bris-
tol Cream (a sherry), which had considerable retail holdings. In the 1990s,
Allied made other acquisitions that greatly changed the structure of the indus-
try and the way competition was played. In 1994, despite resistance from
the family, it acquired Pedro Domecq, a Spanish family ¬rm and a leading
producer of sherry and brandy, and changed its name to Allied Domecq.
The acquisition strengthened the links that already existed between Pedro
Domecq and Hiram Walker (acquired by Allied in 1986), which had been
joint venture partners since 1966.15 In 2005, Allied Domecq was acquired
by Pernod Ricard from France. This acquisition was supported by Fortune
Brands, which acquired more than twenty spirits and wines brands that
belonged to Allied Domecq. Scottish & Newcastle only started internation-
alizing from 2000, becoming the largest brewer in the United Kingdom.
The continental European alcoholic beverages ¬rms joined the ranks of the
world™s largest multinationals only in the 1980s. Heineken and Carlsberg, the
two most internationalized brewers in the world, had developed very rapidly,
beginning in the 1970s, after merging with their most important domestic
competitors, Amstel and Tuborg, respectively.16 Pernod Ricard was formed
in 1975 as a result of the merger of two long-established French family ¬rms,
Pernod and Ricard. In the twenty-¬rst century, in addition to the above-
mentioned acquisition of Allied Domecq, it also acquired Seagram jointly
with Diageo, enabling this French multinational to enlarge its portfolio of
globally successful brands. R´ my Cointreau was formed in 1991, also as a
e

14 Interview with Jack Keenan, CEO of Diageo, London, 3 June 2003; “Proposed Merger of
Guinness PLC and Grand Metropolitan Public Limited Company,” Circular to Guinness
Shareholders, 3 November 1997.
15 Interview with Jos´ de Isasi-Isasmendy y Adaro, former President of Pedro Domecq and also
e
a family member, Madrid, 18 July 2000. On Pedro Domecq™s acquisition, see also Allied
Lyons, Annual Report and Accounts (1994).
16 M. G. P. A. Jacobs and W. H. G. Mass, Heineken History (Amsterdam: De Bussy Ellerman
Harms bv., 1992): 302“3; Kristof Glamann, Jacobsen of Carlsberg “ Brewer and Philan-
thropist (Copenhagen: Gyldendal, 1991).
32 Global Brands
result of a merger of two French family ¬rms. In the 1990s, Louis Vuitton
Mo¨ t Hennessy (LVMH) joined the list of the world™s largest multinationals
e
in alcoholic beverages, after the merger in 1987 of two family-controlled
French companies, Louis Vuitton and Mo¨ t Hennessy.
e
Interbrew was formed in 1988 as a result of a merger of two Belgian
¬rms, Artois and Piedboeuf-Interbrew (whose constituent companies can
be traced back to 1240). Before merging with the Brazilian Ambev in 2003,
Interbrew had grown very rapidly.17 In the 1990s, its major acquisitions were
John Labbatt from Canada, Bass and Whitbread from the United Kingdom
(which in the 1970s were national leaders in brewing), and also Brauerei
Beck from Germany.18
Of the Japanese ¬rms, Kirin, the leading brewer since 1954, is the only
¬rm that has always ranked in the list of the world™s largest multination-
als.19 Asahi Breweries grew essentially since the mid-1980s, mainly due to
its product innovation strategy, and also to the alliances it established with
¨ ¨
other alcoholic beverages ¬rms (e.g., the German company Lowenbrau),
and with soft drinks ¬rms from Europe (e.g., Pripps from Sweden) to bot-
tle and distribute sports beverages in Japan. Suntory, Japan™s largest wines
and spirits ¬rm and producer of brands such as Midori liqueur, Suntory
Malts beer, and Suntory whiskey grew organically for the most part, out
of sales in the domestic market. Beginning in the 1980s, it also established
important alliances with European and North American alcoholic beverages
multinationals.20
On the African continent, the leading alcoholic beverages multinational
is SABMiller, a Johannesburg-based company quoted on the London Stock
Exchange, which for a long time was almost a monopoly. After the end
of Apartheid it started making acquisitions internationally, in particular in
other African and eastern European countries, and then in the United States
(Miller Brewing) in 2002.21
In Australia, the leading multinational is Foster™s Brewing (which changed
its name from Elders IXL in 1990). Formed in 1981 as a result of the merger
of very old-established ¬rms, Henry Jones (IXL) and Elders IXL, Foster™s


17 Interview with Philippe Spoelberch, Member of the Board of Directors of Interbrew and
family member, Brussels, 5 July 2004.
18 In January 2001 the UK Monopolies Commission ordered the sale of Bass, claiming the
purchase gave Interbrew an unfair advantage in the marketplace. However, a UK High Court
overturned the order in May, leaving competition issues unresolved. Later this dispute was
solved with the sale of the brand Carling by Interbrew to Coors in 2002.
19 Kirin, Annual Report and Accounts (1966, 2000).
20 Interview with Yoshi Kunimoto, Executive Vice President of Suntory-Allied and with Kuni-
masa Himeno, Manager International Division of Suntory, Tokyo, 16 September 1999.
21 “SAB mulls $5bn bid for Miller Brewing,” Financial Times (24 May 2002); “SAB bid buy
Miller raises eyebrows,” Financial Times (25 May 2002); “It™s Miller time for South Africans,”
Evening Standard (30 May 2002).
33
Leading Firms “ The Historical Legacy
Brewing has grown rapidly as a result of mergers and acquisitions of other
large brewers.22 The success of this ¬rm™s most well-known brand, Foster™s,
is linked with the long-lasting alliance made with Scottish & Newcastle in
the mid-1990s, which gave the latter the license to produce and distribute
the brand across Europe.23
An interesting feature of this industry is that during the period of anal-
ysis, German ¬rms were not among the world™s largest multinationals and
held few signi¬cant brands.24 Brauerei Beck (formerly called Haake Beck “
Brauerei), acquired Interbrew in 2001, is one of the few German ¬rms that
own a global beer brand. Its surprising absence from the list of multination-
als is essentially due to the remarkably local character of its domestic market.
Even though Germany is the country with the largest per capita consump-
tion of beer in the world, it is characterized by a very localized system of
distribution. This country exhibits high but very fragmented consumption,
with patterns deeply entrenched in regional loyalties. As a result, the industry
is disaggregated and dominated by family ¬rms. The restrictive legislation
that for a long time protected domestic ¬rms from foreign competition also
led German ¬rms to limit their activities to the national market, as they
could grow and survive just by expanding in line with population growth
and changes in consumer preferences.25 More generally, Germany chose to
internationalize in those industries that were innovation- and technology-
intensive, leaving the branded packaged products to countries like the United
Kingdom.26



