Jones 2002

Geoffrey Jones
Control, Performance, and Knowledge

Transfers in Large Multinationals:
Unilever in the United States, 1945-1980
This article considers key issues relating to the organization
and performance of large multinational firms in the post-
Second World War period. Although foreign direct invest-
ment is defined by ownership and control, in practice the
nature of that "control" is far from straightforward. The issue
of control is examined, as is the related question of the "sticki-
ness" of knowledge within large international firms. The dis-
cussion draws on a case study of the Anglo-Dutch consumer
goods manufacturer Unilever, which has been one of the larg-
est direct investors in the United States in the twentieth cen-
tury. After 1945 Unilever's once successful business in the
United States began to decline, yet the parent company main-
tained an arms-length relationship with its U.S. affiliates,
refusing to intervene in their management. Although Unilever
"owned" large U.S. businesses, the question of whether it
"controlled" them was more debatable.
S ome of the central issues related to the organization and performance

of multinationals after the Second World War can be illustrated by
studying the case of Unilever in the United States. Since Unilever's
creation in 1929 by a merger of British and Dutch soap and margarine
companies, it has ranked as one of Europe's, and the world's, largest
consumer-goods companies.1 Its sales of $45,679 million in 2000
GEOFFREY JONES is professor of business administration at Harvard Business School.
This article draws extensively on the confidential business records held by Unilever PLC
and Unilever N.V., and the author would like to thank Unilever for permission to cite them. A
preliminary version of this article benefited from the insightful comments of Mira Wilkins,
the members of the Business History Seminar at Harvard Business School, and three anony-
mous referees. I am grateful for the research assistance of Lina Galvez-Munoz and Peter
Miskell. Anne-Marie Kuijlaars undertook some of the initial research on the early history of
Lever Brothers and T. J. Lipton.
1
Charles Wilson, The History of Unilever, 3 vols. (London, 1954,1968); Alfred D. Chandler
Jr., Scale and Scope (Cambridge, Mass, 1990), 378—89.
Business History Review 76 (Autumn 2002): 4 3 5 - 4 7 8 . © 2002 by The Pres-
ident and Fellows of Harvard College.
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Geoffrey Jones / 436
ranked it fifty-fourth by revenues in the Fortune 500 list of largest

companies for that year.
Unilever was an organizational curiosity in that, since 1929, it has
been headed by two separate British and Dutch companies—Unilever
Ltd. (PLC after 1981), and Unilever N.V.—with different sets of share-
holders but identical boards of directors. An "Equalization Agreement"
provided that the two companies should at all times pay dividends of
equivalent value in sterling and guilders. There were two head offices—
in London and Rotterdam—and two chairmen. Until 1996 the "chief
executive" role was performed by a three-person Special Committee
consisting of the two chairmen and one other director.
Beneath the two parent companies a large number of operating
companies were active in individual countries. They had many names,
often reflecting predecessor firms or companies that had been ac-
quired. Among them were Lever; Van den Bergh & Jurgens; Gibbs;
Batchelors; Langnese; and Sunlicht. The name "Unilever" was not used
in operating companies or in brand names. Lever Brothers and T. J.
Lipton were the two postwar U.S. affiliates. These national operating
companies were allocated to either Ltd./PLC or N.V. for historical or
other reasons. Lever Brothers was transferred to N.V. in 1937, and until
1987 (when PLC was given a 25 percent shareholding) Unilever's busi-
ness in the United States was wholly owned by N.V. Unilever's business,
as a result, counted as part of Dutch foreign direct investment (FDI) in
the country. Unilever and its Anglo-Dutch twin Royal Dutch Shell
formed major elements in the historically large Dutch FDI in the
United States.2 However, the fact that all dividends were remitted to
N.V. in the Netherlands did not mean that the head office in Rotterdam
exclusively managed the U.S. affiliates. The Special Committee had both
Dutch and British members, and directors and functional departments
were based in both countries and had managerial responsibilities with-
out regard for the formality of N.V. or Ltd./PLC ownership. Thus, while
ownership lay in the Netherlands, managerial control was Anglo-Dutch.
The organizational complexity was compounded by Unilever's wide
portfolio of products and by the changes in these products over time.
Edible fats, such as margarine, and soap and detergents were the his-
torical origins of Unilever's business, but decades of diversification
resulted in other activities. By the 1950s, Unilever manufactured con-
venience foods, such as frozen foods and soup, ice cream, meat prod-
ucts, and tea and other drinks. It manufactured personal care products,
including toothpaste, shampoo, hairsprays, and deodorants. The oils
2
Roger van Hoesel and Rajneesh Narula, eds., Multinational Enterprises from the Neth-
erlands (London, 1999), especially ch. 8.
Unilever in the United States, 1945-1980 / 437
and fats business also led Unilever into specialty chemicals and animal
feeds. In Europe, its food business spanned all stages of the industry,
from fishing fleets to retail shops. Among its range of ancillary services
were shipping, paper, packaging, plastics, and advertising and market
research. Unilever also owned a trading company, called the United Af-
rica Company, which began by importing and exporting into West
Africa but, beginning in the 1950s, turned to investing heavily in local
manufacturing, especially brewing and textiles. The United Africa
Company employed around 70,000 people in the 1970s and was the
largest modern business enterprise in West Africa.3 Unilever's
employment was over 350,000 in the mid-1970s, or around seven
times larger than that of Procter & Gamble (hereafter P&G), its main
rival in the U.S. detergent and toothpaste markets.
An early multinational investor, by the postwar decades Unilever
possessed extensive manufacturing and trading businesses throughout
Europe, North and South America, Africa, Asia, and Australia. Unilever
was one of the oldest and largest foreign multinationals in the United
States. William Lever, founder of the British predecessor of Unilever,
first visited the United States in 1888 and by the turn of the century had
three manufacturing plants in Cambridge, Massachusetts, Philadel-
phia, and Vicksburg, Mississippi.4 The subsequent growth of the busi-
ness, which was by no means linear, will be reviewed below, but it was
always one of the largest foreign investors in the United States. In 1981,
a ranking by sales revenues in Forbes put it in twelfth place.5
Unilever's longevity as an inward investor provides an opportunity
to explore in depth a puzzle about inward FDI in the United States. For
a number of reasons, including its size, resources, free-market econ-
omy, and proclivity toward trade protectionism, the United States has
always been a major host economy for foreign firms. It has certainly
been the world's largest host since the 1970s, and probably was before
1914 also.6 Given that most theories of the multinational enterprise
suggest that foreign firms possess an "advantage" when they invest in a
foreign market, it might be expected that they would earn higher re-
turns than their domestic competitors.7 This seems to be the general
3
D. K. Fieldhouse, Merchant Capital and Economic Decolonization—The United Africa
Company 1929-1987 (Oxford, U.K., 1994).
4
Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cam-
bridge, Mass., 1989), 340-2.
5
"The 100 Largest Foreign Investments in the US," Forbes (6 July 1981).
6
Mira Wilkins, "Comparative Hosts," Business History 36, no. 1 (1994); Geoffrey Jones,
The Evolution of International Business (London, 1996).
7
The concept of "advantage" originated with the pioneering contribution of Stephen
Hymer and is a basic component of the eclectic paradigm developed by John H. Dunning.
See Dunning, Multinational Enterprises and the Global Economy (Wokingham, U.K., 1992).
case, but perhaps not for the United States. Considerable anecdotal evi-
dence exists that many foreign firms have experienced significant and
sustained problems in the United States, though it is also possible to
counter such reports with case studies of sustained success.8
During the 1990s a series of aggregate studies using tax and other
data pointed toward foreign firms earning lower financial returns than
their domestic equivalents in the United States.9 One explanation for
this phenomenon might be transfer pricing, but this has proved hard to
verify empirically. The industry mix is another possibility, but recent
studies have suggested this is not a major factor. More significant influ-
ences appear to be market share position—in general, as a foreign-
owned firm's market share rose, the gap between its return on assets
and those for United States-owned companies decreased—and age of
the affiliate, with the return on assets of foreign firms rising with their
degree of newness.10 Related to the age effect, there is also the strong,
but difficult to quantify, possibility that foreign firms experienced man-
agement problems because of idiosyncratic features of the U.S. econ-
omy, including not only its size but also the regulatory system and
"business culture." The case of Unilever is instructive in investigating
these matters, including the issue of whether managing in the United
States was particularly hard, even for a company with experience in
managing large-scale businesses in some of the world's more challeng-
ing political, economic, and financial locations, like Brazil, India, Nige-
ria, and Turkey.
Finally, the story of Unilever in the United States provides rich new
empirical evidence on critical issues relating to the functioning of mul-
tinationals and their impact. It raises the issue of what is meant by
"control" within multinationals. Management and control are at the
heart of definitions of multinationals and foreign direct investment (as
opposed to portfolio investment), yet these are by no means straight-
forward concepts. A great deal of the theory of multinationals relates to
the benefits—or otherwise—of controlling transactions within a firm
rather than using market arrangements. In turn, transaction-cost theory
postulates that intangibles like knowledge and information can often be
transferred more efficiently and effectively within a firm than between
/ ^ s Geoffrey Jones and Lina Galvez-Munoz, eds., Foreign Multinationals in the United
States (London, 2001).
9
H. Grubert, T. Goodspeed, and D. Swenson, "Explaining the Low Taxable Income of
Foreign-Controlled Companies in the United States," in A. Giovannini, R. Glenn Hubbard,
and J. Slemrod, eds., Studies in International Taxation (Chicago, 1993); R. J. Mataloni, "An
Examination of the Low Rates of Return of Foreign-Owned US Companies," Survey of Cur-
rent Business (2000): 55—73.
10
R. J. Mataloni, "An Examination of the Low Rates of Return."
independent firms. There are several reasons for this, including the fact
that much knowledge is tacit. Indeed, it is well established that sharing
technology and communicating knowledge within a firm are neither
easy nor costless, though there have not been many empirical studies of
such intrafirm transfers.11 Orjan Solvell and Udo Zander have recently
gone so far as to claim that multinationals are "not particularly well
equipped to continuously transfer technological knowledge across
national borders" and that their "contribution to the international dif-
fusion of knowledge transfers has been overestimated."12 This study
of Unilever in the United States provides compelling new evidence on
this issue.
Lever Brothers in the United States:

Building and Losing Competitive Advantage
Lever Brothers, Unilever's first and major affiliate, was remarkably
successful in interwar America. After a slow start, especially because of
"the obstinate refusal of the American housewife to appreciate Sunlight
Soap," Lever's main soap brand in the United Kingdom, the Lever
Brothers business in the United States began to grow rapidly under a
new president, Francis A. Countway, an American appointed in 1912.13
Sales rose from $843,466 in 1913, to $12.5 million in 1920, to $18.9
million in 1925. Lever was the first to alert American consumers
to the menace of "BO," "Undie Odor," and "Dishpan Hands," and to
market the cures in the form of Lifebuoy and Lux Flakes. By the end
of the 1930s sales exceeded $90 million, and in 1946 they reached
$150 million.
By the interwar years soap had a firmly oligopolistic market struc-
ture in the United States. It formed part of the consumer chemicals
industry, which sold branded and packaged goods supported by heavy
advertising expenditure. In soap, there were also substantial through-
put economies, which encouraged concentration. P&G was, to apply
Alfred D. Chandler's terminology, "the first mover"; among the main
11
S. Ghoshal and C. A. Bartlett, "Creation, Adoption, and Diffusion of Innovation by Sub-
sidiaries of Multinational Corporations," Journal of International Business Studies 19 (Fall
1988): 365-88; U. Zander and B. Kogut, "Knowledge and the Speed of the Transfer and Imi-
tation of Organizational Capabilities," Organizational Science 6 (Jan.-Feb. 1995): 76-92;
A. K. Gupta and V. Govindarajan, "Knowledge Flows within Multinational Corporations,"
Strategic Management Journal 21 (April 2000): 473—96.
12
O. Solvell and I. Zander, "International Diffusion of Knowledge: Innovating Mecha-
nisms and the Role of the MNE," in Alfred D. Chandler Jr. et al., The Dynamic Firm (New
York, 1998), 402.
13
Wilson, History of Unilever, 1, 204.
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Advertisement for Lifebuoy appearing in New York News in 1951. Lever Brothers invented
the concept of Body Odor (BO) in the interwar years, and then proceeded to cure it with Life-
buoy Soap. (Photograph courtesy Ad*Access On-line Project-Ad #BHO994, John W. Harrman
Center for Sales, Advertising & Marketing History, Duke University Rare Book, Manuscript,
and Special Collections Library, http://scriptorium.lib.duke.edu/adaccess/. Permission
granted by Unilever.)
followers were Colgate and Palmolive-Peet, which merged in 1928.

