How Eureka Forbes invented a recipe for integrating its Swiss acquisition
When
Eureka Forbes acquired Lux International, the Zurichbased direct
selling arm of Electrolux last year, chairman Shapoorji Mistry needed
a mechanism to integrate the two companies.
Eureka Forbes had bought a 25 per cent stake in Lux in 2011, but they had never managed to leverage their synergies is any big way. The two had partied together — big, boisterous four-day sales conferences in exotic resorts — but this had failed to translate into a working relationship.
Eureka Forbes had bought a 25 per cent stake in Lux in 2011, but they had never managed to leverage their synergies is any big way. The two had partied together — big, boisterous four-day sales conferences in exotic resorts — but this had failed to translate into a working relationship.
Now
that the stake had been increased to 100 per cent, at a cost of $300
million, Mistry (who happens to be the younger brother of Tata Sons
chairman Cyrus Mistry) needed tangible business results. He wanted
the newly merged combine to set in motion a process that would turn
Eureka Forbes into a direct sales giant and a global leader in water
purification.
To this end, Mistry created the Forbes Lux Centre of Excellence (FLCE), described as a 'strategic think tank in which top management of both companies discuss and propose solutions on topics of common interest.'
The eight-member think tank has four representatives each from both companies and has so far met thrice, in Zurich, Mumbai and Dubai. It's worked well and is now a best practice that others going in for overseas acquisitions could possibly emulate.
To this end, Mistry created the Forbes Lux Centre of Excellence (FLCE), described as a 'strategic think tank in which top management of both companies discuss and propose solutions on topics of common interest.'
The eight-member think tank has four representatives each from both companies and has so far met thrice, in Zurich, Mumbai and Dubai. It's worked well and is now a best practice that others going in for overseas acquisitions could possibly emulate.
"The
softer aspects of a merger can sometimes be the hardest," says
Suresh Goklaney, executive vice chairman, Eureka Forbes. "We
could have played the boss and issued directives, but we didn't want
to do that. We wanted their buy-in so both companies could remain
independent and become one at the same time. FLCE has helped shape
the conversation."
The FLCE idea is not without risk. Given the cultural divide and the egos of high grade sales people, the discussions might easily have become quarrelsome. The concept paper prepared ahead of the first FLCE meeting sought to address this by laying down certain principles — "pay attention to feelings and emotions of others", "avoid judgment", "respond from both your head and heart" — as well as a style-list for participation.
The first meeting began on a light note, with each member presenting a "Coat of Arms", with Goklaney presenting his persona in a series of slides, starting with one that said "patriotic Indian born in Pakistan" and ending with "salesman first, salesman last." He says: "It all depends on how you steer a meeting. If your intentions are honorable, it will work."
Though both are primarily direct sales companies, Lux and Eureka Forbes have very different cultures. Lux (annual sales: $220 million) has no manufacturing and is wholly focused on direct sales. The average age of its salesmen is 45 and their compensation is through commissions. Most of them drive Ferraris as they go door-to-door, selling high-end home appliances, which include a 1,500 vacuum cleaner.
Eureka Forbes (annual revenues: $300 million), on the other hand, is a manufacturing company which now has a sizable retail presence, with direct sales accounting for only 45 per cent of revenues. The average age of its salesmen is 25 years and they mostly drive motorcycles. These differences are typical of the developed-developing world divide and the potential for misunderstandings are many.
Reto von der Becke, CEO of Lux International, recalls making dinner reservations at Zurich's best Indian restaurant after the first FLCE meeting and then finding his Indian counterparts to be far more interested in a Swiss fondue meal.
The miscalculation was based on the assumption that Indians might find Swiss food to be as difficult to handle as the Swiss find spicy Indian food. "Food is one of the many cultural differences, but we complement each other perfectly," says Reto. "We operate in two wholly different geographies, with very different products, so there are big opportunities if we can combine our strengths."
