COE-RES Discussion Paper Series Center of Excellence Project the Normative Evaluation and Social Choice of Contemporary Economic Systems

COE-RES Discussion Paper Series Center of Excellence Project The Normative Evaluation and Social Choice of Contemporary Economic Systems

Graduate School of Economics and Institute of Economic Research Hitotsubashi University

COE/RES Discussion Paper Series, No.238 February 2008

The Impact and Nature of Cross-Border Mergers and Acquisitions in the Rise of a Small Open European Economy: The Case of Denmark, 1970-2005

Martin Jes Iversen （Copenhagen Business School）

Naka 2-1, Kunitachi, Tokyo 186-8603, Japan Phone: +81-42-580-9076 Fax: +81-42-580-9102 URL: http://www.econ.hit-u.ac.jp/~coe-res/index.htm E-mail: [email protected]

The Impact and Nature of Cross-Border Mergers and Acquisitions in the Rise of a Small Open European Economy: The Case of Denmark, 1970-2005 (work in progress – please do not quote from this version)

International Conference on Business History 2008

Tokyo 26 - 27 January 2008

Dr. Martin Jes Iversen, Associate Professor Centre for Business History Copenhagen Business School Denmark

1 1. Introduction April 13, 1988 the European Commission published a remarkable report entitled “Europe 1992 – The Overall Challenge”.1 The report, known as the Ceccini-Report, was a survey of the economic costs of disintegrated markets and it provided “the hard evidence … that the completion of the internal market will give a permanent boost to the prosperity of the people of Europe.” 2 Retrospectively the completion of the Common Market in 1993 indeed led to increased cross-border activities in terms of trans-European trade, mergers and acquisition and consequently strengthened competition and enhanced economies of scale within several sectors such as telecommunication, beverages and banking.3 Still consequences of the integrated markets differed and the mentioned “permanent boost to prosperity” was unevenly distributed between companies, industrial sectors and even between European nations. Remarkably the GDP per capita of small European economies such as Austria, Denmark, Finland, Ireland, Netherlands, Norway, Sweden and Switzerland outperformed the development of larger economies such as France, Germany and Italy congruently with the economic integration process.4

Table 1. Annual average Rates of Growth of Real GDP 1913-50 1950-73 1973-98 1913-98 Small countries 1.47 3.57 2.08 2.10 Large countries 0.81 4.12 1.70 1.98 Small countries=Austria, Belgium, Denmark, Finland, The Netherlands, Norway, Sweden, Switzerland Large countries=Germany, France, UK, Italy, Spain, USA Source: Mokyr, p. 9 (2006)

According to the American economic historian Joel Mokyr these “Small Open European Economies” (SOEEs) had at least three patterns in common.5 Firstly they were marked by an efficient institutional setting. That is specifically well-functioning public institutions, long tradition for democratic regimes, low levels of corruption and a welfare oriented policy including high levels of education. Secondly they were traditionally open economies – politically democratic and economically always with emphasise on the liberal market principles often with ratio of foreign trade to GDP well above large nations. The final important characteristic of the SOEEs was the capability to define – and explore – niches in advanced technology. Through extensive cooperation between the public and private sectors the small economies established specialised technological leaderships which proved essential to the

1 The European Commission, Europe 1992 – the Overall Challenge, (Brussels, 1988). 2 Ibid., p. 1. 3 Adriaan Dierx, Fabienne Ilzkovitz and Khalid Sekkat, eds., European Integration and the Functioning of Product Markets, (Cheltenham, U.K., 2004) 4 http://www.conference-board.org/economics/downloads/TED07II.xls 5 Joel Mokyr, “Successful Small Open economies and the Importance of Good Institutions” in Jari Ojala, Jari Eloranta and Jukka Jalava (ed.), The Road to Prosperity, Helsinki, 2006. 2 exploitation of economic integration – the Swiss and Dutch examples of respectively high quality food and consumer electronics are well known. The point of departure of the paper is that the Danish economy can be regarded an almost archetypical SOEE and that the possible importance of economic openness and corporate specialization indicates that cross-border mergers and acquisitions (M&As) played a role for the rise of the Danish economy during the post-war decades of economic integration. The paper is thus focused on the changing importance and patterns of cross-border M&As for the Danish corporations, 1970-2007: which impact did the agents of these transactions have for the development of the Danish economy and how and why did the patterns of cross-border M&As change over time? The hypothesis is that the formula for the post-war economic success of SOEEs consisted of efficient institutions combined with “the corporate factor” defined as a long tradition of private economic openness and a corporate capability to define global niches. In the Introduction to Scale and Scope Alfred Chandler firmly stated that “the modern enterprise played the most fundamental role in the transformation of Western economies. … that transformation, in turn, brought the most rapid economic growth in the history of mankind“.6 Similarly this paper suggests that the multinational corporations constituted the heart of the dramatic rise of the SOEEs. These corporations were the economic agents able to exploit efficient national and international institutions – that is the high levels of education, new technologies, low corruption, public-private partnerships and in particular the new international – often European - political institutions of economic integration after 1957. The paper is divided in three sections which mirror three different analytical levels. In the initial contextual section I will discuss the existing explanations of the rise of the Danish economy and suggest that the influential “variety of capitalism” approach should be supplemented by a stronger emphasis on international institutions and cross-border corporations. 7 In the second comparative section the growth patterns of these important corporations are in focus. The quantitative analysis unveils the changing patterns of cross-border M&As in the decades of increasing openness and growth of the Danish economy following 1970. In the analytical section the detailed M&A experiences of one of these cross-border corporations will be qualitatively analysed. In the final conclusion these three levels will be combined and the question - how and why the patterns of cross- border M&As changed over time and which impact these transactions have had for the development of the Danish economy – will thus be answered.

6 Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), 3 7 This tradition is most notably represented by Peter Hall and David Soskice, Varieties of Capitalism, (Oxford University Press, 2001) 3 2. Different interpretations on the background for Denmark as an SOEE In the June 2007 issue of Business History Review Geoffrey Jones stated four fundamental principles of Alfred Chandlers research.8 One of them maintained that business historians should ask questions to which people want answers – in other words ask big questions. One of the most imperative questions in recent Danish history is how and why the economy developed so strongly from a severe crisis in the early 1980s towards a general prosperity 25 years later. By 2006 the economy was marked by a notable combination of increasing employment, still raising GDP per capita, low inflation and a strong balance of trade. All these major economic indicators had been either negative or stagnating in the early 1980s.

Table 2. Major Danish Economic Indicators, 1982 & 2006 1982 2006 Inflation 10.1% 1,9% Balance of payments (DKK billion) -10.4 +44 Unemployment 10% 3,4% GDP per capita (2006$) 22.738 36.292 Source: Danish Statistics, Yearbook, (1984 and 2007)

The most influential academic sample of explanations on the Danish upswing has been provided by the tradition of political economy. In October 2004 the Danish “Innovation Council” – appointed by the government and chaired by Jørgen Mads Clausen, owner and manager of the large industrial firm Danfoss – published a report entitled “The Danish Strategy – the Danish Potential in a Global Knowledge Society”.9 The fourth chapter consisted of an interesting historically founded explanation of the Danish wealth: The council suggested that the Danish wealth was based upon “social innovations”. Basically the Danes had had a long tradition for focus on cooperation rather than competition. When the society was met by external challenges then movements of social innovations had been able to response effectively. The French revolution (and demands for political reforms) had been met by increased education through the rural folk high schools while later the cheap grain from the industrialized US of the late 19th century had been met by the co-operative movement which changed Danish agriculture from a vegetable towards animalistic production. The important point was obviously that this story provided an opportunity for an efficient answer to the new challenges of China as an economic power and globalization – namely a specific Danish “innovation movement” equivalent to the former “cooperative movement” and “high school movement”.

