7.2 Steps of transformation from a state-owned collective conglomerate to a market-driven, fast-moving consumer goods company

7.2.1 Beiersdorf International

The history of the Beiersdorf group goes back to 1882, when the Hamburg pharmacist Carl Paul Beiersdorf registered a patent for a sticking plaster. In 1890 Oskar Troplowitz acquired the company and developed it into a thriving business. Its prime product, snow-white Nivea, was invented in 1911 and it was the first skin-care cream in the world to be produced on an industrial scale. In line with Troplowitz s strategy of international expansion, in 1925 Beiersdorf established a subsidiary in Katowice, Poland, which in 1929 was relocated to a new site in Poznan. During the 1930s this subsidiary, then named Pebeco Polskie Wyroby Beiersdorfa SA Poznan and employing more than 130 people, was the largest production facility in the Beiersdorf group.

Troplowitz also established subsidiaries and production sites in England, Austria, Argentina, Denmark, Mexico, Russia, the United States, France and Australia, and by 1932 more than 14 per cent of the company s sales took place outside Germany. However because Troplowitz was of Jewish descent, between 1933 and 1945, it became more and more difficult for Beiersdorf to conduct its business, abroad as well as in Germany. He therefore decided to split up the corporation into autonomous national companies “ each holding the national brand rights for Nivea, Hansaplast and tesa “ to prevent the German authorities from seizing the business as a whole.

After the war the Troplowitz family returned to Germany to rebuild the company. However, many of the international subsidiaries could not be recovered and remained national property, often as compensation for damages caused by Germany during the war. The subsidiaries in Central and Eastern Europe were seized by the newly established socialist governments and converted into state-owned, centrally planned collectives. The national brand rights were often retained by the collectives, so that the collective in Poland continued to produce under the brand name Nivea.

Despite the loss of its international affiliates Beiersdorf reaped the fruits of the postwar German economic miracle and turned into a profitable, fast-moving consumer goods company (Table 7.1). Today the Beiersdorf group has subsidiaries in 86 countries worldwide and is one of the top 10 international cosmetics companies. Its main brands are Nivea, lesa, Hansaplast and 8x4. The Nivea product line has demonstrated enormous development potential during recent decades and is considered to be the top cosmetics brand in 15 countries in Europe. In 2001 alone Nive s sales grew by 17 per cent to C=2.5 billion.

Table 7.1: Development of the Beiersdorf group since 1932

	Sales (all divisions)		Employees		Affiliates
	Germany	Outside Germany	Germany	Outside Germany	Outside Germany
1932	11.9 million	1.9 million
	Reichsmark	Reichsmark	1267	585	13
1949	DM 29.1 million	DM 0.9 million	1182
1960	DM 171 million	DM 57 million	3808	1269	6
1975	DM 535.4 million	DM 512.2 million	6063	11 013	28
1990	DM 1591.4 million	DM 2361.3 million	6081	17 842	58
2000	C=1217 million	C=2899 million	6421	16 590	86
2001	C=1256 million	C=3286 million	6429	17 749	86

Source : Beiersdorf AG.

Extensive internationalization has only been on the agenda since the 1990s, when CEO Rolf Kunisch took the group beyond its traditional European market into Asia and the Americas. Since then it has developed into a real global player, with 73 per cent of sales taking place outside Germany in 2001. Central and Eastern Europe and the Asia-Pacific region, particularly Japan and the United States, have been identified as key areas for growth in the future.

Box 7.1: Beiersdorf s international consumer goods strategy

Nivea is the biggest and most dynamic skin-care brand in the world, with global sales of C=2458 million in 2001 and a breathtaking growth rate of 17 per cent in 2000 “1. Now in its one hundred and twentieth year, the Beiersdorf group is one of the fastest growing consumer goods companies in the world. It increased its consumer goods sales by 10.3 per cent to C=4542 million in 2001 (Nivea sales have in fact quadrupled since 1991).

Our growth basically comes from:

• Innovation and brand extension: we invest 2 per cent of sales in R&D. Innovations such as Q10, and Nivea line extensions like colour cosmetics, and men s skin-care products significantly contribute to our growth.