Historical Legacy
Prior to the 1960s, habits of alcoholic consumption were heavily resource-
and culture-speci¬c. Wine producing and drinking nations such as France,
Italy, and Portugal developed mainly wine ¬rms, while beer and spirits


22 John Cavanagh, Frederick Clairmonte and Robi Room, The World Alcohol Industry With
Special Reference to Australia, New Zealand and the Paci¬c Islands (Sydney: Transnational
Corporations Research Project “ University of Sydney, 1985): 45; Tim Hewat, The Elders
Explosion “ One Hundred and Fifty Years of Progress from Elder to Elliot (Sydney: Bay
Books, 1988).
23 Interview with Tony Frogatt, CEO of Scottish & Newcastle, Edinburgh, 11 July 2004.
24 In the last quarter of the nineteenth century and early twentieth century, some German brew-
ers had internationalized into the United States, but when compared with British brewers
their foreign direct investment was not substantial. Mira Wilkins, The History of Foreign
Investment in the United States to 1914 (Cambridge, Mass: Harvard University Press, 1989):
324“31.
25 In 1987 the European court declared invalid the Reinheitsgebot Law, which established that
only 100 percent malt beer could be sold.
26 Alfred D. Chandler Jr., The Visible Hand (Cambridge, Mass: Harvard University Press, 1977).
34 Global Brands
producing and drinking countries such as United Kingdom, the United States,
Germany, and Holland developed mainly spirits producers and brewers.27
These are all countries where traditions of alcohol consumption date back
centuries.28 As in Northern Europe, in the United States production and
consumption were essentially of spirits and beer, although its traditions and
habits are inevitably younger. South America had similar characteristics to
Europe, but like the United States was a recent market, traditionally empha-
sizing beer and also some spirits.
Although European wine producers had been exporting wines since
ancient times, the industry remained very fragmented until the 1960s. Com-
petition was played at a domestic level, the growth of ¬rms was mostly
organic, and the few mergers and acquisitions that took place aimed at
increasing the ¬rms™ presence in new markets. Rather they aimed at widening
their portfolios of products to serve existing markets. Nonetheless, in some
cases ¬rms grew quickly as they started branding and selling their beverages
internationally very early. The timing of growth and internationalization
during this early period depended to a great extent on the type of beverages
the expanding ¬rms produced and where they were based. Whisky and gin
¬rms were internationalized since the nineteenth century, whereas brewers
still operated within very limited regional areas by the end of the twenti-
eth century. Yet, a few beer ¬rms, originally from small countries, such as
Heineken from the Netherlands and Carlsberg from Denmark, had a very
rapid process of internationalization from the 1930s.
There seems to be a correlation with the origins of the ¬rst multinationals
in alcoholic beverages and the level of development of their countries of ori-
gin. A global economy was ¬rst created between the late nineteenth century
and 1914,29 and Western Europe and North America were the home regions
of the multinationals of this era. They had the most advanced technologies,
most skilled labor, highest per capita incomes, and most sophisticated distri-
bution structures.30 It is not surprising that until 1960 the United Kingdom,
Ireland, the United States, and Canada had the largest alcoholic beverages


27 As Adam Smith noted, even Scotland is actually capable of producing wine. However, he
suggested it would be unwise to compete in the wine market and foolish to raise barriers to
protect a nascent wine industry. Adam Smith, An Enquiry Into the Nature and Causes of the
Wealth of Nations (New York: Modern Library, 1776/1937).
28 Tim Unwin, The Wine and the Vine (London: Routledge, 1991).
29 John H. Dunning, Multinational Enterprises and the Global Economy (Wokingham, Berk-
shire: Addison Wesley, 1993); Geoffrey Jones, Multinationals and Global Capitalism “ From
the Nineteenth to the Twenty First Century (Oxford: Oxford University Press, 2005).
30 Chandler, The Visible Hand; Richard Tedlow, “The Fourth Phase of Marketing: Marketing
History and the Business World Today,” in Richard Tedlow and Geoffrey Jones (eds.), The
´
Rise and Fall of Mass Marketing (London: Routledge, 1993); A. Maddison, L™Economie
Mondiale 1820“1992 (Paris: OCDE, 1995): 206“9; Glenn Porter and Harold C. Livesay,
Merchants and Manufacturers (Baltimore: Johns Hopkins Press, 1971): 12.
35
Leading Firms “ The Historical Legacy
¬rms worldwide, namely Guinness, Distillers Company, Distillers™ Securities,
and Seagram.31


United Kingdom and Ireland
The United Kingdom had one of the largest markets in Europe and possessed
a wide domestic resource base in the production of beer and spirits. It also
had an extensive import and reexport business in other alcoholic beverages
stemming from a colonial heritage that encouraged many ¬rms to interna-
tionalize very early through exports and foreign direct investment.32
Guinness, a brewery founded in Ireland in 1759, was exporting a branded
product into Britain by the 1820s with great success, leading the ¬rm to open
agencies in that market soon after. It was incorporated in 1886, the same
year it was ¬‚oated on the London Stock Exchange.33 By 1912, Guinness
ranked as the largest alcoholic beverages ¬rm worldwide and among the one
hundred leading industrial companies in the world.34
Distillers Company Limited (Distillers hereafter), a producer of whisky
and gin founded in 1877 in Scotland, merged and acquired several ¬rms in
the same and other businesses to become a world leader in scotch whisky and
gin. In 1925, after its last big amalgamation with Buchannan and Dewar, it
even surpassed Guinness in size.35
Another leading domestic alcoholic beverages ¬rm before 1960 is Bass.
Founded in 1777 in the United Kingdom, it was already selling branded beer
by the early nineteenth century. Bass was, in fact, one of the earliest ¬rms
to register a trademark following the English legislation of 1875. However,
its scope of operations always remained essentially domestic. Unlike the

