Modesty is a virtue

By Filip Abraham – Professor of International Economics at KU Leuven and Vlerick Business School

AB InBev’s take-over bid for SABMiller incited a veritable torrent of response from the Belgian press. In-depth analyses discuss the advantages and challenges for the new group, which is currently still in formation. But reading between the lines, there is admiration and barely concealed pride because one of ‘our’ companies has made it to the top. De Tijd, for instance, speaks of the biggest take-over ever by a Belgian company having created the ‘ultimate’ beer giant, while De Standaard calls it the biggest overseas deal in history, concluded by a world-class Brazilian-Belgian corporation - of Belgian origin.

It goes without saying that the Leuven-based brewery’s steep ascent to becoming the world’s biggest producer of beer commands more than just respect. Indeed, a success story featuring primarily Belgian actors is the cause of some much needed optimism, after the seemingly incessant sale of our Belgian ‘crown jewels’ to foreign parties. Nevertheless, the success of AB InBev demonstrates both the contribution and limitations of Belgium as an incubator for the expansion of a leading corporation at a global level. Briefly put, when a company is operating in the champion’s league of multinational corporations, its Belgian side plays only a modest role.

The contribution made by a country or region to a successful business endeavour will, in many cases, hark back to the company’s founding history. AB InBev owes its Belgian roots to the fact that Stella Artois was brewed in Leuven, a city with a centuries-old tradition in beer brewing. Looking at it from a purely business angle, a historic breeding ground like that contributes economic value only if the company’s products and services continue to be linked to the reputation of that country or region. In other words, it is only in AB InBev’s interest to present itself as a Belgian corporation as long as the enterprise continues to promote the link between beer brands like Stella Artois and Leffe and Belgium’s rich tradition as a country of beer brewers. The worldwide success of these beer brands once again reinforces Belgium’s international renown as a beer-brewing nation. This, in turn, boosts the sales of other Belgian beer brands on the international market.

International studies have taught us that the competitive advantages of reputation-related effects like these can have a substantial and lasting impact on both companies and countries. Consider the qualitative reputation of German cars, Swiss watches and French wine. Unfortunately for our country, the average international consumer’s mind does not instantly link Belgium to a specific product. With the exception of a few minor sectors (e.g. chocolate, beer, fashion), the Belgian aspect does not bring a great deal of added value to international markets. This is why worldwide success for an enterprise that has been ‘made in Belgium’ is reserved for just a small handful of Belgian companies.

A country can contribute to the development of a corporation through the provision of capital and top-class management. It is without a doubt that Belgian capital and management talent played a decisive part in the initial phase of AB InBev’s international growth process. However, within a few years the contribution of Belgian top-class management to the board of directors gradually diminished until it waned entirely. Nevertheless, Belgian families still remain a key source of capital, although they carry less weight than Brazilian or international investors. Their influence will also diminish when the shareholders of SABMiller claim their seats on the new management board. To the regret of the envious, it should come as no surprise that the authoritative Financial Times does not describe the company as a Belgian, but rather as a global player under Brazilian control with its headquarters in Europe. 

With its headquarters in Europe? The official headquarters are indeed in our country - but for how long? Rumour has it that a relocation to London is being considered with a view to granting the new shareholders of SABMiller a tax benefit. It is already a fact that most of the management team’s strategic decisions now hail from New York. As has often been the case with respect to the recent mergers and acquisitions of leading Belgian companies, the Belgian headquarters will gradually revert to being a regional branch. This gives us cause for concern. The national identity of an enterprise is, of course, commonly linked to the geographical location of its strategic decision-making centre. Nestlé is considered a Swiss company because all strategic decisions with regard to innovation, financial transactions, distribution and logistics are taken in Vevey - even though its CEO is actually Belgian.

Looking at it from a wider angle, the AB InBev case illustrates the paradox that can arise from the growth of an international corporation from a small open economy. The paradox of this situation is that the successful contribution made by a country will, in the long term, undermine the national character of a multinational corporation. As the enterprise develops itself in the international arena, the company will appeal to a wide range of investors and top-class management from a variety of different countries. This will reduce the impact of the country of origin on strategic decisions regarding investment, innovation and employment. Keeping this paradox in mind, it would be wise to remain modest about Belgium’s contribution to leading international corporations. It is not without reason that modesty is a Belgian virtue.

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