Neither P&G nor Colgate Palmolive diversified greatly beyond soap,
though P&G's research took it into cooking oils before 1914 and into
shampoos in the 1930s. Lever made up the third member of the oligopoly.
The three firms together controlled about 80 percent of the U.S. soap
r Unilever in the United States, 1945-1980 / 441
market in the 1930s.14 By the interwar years, this oligopolistic rivalry

was extended overseas. Colgate was an active foreign investor, while
in 1930 P&G—previously confined to the United States and Canada-
acquired a British soap business, which it proceeded to expand, seri-
ously eroding Unilever's market share.15
The soap and related markets in the United States had a number of
characteristics. Although P&G had established a preponderant market
share, shares were strongly contested. Entry, other than by acquisition,
was already not really an option by the interwar years, so competition
took the form of fierce rivalry between incumbent firms with a long ex-
perience of one another. During the 1920s and the first half of the
1930s, Lever made substantial progress against P&G. Lever's sales in
the United States as a percentage of P&G's sales rose from 14.8 percent
between 1924 and 1926 to reach almost 50 percent in 1933. In 1930
P&G suggested purchasing Lever in the United States as part of a world
division of markets, but the offer was declined.16 Lever's success peaked
in the early 1930s. Using published figures, Lever estimated its profit as
a percentage of capital employed at 26 percent between 1930 and 1932,
compared with P&G's 12 percent.
Countway's greatest contribution was in marketing. During the
war, Countway put Lever's resources behind Lux soapflakes, promoted
as a fine soap that would not damage delicate fabrics just at a time
when women's wear was shifting from cotton and lisle to silk and fine
fabrics. The campaign featured a variety of tactics, including washing
demonstrations at department stores. In 1919 Countway launched
Rinso soap powder, coinciding with the advent of the washing machine.
In the same year, Lever's agreement with a New York agent to sell its
soap everywhere beyond New England was abandoned and a new sales
organization was established. Finally, in the mid-i92os, Countway
launched, against the advice of the British parent company, a white
soap, called "Lux Toilet Soap." J. Walter Thompson was hired to de-
velop a marketing and advertising campaign stressing the glamour of
the new product, with very successful results.17 Lever's share of the U.S.
14
Chandler, Scale and Scope, ch. 5; Thomas K. McCraw, American Business, 1920-1980:
How It Worked (Wheeling, 111., 2000), ch. 3.
15
Wilson, The History of Unilever, vol. 2, 344; Chandler, Scale and Scope, 385-8; Geof-
frey Jones, "Foreign Multinationals and British Industry before 1945," Economic History Re-
view 41, no. 3 (1988): 429-53.
16
"History of Lever Brothers USA, 1912—1952," Unilever Economics and Statistics De-
partment, 18 Dec. 1953, Unilever Historical Archives London (UAL). The archives contain
two unpublished draft chapters on the history of Unilever in the United States (dated Janu-
ary 1990). The author would like to thank Unilever PLC and N.V. for permission to read this
draft, which draws heavily on confidential interviews with former executives.
17
Kathy Peiss, "On Beauty and the History of Business," in Beauty and Business, ed.
Philip Scranton (New York, 2001), 15.
soap market rose from around 2 percent in the early 1920s to 8.5 per-
cent in 1932.l8 Brands were built up by spending heavily on advertising.
As a percentage of sales, advertising averaged 25 percent between 1921
and 1933, thereby funding a series of noteworthy campaigns conceived
by J. Walter Thompson. This rate of spending was made possible by the
low price of oils and fats in the decade and by plowing back profits
rather than remitting great dividends. By 1929 Unilever had received
$12.2 million from its U.S. business since the time of its start, but
thereafter the company reaped benefits, for between 1930 and 1950 cu-
mulative dividends were $50 million.19
After 1933 Lever encountered tougher competition in soap from
P&G, though Lever's share of the total U.S. soap market grew to 11 per-
cent in 1938. P&G launched a line of synthetic detergents, including
Dreft, in 1933, and came out with Drene, a liquid shampoo, in 1934;
both were more effective than solid soap in areas of hard water. How-
ever, such products had "teething problems," and their impact on the
U.S. market was limited until the war. Countway challenged P&G in
another area by entering branded shortening in 1936 with Spry. This
also was launched with a massive marketing campaign to attack P&G's
Crisco shortening, which had been on sale since 1912.20 The attack be-
gan with a nationwide giveaway of one-pound cans, and the result was
"impressive."21 By 1939 Spry's sales had reached 75 percent of Crisco's,
but the resulting price war meant that Lever made no profit on the prod-
uct until 1941. Lever's sales in general reached as high as 43 percent of
P&G's during the early 1940s, and the company further diversified with
the purchase of the toothpaste company Pepsodent in 1944. Expansion
into margarine followed with the purchase of a Chicago firm in 1948.
The postwar years proved very disappointing for Lever Brothers,
for a number of partly related reasons. Countway, on his retirement in
1946, was replaced by the president of Pepsodent, the thirty-four-year-
old Charles Luckman, who was credited with the "discovery" of Bob
Hope in 1937 when the comedian was used for an advertisement. Count-
way was a classic "one man band," whose skills in marketing were not
matched by much interest in organization building. He never gave
much thought to succession, but he liked Luckman.22 This proved a
misjudgment. With his appointment by President Truman to head a food
18
Wilson, History of Unilever, vol. l, 2 8 4 - 7 ; "History of Lever Brothers USA, 1912-
1952," UAL.
19
Memo on Lever Brothers, c. 1964, UAL.
20
The classic case study of the launch and marketing of Crisco is by Susan Strasser, Satis-
faction Guaranteed (New York, 1989).
21
McCraw, American Business, 47-8.
22
Special C o m m i t t e e Minutes, 3 Aug. 1944, UAL.
r Unilever in the United States, 1945-1980 / 443
program in Europe at the same time, Luckman became preoccupied

with matters outside Lever for a significant portion of his term, though
perhaps not to a sufficient degree. Convinced that Lever's management
was too old and inbred, he dismissed about 15 percent of the work force
soon after taking office, and he completed the transformation by mov-
ing the head office from Boston to New York, taking only around one-
tenth of the existing executives with him.23 The head office, constructed
in Cambridge by Lever in 1938, was subsequently acquired by MIT and
became the Sloan Building.
Luckman's move, which was supported by a firm of management
consultants, the Fry Organization of Business Management Experts,
was justified on the grounds that the building in Cambridge was not
large enough, that it would be easier to find the right personnel in New
York, and that Lever would benefit by being closer to the large adver-
tising agencies in the city.24 There were also rumors that Luckman,
who was Jewish, was uncomfortable with what he perceived as wide-
spread anti-Semitism in Boston at that time. The cost of building the
New York Park Avenue headquarters, which became established as a
"classic" of the new postwar skyscraper, rose steadily from $3.5 mil-
lion to $6 million. Luckman had trained as an architect at the Univer-
sity of Illinois, and he was very involved in the design of the pioneering
New York office.
While these events unfolded, P&G introduced a heavy-duty syn-
thetic detergent called "Tide," which swept the market. By 1949 one out
of four Americans did their laundry with Tide.25 Tide represented a
technological discontinuity in cleaning, which changed the nature of
the market. It quickly surpassed Ivory Soap as P&G's flagship brand,
and it set a new pattern, whereby P&G invested heavily in research to
build a succession of premium consumer brands.
Lever Brothers lagged in the development of synthetics and had to
withdraw its competitor product, Surf. By 1949 Lever was losing sales,
which in constant dollars were more or less the same as in 1945. Lever's
performance, shown in Table 1, can be contrasted with that of P&G,
shown in Table 2. (Both tables give figures in nominal and constant
dollars.) The failure in synthetics was not Luckman's fault, as their de-
velopment was underestimated by Unilever. The Second World War
held up research work on synthetics and delayed the establishment of
23
Luckman's autobiography presents his case for this episode. See Charles Luckman,
Twice in a Lifetime: From Soap to Skyscrapers (New York, 1988), 2 0 2 , 230—40.
24
George Fry a n d Associates, "Report on Relocation of Headquarters," AHK 2117, Uni-
lever Historical Archives Rotterdam (UAR).
25
Spencer Klaw, "The Soap Wars," Fortune ( J u n e 1963).
Lever House, in New York City on Park Avenue between 53rd and 54th Streets, 1952. De-
signed by the architectural firm Skidmore, Owings & Merrill, it set the standard for the glass-
and-steel office towers in the United States that followed. (Photograph courtesy of the
Gottscho-Schleisner Collection, Library of Congress.)
production facilities in Europe.26 Unilever may have had a special diffi-

culty because of its close research links with the German chemical com-
pany I. G. Farben, which was broken up by the Allies after the end of
the war.27 In the United States, Countway argued that nobody would
buy synthetic detergents. The total disruption of the company at this
26
P. A. R. Puplett, Synthetic Detergents (London, 1957), 59-60.
27
1 owe this point to Ben Wubs.
Table 1
Sales and Net Profits of Lever Brothers, 1945-1980
($ million and constant $ 1982-84 = 100)
Net Constant Constant
Year Sales Profits Sales Net Profit
1945 150 5 833 28
1946 150 7 769 36
1947 220 14 986 63
1948 260 7 1,079 29
1949 200 -7 840 -29
1950 — — — —
1951 — — — —
1952 — — — —
1953 215 -4 805 -15
1954 235 -3 873 -11
1955 250 6 933 22
1956 282 3 1,037 11
1957 346 6 1,231 21
1958 383 10 1,325 35
1959 410 15 1,409 52
1960 389 11 1,314 37
1961 410 11 1,371 37
1962 413 10 1,367 33
1963 415 13 1,356 42
1964 437 15 1,409 42
1965 456 15 1,443 47
1966 434 6 1,339 18
1967 443 9 1,326 27
1968 454 12 1,304 34
1969 488 5 1,329 14
1970 525 9 1,353 23
1971 521 11 1,286 27
1972 527 13 1,261 • 31
1973 566 6 1,275 16
1974 669 10 1,357 20
1975 747 11 1,387 20
1976 753 12 1,323 21
1977 780 4 1,287 7
1978 861 -11 1,318 -17
1979 957 -7 1,322 -10
1980 1,036 -17 1,257 -21
Table 2
Sales and Net Profits of P&G, 1945-1980
Year Sales Profits Sales Net Profit
1945 342 20 1,900 111
1946 310 21 1,590 108
1947 534 47 2,395 211
1948 724 65 3,004 270
1949 697 29 2,929 122
1950 632 61 2,622 253
1951 861 51 3,311 196
1952 818 42 3,086 158
1953 850 42 3,183 157
1954 911 52 3,387 193
1955 966 57 3,604 231
1956 1,038 59 3,816 217
1957 1,156 68 4,114 242
1958 1,295 73 4,481 253
1959 1,369 82 4,704 282
1560 1,441 98 4,868 331
1961 1,542 107 5,157 358
1962 1,619 109 5,361 361
1963 1,654 116 5,405 379
1964 1,914 131 6,174 423
1965 2,059 133 6,537 422
1966 2,243 149 6,923 460
1967 2,439 174 7,302 521
1968 2,543 202 7,307 580
1969 2,707 187 7,376 510
1970 2,979 212 7,679 546
1971 3,178 238 7,847 588
1972 3,514 276 8,407 660
1973 3,907 302 8,799 680
1974 4,912 317 9,963 643
1975 6,082 334 11,305 621
1976 6,513 401 11,446 704
1977 7,284 461 12,020 761
1978 8,100 512 12,423 785
1979 9,329 577 12,850 795
1980 10,772 643 13,073 780
Table 3
Shares of North American Market Detergents, 1961-1977
(in percent)
Date Lever P&G Colgate
1961 19 44 10
1972 14 43 14
1977 12.5 50 12
Source: Unilever Archives London (UAL). The 1961 figures refer to the United States
only. The other figures include Canada.
time compounded the difficulties. Luckman left the company in 1950,