31 Schmitz, “The World™s Largest Industrial Companies of 1912,” 87; Leslie Hannah, “La
´ ´
Evolucion de las Grandes Empresas en el Siglo XX: Un Analisis Comparativo,” Revista de
Historia Industrial, No. 10 (1996): 118.
´
32 On wine imports see Pierre Spahni, The International Wine Trade (Cambridge: Woodhead,
1995): 104, 189“200. On imports of spirits and beer, see Wendy Hurst, Eg Gregory, and
Thomas Gussman, Alcoholic Beverages Taxation and Control Policies (Ottawa: Brewers
Association of Canada, 1997): 536“42.
33 Andy Bielenberg, “The Irish Brewing Industry and the Rise of Guinness 1790“1914,” in
Richard G. Wilson and Terry Gourvish (eds.), The Dynamics of the International Brewing
since 1800 (London: Routledge, 1998): 114, 118; S. R. Dennison and Oliver MacDonagh,
Guinness 1886“1939: From Incorporation to the Second World War (Dublin: Cork University
Press, 1998): chapter 2.
34 Schmitz, “The World™s Largest Industrial Companies of 1912”: 87; Hannah, “La Evolucion ´
de las Grandes Empresas en el Siglo XX”: 118. In 1912 Guinness had a market capitalization
of $19 million, and ranked as the nineteenth largest ¬rm worldwide (according to Schmitz
estimates) or twentieth (according to Hannah estimates).
35 This account of Distillers is based on Ronald B. Weir, The History of the Distillers Com-
pany 1877“1939 (Oxford: Oxford University Press, 1995), chapter 13; Hannah, The Rise,
Table 8.1. By 1930, Distillers had an estimated market value of capital of £45.5 million while
Guinness™s was of £43 million.
36 Global Brands
other leading British alcoholic beverages ¬rms, Bass was vertically integrated
into distribution, re¬‚ecting UK™s licensing legislation (which made special
provisions for “on-license” sales), and the perishable character of beer. Bass
relied heavily on the distribution of bottled ales via an agency network and
operated several retail outlets (stores owned or rented and run by the brewery
itself). It also used agents “ independent traders operating on a commission
basis “ who often also traded wines and spirits.36
The other British brewers included Whitbread and Scottish & Newcastle
(formed in 1960 as a result of an amalgamation of several brewers from
the North of England and Scotland), which were not multinational and
their growth has been essentially through mergers and acquisitions of other
domestic brewers. Whitbread divested from alcoholic beverages, selling the
brewing business to Interbrew. Scottish & Newcastle remained independent
until the twenty-¬rst century. Its leadership position in the beginning of the
twenty-¬rst century was, to a great extent, related to mergers and acquisitions
of leading domestic brewers in Continental Europe.


United States and Canada
The North American companies, with an even larger market than those
from the United Kingdom, grew very rapidly in the period prior to 1960
in absolute terms. This growth was, however, constrained by the nation™s
unfortunate experience with national Prohibition. Although the industry had
developed relatively large ¬rms prior to this period, antialcohol movements
with deep roots in nineteenth-century America, and power following the
creation of The Woman™s Christian Temperance Union in 1874, had a signif-
icant impact in restraining its development. This resulted in the Eighteenth
Amendment, which passed into law in 1920, and was not repealed until
1933.37
The leading U.S. ¬rm before World War I was Distillers™ Securities.38 Dis-
tillers™ Securities Corporation was formed in 1902 as an outgrowth of the
Whiskey Trust of the 1880s and 1890s.39 In 1920, under Prohibition, the

36 Hannah, The Rise: 102“3, 189, 190; Colin C. Ownen, The Greatest Brewery in the World: A
History of Bass, Ratcliff & Gretton (Chester¬eld: Derbyshire Record Society, 1992): 5, 164;
Terry Gourvish and Richard G. Wilson, The British Brewing Industry, 1830“1980 (Cam-
bridge: Cambridge University Press, 1994): 438“39. Bass was the ¬rst trademark registered
after the after the First Trademark Act in 1875. “Trademark Registration,” BT82“1, entry
number 1 and 2, 1 January, Public Record Of¬ce.
37 See, e.g., K. Austin Kerr, Organized for Prohibition: A New History of the Anti-Saloon League
(New Haven: Yale University Press, 1985); Laurence Spinelli, Dry Diplomacy: The United
States, Great Britain and Prohibition (Wilmington, Del: S.R. Books, 1989).
38 Schmitz, “The World™s Largest Industrial Companies of 1912,” 89.
39 Werner Troesken, “Exclusive Dealing and the Whiskey Trust, 1890“1895,” Journal of Eco-
nomic History, Vol. 58, No. 3 (1998): 755“78.
37
Leading Firms “ The Historical Legacy
company changed its name as well as its activity, producing yeast, vinegar,
and cereal products. In 1924, it was reorganized and renamed National Dis-
tillers Corporation.40
Other U.S. alcoholic beverages ¬rms that survived to the repeal of Prohibi-
tion in 1933 included Brown Forman, Heublein, Anheuser-Busch, Coors, and
Miller. While most had diversi¬ed into other businesses, a few such as Brown
Forman managed to continue producing alcoholic beverages. Brown For-
man, a family ¬rm founded in 1870 to produce bourbon, had been licensed
by the Federal Government to sell medicinal whiskey to druggists for use
only by prescription from physicians.41
After repeal, most ¬rms quickly returned to the production of alcoholic
beverages, selling essentially in the domestic market. As they lacked scale and
scope in their activities, most formed multiple alliances with competitors to
market their products domestically, using a variety of mechanisms such as the
exchange of stocks, distribution agreements, or production and distribution
joint ventures. The ¬rms they formed alliances with were then still distant
competitors, as they were primarily from Europe and Canada.42
Schenley developed very rapidly on the basis of acquisitions of U.S.
whiskey ¬rms and the stocks of ¬rms that had closed down due to Pro-
hibition. Subsequently, it developed by using alliances formed with foreign
¬rms to import and distribute their wines and spirits in the domestic market,
for example, the successful alliance formed in 1936 with Distillers Company
to distribute Dewar™s White Label scotch whisky. Despite also engaging in
various other nonalcoholic beverages activities (such as the production and
sale of cooperage and farm feeds since the 1940s), the ¬rm was primarily
in the alcohol market. By the 1960s, around half of Schenley™s alcoholic
beverages business related to the distribution of imported brands.43
By restraining growth of domestic alcoholic beverage ¬rms, Prohibition
had created new opportunities for foreign ¬rms to enter the U.S. market
not only through alliances but also through direct investment. Canadian
¬rms took greatest advantage as they were culturally and geographically

