Kent Chemicals Organizing for International Growth

Assignment 3
Strategy Formulation and Implementation (MGMT.691-061)
Manning School of Business
University of Massachusetts, Lowell, MA
Instructor: Prof. Ashwin Mehta
18 July 2015

Assignment 3 - Kent Chemicals: Organizing for International Growth

Introduction:
Kent Chemical Products started out in 1917 as a U.S. based rubber producer. Over the
last century, the company expanded to diverse products such as consumer goods, medical
plastics, industrial products, fire-protection chemicals, building construction products,
agricultural products, etc. The company had a strong market share in the United States
that was starting to flatten out, while international sales was growing rapidly. However,
the international front of Kent Chemical was not always synchronized with the domestic
operation, resulting to somewhat chaotic operations. The international operations of Kent
were a result of various acquisitions, joint ventures, etc. Luis Morales, president of Kent
Chemical was attempting to streamline operations for the third time, through reorganization of various divisions and optimizing operations. Since the last two attempts
had not succeeded, Morales wanted to ensure that the latest one succeeded (Bartlett &
Winig, 2012).
Context:
The Kent Chemical paper is a case in point for various companies that struggle with the
results of mergers & acquisitions (M&As). The management of such companies is
especially tough when the M&As are international. The distance between the parent
company and the subsidiaries adds to the already preexisting stain on forming a company
that has a similar culture. The course textbook states, All too frequently, mergers &
acquisitions do not produce the hoped-for outcomes. Efforts to mesh the corporate
cultures can stall due to formidable resistance from organization members. Differences in
management styles and operating procedures can prove hard to resolve (Thompson, Jr.,
Peteraf, Gamble, & Strickland III, 2014).
This case was written to provide a student insight into:

Organizational structures, company sub-cultures, and their impact on mergers &

acquisitions (M&As).
What could happen if strong linkages do not exist between various divisions of a
company, especially ones that have grown through M&As.

Assignment 3 - Kent Chemicals: Organizing for International Growth

Q1a. What was the international market entry approaches pursued by Kent until
Fisher took over as a CEO?
A1a.

Until Ben Fisher took over as CEO in 1998, Kents strategy for international

market presence was based on:

Maintaining a national (one country) production base and exporting goods to the

foreign market.
Licensing foreign firms to use Kents technology and to produce/distribute the

companys products.
Using strategic alliances and minority joint ventures (JVs) with foreign
companies to produce and market its products.

Q1b. Why did they pursue these options?

A1b. Kent pursued the options outlined in A1a above due the business pressures
listed in the table below (Bartlett & Winig, 2012):
Kent Business

Consumer
Products

Fire
Protection
Products

Medical
Plastics

Business Pressures
Sales outlets and retail
distribution channels varied by
country.
Consumer preferences were not
homogeneous across countries.
Fast growing industry therefore
had both local and global
pressures.
Fire protection regulations varied
by country.
Customers were global and
required specialized plastics for
targeted applications.

Kent Approach
Set up a plant in France capable
of producing the Grease-B-Gone
line, and distributing to various
countries outside the U.S.
All other products were made in
the U.S. and shipped to other
parts of the world.
Chemical agents were produced
in 4 plants around the world.
Former Kent licensees produced
and tailored products to meet
local needs.
Product development was
performed in Kents Akron, OH
R&D labs.
Products were manufactured in
two specialized plants in
California and Netherlands.

Assignment 3 - Kent Chemicals: Organizing for International Growth

Q1c.

What are the pros and cons of each option?

A1c.