8 Geoffrey Jones, “In Memoriam Alfred D. Chandler Jr., 1918-2007,” Business History Review 81 (Summer 2007): 326-27 9 Innovationsrådet, Den Danske Strategi – Danmarks muligheder i det globale videnssamfund, (Copenhagen, 2004) 4

Figure 1: The Danish Model – social innovation Source: Mandag Morgen, (November 2004)

Chapter four in the report was the most debated in the media and it was noted by historians that “the unique” Danish social innovations actually were not unique rather than part of broader contemporary international movements.10 In January 2006 the Centre for Business and Politics at Copenhagen Business School published the book “National Identity and the Varieties of Capitalism, The Danish Experience”. 11 It was two American professors, John L. Campbell and John A. Hall who attempted to analyse … “how a particular variety of capitalism – one based on small states and corporatist institutions – manages late twentieth- and early twenty-first-century globalisation.” In the conclusion one of the editors – Ove K. Pedersen – pointed at three main factors behind the success of contemporary Danish capitalism. The first – and most important explanation – was the so-called negotiated economy - meaning the tradition of solving conflicts between different interests in a peaceful and organized manner. This consensus tradition has roots back to the national movements of the late 19th century and perhaps most important the highly organized economies of the first world war and the interwar crises when both the state, the labor unions and the employers participated in the formulation and execution of national solutions.

10 See for instance the newspaper Berlingske Tidende October 25, 2004 and the historians Mads Mordhorst and Martin Jes Iversen comments in the Newspapers Børsen and erlingske Tidende plus lectures at Copenhagen Business School. 11 John L. Campbell, John A. Hall and Ove K. Pedersen (eds.), National Identity and the Varieties of Capitalism – the Danish Experience, (Copenhagen, Denmark, 2006) 5 The second main explanation behind the Danish prosperity was – according to Pedersen – the cultural, linguistic and ethnic homogeneity of the Danish population. This homogeneity was a result of Denmarks political transition from a multi-national state reaching from Hamburg in the south to North Cap in the north towards a small state after 1864 only consisting of a population with the same language, culture and national identity. This homogeneity made it possible to overcome traditional economic conflict and convince the population for instance on the need for high taxes and high equality. The third important background was the unique institutional branches of Denmark – especially between public and private interests including the labor market system. The specific Danish so-called “flexicurity system” consisted of three characteristics: a flexible labor market in which the employees already in a general agreement from 1899 recognized the employers right to hire and fire with out large compensations, a generous welfare systems in which the state takes the responsibility to fund most of the compensation for unemployed people and finally an active employment policy – again provided by the state. These three fundamental backgrounds for the Danish upswing underscore that Campbell, Hall and Pedersen emphasised political-institutional factors. There is much admirable about this story. It explains in a simple way important characteristics of Danish capitalism. The main problem of this national institutional explanation is that it is partial at best. There are at least two fundamental reservations which can be proposed. Firstly the three factors seem inconsistent in their explanatory power in relation to the economic upswing in the last quarter of the 20th century. Simply because all three factors – negotiated society, homogeneity and flexicurity – were present during the nadir of the Danish economy in the early 1980s. In fact the population was more homogenous in 1982 than in 2006, the state-enterprise corporation stronger in terms of widespread state-industry agreed market-protection and the fundamental ingredients of flexicurity were also in place. Despite the presence of these important national institutional factors what was it then that triggered the economic growth of the early 1990s and mid 2000s? The answer is related to the second fundamental reservation – the lack of any “internationalization” factor in the argumentation.

6 Real Growth Rates of Components of Aggregate Demand in Denm ark, 1990-2002 14 12 10 8 6 4 2 0 -2 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -4 Private consumption Domestic demand Export of good and service

Figure 2: Real Growth Rates of Component of Aggregate Demand in Denmark, 1990-2002

According to “National Identity and the Varieties of Capitalism” the economic upswing after 1993 was connected to “… the steep rise in total domestic demand (especially private consumption)”. It was stated in the book that “… only in 1999 export [was] taking over as the main driving force.”12 In fact a closer survey of figure 1 unveil that in nine out of the thirteen “upswing years” export of good and service represented the fastest growing demand factor in the Danish economy. This figure implies that the upswing was not only related to efficient Danish institutions if not also to an increasing internationalization of the Danish economy. This important explanatory background is absent in the national institutional explanation of the Danish upswing. As soon as one observes the changes of the Danish economy after the 1970s it becomes obvious that internationalization was an important part of the story.

Table 3. FDI outwards in million $ and as percentage of GDP 1982 1986 1992 1996 1999 2002 2006 FDI outwards 2065 2455 16.306 27.622 51.339 86.679 150.082 FDI % of GDP DK 2,4 2,8 10,9 15,0 22,4 49.8 54,5 Germany (%) 6,2 7,8 8,6 11.9 17,1 34,5 34,7 Italy (%) 2,1 4,2 5,6 9,3 14,5 16,0 20,3 EU (%) 7,5 9,3 11,3 15,7 21,9 40,7 44,9 Source: Danish Statistics (Statistical yearbook, various years) & UNCTAD (2006)

Table 4. Total export (billion, DKK fixed 2000 prices), 1966-2006 1966 1970 1982 1986 1994 2002 2006 Total export 113.8 145.4 254.7 301.4 419.4 649.9 776.7 Export % of GDP 18.4 19.8 28.3 29.2 37.9 49.6 54.6 Source: Danish Statistics and the authors own calculations (Statistical Yearbook, various years)

There are two important lessons to learn from table three. Firstly it illustrates that in terms of outward foreign direct investments the Danish economy went into a new higher level of internationalisation from the early 1980s to early 1990s. This process was well know from all West European countries as

12 John L. Campbell, John A. Hall and Ove K. Pedersen (eds.), National Identity and the Varieties of Capitalism – the Danish Experience, (Copenhagen, Denmark, 2006), p. 328 7 it happened congruently with accelerating economic integration process – this is also evident as the European Union share of the total outward Danish FDI increased from less than 50 percent before the mid 1980s towards well above 80 percent in the 1990s. The Danish outward FDI as a percentage of GDP moved from less than ten percent in the 1980s towards a level below 50 in the mid 2000s – a high level which is only found in very open countries such as The Netherlands, Sweden and Ireland. The second important lesson to learn is that the opening of the Danish economy moved substantially faster than the larger German and Italian economies. Germany was actually are more open economy in the mid-1980s. That picture changed from the mid-1990s onwards congruently with the increased European integration. It is worth noting that the Danish FDI level rose from well below the EU average in 1986 towards a very high FDI level after year 2000. Table four confirms the dramatic internationalization of the Danish economy in the four decades from 1966 to 2006 when the value of the total Danish export sextupled from DKK 113.8 billion in 1966 to DKK 776.7 billion in 2006 (fixed 2000 prices). Exports grew substantially faster than the total economy from around 20 percent of GDP in the early 1970s via around 30 percent in the 1980s towards a very high export rate of almost 55 percent in 2006 – the similar percentage was 39.2 percentage for Finland and 61.1 percentage for Ireland.13 Denmark indeed had become one of the “Small Open European Economies” to use Joel Mokyrs phrase.