• Market share improvement: the quality of sales is reflected in the continuous increase of product categories across all countries where our brands are market leaders or at least among the top three.

• Regional expansion: Within the last five years we founded several companies particularly in Eastern Europe or Asia. International sales are now responsible for nearly 73 per cent of our business and will continue to be a major contributor for growth from within.

  
  

This international success rests on basic principles held by Beiersdorf affiliates all over the world:

• Our long- term aim is the sustainable development of our business internationally.

• We concentrate our activities and resources on a limited number of core global consumer brands such as Nivea, Eucerin, Hansaplast/Elastoplast Futuro, la prairie, labello, 8 x 4, Juvena, atrix, tesa.

• We compete internationally on superior perceived quality, innovation and controlled brand extension “ not on price.

• While new product launches and marketing strategies are globally coordinated and integrated, local responsibility for their execution lies with our national and regional general managers all over the world. As a result, in many countries our global brands are perceived as traditional local brands.

• Whenever possible we base our growth on our own strengths, resources and initiatives. We only acquire other companies when they particularly fit our brand portfolio and brand strategy, as in the case of Beiersdorf-Lechia in Poland (1997) and Florena (2002).

Uwe W lfer, Member of the Board of Management, Beiersdorf Group, Cosmed Division.

 

In the decades after World War II, Beiersdorf s internationalization strategy was long dominated by its attempt to consolidate the international rights to its leading trademark, Nivea, in order to ensure coherent global development of the brand by the Hamburg headquarters and avoid costly licensing fees. However due to the political situation the company was unable to reach an agreement in the Central and Eastern European countries, where its subsidiaries had been expropriated by the socialist authorities. When reacquisition of the brand rights or a joint venture agreement proved impossible , Beiersdorf tried to maintain a profitable export business with the Nivea product line, mostly under a pricey licensing arrangement (see Chapters 3, 8 and 16 for market entry strategies and FDI in Poland). In some countries this meant that two different Nivea creams were being sold, for example in Poland there was the local product manufactured by the former Beiersdorf affiliate and the international brand imported by the Beiersdorf group. In Western countries Beiersdorf did manage to reacquire the brand rights (Table 7.2), but only after long and tedious negotiations. For example it was not until 1992 that Smith & Nephew, the brand right holder in Britain and the Commonwealth states since 1945, agreed to sell the trade mark to Beiersdorf.

Table 7.2: Reacquisition of global Nivea brand rights after World War II

1952	Netherlands
1956	Switzerland
1958	Argentina and Brazil
1963	Mexico
1966	Denmark
1968	Finland
1974	France
1973	United States
1977	Hong Kong, Malaysia, Thailand, Singapore, Gibraltar, Malta, Cyprus, Bermuda, Bahamas, Jamaica, Barbados, Trinidad
1985	Norway
1992	Canada, Britain, Ireland, South Africa, Australia, New Zealand, India, Pakistan, Israel

Source : Beiersdorf AG.

The fall of communism in Central and Eastern Europe (CEE) in 1989 offered Beiersdorf its first real chance since 1945 to reestablish full global ownership of its most precious brand. This was the main reason for entering CEE during the 1990s. Low labour costs, a major reason for much foreign investment in CEE, were not considered relevant since the group s quality focus and capital- intensive production meant that it would not benefit greatly from the moderate labour costs in the region. Wherever possible Beiersdorf terminated its licensing agreements, reacquired the brand rights and established its own facilities, mainly for distribution purposes (Table 7.3).

By 1996 Poland remained the only country worldwide where the Beiersdorf group had been unable to regain possession of its leading brand or establish a working agreement with the local producer and trademark owner: its former subsidiary Fabryka Kosmetyk ³w Pollena-Lechia in Poznan. After years of unsuccessful negotiations to regain possession of the brand name, Beiersdorf s new CEO, Rolf Kunisch, decided to disregard the organization s long-standing anxiety about large-scale acquisitions and to adopt a new approach to the ˜Polish problem . He set up an internal team of experts to study various alternatives, including the option of buying the entire company in Poznan, with its more than 1500 employees, outdated technology and three unrequired production sites. In 1997 the group duly reacquired its own former subsidiary and immediately launched a process of change management. Since 2000 Beiersdorf-Lechia has been one of the group s top ten affiliates worldwide.