The pros and cons of each of the international market-entry approaches followed

by Kent are listed in the table below (Thompson, Jr., Peteraf, Gamble, & Strickland III,
2014):
Approach

One country
production base,
and exporting
goods to foreign
market

Licensing foreign
firms to use
companys
technology

Strategic alliances
and minority joint
ventures (JVs)
with foreign
companies to
produce and
market its
products

Pros
Good initial low-cost strategy
to enter foreign markets.
Can use existing capacity in
domestic plants.
No experience and knowledge
of foreign consumer market
and political system needed.
Minimizes direct investment in
foreign market.
No need to have the
organizational capability to
navigate the foreign market.
Resources are not permanently
committed to the foreign
market. Risks are minimized.
Income is generated from
royalties.
Ideal for the service sector such
as restaurants and retailing
enterprises.
Franchisee bears the costs and
risks of establishing foreign
locations.

Cons
Exporting from one country to
another is usually more
expensive than manufacturing
locally.
Cost of shipping to foreign
country is sometimes high.
Exchange rate fluctuations
affect profits.
Providing intellectual property
rights to another company, in
another country that may or
may not be defendable in the
foreign countrys courts, if
license infringements occur.

Franchisor incurs cost to train,

support, monitor quality, and
brand name adherence.
Franchisee may not adhere to
quality standards of franchisor.
Franchisor may try to make
modifications to the product
and therefore adversely affect
quality/brand name.

Q1d. Why did Fisher want to make Kent a global company?

A1d. Fisher wanted to make Kent a global company to ensure that the company
survived the plateauing of the U.S. market, while continuing to make money in the global
market. Fisher realized that while sales in the U.S. market were flattening out, there was a
huge global market that Kent could tap into. Also Kents international market entry

Assignment 3 - Kent Chemicals: Organizing for International Growth

strategies, while good for the short term, were not so great for enduring long-term
profitability of the company.
Q2.

What were the problems facing Luis Morales as he began implementing Ben

Fishers international expansion strategy?

A2.

The problems that Luis Morales faced as he began implementing Fishers

international expansion strategy, are listed in the table below:

Strategic
Kent was a minority
shareholder in subsidiaries
and JVs in 22 countries.
Kent subsidiaries were
competing with each other.
Capital allocation had
become complex.
Clear global strategy on
product, place, price, and
promotion did not exist.
Regional organizations had
difficulty coordinating
issues with global
implications.

Structural/Systems
Limited financial and
operating control over
subsidiaries and JVs.
Global financial / ERP
system metrics contradicted
regional knowledge of key
staff members.
Clear reporting lines and
channels of communication
were not present.
No clear organization
structure to support clear
strategy.

Interpersonal
Staff members from the
JVs were reluctant to
collaborate with each other.
Impact of data from new
systems caused friction.
Resulted in less
collaborative interpersonal
relationships between staff.
Managers protected selfinterests and continued with
their parochial practices.
R&D rarely focused on
offshore needs.

Q3a. How would you evaluate the organizational changes he made in response to
those problems?
A3a.

The table below shows my evaluation of the impact of the two rounds of

organizational changes that were made at Kent:

Re-Organization
Strategic
Structural/Systems
Interpersonal
2006
The overall
The Medical
Staff from all
Global Business
strategy did not
Plastics GBD was
subsidiaries
Directors (GBDs)
seem to be fully
effective in
except the
effective across the
providing
Medical Plastics
enterprise.
worldwide
Division did not
business
buy into the GBD
coordination,
model.
while all other
The main reason
GBDs failed.
that the model

Assignment 3 - Kent Chemicals: Organizing for International Growth

Re-Organization

2007
World Boards
(WBs)

Strategic

Structural/Systems

Overall, this model The Fire

was not successful
Protection WB
in any division
was successful
except for the Fire
while the others
Protection
were not.
Division.

Interpersonal
failed was most
likely because of
personality issues
of the leaders and
their staff. If the
Medical Plastics
GBD was
successful, the
others should have
been too, but they
were not.
There were
personality and
operational issues
in all WBs,
except the Fire
Protection one.

Q3b. Why were they unsuccessful?

A3b. As stated previously, the two re-organizations were not successful for the most
part because of the following reasons:

Lack of buy-in to the concept from company leaders such as Angela Perri.
Lack of operational maturity of the staff members of the various divisions.
Inter-divisional cultural differences between staff.
Personality differences between the leaders and their staff members.
Using a unified model across the company to solve diverse problems.

