Belgian Giant Used Burgers, Humor To Win Its Korean Staff's Support
By MICHAEL SCHUMAN
THE WALL STREET JOURNAL
July 24, 2000SEOUL, South Korea -- It was a hamburger that made Park Eun Young realize things were changing at Oriental Brewery Co.
The 27-year-old marketing manager was in a meeting with her new boss, and as the gathering dragged on into lunch, he ordered in Burger King burgers and sodas to accompany the casual talk among managers. Before Interbrew SA of Belgium bought 50% of the Korean brewer and installed Andrew Brennan, a former U.S. Marine, as vice president, meetings had always been stiff, uncomfortable affairs.
"It was a new experience," Ms. Park says.
Burgers are one of the smaller touches that form part of Interbrew's effort to wed two very different business cultures: Interbrew, the world's second-largest brewer, with Western managers who insisted that staff speak their minds and work by clearly defined rules to achieve clear objectives; and Oriental Brewery, with management based on hierarchy, personal relationships and unswerving loyalty to the boss -- and where no boss had ever been a foreigner.
A New Openness
The marriage didn't go off without a hitch. Interbrew's appointment of four Westerners as senior managers sparked panic about possible layoffs among Korean employees. When OB bought another Korean brewer and tried to integrate it into OB, a strike ensued. But the Interbrew managers, after reaching out to the rank and file and rationalizing sales, supply and other aspects of the business, have begun to turn OB around. The lesson from Interbrew's experience: Insular Asian companies are starting to open up to new ideas in the wake of the region's financial crisis, and becoming stronger competitors.
The scene at OB is being played out throughout corporate Korea as new foreign owners and managers rush in. Korea, a nation pinned between giants China and Japan, has long distrusted outsiders. It warded off foreign investment during its rise from one of the world's poorest countries to one of its richest. But the Asian financial crisis in 1997 changed attitudes as companies and banks faced a tough choice: Accept foreign money or die. In 1999, a record $15.5 billion of foreign direct investment swept in -- more than Korea had seen from 1962 to 1995.
Eroding Share
When Interbrew invested in OB, the Korean brewery -- like most of the economy -- was a shambles. By 1998, OB's market share, as high as 70% five years earlier, had fallen by half, eaten away by a hot new product from its chief competitor, Hite Brewery Co., and by a new entrant, a joint venture between Korean conglomerate Jinro Group and a unit of Adolph Coors Co. of the U.S.
Park Yong Maan, a member of the family that controls the Doosan Group, knew drastic action was necessary. "The conclusion was: We need a partner," he says. The decision was one of the boldest made by a Korean manager during the crisis. OB was Doosan's crown jewel, the kind of asset that Korea's mighty business clans cling to the bitter end. "Many years from now," says Mr. Park, 45, "my great-great-great-great grandchildren will say: That was a wise decision."
Interbrew had been looking for a way into Korea's beer market, Asia's largest outside of Japan on a per-capita basis. The privately held Belgian giant, which is planning an initial public offering later this year, has been aggressive in pursuing global expansion. Just last month, its $3.4 billion purchase of Britain's Bass Brewers vaulted it to the No. 2 position, with a brand roster that includes Bass, Stella Artois, Rolling Rock and Labatt Blue. Only Anheuser-Busch Cos. is larger.
Invitation to Europe
A consulting firm that had been working with both Interbrew and OB suggested that OB might make a good partner. Interbrew invited Mr. Park's brother to a meeting in Europe in late 1997. By June 1998, the two had signed a deal for Interbrew to buy half of OB for 350 billion won ($315 million) -- just as the Korean economy was bottoming.
"At the time we came to Korea, we were being trampled to death by everybody who was leaving," says Hugo Powell, chief executive officer of Interbrew.
The news hit OB's workers like a missile. Yoon Sun Jong, then a brand manager, got tipped off one Saturday in early 1998 by his boss, who asked him to work overtime on a secret project to write a marketing report for Interbrew. As he typed the report, Mr. Yoon says, his mood swung violently: He was hopeful that the new partner would save OB, but he feared the foreign management. He believed the Westerners were more likely to fire staff than were Korean bosses, who, before the economic crisis, had promised lifetime employment.
"I was worried because foreigners think differently and lay off people more easily," Mr. Yoon says.
The hard decisions came down even before the deal closed. During the negotiations, both sides were concerned about OB's excess capacity, and they decided to mothball one of the company's three breweries. OB laid off 168 employees. For a Korean company, it was a drastic step.
Mr. Yoon's fears intensified when he had his first one-on-one meeting with Mr. Brennan soon after the American's arrival in September 1998. The first shock: Members of Mr. Yoon's team had to give an all-English presentation to their foreign boss. Fearful, each tried to wiggle out of the assignment, and it fell to Mr. Yoon to perform solo. "I never really had to deal with a foreigner for work before," says Mr. Yoon.
But as Mr. Yoon spoke, waving his arms melodramatically to assist his mediocre English, Mr. Brennan listened intently and asked questions slowly enough for him to understand. When Mr. Yoon returned to his desk, his colleagues nervously gathered around to get the scoop. "What happened?" they shot out. "Did he say anything about layoffs?"
"It's OK," Mr. Yoon assured them. "You don't even have to speak English that well."
