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 investment 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 "stickiness" of knowledge within
large international firms. The discussion draws on a case study of the AngloDutch consumer goods manufacturer Unilever, which has been one of the
largest direct investors in the United States in the twentieth century. After 1945
Unilever's once successful business in the United States began to decline, yet
the parent company maintained 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.
Some 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, 1 it has ranked
as one of Europe's, and the world's, largest consumer-goods companies. Its
sales of $45,679 million in 2000 ranked it fifty-fourth by revenues in the
Fortune 500 list of largest companies for that year.

A COMPLEX ORGANIZATION
Unilever was an organizational curiosity in that, since 1929, it has been
headed by two separate British and Dutch companiesUnilever Ltd. (PLC
after 1981), and Unilever N.V.with different sets of shareholders 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 officesin London and Rotterdamand two
chairmen. Until 1996 the "chief executive" role was performed by a threeperson 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 acquired. 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
business in the United States was wholly owned by N.V. Unilever's business,
and, 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 without 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 historical origins of Unilever's
business, but decades of diversification resulted in other activities. By the
1950s, Unilever manufactured convenience foods, such as frozen foods and
soup, ice cream, meat products, and tea and other drinks. It manufactured
personal care products, including toothpaste, shampoo, hairsprays, and
deodorants. The oils 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
Africa 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 total 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.

A WORLD-WIDE INVESTOR

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, Philadelphia, and Vicksburg, Mississippi. 4 The subsequent
growth of the business, 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 economy, 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 returns than their domestic competitors. 7 This seems to be the
general case, but perhaps not for the United States. Considerable anecdotal
evidence 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 influences appear to be market share
positionin general, as a foreign owned firm's market share rose, the gap
between its return on assets and those for United Statesowned companies
decreasedand 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
management problems because of idiosyncratic features of the U.S. economy,
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 challenging political, economic, and
financial locations, like Brazil, India, Nigeria, and Turkey.

THE STORY OF UNILEVER IN THE UNITED STATES

PROVIDES RICH NEW EMPIRICAL EVIDENCE ON
CRITICAL ISSUES RELATING TO THE FUNCTIONING
OF MULTINATIONALS AND THEIR IMPACT.
GEOFFREY JONES
Finally, the story of Unilever in the United States provides rich new empirical
evidence on critical issues relating to the functioning of multinationals 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 straightforward concepts. A great deal
of the theory of multinationals relates to the benefitsor otherwiseof
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 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 Svell 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 diffusion 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 structure 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 throughput economies, which encouraged
concentration. P&G was, to apply Alfred D. Chandler's terminology, "the first
mover"; among the main 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 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 Canadaacquired a British soap
business, which it proceeded to expand, seriously 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 experience 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-1920s, Countway
launched, against the advice of the British parent company, a white soap,
called "Lux Toilet Soap." J. Walter Thompson was hired to develop a
marketing and advertising campaign stressing the glamour of the new product,
with very successful results. 17Lever's share of the U.S. soap market rose
from around 2 percent in the early 1920s to 8.5 percent in 1932. 18 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
cumulative dividends were $50 million. 19

MANY FOREIGN FIRMS HAVE EXPERIENCED

SIGNIFICANT AND SUSTAINED PROBLEMS IN THE
UNITED STATES. GEOFFREY JONES
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 percent 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. However, 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
began 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 product 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. Countway 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 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
moving 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 advertising agencies in the city. 24 There were also
rumors that Luckman, who was Jewish, was uncomfortable with what he
perceived as widespread 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 million to

$6 million. Luckman had trained as an architect at the University of Illinois,

and he was very involved in the design of the pioneering New York office.
Footnotes:
1. Charles Wilson, The History of Unilever, 3 vols. (London, 1954, 1968): Alfred D. Chandler, Jr.,Scale
and Scope (Cambridge, Mass, 1990), 378-389.
2. Roger van Hoesel and Rajneesh Narula, eds., Multinational Enterprises from the
Netherlands(London, 1999), especially ch. 8.
3. D. K. Fieldhouse, Merchant Capital and Economic DecolonizationThe United Africa Company
1929-1987 (Oxford, U.K., 1994).
4. Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cambridge, Mass.,
1989), 340-2.
5. "The 100 Largest Foreign Investments in the U.S.," 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).
8. Geoffrey Jones and Lina Glvez-Muoz, eds., Foreign Multinationals in the United States(London,
2001).
9. H. Grubert, T. Goodspeed, and D. Swenson, "Explaining the Low Taxable Income of ForeignControlled 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 U.S.Companies," Survey of Current Business (2000): 55-73.
10. R. J. Mataloni, "An Examination of the Low Rates of Return."
11. S. Ghoshal and C. A. Bartlett, "Creation, Adoption, and Diffusion of Innovation by Subsidiaries 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 Imitation 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. Svell and I. Zander, "International Diffusion of Knowledge: Innovating Mechanisms 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.

14. Chandler, Scale and Scope, ch. 5; Thomas K. McCraw, American Business, 1920-1980: How It
Worked (Wheeling, Ill., 2000), ch. 3.
15. Wilson, The History of Unilever, vol. 2, 344; Chandler, Scale and Scope, 385-8; Geoffrey Jones,
"Foreign Multinationals and British Industry before 1945," Economic History Review 41, no. 3 (1988):
429-53.
16. "History of Lever Brothers USA, 1912-1952," Unilever Economics and Statistics Department, 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 January 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.
18. Wilson, History of Unilever, vol. 1, 284-7; "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, Satisfaction
Guaranteed (New York, 1989).
21. McCraw, American Business, 47-8.
22. Special Committee Minutes, 3 Aug. 1944, UAL.
23. Luckman's autobiography presents his case for this episode. See Charles Luckman, Twice in a
Lifetime: From Soap to Skyscrapers (New York, 1988), 202, 230-40.
24. George Fry and Associates, "Report on Relocation of Headquarters," AHK 2117, Unilever
Historical Archives Rotterdam (UAR).
Excerpted with permission from "Control, Performance, and Knowledge Transfers in Large
Multinationals: Unilever in the United States, 1945-1980," in Business History Review, Vol. 76, No. 3,
Fall 2002.