: from exporter to an integrated multinational enterprise Martin Jes Iversen and Andrew Arnold

Carlsberg's move from strong domestic 1869, Jacobsen wrote that he was send- player to exporter occurred reasonably ing a few crates of Bavarian beer left over early on in the brewery's history. During from a batch brewed for Theilemann to the 1860s trial exports to Sweden and the English East Indian ports. This was Iceland began and by the end of the followed by some crates being sent to decade beer was being shipped beyond the Danish colonies in the West Indies the Nordic region. Exports to the U.K. and to Rangoon, from where they would were initiated in 1868 with dark Bavarian be delivered to India, China and perhaps style 'lagered' or matured beer being sent even Australia. 'I do not expect that to a Danish merchant, Theilemann, in Bavarian beer will be a sought-after Leith near Edinburgh. The first contact in export article in India, but it is always Edinburgh was made by Jacob Christian interesting to discover whether it can Jacobsen's son, Carl, who spent time at withstand the journey,' he noted1. the city's J.W. Younger brewery in 1868- 69 as part of his four-year apprenticeship In 1873, in a letter to a brewer in Odense, in breweries around Europe. Through his he suggests that if a single brewery could friendship with Theilemann, Carl recog- supply the export trade he would be will- nised the potential of the Scottish market ing to support a consortium to build one and encouraged his father to dispatch and 'leave you the advantages, keeping beer to be sold locally. the pleasure for myself'.2 According to Jacobsen's biographer, A. Fraenkel, the J.C. Jacobsen, however, was concerned decision to begin exporting was less to that expanding production of his precious do with the search for profitable opportu- lager beer would have detrimental effects nities and more to do with 'national honour'. on its quality. He believed that production Jacobsen saw it as his duty to advance had a natural limit and brewing more to the name of by selling products satisfy overseas markets would result in that were of the highest quality that would a drop in beer quality. He had little faith in reflect well on the country's reputation. the commercial value of exports, seeing them more as an experiment than a With one eye firmly on keeping the home viable commercial venture. In a letter in market well-supplied and the other on the

Brewery History Number 131 51 Source. Brewers' Journal15thMay 1889. Figure 1.Jacobsen's NewCarlsberg Brewery , .

52 Journal of the Brewery History Society success of English and German brewers the introduction of Pilsner beer) that exporting beer to their colonies, exporting began in earnest when Jacobsen decided that Carl would begin Tuborg's director, Phillip W. Heyman, his brewing career with English-style started to use the many overseas con- beers. However, this was not due to any tacts cultivated through his butter export great love of English beer, he admitted in company. Like Carlsberg, Tuborg had a letter in 1855 that his stay in London little direct contact with foreign sales, was made difficult by a 'lack of decent preferring to work through trading compa- beer to drink', but because he was a nies such as Denmark's Det Østasiatiske great admirer of English methods of Kompagni (East Asiatic Company) and rational production and the advantages various Hamburg merchants. gained from the resulting beer’s long shelf-life. Despite Jacobsen's reservations, exports at Carlsberg grew quickly. By spring Ever the perfectionist, Jacobsen worried 1870, Carlsberg had orders of 2,300 that his beer would not reach its destina- barrels ready to send to Scotland and tion in a condition he would be proud of. England and in 1885 sales had reached Yet, as production techniques improved around 10,000 hectolitres.4 with the introduction of steam boiling and bottling, he grew more and more confi- Following the split between father and dent in his beer, displaying it in the son, Carl Jacobsen's 'New Carlsberg' World's Fair in Vienna in 1873. He brewery began to export a new lighter received acclaim for his success in steam beer rather than the dark Bavarian beer. boiling where others, including the great This type became the foundation of Munich brewer Gabriel Sedlmayr, had Carlsberg's later expansion and by 1914 failed. Bottles of Carlsberg beer were Carlsberg alone exported 42,322 hec- also praised, not least because they tolitres of beer.5 During the First World came via Singapore, Rio and Valpariso, War, exports fell away to almost nothing carrying the seal of the Austrian consul and even by 1925 they had only reached as proof of their long journey.3 It was the 25,000 hectolitres. In an article in start of Carlsberg's international reputa- 's yearbook of tion as a high-quality beer and would 1926, Director Poul C. Poulsen blamed drive its expansion. poor demand, an increase in the number of domestic breweries and Japanese In the same year, Tuborg opened its brewers who supplied 'Carlsberg Beer' to brewery north of Copenhagen. In con- China and Siam complete with perfectly trast to Carlsberg, Tuborg was founded forged labels! specifically as an export brewery and had its own bottling plant, but sales were slow In 1924 Carlsberg began to consolidate to take off. It wasn't until the 1880s (and the various export tasks that until then