The Interbrew team had its own jitters about dealing with the Koreans. Denis Josse, a 45-year-old bearded Belgian with a massive frame, had once run a brewery in the jungles of the Congo, where he toted a gun to fend off bandits. But in his first meeting with OB's hard-boiled labor union, he was subdued. "There was some tension," he says. "We wanted to be very careful."
The union chief, Lee Jong Sung, sensed the Belgian's mood. He suggested to Mr. Josse that they find a common language -- and then joked that perhaps they should try talking about sex. Mr. Josse blushed bright red, and the ice was broken. "I was trying to smooth the atmosphere," Mr. Lee says.
Still, Mr. Brennan worried about his staff's reluctance to express their ideas. In Korean companies, junior employees usually are discouraged from speaking their minds; they simply must follow orders. In meetings, Mr. Brennan pressed them for ideas on how to fix the business, but his junior employees were so quiet and unresponsive, says the 61-year-old manager, that "I didn't even know what their job was."
A Feeling of Importance
To shake things up, he turned to Ms. Park, the marketing manager. Mr. Brennan figured that if he could get the young woman talking in the male-dominated company, the men might open up as well. So in a meeting last year about OB's top brand, OB Lager, he handed over a magic marker to Ms. Park and asked her to stand by a white drawing board and run the last part of the meeting. Ms. Park panicked, but Mr. Brennan cheered her on. She decided to toss aside convention, and stood up and took questions from the staff. After the meeting, "I felt very important," Ms. Park says. "I felt like I achieved something." Mr. Brennan says that such tactics have gotten his staff to speak more freely.
Efforts to rationalize OB's sales weren't accepted so easily. In Korea, clients are often allowed to take months to pay bills, and the practice was ravaging OB's finances. When the Interbrew team accelerated a plan to force wholesalers to pay their bills on time, a group of employees marched into the office of the founding-family member, Park Yong Maan, who stayed on as part of the Doosan side of the joint venture, and argued that the move would damage all-important relationships with the wholesalers. Mr. Park stood firm. "You have to learn the new rules of the game," he told them.
The Interbrew team, too, had to make compromises in the unfamiliar market. The foreign managers had placed a ceiling on the amount of beer a salesman could sell to a wholesaler on credit; anything above the limit required special approval from management. Lee Seong Hoon, a sales manager, and his colleagues complained to Mr. Brennan that this policy was preventing salesmen from responding quickly to changes in the market. After months of debate, the Interbrew team loosened the restrictions.
"They need to better understand Korean ways," Mr. Lee says.
Mr. Josse determined that OB was overpaying for cans, labels and other supplies, many of them purchased from companies affiliated with Doosan. He sent these suppliers a clear message: lower your prices, or OB will buy elsewhere. The price cuts he achieved allowed him to reduce internal costs. Mr. Brennan, meanwhile, changed the way the sales staff worked. Salesmen had been sitting in their offices until midafternoon taking orders by phone; Mr. Brennan told them to visit wholesalers from early in the day.
By mid-1999, OB, though still adapting to the joint venture, decided to go on the offensive and acquire a competitor -- the Jinro Group's bankrupt brewery, which was put up for auction by its creditors. Interbrew and Doosan saw an opportunity to grab market share and a strong local brand. OB paid 454 billion won for the brewery, now named Cass Brewery Co., and claimed another 17% of the market. The acquisition gave the OB joint venture control of nearly half of Korea's beer market.
Then, disaster: Some Cass employees took to the streets of Seoul to protest against the purchase, fearing absorption by a competitor, and threatened to strike. Interbrew brought in a new president for OB, Andre Weckx, a 47-year-old mild-mannered Belgian, to try to quell the rebellion.
In his first meeting with the Cass union, Mr. Weckx pleaded for support and promised the workers job security and the maintenance of the Cass brand. The Cass union demanded that the companies be kept entirely separate; Mr. Weckx refused. But his soft demeanor had started to melt the ice. "He looked kind, and I felt like I could trust him," says Bae Kang Ook, Cass's union chief.
Welcome-Back Letters
The union went on strike anyway. For two weeks, Cass was shut down. During the strike and a preceding slowdown, it lost 40% of its accounts. Mr. Weckx promised in writing not to lay off any Cass workers for three years. The Cass staff agreed to return, and Mr. Weckx responded with a speech promising to turn the companies into Asia's best, which heartened the Cass employees. On their first day back to work, Mr. Weckx sent each worker a welcome-back letter.
Mr. Brennan then put his team to work winning Cass customers back. He hung a sign that read "War Room" in a sales manager's office, and his salesmen promised old customers special deals, free beer glasses and other freebies. Nearly all of the accounts were won back.
Today, OB finds itself slowly improving. Its market share has stabilized, and Mr. Brennan has launched a new ad campaign and label design to try to win more business. OB returned to profitability in 1999 and is benefiting from being part of Interbrew's global network. The Korean brewer designed and now exports a beer to Japan.
Interbrew managers still resort to theatrics to build goodwill among employees. At a sales rally in February, Mr. Weckx joined a dance competition, knotting a necktie around his head and gyrating to techno music on stage. That left the staff in stitches.
"I thought it would give me an opportunity to show them, 'Hey, this president is one of you,' " Mr. Weckx says.
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