Table 5, VAT registered total sale of all Danish corporations, 1969-2006, Billion DKK (2006), Export ratio of VAT registered sate, total sales per company, million DKK (2006)

1969 1975 1980 1982 1986 1990 1994 1998 2002 2006 Total sale billion DKK (2006) 1367 1659 1723 1762 2035 2004 2031 2244 2434 2862 Export ratio 12 16 18 21 19 21 23 23 26 27

Sale per company million DKK (2006) 3,76 4,65 4,67 4,83 5,23 5,01 5,07 5,74 6,33 7,02 Note: The table does not include all corporate activities or all sales, only VAT registered sales, Source: Danish statistics and own measures (Statistical Yearbook, various years)

Who facilitated then the increasing internationalization from the 1970s to the 2000s? Table five shows that the total sales in fixed 2006 prices increased rather dramatically from 1969 to 1975 and again from 1994 to 2006. It is worth noting that from 1998 to 2006 the export ratio followed the increasing total sales as it increased from 23 to 27 percentages and perhaps even more important the historically stable average sales per company also changed at the end of the 1990s: from 5.07 million DKK in 1998 to 7.02 DKK in 2006 per company. The figures thus indicate that economic upswings as in the

13 CIA, The World Factbook, 2007 8 late 1960s and late 1990s might have been followed by three gradual changes in the economic structure: increased total sale, increased export ratio and increased sales per company. In a survey from the Danish Industry Association in 2003 it was measured that larger companies with above 100 employees had a substantially higher rate of export than the many small corporations with less than 20 employees – that is an export ratio of 57 percent in average of companies with more than 100 employees and only around ten percentages in average per company with 1-9 employees.14

Export as a percentage of Company Size, 2003

60%

50%

40%

30% 20%

10%

0% 1-9 10-19 20-49 50-99 100+

Figure 3: Export ratio in relation to company size measured by number of employees, manufacturing enterprises Source: Danish Industry, (2004)

The increasing average company size which followed increasing export ratios and the remarkably higher export ratio among larger corporation indicates that large Danish companies were important to the internationalization process. This interpretation is supported by the empirical evidence from a combined internationalization and concentration process within a number of important industries such as the slaughterhouse industry, the dairy-industry, the beverage industry and the financial sector. As a result the very largest Danish companies experienced an extreme growth from the early 1970s to the early 2000s.

Table 6, The revenue of the largest 115 Danish corporations (100 non financial and 15 financial), 1970-2004

Main accounts (current prices, DKK mio.) by account and time

1970 1975 1980 1982 1986 1990 1994 1998 2002 2004 Gross domestic product (GDP) 124.429 227.511 392.875 491.088 698.783 840.648 976.945 1.163.616 1.372.737 1.459.399 Top 115 Danish Companies' Revenue 68.792 145.347 265.790 349.736 470.428 707.024 806.633 1.003.116 1.454.138 1.515.720 Top 115 % of GDP 55% 64% 68% 71% 67% 84% 83% 86% 106% 104% Source: www.corporate-denmark.dk

14 Dansk Industri: Betydningen af SMVer for den danske vækst, oktober, 2004 9 Table six unveils how the very largest Danish corporations grew substantially faster than the general Danish economy after 1970. The relative size of the total top 115 revenues was 55 percent of GDP in 1970 a figure which increased to above 100 percent after year 2000. Note how the relative size of these corporations increased from 1986 to 1990 when Danish businesses went through a wave of mergers in preparation to the common market – within the already mentioned financial sector, the medical industries and the food and beverages industries. As a result of these dramatic changes it was by year 2006 possible to define a few Danish companies which now dominated their own – often very large – sectors in Denmark and which had expanded towards a strong global position on well-defined markets. It is important to keep in mind that most Danish employees were still working in small and medium sized enterprises (SMEs). But these many, often home-market oriented, SMEs were now supplemented by a completely new league of extremely large corporations which exploited global market, production and development facilities and which thus were able to grow into a size never seen before in Denmark. In this sense the Danish business environment had transformed almost into a “village” in the global community marked by many SMEs combined with a few giant “sector dominant corporations”.

Table 7. The 2007 “Borsen” top ten Danish list, revenues billion DKK 1970, 1982, 1994 and 2006 (2006 prices) Sector: Company: 1970 1982 1994 2006 Shipping APM 21.8 37.7 72.5 264.6 Finance Danske Bank 5.6 11.6 28.2 145.3 Office Services ISS 3.5 8.1 17.6 55.8 Retail Dansk Supermarked 1.4 2.6 24.4 52.7 Meat Production Danish Crown* 2.8 5.5 11.9 48.5 Telecommunication TDC** 3.7 3.9 24.6 47,4 Dairy Arla Foods*** 2.0 9.8 19.7 45.5 Brewery Carlsberg 11.5 12.2 20.9 41.1 Finance Nykredit Holding**** 2.2 9.6 43.7 39.7 Medical Novo Nordisk 2.1 5.2 16.8 38.7

Total revenue of the ”Borsen” top ten 2007 companies 56.6 106.2 280.3 779.3 DK BNP 768 965 1.242 1.642 The 2007 Borsen top ten in % of GDP 7.4 11.0 22.6 47.5 Tulip Slagterierne in 1982, Vejle Andelsslagteri in 1970, **KTAS, 1970 & 1982, *** Mejeriselskabet Danmark, 1971 & 1982, ****Founded in 1989 – figures from 1970 and 1982, Baltica Forsikring Sources: Borsen Top 1000 list, 2007, www.borsen.dk and www.corporate-denmark.dk

If we trace the development of the ten largest Danish corporations anno 2007 it is possible to identify at least three important common features. The first feature could be labelled “domestic sector dominance”. As the label indicates these corporations from the mid 1990s and onwards dominated their sector in Denmark. Combined Nykredit and Danske Bank controlled around 50 percent of the Danish financial market Dansk Supermarket´s market share was around 30 percent while the other eight corporations controlled more than 60 percent of the Danish activities generated in their respective sectors.

10 The second important characteristic was an extremely high level of international activities. As already mentioned previously Danish corporations with above 100 employees exported more then 50 percent in 2003 and the nine corporations were representative for this trend. Dansk Supermarket, Nykredit Holding and Danske Bank represented the lowest degree of international activities. It is worth noting that due to a strict regulatory regime internationalization of the Danish financial sector was a rather recent phenomena: In 1973 Danske Bank only generated 9.6 percent of the revenue abroad this figure rose to 11.1 percent in 1983, 24.6 percent in 1993 and 41.5 percent in 2003.15 The other corporations generated above 60 percent of their revenues abroad in 2006 and were thus highly internationalized corporations. Arla Foods even defined Denmark, Sweden and Great Britain as the three “home markets” marked by national cooperative milk suppliers, a leading market share and a special responsibility to the local community. The third important common characteristic of the sector dominant corporations was a high – and increasing - degree of product specialization. A survey of the strategic changes among the 40 largest Danish non-financial corporations from 1973 to 2003 showed that the percentage of corporations with focused single or dominant business strategies increased from 75 percent in 1970 to 92.5 percent in 2003 while the percentage of diversified unrelated- and related business strategies decreased from 25 percent in 1973 to 7.5 percent in 2003. 16 Even the historical conglomerate A.P. Møller-Mærsk divested its most unrelated activities in the late 1990s and early 2000s. Subsidiaries with typical “conglomerate names” such as Mærsk Air, Mærsk Data and Mærsk Medical was sold off, while the group continued with shipping related activities such as shipyards, logistics and harbour management complemented by oil activities and the retail chain – Dansk Supermarket. The nine other “sector dominant” top ten corporations were highly specialized by the mid 2000s with focus on growth through dominance of defined markets on a global level. A.P. Møller-Mærsk and ISS obtained world leadership within their business sectors and the other corporations managed to establish a position among Europes five to ten leading corporations. The combination of internationalization and focus on core industries thus seemed to have constituted the receipt for growth of these corporations from 1970 to 2006. Table five uncovers the vitality of the receipt. In fixed prices the total revenue of the top corporations grew from DKK 56.6 billion in 1970 to DKK 779.3 billion in 2006. Note the fast increase from 1994 to 2006 when the total revenue in fixed values more than doubled. As a result the