Table 7.3: Expansion into Central and Eastern Europe

Prior to 1989	Export of international Nivea products; licensing agreements with local producers in CEE
1991	Subsidiary established in Hungary
1993	Reacquisition of brand rights in Romania, subsidiaries established in the Czech Republic and the Slovak Republic
Since 1995	Slovenia, Bulgaria, Croatia, Romania and other South Eastern European countries managed by Beiersdorf Austria
1997	Subsidiary established in Slovenia; acquisition of Pollena-Lechia SA, holder of the brand rights in Poland
1998	Subsidiary established in Russia
1999	Subsidiary established in Romania
2000	Subsidiary established in Croatia
2000 “2	Subsidiaries established in Estonia, Latvia and Lithuania, managed by the Beiersdorf Nordic group (Scandinavian countries)
2001	Subsidiary established in Bulgaria; new affiliate in Ukraine, transformed into a Beiersdorf subsidiary in 2002

Source : Beiersdorf AG.

7.2.2 Pollena-Lechia prior to acquisition

Under the socialist system Fabryka Kosmetyk ³w Pollena-Lechia, the sole owner of the Nivea brand right in Poland, was part of a collective that consisted of five subunits with partly overlapping production lines in cosmetics, soaps and detergents. In Poznan Pollena-Lechia, which was still operating in the premises of the former Beiersdorf subsidiary, produced and distributed its own version of skin care under the label Nivea Krem as well as Poland s best-selling toothpaste (Colodent), baby care products (Bambino), and other cosmetics products under various brand names .

As in most socialist countries all aspects of planning and production were determined by the state and governed by state regulations. The central planning administration decided on product lines, volumes , prices and export quotas “ often regardless of economic considerations. The organizational structure was typical of a collective conglomerate with deep vertical integration. The drive for self-sufficiency and autonomy was also manifest in the establishment of a cr che, an in-house medical service and the maintenance of several holiday homes for workers.

The structure of the company reflected the lack of a functioning market: the company s few customers were state-owned (GS, Spolem, Ruch) and production volumes were prescribed for each. As late as 1997 customers were still collecting directly from the production ramp, so the company did not need a marketing department or a sophisticated sales force. The administration department, though, was enormous as even in the 1990s its electronic data processing capability was utterly inadequate. Likewise manpower, as in most socialist conglomerates, was not in short supply. Efficiency was not a prime consideration and the company employed more than 1500 people, predominantly in operations. Overstaffing was accompanied by low motivation as wages were not linked to performance and sanctions “ for example dismissal “ were not applied. Low productivity and lack of cost consciousness and innovation were only offset by the absence of market forces “ only in a planned, short-supply economy such as Poland s before the velvet revolution of 1989 could the Polish Nivea, whose quality was well below Western standards, remain a thriving brand used in almost every Polish household.

After 1989 Pollena-Lechia witnessed enormous changes in its environment as the political system in Poland moved towards democracy, markets were liberalized overnight, institutions were dismantled and international competition slowly but relentlessly gathered force. In 1995 Pollena-Lechia was turned into a state-owned stock corporation as part of the Polish mass privatization programme. The State Treasury held 25 per cent of its shares and 15 per cent were given to the employees, mainly as a concession to the workers councils and mighty unions (see Chapter 6 for a discussion of the unions power). A National Investment Fund became the majority shareholder and thereafter corporate governance changed considerably.

In December 1994, 15 National Investment Funds (NIFs) had been established by the Polish Ministry of the Treasury as joint-stock, limited liability companies to act as a conduit between state ownership and full privatization (see Chapter 4 for details of the NIF programme). Their main task was to handle the privatization of 512 state-owned companies, which constituted approximately 10 per cent of the Polish manufacturing industry. The principal goal of the NIFs was to achieve maximum growth in the value of their assets.