40 William L. Downar, Dictionary of the History of the American Brewing and Distilling Indus-
tries (London: Greenwood, 1980): 128“9.
41 William F. Lucas, Nothing Better in the Market: Brown Forman Century of Quality 1870“
1970 (New York: Newcomen Society, 1970).
42 One example is the alliance between Gilbey™s and National Distillers to produce and sell
gin in the American market “ W & A. Gilbey Ltd of Delaware “ in 1933. Another example
is the alliance between De Kuyper & Zoon (a geneva from the Netherlands) and National
Distillers, where the latter was licensed to produce geneva in the United States. Richard
McGowan, Government Regulation of the Alcohol Industry (Westport, Conn: Quorum
Books, 1997): 3“4; Gilbey 1945 GE-GK 31 (London-Guildhall Library); for details, see Alec
Waugh, Merchants of Wine (London: Cassell, 1957): 91“4; K. E. Sluyterman and H. H.
Vleesenbeek, Three Centuries of De Kuyper 1695“1995 (Shiedam: Prepress Canter Assen
1995): 48“9.
43 Schenley, Annual Report and Accounts (1963, 1965, 1969).
38 Global Brands
closer and had never stopped producing alcohol during Prohibition. The
largest Canadian ¬rms investing in the United States in this period were
Hiram Walker-Gooderham & Worts, Canadian Industrial Alcohol Co. Ltd.,
and Distillers Corporation-Seagram Ltd (DC-SL), but it was the latter that
grew most rapidly from the new opportunities offered by the U.S. market.44
DC-SL entered the American market on its own by merging and acquiring
local distilleries, and by forming Joseph E. Seagram & Sons Inc. as the U.S.
subsidiary of this Canadian ¬rm. DC-SL developed initially out of sales in the
United States, which soon became more important than the home country. It
made several important acquisitions during the late 1940s and early 1950s
in the United Kingdom (of Chivas Brothers and Strathisla-Glenlivet Malt
Distillers), France (of G. H. Mumm), and in Latin America and the Caribbean
(of, e.g., Captain Morgan and Myer™s rum). These acquisitions gave Seagram
a wider portfolio of products to be sold in the U.S. and Canadian markets.45
The company then sold its brands through a vast, longstanding network of
distributors around the country.46
Bacardi was another ¬rm that grew out of its sales in the U.S. market
after repeal of Prohibition. It was established in Cuba in 1862, with pro-
duction operations in Spain since 1910, and in Mexico since 1931. Because
Bacardi had become well known during Prohibition through smuggling and
from Americans visiting Cuba, it was among the most sought after brands
following repeal.47
Other ¬rms that were leading players in the United States, despite not
ranking at this stage in the rankings of the world™s largest industrials, were
Anheuser-Busch, Brown Forman and Heublein. Anheuser-Busch became the
world™s leading brewer in 1957. Like most U.S. alcoholic beverages ¬rms dur-
ing Prohibition, the company survived by producing a near-beer called Bevo,
malt syrup, cane sugar, yeast, ice cream, commercial refrigeration units and
truck bodies, and non-alcoholic beverages. It became nationally dominant
in the 1950s, when most brewers were locally and regionally oriented. In this
period it already combined national advertising, and regional distribution
strategies. Although vertically integrated, it also used wholesale agencies and

44 About foreign investment by these alcoholic beverages ¬rms during this period, see Mira
Wilkins, The History of Foreign Investment in the United States 1914“1945 (Cambridge,
Mass.: Harvard University Press, 2004).
45 The Distillers Corporation “ Seagram Ltd., Annual Report and Accounts (1971); “Corporate
Documentation by Company,” Records of the Seagram Collection, Accession 2126, Box 20,
Hagley Museum and Library.
46 Seagram Collection, Record Group 2; Series VI: Sales and Distribution, Hagley Museum and
Library; DC-SL, Annual Reports and Accounts (various years); Graham D. Taylor and Peter
A. Baskerville, A Concise History of Business in Canada (Toronto: Oxford University Press,
1994); Michael R. Marrus, Samuel Bronfman: The Life and Times of Seagram™s Mr. Sam
(London: Brandley University Press, 1991).
47 Peter Foster, Family Spirits: The Bacardi Saga (Toronto: MacFarlane Walter & Ross, 1990):
23, 43, 54“5.
39
Leading Firms “ The Historical Legacy
salaried men, depending upon the size of the business in a particular sales ter-
ritory, and also on the availability of competent men and the ease of access.48
It was also the ¬rst national producer to offer a diversi¬ed line of brands,
and the ¬rst major brewer to invest in marketing research. During the 1950s,
Anheuser-Busch also built breweries near the major urban centers, as a way
to reduce transportation costs. The ¬rm never competed based on prices and
discounts, and instead, chose to charge higher prices and emphasize in its
marketing campaigns the quality of the beverage.49
In the United States, as in the United Kingdom, some ¬rms that emerged
in the late nineteenth century specialized in the distribution of alcoholic
beverages. Heublein was established in 1875 as a food importer and dis-
tributor. It started to integrate vertically into production before the end of
the nineteenth century. During Prohibition, it diversi¬ed into the production
of sauce. With repeal, Heublein re-entered the alcoholic beverages business
and in 1939, acquired the sole rights to produce and distribute in the United
States, Smirnoff, a Russian vodka brand which had established its reputation
in the late nineteenth century among the Russian aristocracy.50 Meanwhile,
companies that were predominantly wine producers such as Gallo, Constel-
lation Brands (previously called Canandaigua) were still growing organically
and selling only within the domestic market before the 1960s.