Brewery History Number 131 53 had been looked after by a single, lowly ment in new breweries could take place as office worker, although it wasn't until long as this occurred outside their main 1934 that an Export Department was cre- markets. This gave rise to brewery proj- ated with its own office, manager and two ects in Turkey and Iran for Tuborg in 1967, assistants.6 In these inter-war years and Cyprus (1967), Malawi (1968), Brazil Carlsberg also established three distribu- (1970) and Malaysia (1972) for Carlsberg. torships, in Edinburgh, Goole (Yorkshire) A merger between Carlsberg and Tuborg and London, all selling the same beer became inevitable. According to the for- using a standardised label. The U.K. was mer chairman of the Carlsberg still the only market where Carlsberg had Foundation, Kristof Glamann, 'The two a direct distributor arrangement; else- breweries almost blocked each on the where exports were handled by the East international market. The German brew- Asiatic Company. eries had started to merge and we feared that the Dutch would acquire in Denmark. Immediately before the Second World With the merger with Tuborg we gathered War, Carlsberg exported 64,295 hec- our strength and started our expansion tolitres of beer, with 39,717 hectolitres seriously'.7 sold to the U.K. and 24,578 hectolitres to the rest of Europe and other markets. In the years after the merger, it was no Once again war stopped almost all longer just exports that counted towards exports and it was not until November sales in foreign markets. Licensing deals 1945 that the first exports were sent to became more important as a source of Belgium. By 1947, Carlsberg had both income and volume. In 1970, exports achieved a new export record, selling made up only around 24% of total sales 68,254 hectolitres, although only 4,616 and sales from licence agreements were hectolitres went to the U.K. negligible. However, during the 1970s and 1980s sales outside Denmark, both from exports, licence deals and investments, The restrictive cartel agreement of 1903 rose rapidly as a percentage of total sales. Sales of Carlsberg and Tuborg pro- While the terms of the 1903 agreement duced outside Denmark surpassed sales between Carlsberg and Tuborg gave a in the home market for the first time in framework for co-operation within 19768 and continued to grow. From 24% Denmark, there was no agreement con- in 1970, it climbed to 60% in 1980/81 and cerning co-operation in international mar- 90% in 1999/2000. By that time Carlsberg kets. In the 1950s and early 1960s exports and Tuborg products were available in grew steadily and Carlsberg and Tuborg more than 140 countries. found themselves in growing competition in Belgium and the U.K. To avoid the situ- Exports as a percentage of overseas ation deteriorating they agreed that invest- sales fell throughout this period. The

54 Journal of the Brewery History Society Before 1975 1976-80 1981-85 1986-90 1991-94 1995-99

Malawi Italy Hong Kong Spain Portugal Sweden

Turkey Germany Paraguay Finland

Brazil Nepal Thailand Israel

Malaysia Greenland Vietnam India

U.S.A. Sri Lanka Romania

U.K. Croatia Poland

China Russia

Table 1. Countries with Carlsberg licensing partners.

