Managing Political Risk in Global Business: Beiersdorf 1914-1990

by Geoffrey Jones & Christina Lubinski

Overview — After the outbreak of World War 1, management of political risk became a central concern for firms, especially those operating internationally. These risks were on many levels, from expropriation to exchange controls and other economic policies. German firms, which had flourished during the second industrial revolution of the late nineteenth century, and enthusiastically expanded internationally, found themselves especially exposed to such risks. Focusing on one such firm, Beiersdorf, a German-based pharmaceutical and skin care company (and, during the Nazi years, a so-called Jewish business), the authors examine corporate strategies of political risk management during the twentieth century, especially the volatile years of Nazi Germany. The history of Beiersdorf highlights areas of managerial discretion. Faced by the worst of all worlds, the firm survived and was able, albeit at great cost, to rebuild its business. Key concepts include:

  • The historical case of the German multinational Beiersdorf, the maker of the global skin care brand Nivea, is used to explore the growth of host and home country political risk in the twentieth century. The firm had its international factories and trademarks expropriated during World War 1, and again after World War 2, and as a Jewish firm faced great difficulties in its home economy during the Nazi era 1933-1945.
  • Beiersdorf pursued several management strategies in response to growing risk. In Nazi Germany, it removed its Jewish management, and partly adapted its marketing message to the regime's ideology. It survived.
  • Internationally, after World War 1 the firm developed an elaborate organizational structure designed to avoid future expropriations. It transferred international businesses to trusted associates. This had short-term success, but in the longer term it did not prevent the loss of factories and the Nivea trademark.
  • After World War 2 Beiersdorf needed to spend decades rebuilding the fragmented Nivea brand. It only recovered ownership of the brand in the United States and Great Britain in 1973 and 1992, respectively.

Author Abstract

This working paper examines corporate strategies of political risk management during the twentieth century. It focuses especially on Beiersdorf, a German-based pharmaceutical and skin care company. During World War 1 the expropriation of its brands and trademarks revealed its vulnerability to political risk. Following the advent of the Nazi regime in 1933, the largely Jewish owned and managed company, faced a uniquely challenging combination of home and host country political risk. The paper reviews the firm's responses to these adverse circumstances, challenging the prevailing literature which interprets so-called "cloaking" activities as one element of businesses' cooperation with the Nazis. The paper departs from previous literature in assessing the outcomes of the company's strategies after 1945. It examines the challenges and costs faced by the company in recovering the ownership of its brands. While the management of distance became much easier over the course of the twentieth century because of communications improvements, this working paper shows that the costs faced by multinational corporations in managing governments and political risk grew sharply.

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