going on to establish a prominent urban-planning and architecture
firm in Los Angeles.28 A reformulated Surf was launched in 1949, but
by 1953 the brand had accumulated losses of $24 million and was again
withdrawn. A new product, Rinso Blue, lost a further $7 million in a
year due to ferocious P&G competition.29 By 1955 P&G's sales and prof-
its dwarfed those of Lever in the United States.
The company's failure in synthetic detergents had long-lasting con-
sequences. In laundry soap, P&G's estimated share of the market rose
from 34 percent to 57 percent between 1940 and 1956, while Lever's
share fell from 30 percent to 17 percent.30 P&G retained strong market
share in the United States in every sector of detergents between the
1960s and the late 1970s, as shown in Table 3.
Lever's poor performance in the United States was no secret. It was
frequently commented upon as the firm's ranking in the Fortune 500
list moved steadily downward, from 112 in terms of sales and 165 in net
income in 1959 to 250 and 341, respectively, by 1972. An article on
Lever in Marketing Magazine in 1967 noted that the firm had for some
time been "cleaning up people, dishes and laundry better than sales
and profits."31 A long article in BusinessWeek in 1974 noted that its
performance "has been plagued by market penetration difficulties. The
subsidiary is an also-ran to P&G and Colgate-Palmolive in toothpaste . . .
and to P&G in detergents."32 A McKinsey report commissioned by
Lever in 1973 showed that compared with twelve leading U.S. consumer
companies, including P&G, Gillette, Colgate, General Foods, and CPC,
28
Luckman, Twice in a Lifetime; Wall Street Journal, 25 J a n . 1950; Time ( 3 0 J a n . 1950).
29
Klaw, "Soap Wars." The figures are from testimony in t h e 1963 All antitrust case.
30
Ibid.
31
Marketing Magazine (1 Oct. 1967).
32
"Unilever: A Multinational's New Route t o Profits," Business Week (13 Apr. 1974).
-4.00
Figure l. Return on sales of Lever Brothers and P&G, 1945-1980 (in percent).
Lever ranked last in sales growth, return on assets, and return on sales
between 1963 and 1973.33 (Figure 1 shows Lever's long-term poor per-
formance compared with P&G's, measured in terms of return on sales.)
Unilever's postwar difficulties in the United States were colorfully de-
scribed in an article published in Fortune in May 1986, which noted
that the "world's biggest packaged goods company was a laughing stock
in the world's biggest market." For forty years, the article continued,
P&G had "easily won 45% to 50% of the market for just about any
household product worth mentioning. Lever slumped to being an occa-
sionally money-losing also-ran. In such products as deodorants, sham-
poos, ice cream, and other frozen products, Unilever ranks no 1 or 2 on
the planet but is practically invisible in the United States."34
These decades before 1970 were notably successful for Lever's
great competitor, P&G, which diversified its product range, often ex-
ploiting scope economies. Sales per unit volume doubled every decade
at the company. During the 1950s, P&G successfully entered the tooth-
paste market and also paper products with the acquisition of Charmin
Paper in 1957. In classic P&G fashion, expertise was accumulated by
acquisition, followed by internal development and learning. Twelve
years after the Charmin acquisition, Pampers disposable diapers were
launched nationally. P&G essentially developed its products within the
firm in this period. It made no acquisitions between 1963 and 1980,
mainly because of regulatory constraints imposed after antitrust ac-
tions were brought against it after the company's acquisition in 1957 of
33
McKinsey & Co. to T h o m a s S. Carroll, 15 J a n . 1974, UAL.
34
"Unilever Fights Back in the US," Fortune (26 May 1986).
Clorox Chemical, the largest U.S. manufacturer of household bleach,

which it had to divest itself of ten years later.
There were several reasons why the once successful Lever business
experienced such a prolonged decline. As a broad generalization, it can
be said that after the immediate postwar loss of momentum, the man-
agement of Lever Brothers lacked the resources, confidence, and capabil-
ity to invest in new products on a sufficient scale to reverse its position.
Lever became trapped in a cycle of trying to sustain income by cutting
expenditures on both brand support and manufacturing facilities. This
further weakened brands and raised costs. The 1973 McKinsey report
established that six of Lever's thirty-one brands accounted for 74 percent
of profits—but none of them held either first or second place in their
product categories—while at least eleven brands did not appear to
cover their overheads. The lack of strong brands left Lever with higher
marketing costs than P&G, while cost-cutting at factories and insuffi-
cient funds for depreciation gave it higher manufacturing costs. By the
1970s, if not earlier, Lever Brothers appeared to have higher manufac-
turing costs than any of its competitors, except in toothpaste. This was
a bad situation to face in the 1970s, when the oil shocks sharply in-
creased the prices of the chemicals used in soaps and detergents while
simultaneously reducing consumers' willingness to pay for premium-
priced brand names.35 The precise reason why Lever's management
was so concerned with maintaining its bottom line can be debated, but
a factor might have been the executive remuneration package—a phan-
tom stock-option scheme—which may have discouraged long-term in-
vestment in favor of short-term earnings performance.
A second weakness was lack of innovation. Lever's research labora-
tory at Edgewater, New Jersey, was built in 1952 to centralize previously
widely separated research operations. Over the following years it was
responsible for several innovations beyond the large fabric-detergent
sector: Dove, a completely new type of beauty soap, which contained
cleansing cream, launched in 1955; Wisk, the first heavy-duty liquid
laundry detergent, in 1956; and Imperial, the first margarine with the
taste of a high-priced spread, in 1956. Lever's president between 1955
and 1964, Bill Burkhart, had formerly worked for P&G and had a strong
technology orientation. He closely monitored progress in research and
development, meeting with research staff every week, and he also in-
sisted on close integration between research and marketing functions.
Meanwhile, the Lever research director was also highly market ori-
ented. Lever's prolific generation of new products at this time reflected
this high level of integration in the innovation process.
35
Editors of Advertising Age, The House That Ivory Built (Lincolnwood, 111., 1988), 33.
After 1964 Burkhart's successors were drawn from the finance or

marketing sectors and were much less interested in long-term product
development. Innovation at Lever Brothers slowed. The general pattern
was that P&G innovated and Lever responded by trying to achieve in-
cremental improvements in packaging and areas peripheral to product
development.36 During the 1970s, spending on innovation was cut to a
point that research activity consisted of little more than the defense of
existing businesses by combating regulatory initiatives and focusing on
cost-saving activities. There were problems as well with the organiza-
tion and quality of Lever's management. Through the postwar years,
the basic organizational structure remained a unitary one, leaving se-
nior managers responsible for a span of products from soap to tooth-
paste to margarine and syrup. Detergents were the dominant product,
attracting the best people, or at least the best people who wanted to
work for Lever.37 Not surprisingly, a 1973 McKinsey report recom-
mended the creation of three main product divisions.38 However, the
company did not establish full divisions until 1980.
Within this context, the different product areas had somewhat dif-
ferent experiences. Lever Brothers was primarily identified with deter-
gents, which made up about 40 percent of its sales in the mid-1960s. In
1957 Lever finally got into synthetics with the purchase of the All brand
from Monsanto, leading to some improvement in market share at the
cost of an antitrust suit, but P&G's market leadership was left un-
scathed. P&G's market share in core product areas provided it with
high profit margins and a solid base of earnings and cash generation.
P&G's cash flow from detergents funded its diversification into other
products and its spending on innovation. Lever struggled through
the 1970s to hold second place against Colgate. Its few new product
launches only succeeded in taking volume from its existing businesses,
and its market share drifted downward until the end of the 1970s. The
Lever strategy was in effect to concentrate on the fringe products that
made money, like Wisk, and soap bars, like Lifebuoy, Lux, and Dove,
leaving the mainstream fabric-detergent business to P&G. In soap bars,
Lever held 27 percent of the market in i960 and 17 percent in 1979, but
they only composed 13 percent and 7 percent, respectively, of the total
U.S. detergent market. Dove itself was adversely affected by the launch
of Dove Liquid for dishwashing in 1965, which did not sell, forcing
Lever to cut its price. Dove ended up as a brand for a discount dish-
36
M e m o concerning Unilever research in relation to the American business, M. M u m -
ford, 2 0 July 1964, Special Committee Supporting Documents; McKinsey Report, 1973, UAL.
37
Visit t o North America, Sir Ernest Woodroofe's Report to the Board, 5 Oct. 1973, Con-
ference of Directors Files, UAL.
38
McKinsey Report, 1973.
Table 4
Unilever, P&G, and Colgate Trading Margins in
U.S. Detergents, 1962-1978
Date Unilever P&G Colgate
1962-66 7.3 15.1 1.4
1967-71 3.3 13.9 1.8
1972 7 15 2
1978 1 15 2
Source: Detergents World Strategic Plan (July 1973); Corporate Strategy Advisory Com-
mittee, "Background Paper: Detergents" (17 June 1983), ES 83173, Unilever Archives
Rotterdam (UAR).
washing liquid and a premium soap, and neither flourished until Dove
beauty soap was relaunched in 1979 with a medical marketing program
claiming that dermatologists had confirmed that it irritated skin less
than other soaps. Over time Lever's falling market share became seri-
ous. By the 1970s Lever's level of sales meant that it lacked the volume
to support its five detergent factories.
So far as Unilever could tell, its margins were consistently dwarfed
by those earned by P&G in the U.S. market, though not by Colgate until
the late 1970s. Table 4 gives Unilever's estimates of trading margins-
profits as a percentage of sales—on detergents in the United States. The
P&G and Colgate figures were informed guesses, but the overall picture
seems clear.
Unilever as a whole had a problem with P&G during these years.
Unilever was always a larger company worldwide than P&G, its portfolio
of products was far wider, and it was active in many more countries.39
Beginning in the 1950s, Unilever's European business lost market
share to the American company. Worldwide, Unilever's most profitable
detergent business operated outside North America and Europe. In
Australia, South Africa, Brazil, India, and many developing countries,
Unilever held large market shares in detergents. During the 1970s, Bra-
zil was Unilever's most profitable detergent business in the world. P&G
had only a limited presence in such markets, arguably because—in the
words of one study—the firm was "comfortable only in advanced coun-
tries."40 Certainly P&G does not seem to have been comfortable in de-
veloping nations marked by high inflation and political instability,
whereas Unilever was able to do well in these countries.
39
In 1950 Unilever's sales were $2,087 million and P&G's were $861 million. In 2 0 0 0
Unilever's sales were $43,680 million and P&G's were $38,125 million.
40
The House that Ivory Built, 203.
Unilever's difficulties in competing against P&G in developed mar-