Source. Carlsberg.

move towards licence agreements was keeping the two organisations separate driven by the need to cut costs after the was to maintain 'power and vitality', oil crisis of 1973, as fuel costs increased although it was also necessary to ensure so too did the cost of exporting beer. It visible proof to the authorities of the was cheaper to export know-how in the competition that existed in the Danish form of licensing agreements, while a market. However, it also helped prevent licensing agreement together with a the development of a single head office minority stake allowed greater access to capable of rational and strategic deci- the partner's distribution network. sions at home and abroad. Marketing Increasing unrest among Danish labour was a particular challenge. Carlsberg unions also meant that the supply from and Tuborg were often available in the Denmark had become unreliable. same markets, competing for the same customers and often with different Although the merger solved immediate licence brewers for the two brands. problems, there were still differences that needed to be resolved between the two The lack of clarity in marketing internation- former competitors. Throughout his time ally was also a result of an organisational at the company C.E.O. Poul Svanholm structure that was far more suited for an kept two offices - one at Carlsberg in export and licensing company than it was and one at Tuborg in Hellerup - to for a global brewer. Just as De Forenede ensure that both organisations felt them- Bryggerier (United Breweries) had sepa- selves equally treated. His rationale for rate sales organisations for Carlsberg and

Brewery History Number 131 55 9

8

7 Less than 20% 6

5 Betw een 20-50% (no control) 4 Betw een 20-50% (management control) 3 Over 50% 2

1

0

1967 1969 1971 1973 1975 1977 1979 1981 1983 1985

Graph 1. Ownership of breweries - 1st phase. Carlsbergs ownership shares of subsidiaries, 1967-1985.

Source. Carlsberg, various reports.

Tuborg in Denmark, it also had separate We would like to enter those markets where organisations for its overseas business. we see an opportunity for a growth in beer Carlsberg International looked after sales so we can get a share of that growth. export sales and licensing agreements We are not so interested in gaining sales by for Carlsberg, while Tuborg International taking market share from other breweries. did the same job for Tuborg. A third organ- That's not our way. We have, by the way, a isation, United Breweries International, policy of going to the local brewers and telling looked after foreign breweries in which them that we intend to establish ourselves in United Breweries had a shareholding. the country.9

Expansion abroad throughout the 1970s The choice of partners and investment and 80s was still driven by the idea that type was governed by a mixture of tradi- Carlsberg and Tuborg were high quality, tional attachments, chance and some high priced products that did not take conscious strategic choices. Investment market share from established, domestic in the breweries in Hong Kong and breweries. This policy was described by Malaysia was undertaken with its old Carlsberg's managing director Poul export partner the East Asiatic Company, Svanholm in an interview in 1983: while others were a development of exist-

56 Journal of the Brewery History Society 25

20 Less than 20%

15 Betw een 20-50% (no control)

10 Betw een 20-50% (management control) Over 50% 5

0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Graph 2. Ownership of breweries - 2nd phase. Carlsbergs ownership shares of subsidiaries, 1986-2001.

Source. Carlsberg, various reports.

ing strong export markets such as the agreement and the total share seldom U.K. However, many of the partnerships rose above 30% and was more typically in this period were a result of interested under 20%.11 In 1996, the company held breweries contacting Carlsberg and a majority in only eight of the 27 foreign enquiring about the possibilities of breweries it had an interest in. licensing the beer.10 This policy of taking Carlsberg's technical organisation was a small stake was dubbed a 'business one of the few common elements. card' strategy as it allowed Carlsberg to Licensing agreements included access to quickly gain a foothold in a market with Carlsberg's laboratory research and qual- limited investment, although it also meant ity control, which gave its partners an that Carlsberg rarely had a majority in the advantage on their home markets as the companies concerned, and therefore little technology was applied to local beers.12 management control. But it also underlined the company's focus on the ability to produce a 'quality' In the period up until 1997 it was rare for product rather than sell it. Carlsberg to take a majority stake in a brewery. When it did invest in a brewery, Technical know-how was formalised with it generally did so as part of a licensing the creation of Danbrew, a 100%-owned

