Deadly Sins of International Business Blog

Last year Maerklin, German manufacturer of high quality toy trains slipped into bankruptcy. As the Financial Times Germany reports, former US rival and market leader in the United States, Lionel has shown keen interest in acquiring the ailing German company. While there seemed to be tangible urgency to find a new owner originally, 2009 has been a surprisingly good year that renders smaller Lionel’s (sales 2009 about US$ 80 mio) offer just not good enough. With about EUR 110 mio in sales last year, Maerklin made it back into the profit zone and is flush with cash. It may have become more attractive for other investors which supposedly include Sun Capital. Ironically, Lionel has been through a bankruptcy itself in 2007 when it was snatched up by investment bank Guggenheim Partners.

German toymaker Steiff, famous for its teddybears and other stuffed animals, announced that it will pull out of the Chinese market soon. Like many other companies, Steiff entered China (in 2004) in an effort to reduce costs and remain competitive with its range of high-quality toys that are often more collectors items rather than toys. From the outset Steiff was battling with low quality manufacturing. Workers didn’t seem to be capable or willing to adhere to Steiff’s strict strict quality standards. Even intensive (and expensive) training has not shown much effect because of high turnover among workers which is quite common in China. When, in addition, wages began to rise, the venture simply didn’t seem to hold its initial promise and Steiff decided to leave China.

Volkswagen just announced that it will acquire a 20 % stake in Suzuki of Japan. The move is expected mainly driven by VW’s intent to increase its presence in the Asian market for small trucks.

German carmaker Daimler announced that it will move part of its C-class production to Alabama. Besides Germany, the C-class has already been produced in two other countries for a while – South Africa and China. The facility in Tuscaloosa, Alabama that so far has specialized in Daimler’s M-, GL- and R-class vehicles. When the production first started in Alabama about 10 years ago it received high acclaim for its high efficiency and novel approach to dealing with cultural differences. Not many difficulties to be expected in this case – too bad for this blog. But hey, who knows? It’s still a German company in the United States!

As the New York Times reports, US-based cable TV operator Liberty Global takes over Germany’s Unity Media for $3.7 bn. A case to watch.

Hold the horses! Stop the presses! Forget all about my previous comments about the GM-Opel-Magna-Sbersk deal because the deal is off. GM announced that it withdraws its prior agreement under which the  Austro-Canadian conglomerate Magna would have purchased Opel from it. Even insiders are still wild guessing about the true motivation for hitting the brakes. Some say that it’s a matter of GM having emerged from bankruptcy flush with cash and therefore don’t need to get rid of Opel any more. Others suspect a tactical move behind this. What somehow puzzles me is a recent photo showing Russian oligarch Oleg Deripaska with Magna International chairman Wolf and GM CEO Henderson in the United States. Deripaska whose automotive company GAZ would have hugely benefitted from the deal has been denied US visas for several years and now has been brought in by special arrangement of the FBI. Word is also that Magna is not really sad about the deal being cancelled fears of jeopardizing good relationships with other customers among the automotive brands kept mounting. What’s interesting is that the GM made the announcement as German chancellor Angela Merkel was about to board a plane back to Germany after an important state visit to the United States. According to German media, this didn’t go down well with the German government which now may be looking into withdrawing commitments for subsidies to Opel.

With the takeover of ailing GM subsidiary by the Austrian-Canadian conglomerate Magna still not being finali, dark clouds are gathering over Germany. Volkswagen-owned Porsche is said to rethink its contracts with Magna for the production of its prestige Boxster model starting in 2010. And also BMW is expressing concerns over its relationships with Magna. As Ferdinand Piech, Chairmen of Volkswagen’s supervisory board put it: “We don’t like it when our suppliers turn into our competitors”. I told you so!

After months of uncertainty and intensive negotiations, GM has announced this week that it will decide a 55 percent stake in it’s European Opel unit to a consortium of the Austrian-Canadian automotive supply conglomerate Magna and its Russian investment partner, Sberbank. 35 % of the shares will remain with GM, and another 10 % will be held by Opel’s employees. Magna’s majority shareholder, Frank Stronach, is coming full circle with this – he started a garage business in Toronto in 1957 manufacturing sun visor brackets for GM and then turned his company into one of the largest players in the automotive world. Having already experienced some difficulties in the Russian and Canadian markets, it’ll be interesting to see how Magna will be able to integrate so many different cultures under its wing – an Austrian-Canadian mothership, a Russian investor, an American shareholder and all of that in a German setting, competing on world markets. First, however, the parties to the agreement have to sign on the dotted line which is not expected to happen before German elections.

What is it with US retailers? Did anybody notice how many retail companies headquartered in the US have failed in international markets over the past decades. After about 8 years of trying to get established, Wal-Mart left Germany in 2006, fashion retailer The Gap pulled out of Germany in 2004, and Pizza Hut defected from Austria after having failed to meet consumers’ taste there. Are these companies’ services and products a simple mismatch with local markets or are the companies too proud and too ignorant?