kets had several causes. P&G's powerful position in the U.S. market en-
abled it to take full advantage of scale economies and was very profit-
able. Meanwhile, in Europe P&G was able to enter the market with
newer and fewer plants and brands than Unilever, which was burdened
by its historical legacy of factories and brands in every country. At the
same time, P&G's centralization enabled it to transfer brands like Tide,
Fairy, and Crest, developed first in the United States, to European affil-
iates. Unilever's decentralized structure made product transfers and in-
novation generally a slower process. Although Unilever as a whole
spent proportionally as much as P&G on research and came up with
many innovations, it persistently lagged in the launch of new detergent
products.41
The two companies functioned in different fashions. P&G used
technology to deliver product benefits that consumers valued, and it
was notably centralized in its Cincinnati head office. Unilever's detergent
business had been developed by a Liverpool-based wholesaler, who em-
phasized understanding the differences in markets and providing
choice. Unilever strongly believed in local autonomy for its affiliates.
There were considerable differences in marketing management be-
tween the two firms also. P&G's brand management system, developed
after 1931, was said to be partially inspired by observations of the chaos
resulting from the competition between Unilever's brands in Europe
during the early 1930s. Unilever only adopted the brand-management
system sometime in the early 1960s, and even then the company's man-
agers normally handled several brands. Unilever's decentralization
resulted in its having far too many brands, whereas P&G put more re-
sources behind a limited number of "power brands." There was a marked
cultural difference also. Nonperforming managers quickly left P&G.42
At Unilever, the prevailing culture before the 1980s was variously de-
scribed as "clubby" or "cozy." A manager who was not very good might
not be promoted, but some task would be found to enable him to
continue working within the firm. As decisions were reached by con-
sensus, it often took a long time to make them.
The "personal care" business was different from detergents. It rep-
resented around 30 percent of Lever's sales in the mid-1960s. The cate-
gory of personal care is amorphous, spanning products from toothpaste
and shampoos to deodorants, skin creams, and perfumery. These prod-
ucts thus had very different characteristics. While some had similarities
to detergents, in the prestige end of cosmetics and perfumery, brand
41
"P&G in North America, 1985," Misc. Competitors: P&G, UAL.
42
The House that Ivory Built, 88-9.
images built up over long periods were decisive. The prosperous post-
war U.S. market provided an excellent environment for the growth of
such products, and these decades saw a rapid growth of firms like
Avon, Estee Lauder, Revlon, Max Factor, Elizabeth Arden, and Chese-
brough Ponds.43 Unilever estimates suggested that North America ac-
counted for nearly one-half of the total world personal care market in
the 1950s and 1960s. Following the purchase of Pepsodent, Lever's
main entry in the personal care business in the United States was
toothpaste. During the late 1940s, Colgate had established leadership
with a market share of more than 40 percent. P&G entered the tooth-
paste industry in 1953, and in 1956 launched Crest, the first anticavities
product. Crest took off after the ADA's endorsement in i960, replacing
Colgate as the largest single brand in 1962. It took a market share of
over 35 percent in the United States for most of the 1970s, and proved a
long-lasting success.44
In the toothpaste market, Lever's fortunes fluctuated. For over a
decade it relied on the Pepsodent brand, but in 1958 Lever introduced
a new product after buying the rights from a New York inventor for a
method of making toothpaste come out of a tube striped like a candy
stick. "Stripe" was not entirely cosmetic, as it contained fluoride and
made therapeutic claims, but it was the novel appearance of the tooth-
paste that set it apart. However, the timing of the launch in the United
States was unfortunate, as it just preceded the American Dental Associ-
ation's endorsement of Crest. Stripe's market share reached 8 percent
in its second year and then declined. There were also technical failures:
the toothpaste in one of three cases did not appear striped as it emerged
from the tube.45 During the 1960s, Lever's toothpaste business lan-
guished, in contrast to the achievements of the U.K. company, Beechams,
which introduced Macleans, with its brand image of "whiteness," to the
U.S. cosmetic market in 1962. In the mid-1960s Lever's total market
share was down to 9 percent, behind P&G, Colgate, and even Beechams.
The Lever response was again to avoid a head-on clash with P&G.
As Crest dominated the so-called therapeutic sector of the market,
Lever focused on cosmetic products (around a third of the market). In
1970 Lever launched a new gel, called "Close-Up," which it based on
43
For accounts of the growth of this industry in the United States, see especially Kathy
Peiss, Hope in a Jar (New York, 1998), and Philip Scranton, ed., Beauty and Business (New
York, 2001). Nancy F. Koehn, Brand New (Boston, 2001), has a chapter on the growth of
Estee Lauder; and Richard S. Tedlow, Giants of Enterprise (New York, 2001), discusses the
early history of Revlon.
^Salomon Brothers, P&G—The Ultra Consumer Products Company (New York:
Salomon Brothers, 1995).
45
Report on Visit to USA, by H. M. Threlfall, March-April 1961, UAR.
•'• I
New-flayor
ftpsodent!
SURPRISJSIWe*
dent's flavor because grownup*
preferred our new oirt, hands
down! To our surprise, Hit went
cratw for it! What's more, a
funous oaiveraity proved Pep-
aodtaat's ORAL DETERGENT
giv« you the ettatu* leetk of
all leading toothpaatw! Pepw-
dent Is guaranteed by Lever
Brother* Company to please
your whole family—or your
money back.
KKODCNTfe OMLDETSMGNT gives you the

C U A N E S T T W H ! Your own proof i. the
Clean Mouth Taste Hours
Advertisement for Pepsodent from New York Times, 1954. Lever Brothers diversified into
toothpaste with the purchase of the Pepsodent Company in 1944. This was Lever's only
toothpaste brand in the United States until "Stripe" was launched in 1958. (Photograph cour-
tesy Ad*Access On-Line Project-Ad #BH225i, John W. Hartman Center for Sales, Advertis-
ing & Marketing History, Duke University Rare Book, Manuscript, and Special Collections
Library, http://scriptorium.lib.duke.edu/adaccess/. Permission granted by Unilever.)
research in the United States on breath freshness. There was no compet-

itor until Beechams came out with Aquafresh in 1979. P&G did not intro-
duce its Crest gel until the early 1980s. Lever launched another brand,
called "Aim," a few years later. Lever's share of the U.S. toothpaste mar-
ket peaked at almost 24 percent in 1977, which put it alongside Colgate
in second place in the market, though still behind the one-third share
held by P&G. This did not translate into profits, however, in part be-
cause advertising and marketing promotions had to be spread over
Lever's three brands of Pepsodent, Close-Up, and Aim.46
Lever was unable to develop a significant personal care business
beyond toothpaste. Unilever was one of the world's largest shampoo
manufacturers, and its Sunsilk was probably the world's best-selling
brand of shampoo, but Lever Brothers only had a tiny shampoo busi-
ness, whose market share peaked at 3.3 percent in 1971 before being
phased out some years later. Lever Brothers had also experienced
misfortunes when trying to invest in postwar "permanent-wave kits,"
designed to enable women to wave their own hair at home. In 1947
Luckman had proposed the purchase of a firm called "Toni Cold
Wave" for $8 million, but this had been turned down by Unilever,
which considered the fashion-related business as too risky.47 In the
following year, however, he was allowed to make a $1.6 million pur-
chase of Rayve, a cream shampoo, and Hedy Home Permanent Wave,
a wave mixture. By 1950 these ventures had recorded losses of $1.5
million and held national market shares of less than 7 per cent, com-
pared with the 80 percent held by Toni, which had by then been acquired
by Gillette.48
In 1947 Lever had also paid $1.4 million for Harriet Hubbard Ayer
of New York. This was America's oldest cosmetic firm. It had been
started by an American working in late-nineteenth-century Paris and
had operations both in the United States and France. The business did
not flourish inside Lever. By 1949, losses had reached $4 million, and it
was sold in 1954, though the European operations were retained under
the control of French Unilever.49 From the 1960s on, Lever's directors
discussed making another acquisition in this product area, but the in-
dustry was fragmented and firms were usually family owned or closely
held. Large acquisitions were also considered impractical because of
Lever's poor performance. Chesebrough Ponds, a favorite candidate as
46
"Competition in t h e US Toothpaste Market, 1960-1985," Unilever Economics Depart-
ment Paper ES 86073, UAR.
47
Special Committee Minutes, 3 Aug. 1947, UAL.
48
Special Committee Minutes, 1 July 1948, UAL; Wall Street Journal, 25 J a n . 1950.
49
Wilson, The History of Unilever, vol. 3,199.
far back as 1970, was considered at that time to be "out of reach."50 Not
until 1986, when Unilever did acquire Chesebrough Ponds, was a major
acquisition actually carried out.
Food, which accounted for less than 15 percent of Lever turnover in
the mid-1960s and was mainly centered in margarine, was the least suc-
cessful of all the product groups. Unilever was the largest margarine busi-
ness in Europe and the world. Based on a cluster of research and devel-
opment laboratories and factories near Rotterdam, Unilever in Europe
pursued, after the late 1950s, a successful strategy of splitting a homoge-
neous market into a segmented one. A flow of new products and brands
emphasized both the health and indulgent dimensions of the product.
There was no sign of such dynamism in Lever Brothers. Its entry
into margarine had occurred in 1948 through the purchase of the firm
of Jelke in Chicago for $4.5 million, shortly after some of the legal re-
strictions on the product's manufacture and sale in the United States
had been removed when the federal margarine taxes were abolished.
This was not a product in which P&G ever invested, and in his auto-
biography Luckman blamed Unilever in Europe for the purchase. Tight
regulations on margarine remained in the United States, which meant
that it could only be sold in its natural white form to preclude its being
mistaken for butter.51 The business got off to a rocky start, when it
emerged that the former owner had also been engaged in the prostitution
business, rapidly causing "Jelke's Good Luck Margarine" to be renamed
"Good Luck Margarine." However, the introduction of Imperial marga-
rine in the mid-1950s made Lever the second largest brand in the United
States: with 5 percent of the market in 1965, it was just ahead of Kraft's
Parkay and behind Standard Brand's Blue Bonnet, which had over 9 per-
cent. However, Imperial's fortunes waned after this point, a problem
worsened by the company's failed attempt to diversify. By 1980 Lever's
total share of the U.S. margarine market was 7 percent, compared with
Parkay, which had 14 percent, and Blue Bonnet, which had 11 percent.
Lever's margarine business by the 1970s persistently brought
losses. Between 1975 and 1980, its food division lost Lever $120 million.
The core problem was an uncompetitive cost structure arising from
high production, plant overhead, and warehousing costs, and from major
diseconomies of scale, which obliged Imperial in the 1970s to sell at a price
premium of approximately 13 percent above its major competitors.52
50
"Unilever in North America. Some Financial Possibilities a n d Impossibilities," C. Sten-
h a m , 3 Nov. 1970, UAL.
51
Luckman, Twice in a Lifetime, 219.
52
Lever Brothers Company, U.S. Foods Division, M a r g a r i n e Business Proposal, Paper
7861, prepared for Special Committee Meeting, 12 Dec. 1980, UAL.
Around two-thirds of production took place in Hammond, Indiana, and

the remainder in Los Angeles. Hammond's facilities were wholly obso-
lete, resulting in Lever's costs being higher than its selling price. The
lack of transfer of technological and other capabilities from Unilever's
European margarine business was a striking example of the "sticki-
ness" of knowledge within the firm.
Lever's attempts to build a wider foods business largely floundered.
In the late 1950s, Mrs. Butterworth's, a maple-flavored syrup contain-
ing butter, was launched and became a modest success. Unilever was
fascinated by the rapid growth in the U.S. market for convenience foods
during the late 1950s.53 However, little was achieved by purchases of
small, not especially distinctive, firms like Dinner-Redy, which sup-
plied precooked sliced meat and poultry products. Lever tested the
markets for dehydrated fruits, dehydrated potatoes and peas, and pack-
aged desserts, but by 1963 the company abandoned foods entirely, ex-
cept for Mrs. Butterworth's syrup.54
The three decades after 1945, therefore, saw Lever Brothers lose its
once strong market position in the United States. It had become trapped
in lowly second place to P&G in detergents, had no personal care busi-
ness except toothpaste, and had an unprofitable margarine business.
The contrast with the successes of the interwar years was extraordinary.
T. J. Lipton: Exploiting Brand Equity in Tea and Soup