15 Martin Jes Iversen, presentation at Copenhagen University, December 6, 2007. 16 Veronica Binda and Martin Jes Iversen, “Towards a ‘Managerial Revolution’ in European Business? The Transformation of Danish and Spanish Big Business, 1973-2003,” Business History 49 (Summer 2007): 506-30. Single business (SB): At least 95 per cent of the revenue is aggregated from one business area. Dominant business (DB): One business area with at least 70 per cent but less than 95 percent of revenue. Related business (RB): No business area with more than 70 per cent of the revenue but with market or technological correspondence between the business areas. Unrelated business (UB): No business area with more than 70 per cent of the revenue and none or only limited market - or technological - correspondence between the different business areas. 11 total revenues relation to the Danish GDP increased from 22.6 percent in 1994 to 47.5 percent in 2006. As explained previously most of the corporate activities were now international - and thus in practice outside the Danish GDP. Still the comparison shows how the small Danish economy by 2006 included a complete new league of very large globalized corporations. These large corporations had thus been able to exploit the opportunities of increased market accesses and in the next section this exploitation will be analysed more in depth.

3. Danish “sector dominant corporations” and possible pattern of M&As, 1970-2007 The second level of analysis concerns corporate changes with particular emphasise on the changing importance and patterns of cross-border M&As. The changing importance of M&As is closely related to the changing level of openness of the Danish economy. Mokyr was right that in the 1990s and 2000s the small European economies were often more internationalized than large European economies but it is worth noting that as late as in the early 1980s the Danish economy was more closed than for instance the West German economy. Economic openness has changed over time and one the most important indicators of changing openness is the changing level and pattern of foreign direct investments (FDIs). Research on the long-term development of FDI patterns and changes were initiated already in the early 1970s by the so-called Uppsala School of International Business (IB) research. In the article “The Internationalization of the Firm – Four Swedish Cases” from 1975 Jan Johanson and Finn Wiedersheim-Paul investigated the changing pattern of internationalization of four Swedish enterprises – from the foundations in the late 19th century to the 1970s.17 The hypothesis was that these corporations would initiate the internationalisation process through expansion to small markets with low “physic distances” to Sweden – defined as economic, linguistic, cultural and political differences. Later the corporations would prefer larger, more distant market which could provide large growth options - if the companies could handle the challenge of distances. Johanson and Wiedersheim-Paul thus assumed that the initial investment would be rather small but through a graduate learning process it would develop into more complicated and costly relations. The FDI pattern would thus go though a stage-like movement in the long-term perspective: 1. No regular export activities 2. Export via independent representatives (agent) 3. Sales subsidiary 4. Production/manufacturing

17 Jan Johanson and Finn Wiedersheim-Paul, The Internationalization of the Firm – Four Swedish Cases, Journal of. Management Studies. (12(3): 1975) pp. 305-322 12 The analytical method of the second section of this paper is inspired the Uppsala school of IB studies. The question is which role cross-border M&As played for the long-term growth (1970-2007) of nine large and important Danish corporations and to which extent it is possible to define a pattern in this development.18 It is the hypothesis that the M&As changed over time in three different phases: The first phase from 1970 to the early 1980s with only few M&As due to a lack of efficient capital infrastructure and the limited size of the companies, a second phase from the early 1980s to the early 1990s with many domestic and sometimes unrelated M&As and finally a phase from the early 1990s to the mid 2000s marked by an almost explosive growth in cross-border M&As most often related to the existing industries of these corporations. General economic theory on corporate consequences of market integration predicts three general consequences of increased competition: Stronger strategic focus, higher internationalization and concentration in terms of larger business units. These process is according to the theory closely related to cross-border M&As as emphasised by Ilzkovitz et . al. in an EU report from January 2007:19

The Internal Market is expected to be associated with increased Mergers and Acquisitions (M&A) activity as the process of consolidation and restructuring in many industries is triggered by the increased pressure of competition. M&A are therefore expected to increase both within and between Member States as firms reorganise activities in order to restore profit margins. The added opportunities to do business abroad may also trigger cross-border M&A as firms seek to expand their markets.

The prediction of increased focus combined with internationalization is captivatingly in contrast the findings of Richard Whittington and Michael Mayers research on the strategies and structures of the largest manufacturing corporations in Europe, 1983-1993.20 One of Whittington and Mayer’s main conclusions was the persistence of diversification as ‘the most successful long-term strategy’. Their analysis was –inline with the Uppsala School and the original Chandler inspired Harvard Programme of the early 1970s – based on broad categories and thus emphasise on the need for comparative generalisations.21 In this paper the second section will be based on similar general categories on M&As. The first division is between domestic and cross-border M&As followed by four subcategories:

18 The analysis is made on the 10 largest Danish corporations measured on revenue from Borsen 2007 (www.borsen.dk) 19 Fabienne Ilzkovitz, Adriaan Dierx, Viktoria Kovacs and Nuno Sousa, Steps towards a deeper economic integration: the Internal Market in the 21st century A contribution to the Single Market Review, European Commission Directorate- General for Economic and Financial Affairs, N° 271 January 2007 20 Richard Whittington and Michael Mayer, The European Corporation, (Oxford, Great Britain, 2000) 21 See the discussion on the need to counter balance the emphasise on uniqueness from the ”post-modern” approach (which makes comparative analysis impossible) and the “phase based” generalizations of the modernistic tradition in Whittington and Mayer, p. 12-25. 13 1. Domestic related M&As = takes place when one of the nine subject firms merge with or acquire a domestic company from the same industry (in order to establish a new company) 2. Domestic unrelated M&As takes place when one of the nine subject firms merge with or acquire a domestic company from a different ISIC two-digit industry 3. Cross-border related M&As = takes place when one of the nine subject firms merge with or acquire a non-domestic company from the same industry (in order to establish a new company) 4. Cross-border unrelated M&As takes place when one of the nine subject firms merge with or acquire a non-domestic company from a different ISIC two-digit industry

In a long-term context from 1970 to 2007 this distinction makes it possible to combine the changing numbers of respectively domestic and cross-border M&As with knowledge on diversification vs. concentration patterns. The limit of such generalising “category-based” quantitative analysis is obvious: the knowledge of each case is limited and the experiences of how and why the M&As took place is left untouched. Still such analysis does provide a general picture of some large change and in combination with more detailed qualitative analysis it can strengthening our understanding of the developments – also within the single firm.