In summary, both the re-organizations failed because of people issues.

Q4a. What do you think of the Sterling Partners recommendations?
A4a.

Sterling Partners identified the key problems of the company correctly. The

company was trying to, impose uniform organizational solutions on a strategically

diverse portfolio (Bartlett & Winig, 2012). I agree with this part of the analysis.
However, the Sterling report did not pinpoint the underlying cultural/people problems
within the company. They tried to mask the people issues by recommending a complex
decision matrix.

Assignment 3 - Kent Chemicals: Organizing for International Growth

Fundamentally, Kent has lot of cultural and people problems, because the company had
grown through a series of mergers & acquisitions (M&As). Kents strategy, structure, and
culture are not aligned towards meeting the same goals as a company. This needs to be
corrected at the senior leadership and grass roots level, in order for the company to move
forward as a cohesive and successful unit.
Q4b. What did Kent get for the $1.8 million fee?
A4b. For the $1.8M fee, Kent got two items:
1. A partial analysis of why the company was not working as a cohesive unit.
2. A complex set of decision-matrices that would be hard to implement and sustain.
Q4c.

What should Morales recommend?

A4c.

Morales should work with his senior leadership and staff members to do the

following:

Accept the foundational cultural issues within the company.

Work on correcting the cultural issues, and win over the dissenters / non-

believers.
Work on creating an organization structure that best meets the needs of the

specific Division. It may not be the same for all the Divisions.
Not implement the decision-matrix. Implementing the decision-matrix will
probably create more bureaucracy, confusion, a less-agile organization, and
initially, lots of complexity.

Q4d. What should Chairman Ben Fisher decide?

A4d. Chairman Ben Fisher has a tough decision on his hands. He has the following
options:

Fix the current set of companies and the cultural problems within each of them.
OR
Sell the worst performing businesses. This could be a few sub-companies, or the
entire Division.
OR

Assignment 3 - Kent Chemicals: Organizing for International Growth

Exit ownership stake in certain regions and go back to alternate means of

operating in those markets, using exports, licensing agreements, and joint

ventures.
OR
Use a combination of each of the above options, for each of the Divisions.

Conclusion:
This case does an excellent job at introducing the student to the complexities of operating
in companies that have grown through mergers & acquisitions (M&As). Additionally, the
challenges emanating out of diverse work cultures in various global companies, add to
the complexity. In any company, culture challenges are the ones that need to be addressed
first. If the strategy, organization structure, and culture are not aligned, companies cannot
thrive. This has been proven time-and-time again during various M&As. In a Forbes
article on why M&As fail, the author states, The first mistake acquiring companies
make is underestimating the problems that unalike company cultures can inflict on a
merger (Rein, 2009).
This case explores company performance issues associated with operating in foreign
countries, M&As, diverse company cultures, organizational structures, and strategy. The
article far exceeds the targets set in the Context section of this document. It provided
me with an excellent understanding of the issues stated herein.

Assignment 3 - Kent Chemicals: Organizing for International Growth

Works Cited
Bartlett, C. A., & Winig, L. (2012, Feb 23). Kent Chemical: Organizing for International
Growth (Brief Cases). Retrieved Jul 11, 2015, from Harvard Business School:
https://hbr.org/product/kent-chemical-organizing-for-international-growth/4409-PDFENG
Rein, S. (2009, Jun 16). Why Most M&A Deals End Up Badly. (Forbes.com, Producer, &
Forbes.com) Retrieved Jul 12, 2015, from Forbes.com:
http://www.forbes.com/2009/06/16/mergers-acquisitions-advice-leadership-ceonetworkrecession.html
Thompson, Jr., A. A., Peteraf, M. A., Gamble, J. E., & Strickland III, A. J. (2014).
Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and
Cases (18e ed.). (P. A. Mehta, Ed.) Boston, MA, U.S.A.: McGraw-Hill.