With NIF 8 as the majority shareholder job security at Pollena-Lechia was no longer the most important objective. The change of ownership structure and orientation, together with economic and institutional upheaval in the company s environment put substantial pressure on its top decision makers . Pollena-Lechia proved unable to adjust its strategies, structure and culture to this pressure, and both external and internal factors severely limited the management s ability to act. Figure 7.1 shows the main internal and external impediments to management s scope of action.

Figure 7.1: Managerial scope of action at Pollena-Lechia prior to the acquisition

The ownership structure was one of the main factors preventing the management from adjusting its strategies and structure and starting a full-scale transformation of the company (for a discussion of how managerial passivity and unaltered ownership structures inhibited firm development in CEE, see Chapter 5). Despite the formal privatization of the company, no clear directions were given for its future development because the power held by state and employee shareholders was sufficient to delay the urgently needed workforce reduction. Another problem arose from the constantly changing trading structures. The company s three main customers (state-owned trading agencies) had been dissolved, and the hundreds of newly established, small-scale firms that stepped in to fill the vacuum required a different sales approach and were hardly ever profitable. In addition, while large international traders had entered the Polish market, Pollena-Lechia had trouble responding adequately to their specific demands. At the same time international and local competitors were aggressively attacking Pollena-Lechi s markets, and due to its lack of sales expertise and market knowledge the company was becoming more and more vulnerable. Furthermore the huge workforce was becoming a heavy burden, but because of the huge influence of the state and the unions (OPZZ and Solidarity) this burden could not be reduced. This was also the reason why the old organizational structure was kept in place. Even in 1997 Pollena-Lechia was still producing its own packaging on the premises, and had a 69-person security staff, a cr che and an inefficient medical service. As the company still operated three production sites in different parts of the town, which put a considerable strain on logistics, even the outdated transportation department remained in service. In 1997 more than 350 people were still employed in non-core activities such as maintenance, security and social services.

Resources other than staff also became a problem at Pollena-Lechia. Although the company had nominally produced a profit, this had been only true on the surface because its marketing expenses had been next to zero, compared with an average of 20 “30 per cent of sales in the industry as a whole. Furthermore investment in technology had been stalled for decades. The company was still run on 31 different software programs, which made it impossible for management to obtain a clear picture of operations and finances. Sales statistics, for example, were unavailable to production planners and basic accounting figures had to be added up manually because the computer system did not allow for the integration of data from different departments. Information deficiencies also restricted the company s ability to adjust its production plans. As it hardly ever conducted any kind of consumer research, had no knowledge of current market conditions and no valid information on sales it failed to prune out unprofitable products and concentrate its scarce resources on brands with some potential. On the contrary, it added new brands and product lines to its already abundant portfolio.

The company s inability to adjust to the changing environment can be largely ascribed to the failure of the company s new owners to replace at least some of the executives. Even the long-serving director stayed in office. Consequently the socialist-era norms, values, interests and know-how that prevailed among the board members remained unaltered. Managers who had been trained to think in tons rather than zloty and for decades had paid no attention to costs and the needs of customers proved unable to adjust to the requirements of modern brand management in an internationally competitive environment. Indeed the need to change had not even occurred to the management since the company was “ nominally “ still making profits and owned a number one brand in Poland. Even if the company did make some adjustments to its announced goals “ for example formally stating its customer orientation “ it did so only to please the NIF or prospective foreign investors.

This inability to go beyond the status quo was accompanied by a failure to develop effective instruments to steer employees behaviour. Again the management s lack of know-how and experience in the new setting, coupled with the weakening of its power by strong unions and the heterogeneous ownership structure, severely curtailed its ability to influence the workforce, whose main aim was to keep everything as it was. Only on rare occasions did the management set out to achieve some change. Immediately after privatization, for example, all salaries were raised, but this had no effect on motivation or performance as the management later admitted. In addition the organizational structure was altered to include a marketing and an enlarged sales department. However the newly created positions were taken up by employees with hardly any understanding of marketing or modern sales systems, except for a few days training. With no budget to speak of the marketing department was utterly ineffective . Although Western consultants drew up strategies for restructuring, production planning and marketing, Pollena-Lechia was unable properly to implement any of the suggested changes. All the instruments available to the management thus remained nothing but cosmetic paperwork, leaving Pollena-Lechia with a severely constrained radius of action and unable to cope with the dynamics in its surroundings. As a Beiersdorf manager later observed , ˜1997 could have been 1977 “ practically nothing had changed . The company simply ignored the transformation of the business environment, and therefore slowly but steadily lost its strategic, structural and cultural fit with its situation. Only its well-established top brands “ Nivea cream and Colodent toothpaste “ were preventing it from falling into serious trouble.