Brewery History Number 131 57 subsidiary that took the knowledge from under its nose, despite Carlsberg's gained from building breweries in existing 11% share in the brewery Northampton in the U.K. and Fredericia in acquired in connection with a licensing Denmark, and used it to construct brew- agreement. In effect, Carlsberg was eries abroad - often in connection with a thrown out of Spain, Cruzcampo was one licensing deal. of its top ten most profitable breweries, and the business card strategy was shown to be ineffective in the face of The end of the business card strategy growing worldwide consolidation in the brewing industry. The year 1997 marked several important events in Carlsberg's history as a compa- The Carlsberg Foundation opened the ny. It was the year it celebrated 150 years way for international expansion in 1999 as a brewer, it was the year that Poul by abandoning the requirement that it Svanholm retired and it was the year that hold a minimum of 51% share in the marked the end of the business card Carlsberg brewery. In return it acquired a strategy. In the time since the merger, the 'significant interest' in subsidiaries owned policy of expanding through licensing and by Carlsberg A/S. The obligation to have minority partnerships had resulted in a a minimum of 51% share holding had patchwork of holdings across the world, been criticised by stock market analysts but with little strength outside the top five as it limited Carlsberg's ability to attract markets for both the Carlsberg and capital necessary for expansion. This was Tuborg brands. The situation was made underlined in March 2000 when Carlsberg worse by the fact that in many of these missed out on obtaining the Kronenbourg markets Carlsberg was a minority share- brewery because its owners, the French holder and where it did have the majority, conglomerate Danone, wanted part pay- profitability was poor. Added to this was ment in shares. Carlsberg's ownership an international organisation that was lit- structure made this sort of deal impossible. tle more than an export sales function with negligible or no control over partners The deciding step in the brewery's future or their production. Despite the fact that came in May 2000, when Carlsberg and international sales had outstripped Orkla announced the creation of a new domestic sales since 1976, the interna- brewing group - Carlsberg Breweries - tional organisation was still subordinate made possible by the Foundation's deci- to a Danish-dominated administration sion. In one move, Carlsberg secured its that spent a proportionately larger Nordic market by acquiring the leaders in amount of time on managing domestic Norway and Sweden, and gained access issues. Carlsberg's weakness was under- to the booming central and eastern lined in 1997 when the Dutch brewer European markets through a 50% share Heineken bought Cruzcampo in Spain in Baltic Beverage Holding (B.B.H.).

58 Journal of the Brewery History Society 35

30

25 Less than 20%

20 Betw een 20-50% (no control) 15 Betw een 20-50% (management control) 10 Over 50%

5

0

2001 2002 2003 2004 2005 2006

Graph 3. Ownership of breweries - 3rd phase.Carlsbergs ownership shares of subsidiaries, 2001-2006.

Source. Carlsberg, various reports.

Orkla's impact on Carlsberg was to be Additional managers brought in by the more than a simple securing of merger allowed Carlsberg to take on Carlsberg's Nordic backyard. The ambitious tasks such as the turnaround Norwegian conglomerate accelerated the of the Swiss brewery Feldschlösschen process of internationalism by providing and spending time on the Polish and the management aptitude that Carlsberg Turkish businesses.13 A major restructur- lacked and bringing in tools that would ing of Carlsberg's head office took place help Carlsberg manage its existing brew- in November 2001 by one of the new eries and make it easier to take on more. vice-presidents recruited from Orkla In the first two years, the new organisa- which removed the remaining 'export tion began the job of integrating I.T., sales' characteristics. However, the new accounting, marketing, production and co-operation was not without its teething logistics, starting with the Nordic region. troubles. An unfortunate comment from Brewery acquisition continued, driven by Orkla's Chief Executive Officer, Jens P. the merger and in the years 2000-2002 Heyerdahl, that suggested the deal was Carlsberg Breweries increased its share merely the first step towards an acquisi- or bought outright eleven breweries and tion of Carlsberg was not popular with the entered a major joint venture in Asia. Carlsberg Foundation and began the

