american business

It’s the Economy: What the Penguin-Random Merger Says About the Future of the Book Business

A combined Penguin-Random House, which would control a quarter of the global book market, is a conglomerate designed to take on another giant, though it’s not exactly a fair fight. Because the new entity will only have about a twelfth of Amazon’s annual sales, most observers expect that this is just the beginning of a series of mergers — like those in the music business — that will take the Big Six publishers down to the Big Three and perhaps one day even the Big One. As John Makinson, Penguin’s chief executive, told The Times, “We decided it was better to get in early rather than be a follower.” The question is whether this strategy will work.

There are two competing predictions about commerce in the digital age. One is that companies will get smaller and more disruptive as nimble entrepreneurs can take on giant corporations with little more than 3-D printers and Web sites. The other envisions a few massive companies — like Procter Gamble, Apple and Nike — that design everything themselves, have it manufactured cheaply in Asia and use their e-commerce sites to gather information about their customers. Nearly the exact same conflict occurred more than a century ago in the decade that straddled 1900, which was also a period of rapid technological change. In just a few years, 1,800 small companies were swallowed up as the electrical-power, telephone, auto, steel and chemical industries grew from patchworks of tiny companies into conglomerates. In “The Great Merger Movement in American Business 1895-1904,” the Yale economist and historian Naomi Lamoreaux wrote that back then everyone worried about the same thing that authors, editors and book buyers worry about now: Are large companies good for the economy? Do they grow through efficiency and innovation or by abusing their leverage?

Lamoreaux found that they did both, and many turn-of-the-century examples suggest what might happen to Penguin-Random and others. On one end of the spectrum, Lamoreaux told me, was U.S. Steel. Its predecessor companies competed by finding new ways of making steel at ever-lower prices. But after J. P. Morgan merged three companies into one behemoth, he discovered a better way to profit. Because all steel producers bought iron ore from the Mesabi Range in Minnesota, U.S. Steel bought most of the range and locked much of the rest of it in long-term contracts. As a result, the company hardly worried about competition; it had little need to innovate or compete on price, which made everything from cars to soda cans more expensive. Worse, it left a massive industry unprepared for the growth of innovative Asian companies during the 1970s and 1980s. By then, U.S. Steel all but collapsed, and a chunk of the U.S. economy went down with it.

Sears Roebuck, on the other end, “grew by solving market and technical problems,” Lamoreaux said, and, as it solved them, its market share increased. Unable to monopolize anything like iron ore, Sears needed to innovate to stay ahead. Through constant competition with Montgomery Ward and others, it adopted new strategies that ultimately benefited its customers. When the company got into trouble, closed stores and was bought in 2005 by a struggling competitor, Kmart, the retail industry was robust enough that the overall economy barely noticed.

The future of book publishing is somewhere between the two poles. Oddly enough, it seems to mirror what happened to the envelope business. In the early 1900s the envelope industry was large enough to support several big companies. Then the mergers started, and an industry of numerous small companies became two giants. Eventually, the envelope industry wasn’t large enough to sustain itself, and the companies became tiny divisions of larger conglomerates. U.S. Envelope still lives as a small part of the packaging manufacturer MeadWestvaco. American Envelope was bought by Cenveo, a business-stationery company whose chief executive, Robert G. Burton Sr., made clear that the century of mergers and buyouts is not over. “We’ve had people knocking on the door,” he told shareholders in August.

Article source: http://www.nytimes.com/2012/11/18/magazine/penguin-random-house-merger.html?partner=rss&emc=rss

The Boss: Bearing the Family Torch

At the age of 12, I served an internship in the Riedel Crystal factory for two weeks. My father wanted to show me how work related to school. He was smart to do that because I wasn’t the best student, and the experience turned me around.

At 16, I went to boarding school in Salzburg, and at 18 enrolled in a business management course in Kufstein, Austria. I’d attend it three days a week, and on the other two days I’d work in our factory, in sales and administration. I rebelled for a time as a teenager, but watching my father as a businessman gave me perspective. It taught me a lot about family and work relationships.

At the time, Austrians were required to serve eight months in the military. I completed my service after business school. I was used to the regimentation and heavy athletic program from boarding school, so I enjoyed my time in the service. My group was involved in humanitarian work. There were avalanches that year, and we were ready to assist people.

In the late 1990s, my father sent me to Dubai to increase our customer base. We had only one customer there at the time. Out of respect for the country’s general religious beliefs about alcohol, we decided not to sell our wine glasses there. Instead we sold our other products — giftware, bowls and vases.

At 20, I went to work for one of our Paris distributors. It sounds glamorous, but it wasn’t that easy at first. I had left a girlfriend in Austria, and I wasn’t fluent in the language. Though I had learned French in school, I took a two-week crash course at Berlitz in Paris to speak it much better.

At 23, I moved to America to become executive vice president of our American business. We were doing about $10 million in sales. All the employees were older than me. I thought I could just jump in, be passionate and go from there, but no one trusted me. Even with my father’s training and with business school, I was unprepared. But I won the employees over and increased sales substantially in five years.

I became C.E.O. at 25. The most difficult part was analyzing some employees and realizing I had to let them go.

To develop a line of wine glasses for restaurants, I talked to chefs. They wanted glassware that was dishwasher-safe, among other things. It took me a year to determine what was needed. I designed a durable glass with a shorter stem called Riedel Restaurant.

Later, when I moved from Long Island to a small apartment in Hoboken, N.J., I learned what kind of glassware worked best for apartment dwellers. For example, when I returned from work in the evening, I wanted a wine glass that was beautiful and stackable but more casual than our others. I designed the wine glass that I needed for myself, our stemless “O” line. The glass was controversial in our family because my grandfather always said there’s a reason for a long stem — it allows you to swirl the wine in the glass for the best aroma. Americans, however, don’t adhere to that thinking.

I’ve belonged to the Young Presidents’ Organization for four years. It’s been helpful because I didn’t grow up here — I’ve learned how Americans conduct business. Once a month, I sit around a table with 10 other members. We talk about personal and business issues, and I can be myself.

I have only lately realized the importance of my heritage. It animates me because I don’t want to be the last of our line. I hold the torch now.

As told to Patricia R. Olsen.

Article source: http://feeds.nytimes.com/click.phdo?i=d8d241396153fa9cb5798a7ea46e1f08

It’s the Economy: What the Penguin-Random Merger Says About the Future of the Book Business

The Boss: Bearing the Family Torch

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