Table 8. M&As: Domestic / cross-border, related / unrelated, 1970-2006, the Borsen 2007 top ten companies 1970- 1975- 1980- 1985- 1990- 1995- 2000- 2005- Years 1974 1979 1984 1989 1994 1999 2004 2006

M&As Domestic Related 19 6 6 15 14 8 4 4 M&As Domestic Unrelated 4 3 1 4 2 0 0 0 M&As International Related 8 5 3 5 12 38 28 16 M&As International Unrelated 0 0 0 0 0 0 0 0 Total M&As 31 14 10 25 28 45 32 20 Sources: Own survey based on annual reports of the 2007 top ten corporations, 1970-200622

Table 9. Geographical division of the cross-border M&As, 1970-2006, the Borsen 2007 top ten companies 1970- 1975- 1980- 1985- 1990- 1995- 2000- 2005- Years 1974 1979 1984 1989 1994 1999 2004 2006 West Europe 4 3 2 4 6 16 7 8 East Europe 0 0 0 0 6 12 12 4 Others 4 2 1 0 0 10 8 4 Total Cross border 8 5 3 5 12 38 27 16 Sources: Own survey based on annual reports of the 2007 top ten corporations, 1970-200623

22 As one of the companies, ISS, had an unusual high degree of very small, often local acquisitions around the world it is only the initial M&As in new countries which has been measured from this enterprise. In total ISS made more than 700 acquisitions in he period almost all of them targeted on small cleaning companies. When the acquisitions were substantial on companies (more than 1000 employees) it has been measured in the survey. 23 Ibid. 14

Table eight and nine extracts the results of the author´s long term M&As survey based on the Borsen 2007 top ten companies.24 There are at least three important lessons to learn from table eight. Firstly the table shows that only very rarely the largest Danish corporations merged with or acquired companies outside their own industries. This M&As pattern confirms earlier research on the persistently very focused growth strategy among the largest Danish corporations after 1970.25 The few unrelated M&As took place between 1975 and 1989 and were all domestic. Despite the very low number this chronology fits well to the traditional view on the importance of diversification from 1975 to 1985 and the figures also implies that if the large Danish corporations used M&As as part of completely unrelated diversification then this would take place on the domestic scene. As Mokyr has emphasised the internationalised corporations from SOEEs often based their growth on well defined niches a perception which is indeed confirmed by the Danish M&As pattern.26 The second important conclusion to draw from table eight is the wave like movement in the total number of M&As in the long term perspective from 1970 to 2006. It is worth noting that in the economically difficult years from 1975 to 1985 the total numbers of M&As was extremely low with a total of only 22 both national and cross border M&As. This might indicate that poor national economic performance is related to low M&As activities among the largest corporations. And congruently with the Danish upswing - and the increasing globalization - after 1994 the number of M&As increased dramatically. The third important lesson is related to the increase of M&As after 1994 in terms of the pattern of domestic vs. cross border M&As. The very high degree of M&A activities after 1994 was marked by a substantial transition from dominance of domestic M&As before 1990 towards equally strong dominance of cross-border M&As after 1994. From 1990 to 1994 the relation was equal. This pattern confirms very well the figures of the relation between GDP and outwards FDI of table 2 when Denmark moved from a level below the large countries Germany and Italy towards an extremely high FDI ratio above 50 percent in the mid 2000s. Table nine unveils the geographic distribution of these - increasingly important - cross-border M&As. The first conclusion to draw from the table is that except for 2000-2004 then West Europe has been

24 The survey was based on the annual reports of the Borsen top ten 2007 companies, 1970-2006 supplemented by information from Greens Aktiehåndbog. The survey was made in December 2007 with help from research assistant Nikolaj Sadolin, CBS and the Danish Business Archive, Århus. 25 Veronica Binda and Martin Jes Iversen, “Towards a ‘Managerial Revolution’ in European Business? The Transformation of Danish and Spanish Big Business, 1973-2003,” Business History 49 (Summer 2007): 506-30. One should keep in mind that the survey is based on a very rough industry categorisation namely the two digit ISIC. It means that any unrelated M&As indeed needs to be part of a real “unrelated diversification” 26 Joel Mokyr, “Successful Small Open economies and the Importance of Good Institutions” in Jari Ojala, Jari Eloranta and Jukka Jalava (ed.), The Road to Prosperity, Helsinki, 2006. 15 the most important host region for the Danish M&As in the long term perspective from 1970 to 2006. The detailed survey unveils that particularly Germany, Sweden, Great Britain and Norway were important as host nations to the “new internationalizers” Arla Foods, Danske Bank and TDC which only had very few direct investments outside Denmark before 1970. Arla Foods – and the predecessor Mejeriselskabet Danmark – had a long tradition for export of butter, but the cooperative company expanded internationally on a large scale through the giant Nordic merger with the Swedish in 2001 and a large British acquisition in 2003. Similarly Danske Bank initiated its international investment by the acquisition of the Norwegian Fokus Bank in 1999 followed by acquisitions of relatively large Swedish, Irish and Finnish banks. On the other hand the experienced internationalizers, ISS and Carlsberg aquired companies far from the Danish borders already in the 1970s and 1980s. The globalized service provider, ISS, acquired companies in Australia and Brazil in respectively 1972 and 1973 and as we shall see in the next section Carlsberg expanded to several countries in South America and South East Asia through joint venture agreement and from the 1990s through real acquisitions. This pattern clearly confirms Jan Johanson and Finn Wiedersheim-Paul emphasise on the importance of “physic distances” as the Danish companies made initial investment in the Western countries with low linguistic, cultural and political differences. Still it is worth keeping in mind that Western Europe continued to be important and the table thus confirms the importance of the European integration process which accelerated following the introduction of Common Market January 1, 1993. From 1995-1999 the West European M&As peaked at 16. International institutions mattered and this ascertainment lead to the second important conclusion of table nine namely the break through of East Europe as host for Danish M&As. These investments were non-existing before 1990 – obviously due to the restrictions of the former communist regimes. The break through from 1994 to 1998 was remarkable as East European investment doubled from six to 12 – a high level which continued from 2000 to 2004. By 1990 the largest Danish corporations apparently were ready to grasp the new opportunities – and this readiness was closely related to the national merges of the earl 1970s and late 1980s. Mergers which created companies such as Danish Crown, Danske Bank, Arla Foods and Nykredit Holding. This can help us to understand why the Danish economy – along with other SOEEs moved so fast from relatively closeness in the early 1980s towards an extreme degree of openness from the mid 1990s and onwards. But how was the detailed story of this important journey from relatively national closeness towards intensive participation in the international economy? This question will answered in the next section of the paper on Carlsbergs international M&As after 1970.