7.2.3 The acquisition process

From 1945 the postwar resumption of Beiersdorf s activities in Poland was dominated by the political situation which made it impossible to regain the Nivea brand rights from the socialist rulers. Even after 1989 all attempts to acquire the rights from Pollena-Lechia or to establish some kind of cooperative venture failed. The management at Pollena-Lechia opposed any form of partnership with the Beiersdorf group and the employees “ many of whom were shareholders and supported by the still powerful unions “ feared that foreign investment might result in the loss of jobs. In 1995 Beiersdorf was still limited to exporting its international brands to the growing Polish market for cosmetics, so it decided to establish a sales office in Warsaw to facilitate this export strategy and to appoint a general manager to control marketing and distribution.

When Pollena-Lechia became part of the mass privatization programme in 1995, this seemed to offer the ideal chance to reacquire the Nivea brand rights in Poland. However, even though the NIF in charge of the company followed a different agenda from the state-controlled management, Beiersdorf s offer to buy the rights failed once again. Instead the company and its brands were only to be sold in their entirety. At that time Beiersdorf s strategy in Poland was hindered not only by external factors but also by its policy of not acquiring additional production sites or large numbers of surplus personnel. In the early 1990s middle management in Hamburg had come up with a variety of strategies to resolve the ˜Polish problem , had failed to obtain the support of the Beiersdorf board. Insecurity, hesitation and awareness of the difficult Polish “German history (see Chapter 1) were also major obstacles to a bold strategic move. As a result, even after Pollena-Lechia became part of the mass privatization programme Beiersdorf continued its strategy of exporting to Poland.

As noted earlier, when Rolf Kunisch was appointed CEO he took a personal interest in the Polish problem and discarded all previous reservations about large-scale investment in Poland. As the acquisition of the Nivea brand rights alone seemed impossible and any further negotiation useless, it was decided to buy the entire Poznan corporation, including its unneeded production capacity and 1500 employees. The Nivea brand was of such importance to Beiersdorf that considerations such as what to do with the company after takeover, how to cope with its unqualified employees and outdated production facilities, and how to turn it into a profitable affiliate were, for the time being, relegated to the background.

In October 1996 Beiersdorf made its first bid to acquire the majority stake in Pollena-Lechia. At the same time the plan to set up a Beiersdorf Warsaw sales office was abandoned . For a controlling majority of a Polish company “ and that was the only point of interest for the board of management in Hamburg “ Beiersdorf needed 66.66 per cent of the shares or voting rights. Beiersdorf decided to set 70 per cent as the negotiating target but in the long run it aspired to a 100 per cent holding (see Chapter 5 on the importance of majority ownership structures for transformation success). The negotiating partner was the manager of the leading NIF since it held the majority of shares “ the management of Pollena-Lechia, due to its increasingly weak position, was not involved in the talks.

Even though there were hardly any other serious international bidders for Pollena-Lechia as the brand name of Nivea would have been of limited interest to them, negotiations with the NIF were difficult. The main problems arose from Beiersdorf s dependence on the whims of one negotiating partner, the manager of the leading NIF, and the lack of rules for the negotiating process. A social plan, for example, was said to be unnecessary, but five days before the final agreement was signed it suddenly became of utmost importance. Apart from that, dealings with the Polish authorities, especially in the Poznan area, were smooth and friendly, which was to some extent due to the popularity and good reputation of both the Nivea brand and the Beiersdorf corporation in Poland. The required agreement with Pollena-Lechi s in-house unions on employment and social conditions was completed within seven days. The final settlement was struck in September 1997 and contained the following main elements:

• A commitment to purchase the entire company, with an investment of DM180 million (DM140 million for the acquisition of existing shares, DM40 million for the issuing of new shares).