During the postwar decades, a curious feature of Unilever's U.S.
business was its division into two separate businesses that maintained
remarkably little contact with each other and recorded very different fi-
nancial performances. The second affiliate was the food and beverage
company, T. J. Lipton, which in 1986 was spotlighted as only one of two
Fortune 500 companies that had increased sales and income for each
of the previous thirty-five years. Lipton operated in different market
conditions than Lever. The U.S. food industry had dominant firms in
particular products, such as canned soup and canned meat, but there
was no dominant player across the sector that matched P&G or Colgate.
Many food products were fragmented among numerous regional com-
panies. In the U.S. tea market, Lipton was the leading firm.
T. J. Lipton originated as part of the tea group built up by Sir
Thomas Lipton in the late nineteenth century. Around 1889 Lipton, a
British grocer, diversified into tea trading, which expanded rapidly in
many countries except the United BGngdom, where the business remained
53
Notes o n Visit t o the United States of America, A p r i l - M a y 1957, AHK 2118, UAR.
54
Notes on Visit to the United States and Canada, 8 - 2 5 Feb. 1963, AHK 2118, UAR.
food retailing. The U.S. business was especially successful.55 Lipton, it

was sometimes claimed, taught Americans to drink tea.56 Certainly
there were parallels between the brand building of Lipton and U.S. en-
trepreneurs of the period (or a little earlier), such as Henry Heinz.57
Lipton tea was the first tea sold in branded packages, and the blend was
uniform. T. J. was an excellent publicist. In 1899 he was the unsuccess-
ful challenger for the America's Cup; this and four successive chal-
lenges brought much publicity to the business. Although Lipton did not
invent the tea bag, he was the first to recognize its potential. Lipton be-
gan to package tea bags for restaurant and hotel distribution in the
United States in 1930, and nine years later he adapted the small, hand-
tied gauze bags (later replaced by paper) for home use.
The subsequent fate of Lipton's business empire, especially after
his death in 1931, was enormously complicated. To summarize, T. J.
had kept his U.S. and Canadian business as personal property, while
the remainder was put into a British registered company, Lipton Ltd.,
in 1898. The latter was partially acquired by the Dutch margarine pre-
decessors to Unilever in the 1920s and then passed to the British retail-
ing company known as Allied Suppliers, which was created during the
mergers that formed Unilever.58 Unilever initially held around 27 per-
cent of Allied Suppliers' voting shares, which grew to around one-third
by 1970, but it did not exercise managerial influence.59 Lipton Ltd. and
its worldwide tea business remained beyond the control of Unilever
until 1972, when Unilever acquired full control in a quid pro quo for
supporting a takeover of Allied. The T. J. Lipton story was different,
however. Lipton Ltd. and Unilever exercised an option to buy its shares
in 1936 and then subsequently floated part of the stock. Unilever later
reacquired these shares and bought out Lipton Ltd. in 1943, also as part
of a new wartime strategy to expand its food business.60 Until the mid-
1960s, the affiliate was Unilever's only tea business in the world.
Lipton's profitability rested on tea, which accounted for around
four-fifths of total profits during the 1960s and 1970s. Lipton held over
40 percent of the U.S. tea market in the postwar decades, and it was the
only national marketer of both bagged and instant tea. The U.S. tea
market was quite distinct because of Americans' great preference for
55
Wilkins, History of Foreign Investments, 311-12.
56
Wilson, History of Unilever, vol. 2, 259.
57
Nancy F. Koehn, "Henry Heinz a n d Brand Creation in t h e Late Nineteenth Century:
Making Markets for Processed Food," Business History Review (Autumn 1999): 3 4 9 - 9 3 .
58
Chandler, Scale and Scope, 3 8 3 - 4 .
59
Peter Matthias, Retailing Revolution, 2 4 5 - 5 0 ; m e m o b y J. F. Knight on Allied Suppli-
ers, 13 Feb. 1968; m e m o b y Financial Group on Allied Suppliers Ltd., 4 Aug. 1970, UAL.
60
Meeting of t h e Special Committee, 4 J u n e 1942, UAL.
convenience products and, beginning at least in the 1930s, it was also

notable for the fact that at least three-quarters of the tea consumed was
drunk iced. T. J. Lipton held a dominant position in the southern
states, where most of this iced tea was consumed. Tea can be regarded
as a classic advertising-intensive business, in which the market shares
of long-established brands are very hard to overcome.61 The sunk costs
of establishing names like T. J. Lipton as leading brands presented for-
midable barriers to entry, especially as tea is a "traditional" product, in
which reputation and heritage are critical factors in consumer choice.
The Lipton tea brand provided a brand franchise of superior quality on
which high profit margins could be earned.
The Lipton brand was exploited by line and brand extensions and
supported by technical innovation and extensive advertising. Shortly
after the end of the war, Lipton got the exclusive U.S. rights to a device
that became the flow-through teabag, which was introduced in 1952. By
increasing the brewing surface of tea bags, this innovation overcame
the problems of flavor, packaging, and bag strength that had previously
restricted the popularity of tea bags, though their sales were seasonal in
the United States because of Americans' dislike of hot tea in summer.
Lipton was rather slower to come up with innovations for instant tea,
enabling Nestle's Nestea to take the largest market share in the 1960s,
but in other products Lipton introduced a string of line extensions. In
1966 a low-calorie iced tea was introduced, followed by Iced Tea in a
Can in 1972. Later in the decade, flavored, herbal, and special blends
were developed. Flavored-leaf tea products with a storage life of twelve
months were made possible by the development between 1974 and 1977
of tea particles—or "prills"—containing encapsulated volatile flowers
that could be blended with leaf tea. This enabled the flavors to be stabi-
lized in tea bags, and the flavor prills formed the basis for Lipton's fla-
vored teas.62 Lipton's overall strategy was to deny entry points to pos-
sible competitors by introducing flanker products whenever a reasonable
market opportunity was shown to exist. Herbal teas were introduced in
1980: the first herbal tea to be marketed through normal grocery out-
lets by a major manufacturer.
In marketing, Lipton faced the problem that tea had a conserva-
tive image and was often associated with the older generation. Conse-
quently, a lot of money was spent promoting tea as a dynamic and
young beverage. Building on T. J.'s yacht racing, Lipton tea commer-
cials in the 1970s used sports personalities to enhance the image of
61
John Sutton, Sunk Costs and Market Structure (Cambridge, Mass, 1991).
62
W. J. Beck, History of Research and Engineering in Unilever, 1911-1986 (Rotterdam,
1996), 3,12-
Coolest drink under the sun
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you up witho«t Jetting you (town.
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| feed To* l*m«ot-m what w/na*»Bi/'
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UPTON W v ICED TEA

Advertisement for Lipton iced tea in the mid-1950s. Lipton allegedly "taught Americans to
drink tea." In the post-World War II decades it held a dominant share of the iced-tea market.
(Photograph courtesy of Unilever.)
tea, supplied tea to the Olympic games and sports events and, toward
the end of the decade, to the North American Soccer League.63
Lipton expanded successfully into two other products, soup and
salad dressings, which provided the nontea residual of the profits. The
soup business came with the acquisition of Continental Foods in 1940.
After the Lipton name was added to the brand, sales grew rapidly.
There was also considerable innovation in soups, especially Cup-A-
Soup launched in 1970-71, the first brand to solve the formidable tech-
nical problems of providing a "respectable-tasting" instant soup. Dur-
ing 1973, its first year of going national, Cup-A-Soup generated $36.5
million in net sales and made a pretax profit of over $3 million. It held
a dominant share of the U.S. instant-soup market by 1975. The launch
of a Nestle competitor product, Souptime, that year dented this position,
but within six years Nestle had withdrawn and Lipton emerged in the
1980s as the market leader. Finally, in 1957 Lipton had purchased
Wish-Bone Salad Dressing, a midwestern business that Lipton ex-
panded nationally and then built up through line extensions, which
included low-calorie products.
63
Sundry Foods and Drink Co-ordination Marketing and Sales Directors' Visit to T. J.
Lipton, Inc., April-May 1979, UAL.
Table 5 shows the performance of T. J. Lipton between 1945 and

1980, and Figure 2 compares its returns on sales with those of Lever
Brothers.
The obvious question is why Lipton performed so much better than
Lever. The answer was not that it received outside assistance from Uni-
lever, for Unilever had no business in tea outside North America until
the 1970s. Clearly, Lipton developed considerable skills and competen-
cies in its core product areas. It had a distinctive cohesive "feel," per-
haps stimulated by the continuity in its top management that grew out
of having only three presidents between 1939 and 1988 and by the fact
that all its corporate functions, from marketing to research and devel-
opment, were centralized in one complex at Englewood Cliffs, New Jer-
sey. Meanwhile the high earnings from the tea business attracted a
cadre of good managers and a kind of confident atmosphere—the oppo-
site of the spiral of decline seen at Lever.
The question that arises with Lipton is the quality of its competen-
cies as a U.S. food business, quite aside from its effectiveness as an ex-
ploiter of the brand name, Lipton. From the 1960s on, Lipton pursued
a strategy to broaden the basis of its business by diversifying beyond
tea, soup, and salad dressings into other foodstuffs. By the 1970s,
other foodstuffs amounted to a third of total sales, but collectively
their contribution to profits was negative. A series of attempts to intro-
duce new products, such as Lemon Tree Lemonade Mix and, in 1975, a
burger with a soy-protein additive, did not succeed, and by 1979 Lipton
had lost about $20 million on such ventures over the previous decade.64
Diversification through acquisition proved equally problematic.
The credibility of the Lipton brand name in tea and soup did not extend
further. From 1961 onward, when it bought the ice-cream company
Good Humor, Lipton made regular acquisitions of companies in many
food products, including noodles, cat food, spaghetti, and snacks, but
almost all were unsuccessful. Thus the Tabby cat food business, ac-
quired in 1969 for $19 million, began to lose market share immediately
after its purchase, and by the mid-1970s it was stranded with less than
3 percent of the market for gourmet cat food. Subsequently, a new cat
product, Tasty Dinners, failed entirely, and the whole business had to
be closed. The company's difficulties could be described under the
heading of one general problem: Lipton's acquisitions followed the broad
strategy of identifying a regional brand that appeared to have the potential
to sell in the national market but ended up not succeeding outside the
region, as its salad dressings had once done.
64
"US Lipton. Background Material for Strategic Issues," Unilever Economics Depart-
ment, Oct. 1980, UAL.
Table 5
Sales and Net Profits of T. J. Lipton, 1945-1980
Year Sales Profits Sales Net Profits
1945 23 0.5 128 3
1946 27 1 138 5
1947 31 0.6 139 3
1948 40 1 166 5
1949 48 2 202 7
1950 58 4 240 15
1951 62 2 238 7
1952 69 2 260 9
1953 75 3 281 9
1954 81 3 301 12
1955 87 3 325 11
1956 94 5 346 18
1957 94 5 334 19
1958 96 6 332 19
1959 102 6 350 21
1960 108 7 365 23
1961 130 7 435 25
1962 140 8 464 25
1963 143 8 467 25
1964 151 9 487 30
1965 166 11 527 35
1966 193 13 596 40
1967 211 14 632 42
1968 229 15 658 43
1969 251 16 683 44
1970 276 17 711 44
1971 308 18 760 44
1972 403 19 964 45
1973 403 19 908 43
1974 437 22 886 47
1975 465 24 866 45
1976 513 28 902 49
1977 574 31 947 51
1978 617 33 945 50
1979 698 38 965 52
1980 798 43 968 52
* ***• •. A * Lever
0.00
19*5 ;1950 J955 1960 1965 1970 1975 \ ,4580
-2.00 -
-4.00
Figure 2. Return on sales of Lever Brothers and Lipton, 1945-1980 (in percent).
The most serious failure was Good Humor ice cream, which
caught on primarily in the big cities on the East Coast in the 1960s and
1970s but failed to sell in supermarkets in the form of multipacks.65
The business showed a loss in 1968 and continued to lose money every
year until 1984. Good Humor closed down its street-vending business
in the late 1970s, and by the early 1980s had closed two of its three
plants. Total sales of Good Humor ice cream were still only $27.5 mil-
lion in 1981, and they remained concentrated in New York, Chicago,
Baltimore, and Washington, D.C. In effect, Lipton had a token pres-
ence in the world's largest ice-cream market, where per capita con-
sumption was four times the European average. This was a strange sit-
uation, as Unilever had a long-established, substantial ice-cream
business in Europe.
It is evident that Lipton's competencies in innovation and manage-
ment were narrowly confined to a certain range of products, notably
tea. It had a real problem as well with the strategy of acquiring small
companies, which were difficult to grow into big ones. It is evident that
Lipton's management did not want to make big acquisitions or big in-
vestments in product areas like ice cream. Lipton's profits from tea
provided no urgent incentive for growth through diversification; indeed
they were a positive disincentive. The Lipton brand was an excellent
franchise in the United States. Lipton could as a result earn high mar-
gins over long periods, subject only to the constraint that tea competed
with many other beverages and was not a fast-growing market. The dis-
advantage was that tea was too profitable for management to contem-
65
Pim Reinders, Licks, Sticks and Bricks (Rotterdam, 1999), 239.
A display of Tabby cat food products in 1976. In 1969 T. J. Lipton acquired Usen Products
and its Tabby cat food business. This was a regional canned cat food operation, which Lipton
was unable to expand nationally. Tabby, which is no longer a Unilever brand, began to lose
market share from 1969, and by the mid-1970s it held less than 3 percent of the national
market for gourmet cat food. (Photograph courtesy of Unilever.)
plate risky or large acquisitions. A former executive interviewed in