Continental Europe
Heineken, although not on Fortune™s list of the world™s leading ¬rms, had
already internationalized its brand with great success before the 1960s. The
¬rm™s early internationalization resulted to a great extent from the quasi-
monopolistic position it established in the Netherlands and also from the
characteristics of the beer, which was light and could therefore travel better.
The initial international success of the brand can also be attributed to its
performance in the United States and the way it was marketed. Heineken
had initiated its exports to the United States before World War I, but it was
after repeal that sales started growing rapidly. At ¬rst, Heineken appointed
Van Munching as its of¬cial agent in the United States, but in 1935, Austin
Nichols & Co, a large New York wholesaler of fruit and vegetables that acted
as an agent for a variety of other ¬rms (including those in alcoholic bever-
ages), became the of¬cial distributor of Heineken (employing Van Munching

48 Downar, Dictionary: 9“10; Ronald Jan Plavchan, A History of Anheuser-Busch, 1853“1933
(New York: ARNO Press, 1976): 84“5, 87.
49 David John Collis, “The Value Added Structure and Competition Within Industries” (Harvard
University Ph.D., 1986): 160, 527“8; Martin Stack, “Local and Regional Breweries in
America™s Brewing Industry, 1865 to 1920,” Business History Review, Vol. 74, No. 3
(2000): 535“63.
50 Agreements between G. F. Heublein & Bro and Ste. Pierre Smirnoff (13 January 1939; 6 March
1939; 31 March 1939), Heublein Archive, Diageo.
40 Global Brands
to run Heineken affairs). This arrangement was not, however, successful. The
distributor™s representatives did not pay much attention to the Heineken
brand, as they represented a multitude of other brands. The recognition that
all the growth in sales in that market was due to Van Munching™s commit-
ment, led the management of Heineken in 1945 to appoint the newly formed
¬rm Van Munching & Co. to become the sole importer of Heineken.51
Since then, the U.S. market proved to be very important for the growth
of Heineken.
Heineken was also internationalized into other parts of the world. After
1945, it had substantial production and distribution facilities in British West
Africa (Ghana, Nigeria and Sierra Leone) through joint ventures with United
Africa Company, a subsidiary of Unilever, and with the French trading com-
pany, “Companie Francaise de l™Afrique Occidentalle.”52
¸
Government intervention also played an important part in the develop-
ment of ¬rms from Continental Europe prior to 1960.53 An example is Mo¨ t e
& Chandon from France, which ultimately became part of the multina-
tional LVMH. Founded in 1743, it is one of the oldest champagne houses.
Because champagnes were exempt from British customs regulations forbid-
ding imports in bottles, Mo¨ t & Chandon and other French wines houses,
e
including Cliquot, were able to bottle wine domestically and, unlike wine
exporters from other countries, they distributed under their own brand
names in Britain, their major overseas market. This gave them a signi¬-
cant advantage over other wine exporters, whose wine was generally bottled
and sold under the name of British retailers, and enabled them to develop
an early expertise in the management of brands.54


Remainder of the World
In Japan, alcoholic beverages ¬rms only developed major proportions in
the period following World War II, as a result of the rapid economic and
social transformations that took place. Most of today™s industry leaders from
Japan were established in the late nineteenth century and early twentieth
century. For instance, Suntory, the largest Japanese ¬rm in wines and spirits,
was founded in 1899 to produce sweet red wine, and it diversi¬ed into
other businesses including Japanese whiskey beginning in 1923. Until World
War Two, however, the activity of the leading Japanese ¬rms was essentially

51 This account of Heineken is based on Jacobs and Mass, Heineken History: 256“60.
52 D. K. Fieldhouse, Merchant Capital and Economic Decolonization (Oxford: Clarendon
Press, 1994): 306“7; Geoffrey Jones, Transforming Unilever: Transformation and Tradition
(Oxford: Oxford University Press, 2005).
53 Interbrew and Pernod Ricard did not yet exist in 1960, and, even though the scope of activities
of their predecessors™ was large, it was still essentially domestic.
54 Paul Duguid, “Developing the Brand: The Case of Alcohol, 1800“1880,” Enterprise and
Society, Vol. 4, No. 3 (2003): 405“41.
41
Leading Firms “ The Historical Legacy
regional and their growth was organic. Apart from investing in alcoholic
beverages, they diversi¬ed into other business activities including soft drinks.
By 1960, the most important ¬rms were Asahi Breweries, Kirin, and Sapporo
in beer, and in wines and spirits, Suntory. In 1954, Kirin already ranked
among the largest breweries in the world.55
In Australia, there had been some concentration in brewing in the early
part of the twentieth century. This was a result of the temperance movements,
which had started in the late nineteenth century, and of the contraction of
the market caused by the depression of the 1930s. Large brewers, such as
Carlton & United Breweries (Carlton), were formed in 1907 as the result
of a merger of six major metropolitan breweries. Even though Carlton was
among the top 100 Australian ¬rms throughout the twentieth century, and
developed an export market in the East, most of its activity was concentrated
domestically.56 In New Zealand, similar developments took place, leading
to the creation of two leading ¬rms “ New Zealand Breweries (renamed as
Lion Brewery in 1979) and Dominion Breweries, both created in the 1920s.
They also remained essentially domestic ¬rms until the 1960s, with some
geographical diversi¬cation within Australia.57