Introducing Forbes products into Europe and Lux products into India is a way to begin, but it is not as easy as it sounds. Lux has identified Hungary and Spain as the two countries best suited for selling Eureka Forbes water purifiers, but the product has to be re-designed to suit European aesthetics.
The company is planning to market an under-the-sink version in Europe, which requires more complicated plumbing, but is expected to suit European consumers who don't like their water purifiers to be visible. And there's the fact that tap water in Europe is fairly safe and water purifiers are not a must have. But Goklaney is actually quite gung-ho about this: "That most Europeans don't have water purifiers means it's a big market. After all, bottled water sells in big quantities there."
A more basic problem is convincing Lux's sales force to embrace India-made home appliances, which have no reputation to speak of in Europe. Countries like Switzerland also require formal state certification for water purifiers, which Lux is in the process of procuring. "It wasn't easy, but the FLCE has helped convince the Lux management of the benefits of sourcing products from India," says Marzin Shroff, CEO Direct Sales and Senior VP, Marketing.
The FLCE idea is not without risk. Given the cultural divide and the egos of high grade sales people, the discussions might easily have become quarrelsome. The concept paper prepared ahead of the first FLCE meeting sought to address this by laying down certain principles — "pay attention to feelings and emotions of others", "avoid judgment", "respond from both your head and heart" — as well as a style-list for participation.
The first meeting began on a light note, with each member presenting a "Coat of Arms", with Goklaney presenting his persona in a series of slides, starting with one that said "patriotic Indian born in Pakistan" and ending with "salesman first, salesman last." He says: "It all depends on how you steer a meeting. If your intentions are honorable, it will work."
Though both are primarily direct sales companies, Lux and Eureka Forbes have very different cultures. Lux (annual sales: $220 million) has no manufacturing and is wholly focused on direct sales. The average age of its salesmen is 45 and their compensation is through commissions. Most of them drive Ferraris as they go door-to-door, selling high-end home appliances, which include a 1,500 vacuum cleaner.
Eureka Forbes (annual revenues: $300 million), on the other hand, is a manufacturing company which now has a sizable retail presence, with direct sales accounting for only 45 per cent of revenues. The average age of its salesmen is 25 years and they mostly drive motorcycles. These differences are typical of the developed-developing world divide and the potential for misunderstandings are many.
Reto von der Becke, CEO of Lux International, recalls making dinner reservations at Zurich's best Indian restaurant after the first FLCE meeting and then finding his Indian counterparts to be far more interested in a Swiss fondue meal.
The miscalculation was based on the assumption that Indians might find Swiss food to be as difficult to handle as the Swiss find spicy Indian food. "Food is one of the many cultural differences, but we complement each other perfectly," says Reto. "We operate in two wholly different geographies, with very different products, so there are big opportunities if we can combine our strengths."
Introducing Forbes products into Europe and Lux products into India is a way to begin, but it is not as easy as it sounds. Lux has identified Hungary and Spain as the two countries best suited for selling Eureka Forbes water purifiers, but the product has to be re-designed to suit European aesthetics.
The company is planning to market an under-the-sink version in Europe, which requires more complicated plumbing, but is expected to suit European consumers who don't like their water purifiers to be visible. And there's the fact that tap water in Europe is fairly safe and water purifiers are not a must have. But Goklaney is actually quite gung-ho about this: "That most Europeans don't have water purifiers means it's a big market. After all, bottled water sells in big quantities there."
A more basic problem is convincing Lux's sales force to embrace India-made home appliances, which have no reputation to speak of in Europe. Countries like Switzerland also require formal state certification for water purifiers, which Lux is in the process of procuring. "It wasn't easy, but the FLCE has helped convince the Lux management of the benefits of sourcing products from India," says Marzin Shroff, CEO Direct Sales and Senior VP, Marketing.
By
Dibeyendu Ganguly, 7 Nov, 2014CDET
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