BusinessWeek in 1983 put it like this: "For a long time, there was no
urgency to grow. . . . The tea business was so profitable that it slowed
Lipton down in new products."66
Lipton, then, stood in contrast to Lever as an important source of
profits for Unilever in the United States, and, by the mid-1970s, as the
only source of profits. However, Lipton remained a medium-sized U.S.
food company. As a result, while Unilever was a world leader in ice
cream and frozen products, it remained wholly insignificant in the
world's largest ice-cream and frozen-products market.
Unilever and the United States:

Ownership without Control
There were a number of reasons why Unilever should have been
concerned about the performance of its business in the United States
66
"Lipton Goes on the Offensive," BusinessWeek, 5 Sept. 1983.
and why it should have been expected to intervene in some fashion. The
United States, the world's richest consumer market, was a diminishing
source of sales and profits between 1945 and the late 1970s. Whereas in
1945 one-fifth of Unilever's worldwide sales came from the United
States, by 1977 the proportion had shrunk to 2 percent. There was no
question of "transfer prices" or other distortions disguising Lever's per-
formance. Lever's profitability really was bad. Lever did pay dividends,
but by the 1970s these were little more than Unilever received from In-
donesia, far smaller than those from South Africa, and tiny compared
with those earned by its West African trading company, the United Af-
rica Company. Low profitability in the United States left Unilever reliant
on its European home region—a mature market hit since the 1970s by
recessions and unemployment—and politically risky emerging markets.
A second issue was that Unilever did not take advantage of the pos-
sibilities for innovation that existed in the United States. The problem
was less in foods, where Lipton was a significant innovator, at least in
tea and soup, than elsewhere. In detergents, and perhaps even more in
personal care products, the United States was a major source of innova-
tion. Household appliances were much more widely distributed in the
United States than in Europe, resulting in many innovations associated
with their use. The much greater use of tumble dryers and dishwashers
meant that fabric softeners and dishwashing detergents for these appli-
ances were pioneered in the United States.
Third, in an oligopolistic industry like detergents, Unilever's weak-
ness in the United States could be exploited by its U.S. competitors
elsewhere. By the late 1950s, Unilever's U.S. competitors were invest-
ing in Europe, especially in response to European integration. Unilever
was aware of the threat but underestimated the scale of the challenge.67
In the postwar decade, Unilever had dominated the European deter-
gent market, though it had significant competition from Henkel,
among others. In the mid-1960s, while Unilever's share of European
detergents was around 28 percent, P&G had around 13 percent and
Henkel and Colgate each controlled under 10 percent. By the 1980s,
when market positions had stabilized, Unilever and P&G were equal,
with around 20 percent.68 P&G was able to draw resources from the
United States for use in Europe, safe from any serious challenge by
Lever Brothers.
In view of the consequences of the U.S. situation for Unilever's
business, it is surprising that the parent company's role in the affairs of
its U.S. affiliates remained passive until the late 1970s. The manage-
67
Report by Lord Heyworth at t h e Directors Conference o n 9 J a n . 1959, UAL.
68
"Detergents Co-ordination Longer Term Plans," UAL.
ments of Lever and Lipton had considerable autonomy. They reported

directly to Unilever's three-person Special Committee rather than com-
municate through its London- and Rotterdam-based management
product groups, using the same conventions in which they made their
local reports. This meant, among other things, that the chairmen of the
U.S. companies discussed and presented their results to local head-
quarters, while the Special Committee looked at them after they were
converted to the Unilever financial reporting system.69
There was remarkably little contact between personnel across the
Atlantic. Visits by Unilever executives to the United States were closely
regulated and rationed on the American side. Many Unilever executives
later remembered that, in the 1960s and 1970s, senior European man-
agers in the United States would sit in waiting rooms because their U.S.
counterparts were "too busy" to see them. There was minimal inter-
change of personnel. In 1976 Unilever's Personnel Division noted that
"the one and only place in the entire Unilever world of which Personnel
Division had no knowledge whatsoever of the personnel arrangements
of the companies was the United States of America."70 This was a sig-
nificant statement in a company that was already very advanced in de-
veloping an international cadre of managers and had considerable ex-
perience in sending nationals of many countries to foreign posts.
There was no real exercise of authority by London and Rotterdam
over the U.S. affiliates. When the British chairman of Unilever sug-
gested in 1971 that the European-based product managers become in-
volved in strategy discussions in the United States, the president of Lip-
ton replied that "he would not want anyone who did not know the
American market instructing him on how he should conduct the busi-
ness."71 While Lipton's profits, if not its unsuccessful ventures into ice
cream and cat food, might justify such a stance, the similar attitude by
the Lever management was less explicable.
The distinctiveness of this situation needs careful definition. Many
U.S. companies operating abroad in the postwar decades had problems
like those of Unilever in the United States in establishing "control" over
foreign affiliates, selecting the right nationality to manage them, and so
on. Stopford and Wells's sample of 187 large U.S. multinational enter-
prises (MNEs) active in the mid-1960s showed a pattern whereby firms
moved along an organizational spectrum from autonomous subsidiaries
to international divisions to global structure. The first stage reflected the
fact that many U.S. firms had "stumbled into manufacturing abroad
69
M e m o b y Maurice Zinkin to Special Committee o n Reporting Arrangements-North
America, 5 Feb. 1976, UAL.
70
Minutes of the Special Committee, 9 Sept. 1976, UAL.
71
"Dr. Woodroofe' s Visit t o USA," Report t o the Board, 17 Sept. 1971.
without much design."72 Unilever, however, by this period had a long

history of widespread multinational businesses.
Within this general context, there were three reasons why Unilever
continued to manage its U.S. divisions while holding them at a dis-
tance. First, Unilever was a highly decentralized organization. Like al-
most all European firms in the postwar decades, the legacy of interwar
protectionism, the war, and exchange controls was a decentralized or-
ganizational structure that delegated to national managers a high de-
gree of responsibility. As early as 1952, Unilever had begun forming
product groups in Europe, known as "Co-ordinations," in order to
avoid even a hint of P&G-style centralization. However it was not until
1966 that the role of Co-ordinators, the senior executives—usually
directors—who headed these groups, became more than advisory, when
they were given profit responsibility in some European countries. It
was not until 1972, after a big McKinsey investigation, that their execu-
tive authority was fully confirmed, and then only for Europe. Elsewhere
management groups were regional rather than product based. Thereaf-
ter local and consensus-style management remained a hallmark of the
firm. Indeed, Unilever believed that local responsiveness formed the
heart of what would be later termed its "core competence." Such decen-
tralization in Unilever and similar firms is likely to have slowed the dif-
fusion of innovation, though as Sumantra Ghoshal and Christopher A.
Bartlett and others have shown, the issues are complex ones.73
Second, and within this general context, there was popular belief in
the uniqueness of the United States and the superiority of its manage-
ment. This was a widely held conviction in postwar Europe, where the
U.S. victory in the war was generally perceived to have been based on a
superior business and political system.74 Within Unilever, the out-
standing interwar success of Lever had reinforced the belief that Amer-
ican managers had enormous potential. This was the strong conviction
of Unilever's British chairman in the 1940s and 1950s, Geoffrey Hey-
worth, who felt that British business was lagging behind that of the
United States and had much to learn from it.75 This was the conven-
tional wisdom at the time. In 1950, London's Financial Times, re-
sponding to speculation that Unilever intended to exert more direct
control over Lever Brothers, was moved to observe that "the idea of
72
John M. Stopford and Louis T. Wells, Managing the Multinational Enterprise (Lon-
don, 1972), ch. 2.
73
Ghoshal and Bartlett, "Creation, Adoption, and Diffusion."
74
M. Kipping and O. Byarnar, eds., The Americanization of European Business (London,
1998); J. Zeitlin and G. Herrigal, eds., Americanization and its Limits (Oxford, U.K., 2000).
75
Comments by Charles Wilson, in Geoffrey Heyworth, Baron Hey worth of Oxton. A
Memoir (London, 1985).
having absentee landlords in London and Amsterdam shaping policy

for a fiercely battling business in the United States is a sure way of help-
ing Lever's competitors.... [T]he widest measure of home rule should
be given to their subsidiaries."76
The curious feature of Unilever's policy was not the belief that
Americans knew best, but that this belief persisted for three decades in
the face of Lever's lackluster performance. However, it was not simply a
matter of inertia. During the 1950s and 1960s, Lever and Lipton were
by far the most proficient companies within Unilever in television ad-
vertising and other "advanced" marketing techniques. A listing of the
world's top 100 advertising campaigns of the twentieth century was
headed by all-time greats like Coca Cola's "The pause that refreshes"
(1929) and Philip Morris's "Marlboro Man" (1955); there was also Pep-
sodent's 1956 campaign, "You'll wonder where the yellow went," which
was awarded fifty-ninth place, and in sixty-second place was Wisk de-
tergent's "Ring around the collar" campaign of 1968.77 Nor was the
trend of Lever's loss of competitiveness so obvious to contemporaries
as in retrospect. There were periodic improvements and new products.
Lever's plans always promised growth, and it only became apparent
over time that planned targets were consistently never met. Moreover,
reports to the Special Committee between the 1950s and the 1970s were
grouped under the general heading of North America, which included
Lever, Lipton, and their Canadian equivalents. The bad news about
Lever was balanced by the good news about Lipton.
The United States was "different" in the postwar decades—and also
later—because the demand for many consumer goods has strong cul-
ture-specific characteristics, which remained very strong indeed in the
case of foods. Especially in the postwar decades, there were critical dif-
ferences between developed countries in the availability of refrigerators
and washing machines. The temperatures at which clothes were
washed differed by nation, as did the water. Consumption patterns var-
ied as well. In the United States, for example, tea was drunk cold, while
ice cream, in contrast to Europe, was consumed either in bulk take-
home packs that were eaten as part of the daily diet or else in specialist
parlors, for which there was no European equivalent except in Italy.
Logistical systems also differed. In the United States, ice cream and
frozen foods were distributed at different temperatures, while in Europe
they were kept at the same temperature, which radically altered the
synergies between the distribution of the two types of product. All this
meant that there was no question of automatic transfer of products,
brands, and processes across the Atlantic.
76
Financial Times, 23 May 1950.
77
Advertising Age, International Database, 1999.
However, the differences were neither total nor permanent, and in