Conclusion
The companies analyzed in this book have, at one time or another, ranked
among the world™s leading multinationals in alcoholic beverages. Prior to
1960s, the world industry was still fragmented, consumption was culture-
speci¬c and competition was played at a domestic level. Country-speci¬c
determinants, such as the level of economic development, the resource base
and regulations (including Prohibition and licensing laws), clearly had an
impact on the early development of these ¬rms. The U.S. was the most
developed economy in the world and produced the largest ¬rms in alcoholic
beverages. However, during this period it saw the growth of its ¬rms con-
strained by Prohibition. This forced companies to create multiple alliances
with foreign competitors after repeal as a way to expand and meet rapidly

55 Kirin, Annual Report and Accounts (1954, 1961“1969).
56 It is only from 1983, when it was acquired by Elders IXL (the predecessor of Foster™s Brew-
ing) that Carlton became a multinational ¬rm. David T. Merrett, “Stability and Change in
the Australian Brewing Industry, 1920“94,” in R. G. Wilson and T. T. Gourvish (eds.), The
Dynamics of the International Brewing Industry since 1800 (London: Routledge, 1998);
Simon Ville and David D. T. Merrett, “The Development of Large Scale Enterprise in Aus-
tralia, 1910“64,” in David Merrett (ed.), Business Institutions and Behaviour in Australia
(London: Frank Cass, 2000).
57 In the late twentieth century that these ¬rms diversify into wines, taking advantage of the
competitive advantages that these countries had developed in this business. S. R. H. Jones,
“The New Zealand Brewing Industry, 1840“1995,” in Wilson and Gourvish (eds.), The
Dynamic.
42 Global Brands
growing demand, thus overcoming limitations of scale and scope. The end
of Prohibition also created opportunities for foreign ¬rms, particularly from
Canada, to enter the United States. Several distributors that survived Prohi-
bition also integrated vertically into production.
As a result of regulation and other constraints (such as religious beliefs),
concentration came more slowly to this industry than it did to many other
consumer goods industries. Moreover, very few ¬rms were internationalized
before the 1960s. There were, nonetheless, some exceptions. National leaders
from Continental Europe such as Heineken, Carlsberg and Mo¨ t & Chandon
e
were among the ¬rst to internationalize their businesses.
As we have seen, however, several of the world™s leading ¬rms in alcoholic
beverages or their predecessors at the beginning of the twenty ¬rst century,
already ranked amongst the world™s largest industrials by the 1960s. While
in this decade the world™s largest ¬rms remained North American, by the
beginning of the twenty-¬rst century, British and continental European ¬rms
that had become multinational, often surpassed U.S. ¬rms in their size and
the geographic scope of their activities. Most of these ¬rms had developed
through multiple mergers, acquisitions and cross-border network arrange-
ments. The impact of all this history on the post-1960 era and how these
and not other ¬rms became leading multinationals, will be discussed in the
forthcoming chapters.
3

Growth and Survival




Introduction
What, then, are the general patterns that explain the independent survival
and growth of multinational ¬rms in the global alcoholic beverages industry
since 1960? The term growth is used to mean “increase in size as a result of
a process of development” either organically or through merger and acquisi-
tion, and “size is a by-product of the process of growth.”1 Survival is used to
mean the maintenance of the ¬rm™s autonomy of action.2 In this respect, non-
survivals or “exits” include ¬rms that have either been liquidated, dissolved,
discontinued, or absorbed, as well as ¬rms that were merged or acquired
by other ¬rms, even if they were able to retain their corporate identity and
continuity of existence for a signi¬cant period of time.
Two questions are being asked: What principles will determine ¬rm
growth? How fast and for how long can they grow? The next section exam-
ines the main determinants in the growth and survival of ¬rms, giving some
examples to illustrate their changing relevance over time. The following sec-
tion provides a general framework to explain the different patterns of growth
and survival, illustrating each of these patterns with some examples. The ¬nal
section provides a summary of the preliminary ¬ndings that are analyzed in
more detail in the following chapters.


1 Edith Penrose, The Theory of the Growth of the Firm (Oxford: Oxford University Press,
1959/1995): 1“2.
2 Alfred D. Chandler Jr., The Visible Hand (Cambridge, Mass: Harvard University Press, 1977):
371, talks about the survival of managerial hierarchies. See also Leslie Hannah, “Scale and
Scope: Towards a European Visible Hand?” Business History, Vol. 33, No. 2 (1991): 298“99,
for a critical analysis of the de¬nition of survival used by Chandler. Neil M. Kay, Pattern
in Corporate Evolution (Oxford: Oxford University Press, 1997): 78“81, offers a broader
de¬nition of survival, also including ¬rms that were merged or acquired and were able to
keep their corporate identity. M. T. Hannan and J. Freeman, “The Population Ecology of
Organisations,” American Journal of Sociology, 82 (1977): 929“64; idem, Organizational
Ecology (Cambridge, Mass: Harvard University Press, 1989): 150“52.




43
44 Global Brands
Determinants
Although there is no “secret recipe” that explains survival and sustained
growth, it is possible to monitor the evolution of ¬rms by making system-
atic comparisons between the largest multinationals from different countries
and assessing the type of relationship, such as cooperation and competi-
tion, they established among themselves.3 The distinctive nature of studying
the evolution of multinationals is that beyond the multiproduct and multi-
plant ¬rm dimensions, they also need to possess other ownership advantages
over competing indigenous ¬rms when dealing with different economies and
cultures.4
Figure 3.1 provides a general framework to analyze the determinants of
growth and independent survival of ¬rms in this industry.5 They are divided
into three groups: country-speci¬c, industry-speci¬c and ¬rm-speci¬c deter-
minants. The focus is on the ¬rm.6
The country- and industry-speci¬c determinants, which are predominantly
exogenous and affect the whole industry equally, include the national sys-
tems of corporate governance in which ¬rms are based, and the institutional
environment in which they operate (such as the countries™ regimes of taxation
and regulation). The industry-speci¬c determinants refer to the predictabil-
ity of demand/consumption and the level of competition. Industry structure,
associated with its level of concentration, is also an industry-speci¬c deter-
minant in the sense that although it ¬rst emerged as a result of the activity
of some ¬rms, it then encouraged and restricted the choices of all the ¬rms
operating in the industry.7