16 4. Carlsberg between business card strategy and global integration The last section of this paper is thus a traditional “business historical” (that is primarily empirically based) detailed analysis of the M&As which one of the corporations – the brewery Carlsberg A/S – went through from 1970 to 2007. For Carlsberg the 1960s were a time of unrivalled growth as an increase in purchasing power across Europe helped push Carlsberg’s sales to new heights. Between 1959 and 1973, domestic sales more than tripled to reach 5.7 million hectolitres. Exports more than doubled, reaching 2 million hectolitres in 1970 from 591,000 hectolitres in 1957.27 By 1967, Denmark was the largest exporter of beer in Europe. Carlsberg and its Danish partner since 1903, Tuborg, both had historically strong links to the export market. Carlsberg began experimenting with exports in the 1860s, but really began to look at opportunities from 1869 on when it sent its first modest exports to the United Kingdom and test exports to Rangoon, Singapore, Calcutta and Hong Kong. Tuborg was founded in 1873 specifically as an export brewery, although exporting did not begin until the 1880s when Tuborg's director used the many foreign contacts he had cultivated through his butter export company to place Tuborg firmly on the world map. However, at this stage, the companies had little direct involvement with exports and Carlsberg and Tuborg sold their beers to Asia and the Middle East through trading companies such as the East Asiatic Company and various merchants operating out of Hamburg. Carlsberg, driven by the quality obsession of its founder JC Jacobsen, enjoyed the best sales of the two and immediately before the First World War Carlsberg alone exported 42,322 hectolitres of beer.28 This fell away to nothing during the war years, but the Carlsberg name and reputation for quality recovered slowly throughout the 1920s, helped by the formation of Carlsberg Distributors Ltd. in Bond Street to serve the lucrative trade in London. Carlsberg was acknowledged as a quality beer and was by 1931 advertising itself as ‘The World’s Best’. The Second World War brought expansion to a halt once again and shortages of raw materials at home limited exports. After 1945, Carlsberg’s sales during this period were dominated by the United Kingdom, which accounted for a growing percentage of all exports. The basis for this growth was returning British servicemen who had developed a taste for ‘lager’ (as pilsner beer is called in the UK). Carlsberg, desperate for foreign currency after the war, was quick to sell its beers to the NAAFI canteens and shops that the servicemen used and developed into loyal customers who took their new drinking habits home. However, the international market was still of limited financial importance and represented only a fraction of total sales.

27 Kristof Glamann, Vores Øl (1997), p. 56 28 Kristof Glamann, Carlsbergfondet (1976), p. 22 17 While the terms of the 1903 agreement with Tuborg gave a framework for co-operation within Denmark, there was no agreement about co-operation in international markets. The two competed with each other already in Belgium and the UK and to avoid a worsening of the competition, the two agreed that investment in new breweries could take place as long as it was outside their main markets. This gave rise to brewery projects in Turkey and Iran for Tuborg in 1967, and Cyprus (1967), Malawi (1968), Brazil (1970) and Malaysia (1972) for Carlsberg. According to the former chairman of the Carlsberg Foundation, Kristof Glamann, ‘The two breweries almost blocked each on the international market. The German breweries had started to merge and we feared that the Dutch would acquire in Denmark. With the merger with Tuborg [in 1970] we gathered our strength and started our expansion seriously’.29 In the years after the merger, it was no longer just exports that counted towards sales in foreign markets. Licensing deals became more important as a source of both income and volume. In 1970, exports made up only around 24% of total sales and sales from licence agreements were negligible. However, during the 1970s and 1980s sales outside Denmark, both from exports, licence deals and investments, rose rapidly as a percentage of total sales. Sales of Carlsberg and Tuborg produced outside Denmark surpassed sales in the home market for the first time in 1976 and continued to grow. From 24% in 1970, it climbed to 60% in 1980/81 and 90% in 1999/2000. At that time Carlsberg and Tuborg products were available in more than 140 countries. Exports as a percentage of overseas sales fell throughout this period. The move towards licence agreements was driven by the need to cut costs after the oil shock of 1973 As fuel costs increased, so too did the cost of exporting beer. It was cheaper to export know-how in the form of licensing agreements, while a licensing agreement together with a minority stake allowed greater access to the partner’s distribution network. Increasing unrest among Danish labour unions also meant that supply from Denmark had become unreliable. Although the merger solved immediate problems, there were still differences that needed to be resolved between the two former competitors. Throughout his time at the company CEO Poul Svanholm kept two offices – one at Carlsberg in Valby and one at Tuborg in Hellerup – to ensure that both organisations felt themselves equally treated. His rationale for keeping the two organisations separate was to maintain ‘power and vitality’, although it was also necessary to ensure visible proof to the authorities of the competition that existed in the Danish market. However, it also helped prevent the development of a single head office capable of rational and strategic decisions at home and abroad. Marketing was a particular challenge. Carlsberg and Tuborg were often available on the same markets, competing for similar customers and often with different licence brewers for the two brands.

29 Interview with Kristof Glamann, Børsen, 1993 18 The lack of clarity in marketing internationally was also a result of an organisational structure that was far more suited for an export and licensing company than it was for a global brewer. Just as De Forenede Bryggerier had separate sales organisations for Carlsberg and Tuborg in Denmark, the United Breweries (a literal translation) also had separate organisations for its overseas business. Carlsberg International looked after export sales and licensing agreements for Carlsberg, while Tuborg International did the same job for Tuborg. A third organisation, United Breweries International, looked after foreign breweries in which United Breweries had a shareholding. Expansion abroad throughout the 1970s and 1980s was still driven by the idea that Carlsberg and Tuborg were high quality, high priced products that didn’t take market share from established, domestic breweries. This policy was described by Carlsberg’s managing director Poul Svanholm in an interview in 1983:30 ‘We would like to enter those markets where we see an opportunity for a growth in beer sales so we can get a share of that growth. We are not so interested in gaining sales by taking market share from other breweries. That’s not our way. We have, by the way, a policy of going to the local brewers and telling them that we intend to establish ourselves in the country.’ The choice of partners and investment type was governed by a mixture of traditional attachments, chance and some conscious strategic choices. Investment in the breweries in Hong Kong and Malaysia was undertaken with its old export partner East Asiatic Company, while others were a development of existing strong export markets such as the UK. However, many of the partnerships in this period were a result of interested breweries contacting Carlsberg enquiring about the possibilities of licensing the beer. This policy of taking a small stake was dubbed a ‘business card’ strategy as it allowed Carlsberg to quickly gain a foothold in a market with limited investment. However, it also meant that Carlsberg rarely had a majority in the companies concerned, and therefore little management control. In the period up until 1997 it was rare for Carlsberg to take a majority stake in a brewery. When it did invest in a brewery, it generally did so as part of a licensing agreement and the total share rarely rose above 30% and was more typically under 20%. In 1996, the company held a majority in only eight of the 27 foreign breweries it had a stake in.31 Carlsberg’s technical organisation was one of the few common elements. Licensing agreements included access to Carlsberg’s laboratory research and quality control, which gave its partners an advantage on their home markets as the technology was transferred to local beers. But it also underlined the company’s focus on the ability to produce a ‘quality’ product rather than sell it.

30 Interview with Poul Svanholm, Måneds Børsen, August 1993. 31 Figures from Carlsberg annual reports, 1997 and 1998. 19 Technical know-how was formalised with the creation of Danbrew, a 100%-owned subsidiary that took the knowledge gained from building breweries in Northampton in the UK and Fredericia in Denmark, and used it to build breweries abroad – often in connection with a licensing deal. The year 1997 marked several important events in Carlsberg’s history as a company. It was the year it celebrated 150 years as a brewer, it was the year that manager since 1972 Poul Svanholm retired and it was the year that marked the end of the business card strategy. In the time since the merger, the policy of expanding through licensing and minority partnerships had resulted in a patchwork of holdings across the world, but with little strength outside the top five markets for both the Carlsberg and Tuborg brands. The situation was worsened by the fact that in many of these markets Carlsberg was a minority shareholder. Where it did have the majority, profitability was poor. Added to this was an international organisation that was little more than an export sales function with little or no control over partners or their production. Despite the fact that international sales had outstripped domestic sales since 1976, the international organisation was still subordinate to a Danish-dominated administration that spent a proportionately large amount of time on managing domestic issues. Carlsberg’s weakness was underlined in 1999 when the Dutch brewer Heineken bought Cruzcampo in Spain from under its nose, despite Carlsberg’s existing 11% share in the brewery acquired in connection with a licensing agreement. In effect, Carlsberg was thrown out of Spain – one of its top 10 profitable breweries – and the business card strategy was shown to be ineffective in the face of growing worldwide consolidation in the brewing industry.