many cases they were exaggerated. For example, it was accepted wis-
dom at Lever that Americans' "taste" for margarine differed from Euro-
peans', a claim that later Unilever managers regarded as without foun-
dation. Acceptance of this argument illustrated the fact that Unilever
had a more superficial grasp of the U.S. market than of the European
one, which perhaps partly explained why it proved easier to transfer
U.S. products to Europe rather than the other way round. However,
there was at least one example of the reverse process. The Dove soap
bar, launched in the United States in the mid-1950s, was only trans-
ferred to Europe in 1989 because of an accepted wisdom that Dove was
too expensive and would not sell in Europe. This belief was subse-
quently contradicted by its great success in European and other markets.
The third factor that made Unilever hesitate to become too closely
involved with the United States was antitrust. Lever had become seri-
ously entangled with antitrust following the acquisition of the All syn-
thetic detergent from Monsanto. All was Monsanto's only consumer
product, and in 1957 it decided to sell it to Lever rather than continue to
battle against P&G. An antitrust case followed when the government
sued Lever to divest itself of All. Lever Brothers finally won the case in
1963, in part by demonstrating that its business was hopelessly ineffec-
tive against P&G and thus hardly a threat to competitive markets. Lever's
principal trial attorney told the trial judge that the evidence showed
that "not only did we not lessen any competition, but with all of our
own talents and skills and funds we have been scarcely able to keep our
head above the water."78
The All case, however, acquired a very important place in Uni-
lever's strategy, as Unilever's executives developed almost a paranoia
about being sued by the U.S. government. The threat of antitrust action
against Unilever was constantly emphasized by Abe Fortas, their chief
legal adviser and a major figure in the U.S. corporate law profession.
During the postwar years, Fortas had earned his reputation, as well as
considerable wealth, advising large corporations, including not only
Lever Brothers, but also Coca Cola, Philip Morris, and other leading
firms, in their relations with the government. He was to become a
Supreme Court judge in 1965, was unsuccessfully nominated to be chief
justice in 1968, and in the following year was obliged to resign from the
Court following allegations of a financial relationship with someone
convicted of securities violations.79
Fortas's advice was that Unilever as a whole might be exposed to an
investigation, as had happened to the British firm of ICI previously.
78
Haw, "The Soap Wars."
79
"Ex-Justice Abe Fortas Dies at 71," Washington Post, 7 Apr. 1982.
"The object of good management," he warned the Unilever board in

1959. "should be to avoid giving the appearance that an American busi-
ness is being run from abroad."80 In 1971 Fortas's replacement as chief
legal adviser in the United States explained his strategy to Unilever's
board:
One of our main objectives has been to protect Unilever from
becoming entangled in the thicket of an anti-trust investigation or
proceeding.... [W]e have consistently taken the position with US
anti-trust enforcement authorities—we took the position particu-
larly in the All case—that Unilever's relationship to its American
subsidiaries is one of a stockholder, that the subsidiaries enjoy a
high freedom of managerial discretion and autonomy and the rea-
son we have emphasized this point is that under American anti-
trust laws . . . parent is not subject to the jurisdiction of American
law so long as the foreign parent leaves the subsidiary relatively
independent and does not exercise great influence.81
There is little doubt that the legal advice on antitrust was used by Lever
and Lipton managers to preserve their autonomy, and that its potential
menace was exaggerated. Unilever, however, was far from alone among
Dutch and British companies in receiving such advice and in being
deeply alarmed by the powerful, but also unpredictable, U.S. antitrust
laws. Royal Dutch Shell, whose U.S. subsidiary Shell Oil had a 35 per-
cent public shareholding, reportedly had a "complete phobia" about
minority lawsuits; accordingly, transfer pricing and sharing of technol-
ogy between the United States and the rest of Royal Dutch Shell was
undertaken on a strictly "arms' length" basis, subject to very formalized
procedures. British Petroleum, which acquired a shareholding in the
U.S. oil company Sohio in 1970, was likewise quite unable to exercise
any managerial influence, owing to a combination of American insis-
tence on autonomy and fear of antitrust law.82 Unilever was perhaps
distinctive because it did not have such a minority shareholder compli-
cation. However, the fact that its great competitor, P&G, was pursued
in the courts and forced to divest acquisitions would have impressed
the Unilever executives who watched that firm so closely.
In the light of these factors, Unilever managers in Europe watched
the progress, or lack of it, of their U.S. affiliates. They made periodic at-
tempts to develop closer cross-Atlantic links, although, for one reason
or another, initiatives were hard to sustain. A forthcoming change of
80
An address to the Board by Abe Fortas on Anti-Trust, 25 Sept. 1959, UAL.
81
Talk to Unilever Board, by Abe Krash, 25 J u n e 1971, UAL.
82
See the chapters by J i m Bamberg and Ty Priest in J o n e s and Galvez-Mufioz, eds., For-
eign Multinationals.
president or chairman at Lever often triggered an attempt to gain some

kind of influence in the U.S. business. During the early 1960s, the di-
rectors tried to get the Co-ordinators more involved with the United
States. One meeting of directors was held to discuss "[t]he problem of
How to get America to play along with the idea of Co-ordination."
Though one of the Dutch directors made the case that the United States
had much "to learn from Unilever know-how elsewhere," they con-
curred that tactful persuasion was the way to build trust.83 Theoreti-
cally the intense competitive pressure exerted on Lever.in the United
States by P&G and other margarine producers should have provided an
incentive to speed the transfer of capabilities.84 In practice, other in-
centives prevailed.
A senior British executive was made president of Lever between
1964 and 1967. (He went on to become the chairman of Unilever Ltd.
from 1974 to 1981.) But the arrangement only went through after it had
been agreed that the president-in-waiting, Harvard MBA Tom Carroll,
would take over when the Britisher returned to Europe.85 Nothing
much changed. Indeed there were few revisions in the company's oper-
ations during the first half of the 1970s, despite alarm over falling prof-
its at Lever and discomfort about Lever's cuts in spending on plant
and brand support. "Long-term prospects," the Special Committee
forlornly advised Lever in 1971, "ought not to be sacrificed to short-
term objectives."86
There was a significant exception to the distant poor relations be-
tween Unilever and the United States in the 1970s. In 1972 Unilever
finally acquired control of the Lipton tea business outside the United
States. A new Co-ordination was formed for tea and nonfrozen foods,
which was instructed to build a viable business. The Co-ordinator rap-
idly came to the conclusion that tea was the only product Unilever had
much chance to develop as an international product. A strategy was de-
vised to reunite the Lipton inheritance and buy up independent Lipton
agencies in various countries. During this period, the relationship that
developed between Unilever in Europe and the United States differed
sharply from the one that had prevailed in margarine and detergents.
T. J. Lipton's participation in developing products, in chairmen's meet-
ings, in research, and in other activities was sought and secured. It
would seem that Lipton's presidents were more willing than Lever's top
83
Notes on discussion held on 11 April 1962, UAL.
84
Zander and Kogut, "Knowledge and the Speed of t h e Transfer and Imitation," 78.
85
Dr. Woodroofe's report to the Directors Conference, 11 Dec. 1964, o n his visit with Mr.
Tempel.
86
Conference of Directors, 3 0 July 1971.
executives to cooperate with the Europeans, partly because they had

greater self-confidence than Lever, as they were profitable and were ac-
knowledged as the primary source of expertise on tea.
Unilever owned two U.S. affiliates during the postwar decades, but
the extent to which it "controlled" them is more debatable. Certainly
Unilever received dividends from the two companies, with the actual
amount being subject to negotiation. In the early 1970s the payout
ratios averaged around 50 percent for Lever and 45 percent for Lipton.
However, the European parent was not able to exert authority over the
affiliates, seeking to persuade rather than to direct. The flow of technol-
ogy, information, and management over the Atlantic was imperfect,
most dramatically in the case of margarine, where the world's most effi-
cient and dynamic producer owned, but did not control, one of the
world's least efficient manufacturing operations in the United States.
Unilever's decentralized authority structure, the low socialization levels
between the parties, and the weak motivation of Lever's management,
in particular, to access Unilever's capabilities were all explanations be-
hind this situation. In the Lever case, poor performance added to the
management's defensiveness about outside interference. In the Lipton
case, managers were confident enough to share their knowledge, but
they also remained wary of letting the parent company gain direct ac-
cess to their local knowledge base.
Taking Control in the United States

Change did not come easily at Unilever in the postwar decades.
Unilever had a corporate culture in which everything needed to be dis-
cussed at length with numerous parties and interest groups. There were
good and bad aspects of such a culture. During the postwar decades
Unilever was known as a firm where managers had considerable free-
dom and recruited good people who liked such an environment. The re-
verse side of this was a general reluctance to act decisively. The Special
Committee rarely did so, but instead arbitrated between different par-
ties. In these circumstances, it is unsurprising that the initiative to
intervene in the United States did not come from the top. There was
mounting resentment at lower levels of the hierarchy regarding the
Lever situation, both over its poor performance and the treatment of
European visitors by American colleagues. During the early 1970s
Unilever had also begun to experiment with more formal strategy-
making, establishing a Corporate Development Department to con-
struct a strategic vision for what had become a seriously diversified
enterprise. It rapidly identified the United States as a—perhaps the—
major issue facing Unilever and concluded that a large-scale acquisition
was necessary.87 However, the search for an acquisition had to be con-

ducted through Lever and Lipton, which more or less doomed the
project, and nothing was achieved.
Finally, the parent companies decided in 1976 to send a director on
a visit to the United States to begin searching for an appropriate acqui-
sition. After rapidly concluding that neither Lever nor Lipton was likely
to be of great assistance in this task, the director gathered a small staff
in New York to carry out the project. The search for acquisition candi-
dates adopted a systematic approach, starting with industries, then
looking at firms. The consensus emerged that a large acquisition was
necessary, enabling Unilever to build a "third leg" alongside Lever and
Lipton. It was essential that the acquired company have its own excel-
lent management, given that Unilever was clearly unable to provide it
in the United States.88
Unilever ranked companies according to a number of criteria, in-
cluding likely resistance, as it was not Unilever's style to make hostile
takeovers. Because Unilever was so diversified, the list of firms investi-
gated by the staff included a roll call of prominent names in U.S. busi-
ness, but it was National Starch, a leading U.S. manufacturer of starch,
adhesives, and resins, that emerged as the favorite. National Starch was
a conservatively managed company that had grown through incremen-
tal innovation and was noted for not taking risks. Between 1973 and
1977 its sales had increased from $176 million to $339 million, and its
earnings had grown from $14 million to $24 million. A distinctive fea-
ture of the firm was its avoidance of commodities, being a rare instance
of a corn wet-miller that avoided big-volume, low-value items like corn
syrup or laundry starch in supermarkets. During the 1970s the com-
pany had also acquired specialty chemicals and seasonings for food
products.89 National Starch was mainly owned by executives and insid-
ers, with one large and aging shareholder (who had 15 percent of the
equity), and had come close to being acquired by several firms, includ-
ing Merck. The large shareholder's priority was to pass National Starch
into "good hands," by which he meant no interference with its manage-
ment. After much discussion, the firm agreed to sell to Unilever at twice
the book value.
The acquisition of National Starch was the largest such transaction
yet made by a foreign company in the United States. Yet it was not im-
mediately apparent why the solution to a failing business in detergents,
87
J. P. Erbe to Special Committee, 5 Dec. 1973, UAR.
88
Memo by H. Meij to Special Committee, 20 J a n . 1977, UAR.
89
Frank Greenwall, "Yesterday, Today, Tomorrow. The Story of National Starch and
Chemical Corporation," n.d.
margarine, and ice cream would be found in the acquisition of a com-