3 Peter E. Hart and Robert D. Pearce, “Growth Patterns of the World™s Largest Firms 1962“
1982,” The University of Reading: Discussion Papers in International Investment and Business
Studies, No. 83 (1984).
4 John H. Dunning, “Trade, Location of Economic Activity and the MNE: A Search for an
Eclectic Approach,” in B. Ohlin, P. O. Hesselborn, and P. M. Wijkam (eds.), The Inter-
national Allocation of Economic Activity (London: Macmillan, 1977); idem, International
Production and the Multinational Enterprise (London: Allen & Unwin, 1958); Richard E.
Caves, Multinational Enterprise and Economic Analysis (Cambridge: Cambridge University
Press, 1982).
5 It draws on several theoretical strands and in particular on John Dunning™s Eclectic Paradigm.
His concepts of “location advantages” and “ownership advantages” provided a fundamental
theoretical background in the construction of this framework. Concepts from other scholars
were also considered, such as Chandler™s claim that structure follows strategy, the importance
of the entrepreneur, economies of scale and scope, and ¬rst-mover advantages.
6 Ronald H. Coase, “The Nature of the Firm,” Economica, NS 4 (1937): 386“87.
7 This process re¬‚ects Giddens™s notion of “structuration.” Giddens argues that in their actions
people create social structures that then determine and restrict the choices of those who created
them. This process is similar to the one described here. Anthony Giddens, The Constitution
of Society: Outline of the Theory of Structuration (Cambridge: Cambridge University Press,
1984).
45
Growth and Survival


Country-specific determinants
• systems of corporate governance
• institutional environment



Industry-specific determinants
• consumption
• competition
• industry structure




Firm-specific determinants
• ownership structures
• entrepreneurial capabilities
• organisational structures
• first mover advantages
• economies of scale and scope
• brands/ marketing knowledge
• technology
• distribution networks




Fig. 3.1. The determinants of growth and survival of ¬rms in alcoholic beverages.



The ¬rm-speci¬c determinants encompass those factors that are endoge-
nous to the ¬rms and differentiate them from one another, promoting and
limiting their success.8 They include ¬rm-speci¬c characteristics or strategic
choices, such as brands and marketing knowledge, distribution networks,
ownership structures, entrepreneurial capabilities, organizational structures,
¬rst-mover advantages, economies of scale and scope, and technology. These

8 Stephen Hymer, “On Multinational Corporations and Foreign Direct Investment,” selected
by John Dunning from “The International Operations of National Firms: A Study of Foreign
Direct Investment” (PhD Dissertation, MIT, 1960, in Christos N. Pitelis and Roger Sugden
(eds.), The Nature of the Transnational Firm (London: Routledge, 1991): 23“43; Richard R.
Nelson, “Why do Firms Differ and How Does it Matter,” Strategic Management Journal,
Vol. 14 (1991): 61“74.
46 Global Brands
1,000,000


750,000


Insider
500,000
systems

250,000
Outsider
systems
0
1961“65 1965“70 1971“75 1976“80 1981“85 1986“90 1991“95 1996“2000 2001“05

North America UK Japan Continental Europe Other countries
Fig. 3.2. Cumulative sales of ¬rms from different systems of corporate governance.
Values stated in millions of constant US dollars (2000 = 100).
Sources: The author, based on companies™ annual reports. (All subsequent ¬gures
and tables without a source are the author™s).

are fundamental to explaining the growth and independent survival of ¬rms.9
The remainder of this section lays out brie¬‚y these three speci¬c determinants
of growth and survival, the most relevant of which will be analyzed in more
detail in the next chapters.

Country-Speci¬c Determinants

Systems of Corporate Governance
There is evidence that in recent years, systems of corporate governance have
been converging, yet there are large differences between countries that may
in¬‚uence companies™ goals and behavior as well as their performance over
time.10 Studies tend to distinguish the systems by which ¬rms are governed
into two types: the “outsider” system and the “insider” system.
Figure 3.2 takes into consideration the concepts of “outsider” and
“insider” systems of corporate governance and aggregates the sales volume
of the world™s largest multinationals in alcoholic beverages by decade.11 Until

9 Alfred D. Chandler Jr., “Managerial Enterprise and Competitive Capabilities,” Business His-
tory, Vol. 34, No. 1 (1992): 39; William Lazonick and William Mass (eds.), Organizational
Capability and Competitive Advantage (Aldershot: Elgar, 1995): xi.
10 Mary O™Sullivan, Contests for Corporate Control (Oxford: Oxford University Press, 2000);
Steen Thomsen and Torben Pedersen, “Industry and Ownership Structure,” International
Review of Law and Economics, Vol. 18 (1999): 385“402; Steve Toms and John Wilson,
“Scale, Scope and Accountability: Towards a New Paradigm of British Business History,”
Business History, Vol. 45, No. 4 (2003), 1“23.
11 See Chapter 1 for concepts of “outsider” and “insider” business systems of corporate
governance.
47
Growth and Survival
16
14
12
10
8
6
4
2
0
1961“1965 1966“1970 1971“1975 1976“1980 1981“1985 1986“1990 1991“1995 1996“2000 2001“2005

Outsider systems Insider systems
Fig. 3.3. Main mergers and acquisitions by the world™s largest multinationals in
alcoholic beverages.


