Business communities in the European confectionery sector: A U.K.-Finland comparison

Pergamon Stand. J. Mgmt, Vol. 12, No. 4, pp. 359-387, 1996

Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved

0956-5221/96 $15.00 + 0.00 S0956-5221(96)00021-8

BUSINESS COMMUNITIES IN THE EUROPEAN CONFECTIONERY SECTOR: A U.K.-FINLAND COMPARISON

PAIVI ERIKSSON,* CAROLYN FOWLER,t RICHARD WHIPPt and KEIJO RASANEN~

*University of Tarnpere, Finland, t Cardiff Business School, Cardiff, U.K. and SHelsinki School of Economics, Helsinki, Finland

(First received September 1995: accepted in revised form May 1996)

Abstract - - This paper is based on the early stages of an international collaborative project investigating the structural changes of the confectionery sectors in Finland and the U.K. over the past two decades. An institutional perspective is used to extend conventional understandings of industries via the development of the sector concept. The network and community constructs are shown to be important devices for understanding the institutional character of a sector. Accordingly, the paper reveals the similarities and differences between the two national examples. An explanation is offered of the way domestic networks persist in both countries while contrasting community profiles are apparent. Copyright © 1996 Elsevier Science Ltd

Key words: Sector, confectionery, Finland, U.K., institutional perspective, network, community, international, comparative.

1. INTRODUCTION

This paper offers a preliminary exploration of the structural changes of the confectionery sectors in Finland and in the U.K. over the past two decades and the inter-organisational relationships which result. The sector concept is employed to embrace the entire value chain (suppliers, distributors, regulators and servers - - R~is~J_nen and Whipp, 1992). The main emphasis of the paper is on the confectionery manufacturers and the competitive and collaborative relationships among them and the other actors operating within the confectionery sector. Based on the early stages of a collaborative research project, the paper examines similarities and differences in the patterns of structural change within a sector but seen from two different national contexts. The paper also highlights the relevance of the social dimensions of structural change by applying key elements of organisational and sociological literatures to two empirical cases.

The next section of the paper outlines the broad dimensions used in the study to describe the basic patterns of structural change: these include the economic and social context, the characteristics of the manufacturers and other major actors in ways which are consistent with traditional Industrial Organisation (IO) frames of reference. However, the section goes on to outline the way alternative institutional orientations may be used to establish a fuller conception of a sector. This will involve the identification of a range of competitive/collaborative relationships, including the network and community forms.

359

360 P. ERIKSSON et al.

Sections 3 and 4 present the two empirical cases. The confectionery sectors in Finland and the U.K. are of very different sizes, both in terms of the number of companies and the volume of production. The relationships between the confectionery companies and their suppliers (raw materials, technology, machinery) seem more similar in these two countries than the relationships between the companies and their distributors. The Finnish companies also seem to have developed a somewhat closer relationship to the state than the U.K. companies. The social relationships among the confectionery manufacturers appear to be more complex in the U.K. case compared to the Finnish case. The group of multinational companies within the U.K. market cross national borders in their networks and collaborative relationships. Yet, in both countries domestic networks based on localities, families and social elites persist. Contrasting community profiles are apparent.

Having offered an initial sketch of the different types of relationships between the confectionery companies and the other actors within the sector, the U.K. and Finnish accounts raise the question of how these relationships have been established and maintained over time. Has there been any considerable change as to the base of the relationships over time? Which forces and fac- tors have accounted for the change in each country? An interesting feature of the comparison is that one case country has been a member of the European Union (EU) for two decades, whereas the other case country only joined the EU in January 1995.

Overall, the paper will be concerned with the character of cooperation and conflict within inter-organisationai settings. The aim will be to capture, for the first time, both the historical trajectories of such structures and the contrasting patterns of contemporary development. The paper will be unusual in bringing together evidence from food industries with contrasting back- grounds and which, hitherto, have seldom been the subject of direct comparison. In conceptual terms the piece will seek to make a specific contribution. In short, the paper will offer a reconstructed notion of the sector as a means of mobilising sociological and economic literatures in order to understand inter-organisational relationships.

2. ON STUDYING SECTORS

The sector has long been one of the major building blocks of modem social science. Given its centrality, it is unsurprising perhaps that different academic sub-disciplines have employed contrasting analytical frameworks in order to understand the sector. Alternative models abound (cf. Kay, 1993). Such diversity offers a creative opportunity to those seeking to comprehend the emerging forms of the confectionery sector. The contention of this paper is that the use of composite approaches, drawn from different academic specialisms, may be a productive means of decoding such contemporary relationships. In order to substantiate this claim, a review of the relevant orientations and conceptual apparatus is required. This entails a brief inspection of the growth of the institutional approach in general and, more particularly, the way it has given rise to the sector concept which draws on a range of socio-economic literatures. For the purposes of this paper, such an overview provides the opportunity to inspect the relevance of the community and the network in the sector context.