Flemming Lindeløv’s ‘Ten Principles’

The arrival of Flemming Lindeløv as Chief Executive in 1997 marked a change in both Carlsberg’s domestic and international strategies. His strategy, developed with outside management consultants (itself an innovation in Carlsberg) was the ‘Ten Principles’. It laid out the ten characteristics of the brewing industry and how Carlsberg was to react. The principles committed Carlsberg to focusing on the beer industry (heralding the start of a sell-off of non-core business), investing in focus markets to achieve leading positions with a complete distribution apparatus, and investing in branding with Carlsberg as the leading international brand, among other things. The problem of too many minority shareholdings was not directly mentioned in the principles, but it soon became clear that this was an important part of the new strategy. In the years 1997 to 1999, Carlsberg increased shareholdings or bought majority shares in breweries in the UK, Finland, Sweden, Italy and Poland. To free up capital to finance this and other activities, Carlsberg sold its shareholdings in the Royal Copenhagen porcelain business and the Tivoli amusement park in

20 Copenhagen. This activity culminated in the merging of Carlsberg’s beer activities with that of Orkla, the Norwegian conglomerate in 2000-1.

The birth of a global brewer

The Ten Principles aimed to set the basic premises for the company, but in the face of growing global competition and consolidation among competitors, Carlsberg needed to answer one question: was it going to remain on the global stage or retreat and create a northern European brewing group? To solve the lack of focus on beer, the company was organized along new lines, with separate divisions for Beer, Finance, and Soft Drink (which looked after the CCNB joint venture). However, domestic issues still dominated witness the splitting of the Beer Division into just two sections: Denmark and International. ‘Division Danmark’ only represented around 10% of sales but as a home market consumed a proportionately large amount of management time. However, with the split it became a separate profit centre with its own corporate functions. The Carlsberg Foundation really opened the way for international expansion in 1999 by relinquishing the requirement that it hold a minimum of 51 per cent of the Carlsberg brewery in return for holding a ‘significant interest’ in subsidiaries owned by Carlsberg A/S (in 2007 this was further reduced to 25 per cent). The requirement to hold a minimum of 51% had been criticised by stock market analysts as it limited Carlsberg’s ability to attract capital for expansion. This was underlined in March 2000 when Carlsberg missed out on acquiring the Kronenbourg brewery because its owners, the French conglomerate Danone, wanted part payment in shares. Carlsberg’s ownership structure made this sort of deal impossible. The deciding step in the brewery’s future came in May 2000, when Carlsberg and Orkla announced the creation of a new brewing group – Carlsberg Breweries – made possible by the Foundation’s decision. In one move, Carlsberg secured its Nordic market by acquiring the leaders in Norway and Sweden, and gained access to the booming central and eastern European markets through a 50% share in Baltic Beverage Holding, BBH.

Orkla and Carlsberg

Orkla’s impact on Carlsberg was to be more than a simple securing of Carlsberg’s Nordic backyard. The Norwegian conglomerate accelerated the process of internationalism by providing the management capacity that Carlsberg lacked in depth and bringing tools that would help Carlsberg manage its existing breweries and make it easier to take on more. In the first two years, the new organisation began the job of integrating IT, accounting, marketing, production and logistics, starting

21 with the Nordic region. Brewery acquisition continued, driven by the merger, and in the years 2000- 2002 Carlsberg Breweries increased its share or bought outright 11 breweries and entered a major joint venture in Asia. Additional managers brought in by the merger allowed Carlsberg to take on ambitious tasks such as the turnaround of the Swiss brewery Feldschlösschen and spending time on the Polish and Turkish businesses. A major restructuring of Carlsberg’s head office took place in November 2001, which removed the remaining ‘export sales’ characteristics, was realised by one of the new vice-presidents recruited from Orkla. However, the new co-operation was not without its teething troubles. An unfortunate comment from Orkla’s Chief Executive Officer Jens P Heyerdahl that suggested the deal was merely the first step towards an acquisition of Carlsberg was not popular with the Carlsberg Foundation and began the process that led first to the dismissal of Flemming Lindeløv, who was seen to be pro-Orkla, and finally to the decision to buy Orkla’s 40 per cent share of Carlsberg Breweries.

Carlsberg: the global brewer

Lindeløv´s successor as CEO, Nils Smedegaard Andersen, took the opportunities offered by the creation of Carlsberg Breweries to form it into a truly global enterprise and can rightly be called the architect of the modern Carlsberg. In spring 2002, Carlsberg Breweries’ new international focus was underlined with the holding of its first international management meeting held outside Denmark, bringing together managers to discuss the recent past and future of the Group. This was followed by a strategy that resulted in the creation of six ‘Must Win Battles’ that were seen as vital for the success of the Group: Carlsberg’s response to the changing conditions was a global strategy in terms of marketing, corporate culture and production/logistics.32 In 1987 the official company name was changed to Carlsberg from The United Breweries. This was followed by a growing tendency to promote Carlsberg as the main international brand, with Tuborg as a regional player apart from several of its strong markets in Eastern Europe. However, it wasn’t until after the Ten Principles strategy in 1997/8 that Carlsberg finally became the focus of branding activity for the company. Increasing focus on marketing had lead in 2001 to a project called ‘Brand Spirit’ to rejuvenate the Carlsberg brand and ensure global consistency in the way the brand was positioned and marketed. This project now took off under the Must Win Battles programme. The project reflected the brand strategy of a broad portfolio of local brands supported by an international premium brand, Carlsberg

32 The Brew, Carlsberg Breweries Internal Magazine (Copenhagen, 2003) 22 Beer. It marked a change of policy over earlier years where Carlsberg existed in a vacuum, with few or no connections to the local beers. Now, Carlsberg and Tuborg were part of a portfolio that could be managed in terms of cost and sales efforts. This new approach was only possible with tighter management control over Carlsberg’s majority- owned subsidiaries, especially within production and distribution. From now on it would be marketing and sales that would drive production, rather than vice-versa. Operational Excellence was the name given to a programme of improvements to reduce the cost base and improve efficiency that was born out of an international benchmarking study in 2001. Carlsberg described it as a move from ‘Probably the best beer’ to ‘Probably the best beer company’. The Excellence programme covering production, administration, commercial skills and procurement was the first of its kind in the company and represented a clean break with Carlsberg’s previous ‘hands- off’ management style. It was one of several projects, such as joint IT systems and financial service centres, that began to be run across Carlsberg’s businesses, rather than from the head office and out. Where previously new breweries would be more or less untouched by head office, it became more common to change their names to Carlsberg and receive an injection of managerial capital. It is perhaps in Carlsberg’s rapid advance in China – especially western China where it now has control of six brewery groups and 290 breweries – that we can see the results of Carlsberg’s transformation from exporter to global player. Carlsberg has been present on the Chinese market since the 1890s, largely distributed by ØK (East Asiatic Company). In 1982, the two companies formed a joint venture to build Carlsberg Brewery Hong Kong. In 1995, the industrial conglomerate Swire Group was brought into the partnership and the three partners took over the Huizhou Brewing Company in Guangdong, on the Chinese mainland. Carlsberg and Swire bought out ØK, leaving the partners with 51 per cent and 49 per cent, respectively, in the brewery in Hong Kong and Guangdong. In 1998, Carlsberg opened a state-of-the art brewery in Shanghai, eastern China, only to have their growth ambitions frustrated by Chinese drinkers' preference for cheaper local brands. Production capacity was massively under-utilised and Carlsberg sold 75 per cent of the brewery to local Chinese market leader Tsingtao at a loss. It returned to the Chinese market in 2003 with a strategy of building up a network of local breweries focusing on the mainstream beer market. The idea of introducing Carlsberg as a niche brand survives, but only within a broader, owned portfolio. Since the large merger in 1970, Carlsberg thus underwent a tremendous transition from a small exporter to a global player with majority-owned and controlled breweries in most parts of the world. Carlsberg’s ‘business cards’ have been converted to bricks and mortar while further major acquisitions in the Nordic region (Ringnes, Pripps, Sinebrychoff), Eastern Europe (BBH), Germany

23 (Holsten) and China have helped make Carlsberg the fastest-growing international beer brand by the early 2000s.