pany that manufactured products outside Unilever's area of expertise.
The business press at the time assumed that Unilever had adopted a
strategy in the United States of moving away from consumer goods
rather than "slug it out with the likes of P&G."90 In fact there was no
product strategy at all behind the acquisition. National Starch was
viewed as an available, well-managed U.S. company whose acquisition
was unlikely to entangle Unilever in any antitrust suits, as it owned no
similar business anywhere. The acquisition also featured several curi-
ous promises made by Unilever: National Starch would be allowed to
keep its own report and accounts for ten years; no one from Unilever
would sit on the board of National Starch; and the two companies' re-
search divisions would not only be kept separate but for ten years
National Starch also could have access to Unilever's research, though
not vice versa. This latter condition was important because P&G was
among the major clients of National Starch. Four years after Unilever
made this acquisition, the business press observed "no visible leash"
tugging on the autonomy of National Starch.91
The granting of such autonomy was inevitable, given that Unilever
had no capabilities in managing either chemicals or a U.S. business.
Indeed, this was a classic example of investing in the United States not
to exploit ownership advantages (except in capital), but to acquire ac-
cess to knowledge. Acquiring U.S. knowledge in this fashion proved a
hazardous strategy for many foreign firms in the United States, since
U.S. executives frequently moved on to other posts. There is some evi-
dence that job mobility has been even higher in foreign acquisitions of
U.S. firms than in domestic acquisitions.92 By granting autonomy, Uni-
lever was able to retain the senior executives at National Starch. How-
ever, the real knowledge that Unilever sought in acquiring National
Starch was less about chemistry—though this was to become important—
than about its own ability to make large-scale acquisitions—or indeed
to achieve any success—in the United States. The National Starch
acquisition thereby became an important part of the story of Unilever's
regaining confidence.
The acquisition of yet another American company over which Uni-
lever had promised not to exercise control might have seemed an
unwise move, but for the fact that Europe was finally taking steps to
90
"Unilever: A Solid Acquisition Outside the Home Market in Europe," BusinessWeek, 23
J a n . 1978.
91
"National Starch Does It the Old Way," Chemical Week, 13 Oct. 1982.
92
J . A. Krug and D. Nigh, "Top M a n a g e m e n t Turnover: Comparing Foreign and Domestic
Acquisitions of US Firms," in D. Woodward and D. Nigh, eds., Foreign Ownership and the
Consequences of Foreign Direct Investment in the United States (Westport, Conn., 1998).
reassert control. In 1977 the directors decided to set up a holding com-

pany, UNUS, for the shares of Lever and Lipton. The initial purpose
was to facilitate an acquisition by enabling cheaper borrowing on the
basis of a stronger balance sheet, and to achieve greater tax efficiency
by offsetting Lever losses against Lipton profits.93 Subsequently a
chairman was appointed, and in 1978 a small head office was estab-
lished in New York. Soon afterward the Special Committee finally
moved to replace Lever's president. A British director was appointed
chairman of UNUS and, at the beginning of 1980, became chairman of
Lever Brothers. In the history of Unilever, it was almost unprecedented
for a parent company director to be sent to manage an operating com-
pany in serious trouble.
The director in question stayed in the United States until 1984, be-
fore his return to Europe as deputy chairman of Unilever PLC and as
the third member of the Special Committee. To quote from a 1986 For-
tune article about Unilever in the United States, he "cleaned house at
Lever House."94 The dispatch of a European executive to sort out aber-
rant American affiliates became a familiar strategy beginning in the late
1970s. British Petroleum adopted this tactic in 1986 when it replaced
Sohio's top management with a small team of British executives. The
subsequent promotion of the U.S. director to the top of Unilever also
became an established pattern. Two of the BP executives sent to the
United States in 1986 became chairmen of that company. Serving in,
and more specifically "sorting out," the United States became a route to
the top of many European companies.
Behind each intervention were company-specific factors related to
performance and internal political factors. However, more general in-
fluences were also at work. The most important was the growing inte-
gration of the American economy into the world economy, which was
occurring at a whole range of levels. Formerly almost wholly isolated
sectors, such as banking, were becoming integrated into the world
economy. Foreign assets held in the United States had begun rising
rapidly. And beginning in the mid-1970s, if not earlier, the mystique of
America and Americans was rapidly diminishing as the U.S. economy
wilted with inflation, budget deficits, slow productivity growth, and the
apparently declining ability of U.S. firms to compete with companies
from different governance systems, notably those of Germany and Japan.
Sorting out the United States had a number of components. On the
one hand, there was a recognition that, however large and idiosyn-
cratic, the United States was not completely different from the rest of
93
Private Note of Discussions, 27 July 1977, UAL.
94
"Unilever Fights Back in the US," Fortune (26 May 1986).
the world. The logical consequence was an awareness that Americans

were not automatically the best managers in the U.S. market simply be-
cause of their nationality. On the other hand, the United States was
seen as a major source of innovation and knowledge, which a "global
company" needed to gain access to its markets. The task was to draw
fully upon that knowledge without paying the costs of "American
exceptionalism."
In the two decades after 1980 Unilever was to duly sort out its U.S.
business. Although it was unable to overtake P&G in the U.S. deter-
gents market, Unilever did become the country's largest margarine
manufacturer, one of its leading ice-cream companies, the market
leader in pasta sauces, and one of its largest personal care companies.
The acquisition of a succession of familiar U.S. corporate names—
Shedd, Chesebrough Ponds, Calvin Klein, Elizabeth Arden, Breyer's,
Helene Curtis, Slim-Fast Foods, Ben & Jerry, and Bestfoods—formed
an important part of this process, which also saw the full integration of
the U.S. businesses into Unilever's worldwide structures.
Conclusion
In this article I have reviewed the strategy and performance of Uni-
lever in the United States, focusing on the period between 1945 and
1980. Before 1945 a highly successful detergent business was developed
in the United States, to which a successful tea business was added by
acquisition. Thereafter things went badly wrong. The detergent initia-
tive wilted in the face of U.S. competitors led by P&G, and a newly ac-
quired margarine section remained small and inefficient. The Lipton
tea brand was successfully extended into soup, but attempts to develop
ice cream and other foods failed.
The difficulties of Unilever in the United States can be explained at
several levels. The case can certainly be made that during the immedi-
ate postwar decades Unilever lagged in the competition, especially in
detergents. The firm's range of activities was very wide, it had too many
poorly performing businesses, and it fostered a business culture that
viewed making profits as only one of several considerations. Decision-
making and innovation were slow in comparison with the highly cen-
tralized P&G. Unilever did best where it had strong and established
franchises, such as in the northern European margarine markets, the
detergent markets of emerging countries, and in oil-rich Nigeria, where
it did not face international competition. It also did well in risky and
unpredictable developing countries. In contrast, in the battle for con-
trol of European detergents Unilever lost ground to P&G. Within this
context, it was not surprising that Unilever found competing with P&G
in its home market an uphill struggle.
There were specific U.S. aspects of the story also. Lever's manage-
rial capability was decimated in the late 1940s, and thereafter it lacked
either the resources or the capability to regain position. The strategy of
sustaining income by cutting expenditure on brands, plant, and re-
search was unlikely to sustain long-term competitiveness in a consumer-
goods industry. The Lipton management knew how to exploit the Lip-
ton brand franchise but also showed modest ambitions. Effectively high
margins on tea enabled the company to subsidize a series of unsuccess-
ful acquisitions of small food companies. Organizational deficiencies
pervade the story. Both Lever and Lipton pursued strategies more ap-
propriate to independent firms than to affiliates of one of the world's
largest multinationals. They created self-imposed obstacles to the flow
of knowledge from elsewhere within Unilever and focused narrowly on
the bottom line, even when their parent argued the case for investment.
The Unilever case provides many insights into the poor perfor-
mance of foreign multinationals in the United States. Certainly the his-
tory of Lever Brothers runs counter to the age-effect argument, unless
the devastating personnel losses in the late 1940s can be used to sup-
port the argument that Lever was a "new company" thereafter. The re-
cently acquired Lipton, active in an industry Unilever knew little about,
was a far stronger performer than the long-established Lever Brothers.
In terms of the theory of the multinational enterprise, it is noteworthy
that for a long period Unilever's performance in the United States was
far better in tea and soup—products in which it had no "ownership ad-
vantage"—than in margarine, ice cream, shampoo, or detergent, areas
in which it possessed formidable capabilities in Europe. The market-
share argument for poor foreign performance has more validity in the
Unilever case. Having lost market share so badly in the late 1940s, Lever
Brothers was faced with stiff competition from P&G in the United
States.
For Unilever, the U.S. market was both vital and difficult. Its direc-
tors understood that a major consumer-goods company had to have a
large business in the world's largest consumer market and the home of
Unilever's major competitors. But it can be seen that it was not a
straightforward matter to operate in the United States. For decades Eu-
ropean businessmen's fear of the U.S. regulatory system, combined
with the distinctive confidence bordering on parochialism of American
managers, meant that the United States was treated differently from
other countries.
The story of Unilever in the United States shows the complex
meaning of "control" in multinational companies. Until the late 1970s
ownership delivered only modest control. This could be explained by

the fact that Unilever had a distinctive, consensus-style, decentralized
decision-making structure, which was both its strength and its weak-
ness. However, other European multinationals operating in the United
States had (and sometimes still have) similar control problems.
This article has provided new empirical evidence about how tech-
nology and knowledge are shared—or not—within a large multinational
firm. These exchanges have been neither automatic nor easy. Before
1980 Unilever could not export capabilities or brands in margarine,
shampoo, and detergent from Europe to the United States, though it
managed to transfer skills in tea, soup, and toothpaste across the Atlan-
tic in the other direction. Knowledge was decidedly "sticky," even
within one of the world's most international firms. Transfers of infor-
mation and knowledge depend heavily on personalities, organizational
structures, and the direction of the flow. Among the most stubborn im-
pediments to intraflrm flows before the 1980s was Unilever's decen-
tralized structure, which limited the ability of the European headquar-
ters to coerce compliance. New products and brands were often
transferred using the personal relationships forged between Unilever's
senior management in different countries. However, this reliance on
informal networks did not work well in the United States because of the
low level of socialization between the United States and the rest of Uni-
lever and because U.S. managers sought autonomy and seemed to have
used antitrust as a bargaining tool with which to gain it. Unilever's
greater familiarity with European markets influenced the direction of
the flows within the firm, as it was better able to perceive opportunities
for U.S. brands in Europe than the other way round. From another per-
spective, the Unilever story parallels the wider one of U.S. exceptional-
ism in the postwar decades, followed by the growing integration with
the global economy, a process of "transforming America into an ordi-
nary country."95
95
Thomas L. Brewer and Gavin Boyd, eds., Globalizing America. The USA in World Inte-
gration (Cheltenham, U.K., 2000), 41.

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Geoffrey Jones

Control, Performance, and Knowledge

S ome of the central issues related to the organization and performance

ranked it fifty-fourth by revenues in the Fortune 500 list of largest

Lever Brothers in the United States:

^Lorelei, now that *'Cause ev

j Get New Lifebuoy F

followers were Colgate and Palmolive-Peet, which merged in 1928.

market in the 1930s.14 By the interwar years, this oligopolistic rivalry

program in Europe at the same time, Luckman became preoccupied

production facilities in Europe.26 Unilever may have had a special diffi-

time compounded the difficulties. Luckman left the company in 1950,

Clorox Chemical, the largest U.S. manufacturer of household bleach,

After 1964 Burkhart's successors were drawn from the finance or

Unilever's difficulties in competing against P&G in developed mar-

KKODCNTfe OMLDETSMGNT gives you the

Clean Mouth Taste Hours

research in the United States on breath freshness. There was no compet-

Around two-thirds of production took place in Hammond, Indiana, and

T. J. Lipton: Exploiting Brand Equity in Tea and Soup

food retailing. The U.S. business was especially successful.55 Lipton, it

convenience products and, beginning at least in the 1930s, it was also

Coolest drink under the sun

eoofe y*m off like Upton Iced Tea' And

UPTON W v ICED TEA

Table 5 shows the performance of T. J. Lipton between 1945 and

plate risky or large acquisitions. A former executive interviewed in

Unilever and the United States:

ments of Lever and Lipton had considerable autonomy. They reported

without much design."72 Unilever, however, by this period had a long

having absentee landlords in London and Amsterdam shaping policy

However, the differences were neither total nor permanent, and in

"The object of good management," he warned the Unilever board in

president or chairman at Lever often triggered an attempt to gain some

executives to cooperate with the Europeans, partly because they had

Taking Control in the United States

was necessary.87 However, the search for an acquisition had to be con-

margarine, and ice cream would be found in the acquisition of a com-

reassert control. In 1977 the directors decided to set up a holding com-

the world. The logical consequence was an awareness that Americans

ownership delivered only modest control. This could be explained by

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