Ahold Delhaize and the anchoring debate

By Filip Abraham, Professor of International Economics at the University of Leuven and Vlerick Business School

Ahold and Delhaize have announced their intention to merge, forming Ahold Delhaize. According to the group’s press release, this will create a global player with a net turnover of €54.1 billion, 50 million customers, 375,000 employees and 6,500 stores in Europe, the US and Asia. The synergy benefits of the merger are estimated at €500 million per year. It should therefore come as no surprise that the two companies are enthusiastic about the merger and that the share price has responded positively.

In our country, however, the jubilant reports about the merger were met with rather more mixed feelings. The trade unions and the staff of Delhaize are concerned about employment, wages and working conditions in the new group. In wider circles, there is mainly a sense of unease about Ahold Delhaize’s longer-term plans in our country. With regret, we see yet another leading Belgian company being amalgamated into an international group. The fear is that one of the few remaining Belgian crown jewels will ultimately end up under foreign control and that, as a result, Belgian political and economic interests will carry less weight in strategic economic decisions. In brief, the traditional Belgian anchoring debate seems to have made a reappearance.

Or has this debate finally been superseded? The Belgian economy has now evolved into a dual model. On the one hand, there are the larger multinational companies with a regional office that reports to the company’s international head office. For these multinationals, the Belgian market represents only one of the many markets in Europe. On the other hand, there is the group of often dynamic and innovative SMEs. They are firmly embedded in the local economic system but find it difficult to grow into global players on their own. In contrast to countries such as the Netherlands, Germany, Sweden or Switzerland, there is a lack of symbiosis between the network of SMEs and global multinationals with a national identity.  

Growing power as a driving force behind anchoring

Anyone who examines the academic literature on the subject of anchoring will gain several insights geared to the current structure of our economy. For example, a company’s growing power appears to be one of the most important factors when it comes to anchoring. In simple terms, strong performance is the best guarantee of the sustainable presence of a company in its home market and country of origin. For example, this means that the global success of AB Inbev does not form a threat to the company’s contribution to the Belgian economy. On the contrary, in fact. The successful merger of Belgian, Brazilian and American brewers strengthens our economy’s base of support.

This positive attitude towards anchoring is relevant to the merger between Ahold and Delhaize. Instead of regretting and condemning the loss of the Belgian character of Delhaize, the development of a powerful Ahold Delhaize should be welcomed. In a sector in which economies of scale and consolidation prevail, it is an advantage to form part of a leading global retailer. This is all the more true as Delhaize is plagued by disappointing results and internal problems. In a favourable scenario, Delhaize will develop a new growth dynamic which will more firmly anchor the company within the bedrock of our economy.

Growing power as a driving force behind anchoring means there is no need for an anchoring policy to focus on the Belgian identity of companies. The main challenge is to develop a forward-looking economic system which makes a region or country attractive for small and large companies of all nationalities. With good reason, the development of a knowledge-oriented economy is therefore one of the aims of the innovation policy in Flanders.

Head offices as strategic decision-making centres

One vision of anchoring, which is rather more alarming for our country, places the emphasis on the role of the head office as a strategic decision-making centre. In many companies, the head office is responsible for making strategic decisions in the areas of innovation, financial transactions, distribution and logistics. Specialist activities are generally carried out near the head office. In addition, economic research has shown that branches located in proximity of a head office are less vulnerable to disposals in the event of restructuring.

The risk of a merger is that the strategic freedom of an acquired company will be reduced as the headquarters of one of the partners will lose importance, thus weakening the company’s contribution to the economic fabric of the surrounding region.  

This risk constitutes a real danger in the case of Ahold Delhaize. The new company’s head office will be based in Zaandam. Even if the existing Delhaize stores and supermarkets are retained in the long term, the relocation of the head office could adversely affect the distribution and logistical activities based in Belgium. In addition, the branch in Brussels will be reduced to a European office whose strategic decision-making powers are not clear at present. This also means that Brussels will lose yet another leading company’s head office.

A troubling evolution for an economy keen to distinguish itself as a logistics hub in Europe and to position Brussels as a specialist service centre at the heart of Europe.

The careers of talented staff 

In his recent book ‘Verder Gedacht’ (Thinking beyond the Obvious), Herman Daems provides a fascinating overview of 50 years of the anchoring debate in Belgium. His biggest source of concern is the career opportunities for talented staff in the event of an international merger or takeover.

With mergers, efforts are usually made to achieve a reasonable representation of the companies involved in the composition of the management teams. This also seems to be the case with Ahold Delhaize. However, experience has shown that this principle of equal representation tends to fade after a while. After all, managers are judged by their performance and not their origin.

The geographical displacement of strategic decision-making centres has far-reaching consequences for managerial careers. Top-flight talent will move on to strategic positions in the global or regional head offices. The other branches will become breeding grounds for up-and-coming talent but will be less exciting for senior managers.  

This scenario need not be a disadvantage for the current generation of talented top-class managers that our country has in such abundant numbers. In the same way as almost all Red Devils end up playing for top foreign clubs, they can build a successful international career in a multinational with impact. The situation is less rosy for the men and women who decide to stay in Belgium. Or as Daems says: ‘It will remain a challenge to make a company appealing to young people if the career options are limited to Belgium’.

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