the 1980s, the ¬rms originally from countries where “outsider” systems of
corporate governance predominated, such as the United States, United King-
dom, and Canada, always accounted for a higher volume of sales in the
industry.
Since the 1980s the relative importance of ¬rms originally from “insider”
systems of corporate governance increased, in particular those from Con-
tinental Europe “ France, Denmark, and the Netherlands. Firms started to
grow faster following the mergers and acquisitions that took place between
domestic leaders from different countries. During this period, ¬rms from
“outsider” systems of corporate governance were more likely to merge and
acquire or be merged or acquired. This outcome re¬‚ected the increasing
attention ¬rms from these countries gave to short-term performance, as well
as the pressure that ¬nancial institutions (as intermediaries to shareholders)
were putting on ¬rms to keep high share prices.
Figure 3.3 shows the number of ¬rms merged or acquired by the world™s
largest multinationals in alcoholic beverages. It includes the list of ¬rms
from Table 2.1 (in Chapter 2), and shows the number of ¬rms in that list
that were merged or acquired by other large ¬rms from the same list in each
decade, distinguishing the systems of corporate governance on which they
were based.
By the beginning of the twenty-¬rst century, following pressures toward
harmonization and integration within the European Union, mergers and, in
particular, acquisitions were as common between ¬rms based on “insider”
systems as between ¬rms from “outsider” systems of corporate gover-
nance.12 As a result, the systems of corporate governance that were standard

12 Richard Whittington and Michael Mayer, The European Corporation: Strategy, Structure
and Social Science (Oxford: Oxford University Press, 2000): 90.
48 Global Brands
in the nations in which ¬rms were based began to converge. For instance,
¬rms within outsider systems of corporate governance often have owner-
ship structures more typical of ¬rms from insider systems. The mismatches
that emerged from this convergence will be analyzed in more depth in
Chapter 4.


Institutional Environment
The institutional environment, an industry-speci¬c determinant, both facili-
tated and inhibited the growth and survival of ¬rms. Among the facilitators
were developments in technologies, in infrastructures, in global communi-
cations, and in logistics. These reduced the costs of distribution of prod-
ucts and improved their availability to consumers, allowing ¬rms to obtain
economies of scale and scope (these also facilitated the globalization of mar-
keting and managerial decision making). These changes began in the 1960s,
but increased very rapidly from the mid-1980s, in particular with the emer-
gence of cheap international telecommunications, ¬rst the telephone and
fax, and then the Internet and intra-¬rm networks. Among other things,
they allowed ¬rms to centralize decision making.13
The most important inhibitors were laws and governmental campaigns
in most Western countries, such as those on drinking and driving. These
aimed at restricting alcohol consumption in order to minimize its harmful
effects, and shifting consumption away from higher to lower alcohol content
beverages.14
The barriers to entry imposed by certain governments to protect their
domestic industries were also important inhibitors.15 In the United King-
dom, for example, licensing laws, which existed since the nineteenth century,
restricted the sale of alcoholic beverages to speci¬c outlets, predetermined
the hours at which outlets could open, and ¬xed prices. The Licensing Act of
1961 ended resale price maintenance and enabled off-license shops to open
during normal shop hours. These changes signi¬cantly affected the growth
of ¬rms in this industry. The monopoly created in the Scandinavian countries
and in Canada from the 1930s, where trade became completely controlled by

13 John Seely Brown and Paul Duguid, The Social Life of Information (Boston, Mass: Harvard
Business School Press, 2000); Harold Innis, The Bias of Communication (Toronto: Univer-
sity of Toronto Press, 1991); Andrew Odlyzko, “The Internet and Other Networks: Utiliza-
tions Rates and Their Implications,” Information Economics Policy, Vol. 12, No. 4 (2000):
341“65.
14 However, there are cases of beverages of high alcoholic content whose consumption increased
over time. For example, the sales of the famous Swedish vodka brand Absolut rose in the
United States by an annual rate of 8.4 percent between 1990 and 1999, because of a very
strong marketing strategy by its U.S. distributor.
15 John Cavanagh and Frederick Clairmonte, Alcoholic Beverages: Dimensions of Corporate
Power (London: Croom & Helm, 1985): 152.
49
Growth and Survival
government institutions, is another example.16 In Norway and Sweden, alco-
hol retailing is a near government monopoly, with sales taking place through
the Systembolaget or state liquor chain in Sweden, or the Vinmonopolet in
Norway. In Denmark, there are no such limitations anymore, and retailers
can sell what they like.
By the beginning of the twenty-¬rst century, restrictions imposed by differ-
ent countries (such as taxes and controls on prices) had become less distinct.
For example, the increased membership within the European Union in 1995
was an important countertrend. There was a movement of harmonization
of prices and taxes on alcoholic beverages between member states, a change
that indirectly encouraged alcohol consumption in many countries.17 This
had the effect of dramatically reducing the prices of wines, bringing coun-
tries in Northern Europe into line with the lower-priced south. For example,
in Portugal the abolition of trade barriers led to an increase of whisky con-
sumption of 400 percent from 1980 to 1991, corresponding to an increase
from 7 to 33.5 percent of the Portuguese spirits market.18 However, this
harmonization of taxes was not uniformly introduced in all countries in the
European Union. In Finland, in the beginning of the twenty-¬rst century, the
government still intervened to restrict alcohol trade and consumption.19


Industry-Speci¬c Determinants

Consumption
World consumption of alcoholic beverages increased during the 1960s and
1970s, and showed a tendency to level off and even decrease in some regions
from the 1980s. Figure 3.4 illustrates the evolution of alcohol consumption
by region of the world from the 1960s.
Overall, alcohol consumption grew at an average rate of 1.5 percent per
year from 1961. During the 1960s and 1970s, there was an increase in

16 About the impact of Prohibition in the alcoholic beverages industry see, e.g., A. M. McGa-
han, “The Emergence of the National Brewing Oligopoly: Competition in the American
Market, 1933“1958,” Business History Review, Vol. 65 (1991): 229“84. On the UK Licens-
ing Acts, see Terry Gourvish and Richard Wilson, The British Brewing Industry, 1830“1980
(Cambridge: Cambridge University Press, 1994): chapter 1; and Asa Briggs, Wine for Sale
(London: Bastford, 1985): 160. On the Temperance Acts and monopoly regimes in Scandi-
navia, see Jette Schramm-Nielsen, Peter Laurence, and Karl Henrik Sivesind, Management
in Scandinavia “ Culture, Context and Change (Cheltenham: Elgar, 2004).

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