Special Report: Foreign Owners

By William McWhirter

What could be more American than Good Humor ice cream? Or the 60-year-old fizz of Alka-Seltzer? Or the Thermos bottle? Well, these familiar trademarks now belong to someone else: the Dutch and the British, the West Germans and the Japanese, respectively. So do such U.S.-born corporate names as Smith Corona, Brooks Brothers and Pillsbury (all British); General Electric TV sets and home electronics (French); Wilson Sporting Goods (Finnish); and Carnation (Swiss). Last year foreign investors acquired nearly 400 U.S. businesses, worth a total of $60 billion. That was 61% more than the previous year and represented a drastic quickening of the pace five years earlier, when overseas buyers took over 111 companies, valued at just $2.2 billion. Foreign owners now control more than 12% of all U.S. manufacturing assets and employ 3 million American workers.

For those employees and millions more whose companies are vulnerable to takeover, the influx of bosses from abroad raises some unsettling questions. Will the new managers ask their employees to live by a foreign corporate culture? How successfully will they cope with the American marketplace? In the long run, will the new bosses bring growth and prosperity -- or losses and layoffs?

The answer at this point is disappointing, according to TIME interviews with dozens of executives and consultants involved in such takeovers. Many, if not most, foreign buyers are so far failing to meet the glowing expectations they set for their U.S. acquisitions. In many cases, struggling U.S. subsidiaries are being kept alive by financial transfusions from parent companies overseas.

Why has the U.S. proved so treacherous for foreign owners? For one thing, mergers in general are risky propositions; an estimated 50% of domestic U.S. takeovers later end in divestitures. When a foreign business attempts a long- distance marriage with a U.S. company, the obstacles to success rise even higher. One problem is the ambivalence of U.S. workers toward their foreign bosses. More than 75% of U.S. adults surveyed in a poll conducted last spring for a group of Japanese firms agreed that foreign acquisitions have boosted U.S. economic growth, employment and competitiveness. Nonetheless, nearly 75% viewed the increased foreign presence as undesirable.

Several foreign owners have enjoyed almost instant success with the U.S. companies they took over. One such corporation is Bertelsmann, the West German media giant, which has engineered turnarounds at RCA Records and Doubleday publishing. But a surprising number of other foreign investors have so far proved luckless on U.S. turf. Among the pitfalls found in TIME's survey:

CULTURE SHOCK. After a company is taken over, employees are preoccupied by a sense of uncertainty about the culture of the new owners. "You don't quite know their values, where they're coming from or what they really have in mind for you," says Walter Scott, who served as a director of Pillsbury and later ^ as U.S. managing director of its acquirer, Britain's Grand Metropolitan. "There are lots of inducements to start working on your resume." Scott is now a professor at Northwestern University's Kellogg Graduate School of Management.

A SUPERIORITY COMPLEX. Many new acquirers start lecturing too soon. "You think because you have been successful in your own company abroad, you can run a U.S. firm the same way just because you have acquired the company," says Michel Besson, the French chief executive of CertainTeed, a maker of building materials based in Valley Forge, Pa. "You tend to underestimate their strengths and overlook your own weaknesses." An executive of a West German- owned U.S. subsidiary recalls a dramatic showdown: "Their people would come here and put down our people, our work ethics. I had a little problem with that. I finally slammed my door shut and told my German counterpart that I didn't need him telling us how good he was and how weak we were. We never had any problems after that."

COLONIAL ATTITUDES. When Britain's Blue Arrow employment firm took over the much larger Milwaukee-based Manpower in 1987, the new owners made little effort to understand the market they were entering, according to Manpower chairman Mitchell Fromstein. He even took offense at the Blue Arrow company newsletter, which he refused to distribute to his 1,400 U.S. offices because it was "poor in quality, provincial and British in nature with little articles about the soccer team in South Wales." Friction grew to the point that Blue Arrow tried to fire Fromstein, but in a battle for control he wound up in charge of the combined company. Local animosity toward Blue Arrow was so pervasive that Milwaukee's major league baseball team, the Brewers, flashed the news of Fromstein's victory on the scoreboard during a home game.

COMMUNICATION BREAKDOWN. John Nevin, the crusty chairman of Firestone, gives credit to Japan's Bridgestone for bailing out his company with a $2.6 billion buyout last year. But that has not removed the vast differences in the ways the two companies communicate. "I'm seen as terribly abrupt and abrasive," says Nevin. "If you're very direct, you're admired in American culture. The Japanese culture is much more subtle. I can never get them to tell me what they actually mean, and they may think I'm rude and crass. But both sides are only behaving in ways familiar to their own cultures."

Such conflicts crop up in some of the most basic rituals of working life. "If an American wants an answer, he'll pick up the phone," says Kai Lindholst, a managing partner of Egon Zehnder, an international consulting firm. "A European will write a memo. The phone call will seem overly aggressive and pushy to the European manager, but the American needs to convey a greater sense of urgency because competition in the U.S. is so tough."

SEPARATE SOCIAL CIRCLES. Many U.S. employees feel left out of the established personal networks that exist in traditional European and Asian corporations. "Japanese managers work ten-to-twelve-hour days, then socialize until midnight," says James Lincoln, professor of international business at the University of California, Berkeley. "A lot of serious business is done, which cuts out the American manager and stirs up residual feelings of hurt and distrust."

LACK OF FAIR PLAY. Some foreign managers, especially those from relatively homogeneous countries, have outmoded, stereotypical attitudes toward women and minorities. Britain's Grand Met angered Pillsbury's minority employees when the new owner's cost-cutting drive led to the dismissal of several blacks in middle-management jobs, including the head of its affirmative-action program. A female executive of a company bought by a European firm says she was suddenly expected to serve coffee at the board meetings. "They will never look at me as a member of their management as long as I'm here," she decided. The company lost a talented executive: she quit.

THE ENIGMATIC AMERICA. Some foreign marketing wizards, accustomed to small and uniform markets, underestimate the diversity and scope of the U.S. In Las Vegas, the Japanese investors who own the Aladdin and Dunes Hotel casinos are struggling because their management techniques do not work well in such an eccentric environment. "They do everything by group consensus," gripes one of their American casino managers. "It's not the American way of doing things. In this business, you have to make decisions fast." Miles Inc., the manufacturer of Alka-Seltzer, based in Elkhart, Ind., suffered a drastic downturn in market share and profits when its new West German owner, Bayer, decided to pitch the product as a remedy for young-professional stress, abandoning its traditional identity as a cure for blue-collar hangovers. Bayer learned its lesson and switched back. After nearly a decade of similar frictions, including a 50-day strike in 1983, Miles' fortunes are effervescent again; earnings doubled over the past two years.

A prime reason foreign owners are having trouble is that so many are beginners on U.S. soil. Some 85% of foreign-owned industry in the U.S. has been acquired just within the past decade. Like American managers who landed in postwar Europe, foreign bosses in the U.S. will have to learn the right balance between leadership and accommodation. By the same token, their American workers in some cases could be a bit more hospitable. "Hoping they will go away," says Robert Kania, a manufacturing vice president of Miles, "is not productive." If foreign investors and U.S. workers could forge a better alliance, the result might be a thriving industrial melting pot.

With reporting by Michele Donley/Chicago