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Abstract
In 1913 Otto Mønsted A/S, Denmark's leading margarine manufacturer, acquired a majority share in Fennia, a small and insignificant Finnish margarine company. The Danish company had extensive knowledge of all functional aspects of margarine, and had up to 1909 been a dominant player in the British margarine industry. In spite of the massive international experience that had been accumulated by Otto Mønsted A/S the Finnish venture turned into a disaster, because for all their experience the Danish managers committed an impressive range of failures. The work of N. Nohria and S. Ghoshal is applied to the case, and a theoretically consistent analysis is provided. The conclusion of the paper is that the analytical framework of Nohria and Ghoshal serves well in this respect. It is further shown that value-added chain analysis is useful in linking functional failures to a corporate governance perspective. In the final resort, World War I killed off the experiment, but it was doomed anyway. Almost 100 years have passed, but today managers have lessons to learn from this event.
Notes
1. Vide the Otto Mønsted Archive, Danish Business Archive, Aarhus, Denmark.
2. Uno Cairenius to G.A. Horneman, letter of 21 June 1913. Otto Mønsted Archive, Danish Business Archives.
3. Uno Cairenius to G.A. Hornemann, letter of 23 February 1914. Otto Mønsted Archive, Danish Business Archives.
4. N. Helms to G.A. Horneman, letter of 7 July 1914. Otto Mønsted Archive, Danish Business Archives. The author's translation.
5. N. Helms to G.A. Horneman, letter of 5 November 1914. Otto Mønsted Archive, Danish Business Archives. The author's translation.
6. Schildt to Otto Mønsted A/S, 30 June 1913. Otto Mønsted Archive, Danish Business Archives.
7. This section leans heavily on the authoritative work of J.H. van Stuyvesant (1969) on the centenary of the innovation of margarine.
8. Mønsted's private secretary, Mr Holm, to Hornemann, 25 June 1913. Otto Mønsted Archive, Danish Business Archives, Aarhus.
9. This was mentioned in a report to Otto Mønsted Ltd., 8 July 1914. Otto Mønsted Archive, Danish Business Archives. However, it appears that the margarine had been branded as butter!
10. The contingency school dates back to the 1960s and focuses on the design and effectiveness of organisations. Important contributions are Lawrence and Lorsch (Citation1967) and Galbraith (Citation1973).
11. Alternatively, one could make a distinction between normative/cultural control (Baliga & Jaeger, 1984).
12. For a literature review, see Martinez and Jarillo (Citation1989).
13. In Nohria and Ghoshall (1997) the term normative integration is used instead of socialisation.
14. Both of these concepts are by nature multi-dimensional, and it would seem no simple task to define and measure them in order to obtain one unanimous estimate. Further, the two dimensions are likely to interfere: what might be a complex environment to one subsidiary could be a straightforward and simple one to another subsidiary.
15. The case is part of the Otto Mønsted Archives at the Danish Business Archives. The file contains 1050 pages of correspondence etc. between the subsidiary and the HQ. The study of Fennia is published in chapter 10 in Strandskov, Sørensen, and Pedersen (Citation1998).
16. It is well known that Finland a few years later escaped the fate of becoming part of the Soviet empire, but only after a brutal civil war with ‘the reds’ in Finland and their Soviet supporters.
17. One Johannes of Åbo in Finland, at the same time forwarded a similar invitation to Mønsted. This, however, was turned down. Preetzman had wide-ranging plans, including the establishment of oil works, to launch a large-scale attack on the Finnish växtsmör sector.
18. The affirmative letter was mailed on the same day as Horneman received a positive characterisation of Uno Cairenius. The source is unknown, but the evaluation was confirmed in a letter from the Danish General Consul, dated 30 June 1913.
19. Hufvudstadsbladet, 13 June 1913. Copy in Otto Mønsted Archive, Danish Business Archives.
20. At the time, 15–20 tonnes amounted to roughly one-tenth of the daily Danish margarine production.
21. A survey of the concluding points in Horneman's report of 10 July 1913. He further observed that the factory building was too small.
22. Cable of 15 July 1913. In the first place, Cairenius opted for a 50–50 ownership.
23. The relevant authorities were Ekonomiedepartmentet and the Senate.
24. As early as 11 September 1913, the bookkeeper reported to Horneman that Collan and Cairenius would like to see Mr Wahlberg quit the job.
25. Letters from Horneman to Lindgren, 28 July 1913. Otto Mønsted Archive, Danish Business Archives.
26. Unfortunately, production and sales figures were produced on separate sheets and are lost. Occasionally some figures crept into the reports – and have thus been saved.
27. From 1912 Otto Mønsted A/S was involved in a far larger margarine project in the Warszawa suburb Praga. In this case the specialists at the Danish HQ were actively involved in questions of product quality – and deeply engaged in product testing and problem solving.
28. See Horneman's initial report, as well as a number of later comments by Helms.
29. Helms to Horneman on 4 December 1913.
30. Lindgreen to Hormemann, 11 September 1913. Otto Mønsted Archive, Danish Business Archives.
31. Horneman to Cairenius, 22 December 1913. Otto Mønsted Archive, Danish Business Archives. In the second half of 1913 Sartorisio had lost FMK 53,000 on a turnover of FMK 225,000.