Brewery History Number 131 59 process that led first to the dismissal of Carlsberg finally became the focus of Flemming Lindeløv, who was seen to be branding activity for the company. pro-Orkla, and finally to the decision to buy Orkla's 40% share of Carlsberg Increasing focus on marketing had lead Breweries. in 2001 to a project called 'Brand Spirit' to rejuvenate Carlsberg and ensure global consistency in the way the brand was Carlsberg: the global brewer positioned and marketed. This project now took off under the Must Win Battle Lindeløv’s successor as C.E.O., Nils programme. The scheme reflected the Smedegaard Andersen, took the oppor- strategy of having a broad portfolio of tunities offered by the creation of local brands supported by an internation- Carlsberg Breweries to shape it into a al premium brand, Carlsberg Beer. It truly global enterprise and he can rightly marked a change of policy from previous be called the architect of the modern years where Carlsberg existed in a vacu- Carlsberg. um, with few or no connections to local beers. Now, Carlsberg and Tuborg were In spring 2002, Carlsberg Breweries' new part of a portfolio that could be managed international focus was underlined with in terms of cost and sales efforts. its first international management meet- ing held outside Denmark, bringing This new approach was only possible together managers to discuss the recent with tighter management control over past and future of the Group. This result- Carlsberg's majority-owned subsidiaries, ed in a plan based on the creation of six especially with regards to production and 'Must Win Battles' that were seen as vital distribution. From now on it would be for the success of the Group:14 marketing and sales that would drive pro- Carlsberg's response to the changing duction, rather than vice-versa. conditions was a global strategy in terms of marketing, corporate culture and pro- Operational Excellence was the name duction/logistics. given to a programme of improvements to reduce the cost base and improve In 1987 Carlsberg had replaced the efficiency that was born out of an interna- United Breweries as the official company tional benchmarking study in 2001. name. This was followed by a growing Carlsberg described it as a move from tendency to promote Carlsberg as the 'Probably the best beer' to 'Probably the main international brand, with Tuborg as best beer company'. The Excellence pro- a regional player, apart from in several of gramme, covering production, administra- its stronger markets in Eastern Europe.15 tion, commercial skills and procurement, However, it wasn't until after the so-called was the first of its kind in the company 'Ten Principles' strategy in 1997/8 that and represented a clean break from

60 Journal of the Brewery History Society Carlsberg's previous 'hands-off' manage- local brands. Production capacity was ment style. It was one of several projects, massively under-utilised and Carlsberg such as joint I.T. systems and financial sold 75% of the brewery to the local service centres, that began to be run Chinese market leader, Tsingtao, at a across Carlsberg's businesses, rather loss. than from the head office and out. Where previously new breweries would be more It returned to the Chinese market in or less untouched by head office, it 2003 with a strategy of building up a became more common to change their network of local breweries focusing on names to Carlsberg and receive an injec- the mainstream beer market. The idea of tion of managerial capital. introducing Carlsberg as a niche brand survives, but only within a broader, owned portfolio. Conclusion Since the large merger in 1970, It is perhaps in Carlsberg's rapid advance Carlsberg thus underwent a tremendous in China - especially western China transition from a small exporter to a where it now has control over six brewery global player with majority-owned and groups and 290 breweries - that we can controlled breweries in most parts of the see the results of Carlsberg's transforma- world. Carlsberg's 'business cards' have tion from exporter to global player. been converted to bricks and mortar Carlsberg has been present on the while further major acquisitions in the Chinese market since the 1890s, largely Nordic region (Ringnes, Pripps, distributed by the East Asiatic Company. Sinebrychoff), Eastern Europe (B.B.H.), In 1982, the two companies formed a Germany (Holsten) and China have joint venture to build Carlsberg Brewery helped make Carlsberg the fastest-grow- Hong Kong. In 1995, the industrial con- ing international beer brand of the early glomerate Swire Group was brought into 2000s the partnership and all three took over the Huizhou Brewing Company in Guangdong, on the Chinese mainland. References Carlsberg and Swire bought out the East Asiatic Company, leaving the remaining 1. Steenstrup, J. (1922) Carl Jacobsen's Life partners with 51% and 49% holdings and Deeds. Carlsberg Foundation: respectively in the Hong Kong and Copenhagen. pp 77-78. Guangdong breweries. In 1998, 2. Holbeck, H.St. Et Hundredaars Minde in Carlsberg opened a state-of-the art brew- ibid. p.267. ery in Shanghai, eastern China, only to 3. Jacobsen, J.C. (1911) Et Mindescrift 1811 have their growth ambitions frustrated by -1911. Carlsberg Foundation: Copenhagen. Chinese drinkers' preference for cheaper 4. Nielsen, J.H. (1977) Carlsberg Exportens