• A promise to develop the company, including the construction of a new CEE production centre in Poznan.

• The provision of employment guarantees in accordance with common practice in Polish privatization projects.

• A guaranteed price of zloty 256 for each share.

As a first step Beiersdorf acquired 25.6 per cent of the shares of the minority shareholding NIFs (Table 7.4). By injecting 72 million zloty into the company in late October 1997, Beiersdorf increased its share to 42.7 per cent of the capital and “ by issuing multiple voting rights “ a safe majority of 70 per cent of the votes . Soon afterwards many of the remaining shareholders were tempted by Beiersdorf s rather generous share-price offer, and in 1998 the Treasury “ in a momentary need of financial resources “ sold its shares. By 2002 Beiersdorf had secured 99.99 per cent of the shares, and the guaranteed price of 256 zloty was still in place for the remaining 107 privately held shares.

Table 7.4: Capital shareholding structure (per cent)

	12/1995	9/1997	10/1997	12/1997	8/2002
Beiersdorf group	“	“	25.6	42.7*	99.99
Leading NIF	33.0	33.0	33.0	25.5	“
Other NIFs	27.0	35.0	9.4	8.6	“
State Treasury	25.0	25.0	25.0	19.4	“
Employees and others	15.0	7.0	7.0	3.8	0.01

Source : Beiersdorf-Lechia SA.

In November 1997 the company was renamed Beiersdorf-Lechia SA, Poznan, and two German expatriates were appointed members of the board of management, one in charge of marketing and sales and the other in charge of finance, managerial accounting and human resources. The new supervisory board met for the first time in December 1997. It was dominated by Beiersdorf managers and no longer included employees representatives. For the Beiersdorf group the Polish acquisition not only completed its hold on the worldwide Nivea brand rights but also reaffirmed the company s position as a global player in the cosmetics industry.

7.2.4 The years of fundamental change

Within two years of the acquisition of Pollena-Lechia the new management had achieved a complete turnaround of the company and converted it into a profitable, market-oriented, consumer goods company of international standard.

After negotiation and acquisition in 1996 and 1997, the year 1998 was one of fundamental change. The process of transforming the immobile giant into a profitable Beiersdorf subsidiary had been expected to be slow and tedious, but as Table 7.5 shows, much was accomplished in a short time.

In January 1998 Beiersdorf Hamburg dispatched to Poznan a German team consisting of a head of sales, a marketing manager, a manager for Tesa and a controller to support the two German managers already in Poland. The Polish members of the board of management (in charge of logistics, production and the technical department) and the chairman of Pollena-Lechia since 1979 were kept in place for the time being in order to maintain a notion of stability in a company that awaited major changes.

The team immediately set to work on a strategy for the Nivea relaunch in April 1998, developed a sales and marketing concept and secured a competent logistics partner. A distributors conference in April 1998 set the stage for a new start for Nivea in Poland. Nivea Krem, packaged in a plastic container, would be the only Nivea product to be manufactured in Poland “ the other 60 products would be imported from international Beiersdorf affiliates. The production programme of Pollena-Lechia was reviewed and nearly 100 products were eliminated from the portfolio. Some potential was seen in the Bambino range and Glycea, a hand cream with an approximately 60 per cent market share in Poland. The prewar soap factory was closed and the end of the year brought the profitable sale of the toothpaste business to Colgate-Palmolive.