32. Helms to Horneman, 17 April 1914. Otto Mønsted Archive, Danish Business Archives.
33. This characterisation of the Finnish partners found expression in Helms' letter to Horneman, 9 March 1914.
34. Otto Mønsted Archive, Danish Business Archives. The author's translation.
35. Vide Helms letter to Horneman, 29 September 1914. Helms' pointed comment is that ‘this would be a money machine’. Otto Mønsted Archives, Danish Business Archives.
36. Chr. Christensen to Horneman, 8 April 1914. Otto Mønsted Archive, Danish Business Archives.
37. Horneman to Helms, 15 January 1914. The letter contains this passage: ‘If Stenius finds it difficult to follow Mr F´s instructions as well as ours, please remind him that we on entering the company reserved as well the share majority as absolute control’.
38. Helms to Horneman, 17 April 1914. The production manager reveals a good sense for marketing philosophy and suggests why margarine has no future in Finland. The last point is particularly interesting, as it suggests that maybe the headquarters of Otto Mønsted A/S had wider perspectives on the Finnish market. Horneman, in the letter of 19 March, aired the possibility of upgrading the business – and the production technique. ‘The present manufacturing technique is fairly primitive, but we admit that very reasonable results have been achieved’. Otto Mønsted Archive, Danish Business Archives.
39. Both letters from Horneman are dated 9 October 1914. Otto Mønsted Archive, Danish Business Archives.
40. This side of Otto Mønsted's activities has been described more in detail in chapter 10 of Strandskov, Sørensen, and Pedersen (Citation1998).
41. This was due to the problems of transportation. Of course, the leading Dutch margarine producers served the British market from factories in Oss, and later Rotterdam. But in this case, infrastructure did not pose much of a problem.
42. Helms' letter of 18 February 1914.
43. Helms to Horneman, 23 February 1914. Otto Mønsted Archive, Danish Business Archives.
44. In the years 1885–88 powerful agricultural interests with a strong foothold in the Danish Parliament fought the new margarine industry. The law of 1888 was a compromise which impeded exports, but left the Danish market wide open for margarine.
45. Almost all of 1913 was spent convincing the Russian authorities that margarine could be advantageously produced by methods developed in the long period following when H. Mége-Mourier's original recipe was patented in Paris (1869).
46. This was initially expressed in the statement of 10 July 1913, which talked of ‘insignificant risk’ in relation to the estimated profitability.
47. An example from 1914: as Sartorisio closed down, its chief agent, one Mr Elfving, offered his services to Fennia. His salary request was FMK 8000 per year – fairly close to that of General Manager Nic Helms. In return he would guarantee sales of 80,000 kg to traditional customers. This possibility was turned down because of the salary. See letters from Cairenius to Horneman on 11 March (in favour of Mr Elfving), Chr. Christensen of 9 March (in strong opposition to him) and Horneman of 25 March – all 1914. The latter was de facto against employing Mr Elfving, but handled the case with the utmost care, in order to keep good relations with the Finnish shareholders.
48. Helms to Horneman, 20 April 1913. While the machinery problems were gradually solved, Helms was never satisfied with the factory building. In August 1914 he expressed discontent with the building itself, but also with the ‘very slow working Finnish masons’. Problems in production management remained a main theme in Helm's weekly reports.
49. This long-drawn-out decision-making process was most noticeable concerning the cylinder problems. It was not until early spring 1914 that Helms actually got the cylinder capacity needed.
50. In a state of unusual openness, Horneman admits, in February 1914, that Otto Mønsted A/S ‘has not been fortunate in purchasing raw materials for Fennia – but we have absorbed a significant part of the losses ourselves’.
51. As is known from other sources, in the pre-war period Russian sunflower oil became increasingly popular as an ingredient in margarine production.
52. It is obvious that in generic Porter terms, the Danes wanted to pursue a broad differentiated strategy: high market shares with two brands including the top one of the industry in terms of quality – the Astra product. Astra reportedly was much to the taste of the Finnish shareholders.
53. The Russian agent Victor Dengin was mentioned above in note 16 as an exporter. Otherwise Mr Dengin served the Russian navy in Helsinki as well as the local Russian population.
54. One consequence of the loose management of agents was considerable amounts of returned, unsold margarine from provincial retail shops. On 17 April 1914, Helms reported an amount of 700 kg from just one provincial town – Wiborg.
55. In some cases it was left in the front window to melt in the sunshine.
56. Reporting to Horneman, Helms reproduces his three golden rules in a letter of 19 November 1913. Otto Mønsted Archive, Danish Business Archives.
57. In this article branding problems are left out. But again the marketing side pushed for a number of brands, even regional ones. This was self-defeating in a comparatively small business like Fennia – and a rather small industry like margarine in Finland. The archives also contain a number of discussions on the communication policy. One gets the impression that for all its experience the Danish side was often too passive. Again, this perspective has been left out here.
58. Helm's opinion was that only Fennia gave such favourable return deadlines for retailers.