7. Conclusion The initial question of this paper concerned the impact changing importance and patterns of cross- border M&As for the Danish corporations, 1970-2007 – in other words which impact did the agents of these transactions have for the development of the Danish economy and how and why did the patterns of cross-border M&As change over time? Even at the conclusion it is difficult to answer with great accuracy how important the cross-border M&As were to the rise of the Danish economy. What we do know – and what this paper has confirmed – is that the upswing of the economy after 1994 took place congruently with a severe opening of the Danish economy. During the economic crisis of the early 1980s Denmark was one of the more closed European economies with a relatively low degree of outward FDI and low ratio of export. That changed dramatically after 1990 and particlurly from 1995 to 2005 when the Danish economy gained position as one of the most internationalized in Europe. We also know that it was the larger corporations which were the facilitators of this internationalization and as a result a new league of extremely large corporations emerged in Denmark – this corporations were maked by dominance of their sector domestically, high degree of internationalization and specialization. By 2006 the revenue-GDP ratio of the ten largest corporations was 47.5 percent. As mentioned in the text must activities took place outside Denmark. Still if we never the less agree that the increasingly openness of the economy was an essential contributor to the strengthened economy then the conclusion must be that both national mergers and cross-border acquisitions were essential chapters in the fascinating story of the Danish upswing. Firstly because the national Danish mergers in the early 1970s and late 1980s – which created what later became later TDC, Danish Crown, Arla Foods, Danske Bank and Nykredit Holding – were fundamental as these mergers helped to establish corporations large enough to exploit international expansion opportunities. These opportunities were exactly the opening of the East European markets and – not to neglect the so-called BRIC countries: Brazil, Russia, India and China. In the core of this expansion we cross-border acquisitions more precisely the impressive figure of table nine namely the 81 cross-border M&As in the 11 years from 1995 to 2006 – compared to 33 cross-border M&As from in the 25 years from 1970 to 1995. The Carlsberg story confirms how this global breakthrough resulted from a long and difficult learning process. Carlsberg initially used an almost randomly internationalization strategy based on different contact persons and no ambitions for market dominance rather than an ambition of producing a product which almost could “sell it self”. This

24 strategy came under pressure in the late 1990s when international competitors such as the Dutch brewer Heineken entered foreign markets much more professionally and substantially. Carlsberg redefined it self through cross-border mergers and acquisitions – particularly the large Nordic merger with Orkla in 1999 was important as it marked the dominance of Carlsberg on all Nordic markets and the lucrative and expanding Russian and east European markets. Carlsberg – as the other large corporations – created a professionalized Head Quarters staff which coul insure consistence – not only in production but also in marketing, branding, management and thus the right platform for further expansion. Often through M&As – and these took place after 1994. The hypothesis was that the formula for the post-war economic success of SOEEs consisted of efficient institutions combined with “the corporate factor” defined as a long tradition of “private” economic openness and a corporate capability to define global niches. This paper provides some evidence for the strength of the latter and thus of the importance of cross-border M&As. The real scientific challenge is now to move on with the research and try to combine the explanatory patterns of the national institutional tradition from political economy with the business historical evidence that companies matter.

Bibliography: Binda, Veronica and Iversen, Martin Jes, “Towards a ‘Managerial Revolution’ in European Business? The Transformation of Danish and Spanish Big Business, 1973-2003,” Business History 49 (Summer 2007): 506-30 Boje, Per, Marked, erhvervsliv og stat, (Aarhus, 2004) The Brew, Carlsberg Internal magazine (Copenhagen, 2001-2006) Campbell, John, L., Hall, John A. and Pedersen Ove K. (eds.), National Identity and the Varieties of Capitalism – the Danish Experience, (Copenhagen, Denmark, 2006) CIA, The World Factbook, 2007 (Washington, 2007) Chandler, Alfred D. Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990) Dahlberg, Rasmus; Iversen, Martin; Linden, Trine: Bryggerne og de tre store udfordringer, (Copenhagen, 1999) Danish Statistical Yearbook (Copenhagen, various years) Dansk Industri, Betydningen af SMVer for den danske vækst (Copenhagen, October, 2004) Dierx, Adrienne, Ilzkovitz Fabienne and Sekkat, Khalid eds., European Integration and the Functioning of Product Markets, (Cheltenham, U.K., 2004) The European Commission, Europe 1992 – the Overall Challenge, (Brussels, 1988)

25 Fleet, David Van and Wren, Daniel (2005) , Teaching History in Business Schools, 1982–2003, Academy of Management Learning and Education, vol. 4, #1. Fraenkel, A.: Gamle Carlsberg, (Copenhagen, 1897) Glamann, Kristof: Bryggeren, J.C. Jacobsen på Carlsberg, Copenhagen, 1990. Glamann, Kristof: Bryggeriets historie i Danmark indtil slutningen af det 19. århunderede, Copenhagen, 1962. Glamann, Kristof: Carlsbergfondet, Copenhagen, 1976. Glamann, Kristof: Vores ØL – og hele verdens, Copenhagen, 1997. Greens Aktiehåndbog (Copenhagen, various years) Hall, Peter and David Soskice, Varieties of Capitalism, (Oxford University Press, 2001) Hjejle, Bernt: Hof eller Tuborg, konkurrence og fusion, 1895–1970, (Copenhagen, 1982) Ilzkovitz, Fabienne, Dierx, Adrian, Kovacs, Victoria, and Sousa, Nuno. Steps towards a deeper economic integration: the Internal Market in the 21st century A contribution to the Single Market Review, European Commission Directorate-General for Economic and Financial Affairs, N° 271, (Brussels, January 2007) Innovationsrådet, Den Danske Strategi – Danmarks muligheder i det globale videnssamfund, (Copenhagen, 2004) Johanson, Jan and Wiedersheim-Paul, Finn, The Internationalization of the Firm – Four Swedish Cases, Journal of. Management Studies. (12(3): 1975) pp. 305-322 Jones, Geoffrey, “In Memoriam Alfred D. Chandler Jr., 1918-2007,” Business History Review 81 (Summer 2007): 326-27 Mokyr, Joel, “Successful Small Open economies and the Importance of Good Institutions” in Jari Ojala, Jari Eloranta and Jukka Jalava (ed.), The Road to Prosperity, (Helsinki, 2006). Trustkommissionen, Konkurrencebegrænsninger i dansk erhvervsliv, Trustkommissionens Betænkning nr. 8, (Copenhagen, 1960) Whittington, Richard and Mayer, Michael, The European Corporation, (Oxford, Great Britain, 2000) www.borsen.dk www.corporate-denmark.dk