Table 7.5: Main areas of change

1997	1999
Pollena-Lechia SA	Beiersdorf-Lechia SA
Production driven	Sales/marketing driven
Sales: 205 million zloty	Sales: 400 million zloty (estimated)
1500 employees: 70% female , 30% male; 70% blue collar; 30% white collar ; average age42 years	400 employees: 50% female, 50% male; 50% blue collar, 50% white collar; average age33 years
Local orientation (Polish language)	International orientation (English)
More than 20 brands and 202 products	Four brands and 135 products
400 customers	About 100 profitable customers
Marketing: three employees, minimum budget	Marketing: 12 employees, huge marketing investment
Sales force: 40 sales employees, one key account manager	Sales force: 102 sales employees, six key account managers
Top-down decision making	Allocation of responsibility and accountability
31 non-integrated software programs	Integrated SAP/R3 system
Very few PCs, copy machines or fax machines; analogue telephone exchange	State-of-the-art equipment for every workplace; ISDN telephone exchange

Source : Beiersdorf-Lechia SA.

In March 1998 the team addressed the necessary workforce reduction. Union officials consented to the release of 350 employees, and the German board members came up with a voluntary redundancy scheme that would mainly favour older, long-serving employees. Contrary to all expectations, in June more than a thousand (rather than the planned 350) employees took up the offer and the management had to consider closing down whole parts of the company due to understaffing. Nonetheless, only employees in key functions such as personnel administration and maintenance were asked to postpone their departure in order to keep the company running as the German management saw the exodus as a chance to speed up the transformation of Beiersdorf-Lechia, a transformation that had to happen sooner or later in any case. The salaries of the remaining employees were more than doubled , on average, and a new system of employment contracts was implemented in the autumn, starting with the crucial sales force personnel. An opening clause in the collective agreement at Beiersdorf-Lechia, which formally is still in place today, allowed for the circumvention of overly restrictive regulations on remuneration.

The year 1999 was a time of consolidation, human resource development and the introduction of new organizational structures. After a full year of trying to establish a cooperative working relationship among the German and Polish board members, Beiersdorf ceased trying to integrate the former executives and gradually replaced the board members with its own selected executives. Even the Polish president of the company, who in the interests of stability and Beiersdorf s corporate values of consensus and friendliness had been left in charge after the takeover, was replaced by the former vice-chairman in October 1999. The middle management also went through a process of consolidation as most jobs could be filled by young and energetic people with potential. A training scheme for all employees, especially the 250 former Pollena-Lechia workers who had rejected voluntary redundancy in favour of a future with the Beiersdorf corporation, focused on the improvement of general management know-how, communication and language skills. Since Beiersdorf s internationalization in the 1990s English had been the chosen working language.

At the same time the marketing, accounting, finance and human resources departments were restructured to meet the requirements of a market-driven consumer goods corporation. The sales force was doubled, sales regions and responsibilities were redefined and new pricing and bonus systems were introduced. The installation of the SAP/R3 information system, which replaced the 31 non-integrated software programs, was completed in only seven months. Plans for a new factory of international Beiersdorf standards to produce Nivea cream for all the CEE countries were pursued with vigour and construction started in February the following year.

Consolidation continued into 2000 with several projects to support the transformation of the organization from a production-driven to a market-driven operation. A corporate vision was formulated, a newly designed personnel development programme was put in place and the remuneration system for all white-collar employees was converted into a variable pay scheme. The streamlining of the organization continued with the contracting out of services that lay outside Beiersdorf-Lechi s core business, such as security and medical care.

The structural and strategic transformation of Pollena-Lechia into a standard Beiersdorf subsidiary was completed in 2001, and since then Beiersdorf-Lechia has been one of the Beiersdorf group s top ten affiliates worldwide. It is among the three largest producers of cosmetics in Poland, with the turnover of Nivea products alone increasing by 500 per cent in just four years, rising from C=17.5 million in 1997 to C=88 million in 2001. Nivea has become the top brand in the Polish market for deodorants, body lotion, face cream and sun cream. Baby-care products were introduced in 2001 and in only a few months attained third position in their market. According to Beiersdorf s CEO, Rolf Kunisch, the CEE region will remain a prime growth area and a motor of innovation for the organization s global network. In October 2001 Beiersdorf-Lechia opened a state-of-the-art factory for Nivea products on the outskirts of Poznan. With a capacity of up to 12 000 tons per year, the factory will supply the entire CEE region, including Russia, with Beiersdorf cosmetics and may even export Nivea products to Western European markets in the future (for a discussion of Poland as a platform for CEE expansion, see Chapter 16).