Brewery History Number 131 61 udvikling fra 1868-1974. Dissertation. Fraenkel, A. (1897) Gamle Carlsberg 1847 - 5. Glamann, K. (1976) Carlsbergfondet. 1897. Hagerup: Copenhagen. Rhodos: Copenhagen. Glamann, K. (1990) Bryggeren, J.C. 6. Nielsen, J.H. (1977) op. cit. Jacobsen på Carlsberg. Gyldendal: 7. Interview with Kristof Glamann, Børsen Copenhagen. 1993. Glamann, K. (1962) Bryggeriets historie i 8. Carlsberg Annual Report 1977. Danmark indtil slutningen af det 19. århun- 9. Interview with Poul Svanholm, Måneds derede. Gyldendal: Copenhagen. Børsen, August 1983. Glamann, K. (1976) Carlsbergfondet. 10. Interview with Poul Svanhom. Rhodos: Copenhagen. 11. Figures from Carlsberg. Glamann, K. (1997) Vores ØL - og hele ver- 12. Jørgen Buch article Jan 26, 1973. dens. Gyldendal: Copenhagen. 13. Interview with Nils Smedegaard Hjejle, B. (1982) Hof eller Tuborg, konkur- Andersen, The Brew, spring 2003. rence og fusion, 1895-1970. Nyt nordisk: 14. The Brew (Carlsberg Breweries' internal Copenhagen. magazine) spring 2003. Konkurrencebegrænsninger i dansk 15. Glamann, K. (1997) Vores ØL - og hele erhvervsliv. Trustkommissionens Betænkning verdens. Gyldendal: Copenhagen. nr. 8, 1960. Johanson, J. & Wiedersheim-Paul, F. (1975) ‘The Internationalization of the Firm, Four Bibliography Swedish Cases.’ The Journal of Management Studies. October, Vol. 12, Iss. 3, pp.305-22. Boje, P. & Kallestrup, M. (2004) Marked, McCraw, T.K. (1995) Creating Modern erhvervsliv og stat. Aarhus University Press: Capitalism. Harvard University Press: Aarhus. Cambridge, MA. Dahlberg, R. Iversen, M. & Linden, T. (1999) McCraw, T.K. (1975) 'Regulation in America: Bryggerne og de tre store udfordringer. A Review Article.' Business History Review. Bryggeriforeningen: Copenhagen. 49, No. 2 (summer). pp.159-183. Fleet, D. Van & Wren, D. (2005) Teaching Nüchel Thomsen, B. (1973) Tuborg's History in Business Schools, 1982-2003. Bryggerier A/S 1873 - 1973. Tuborg Academy of Management Learning and Breweries A/S: Copenhagen. Education, vol. 4, No. 1.

62 Journal of the Brewery History Society