The dominant approach to studying a sector has been long-established by the IO tradition within economics. The assumptions of the IO writers were derived from the tenets of neo-classi- cal economics. Consequently, the basic concepts of perfect competition, monopoly or oligopoly used to describe an industry relied on the rational, profit-maximising behaviour of economic agents. Little space was devoted to chronic information problems, the routine ignorance shown

THE EUROPEAN CONFECTIONERY SECTOR 361

by firms, or anything which might distort the movement of economic relations to equilibrium states of rest (Hodgs.on, 1988, pp. 4-21). The last decade or so has seen the emergence of a set of key constructs by IO writers which are now widely used to describe the operation of sectors. These include the notions of strategic capability based on a firm's uniqueness (Lenz, 1980), the extended competitive rivalry among firms, suppliers and buyers (Porter, 1980, 1985), and basic frameworks for classifying an industry according to the balance of the competitive relations it contains (Barney, 1986).

Clearly, the IO tradition has established fundamental ways of describing an industry (some of which will be used in the following sections on confectionery). However, debates within economics and related disciplines have produced alternative means of comprehending industry structures, and not least, their operation. The contribution of the "new institutional economists" stands out (see, for example, Langlois, 1986). These writers see market and industry relations as essen- tially the product of human experience. Above all, these relations are informed by a variety of social institutions - - that is, agreed forms of behaviour which specify appropriate conduct in recurrent situations. Institutions are the particular sets of assumptions, conventions and procedures shown by members of a particular group. Institutionalists seek to explain the influence of such institutions on behaviour and, conversely, the evolution of institutions as an unintended consequence of behaviour. This approach is especially uncomfortable for orthodox economics. In the words of Brian Loasby (1987, p. 7): "institutions provide the bounds [to behaviour and choice], and are themselves susceptible to reasonable explanation. They are not, however, generally amenable to precise definition; and this lack of precision is crucial":

Broadly speaking, the institutionalists have found common cause with a number of like- minded scholars from outside the strict confines of economics. The common denominator has been a shared concern with the often intangible rules (Pettigrew and Whipp, 1991) of conduct which guide actions within an industry. Productive examples include Abernathy et al . 's (1983) demonstration of how technological innovation within firms could be facilitated by shaping such implicit rules. Similarly, Elbaum and Lazonick (1986) argued that social institutions in the U.K. (notably family-controlled firms and the separation of finance and industry) constrained the growth of mass production techniques in the first half of the 20th century. Recent attention to the rise of "national innovation systems" and "national business systems" (Whitley, 1992) has extended the use of the institutional perspective further.

This stream of institutional research has energised some alternative approaches to not just the sector but also strategic behaviour at firm and inter-firm level (for an overview, see Whipp, 1996). Huff (1982) and Spender (1989) established the existence of "dominant logics" and "recipe knowledge" which limited decision-making in the firm. In turn, Porac and Thomas (1992) argue that managerial cognitive structures contain the consensually-held beliefs within an industry. If the structures stabilise, they become interpretive frames which shape the way managers make sense of circumstances outside the firm. Three examples stand out: "boundary beliefs", concerning who is included in the membership of an industry; "strategic paradigms", which underlie the resource allocation decisions of managers; and "reputational orderings"; as actors evaluate the relative strength of firms within the industry. Recent work by Durand (1993) has applied these constructs to reveal the "technology maps" which businesses use to guide their innovations paths.

As the subsequent sections will show, our investigation of confectionery is informed by the institutional perspective in both the general and more immediate senses. Overall, the sector concept outlined below rests on the way the assumptions and conventional procedures found in a sector arise from the interaction of an extensive potential set of actors. In detail however, the operation of the confectionery sector has come to rely on a number of institutional forms, as will be


seen in the tacit rules concerning recruitment, or the cognitive structures which underpin the perceived status of key firms or individual functions (see Section 4).

The term "sector" is widely used, often interchangeably with the label industry. General familiarity with the word has reduced its precision. Yet the concept may be construed in a way which releases many of the possibilities of institutional analysis (cf. Whipp and Clark, 1986, Chapter l; Child, 1988). The research on which this paper is based regards a sector as an historical forma- tion of coevolving business activities. It is often, but not uniquely, attached to specific locations, as in the case of a region or country. The core of the sector idea is that it includes organisations which provide similar goods or services along with those who regularly transact with them in supplying, servicing, regulatory or customer roles (R~is~inen and Whipp, 1992, p. 47). It differs from the term industry (perpetually reinforced by government classifications such as the U.K.'s SIC) which confines itself to direct/indirect competitors centred on a common product.

A sector may generate a variety of social and economic relations but we believe its ability to coordinate them may be limited. Sectors should not be assumed to contain simple or dominant governance structures. Rather, sectors are best regarded as arenas where cooperation and competition coexist simultaneously. The sector is an accomplishment of multiple actors with naturally diverse logics of action, beliefs and paradigms. Indeed, views of the precise boundaries and membership of a sector may well be contested (cf. Knights and Morgan, 1991). Temporally speaking, the sector is routinely in a state of relative impermanence. Tensions persist between constantly emerging alternative economic and organisational solutions. In spite of the force of global economic imperatives, differences in national sectors appear to remain important - - and hence the motivation to compare the confectionery sector in two national settings (cf. Porter, 1990).

Conceived in these terms, the sector offers a promising site to link economic, sociological and cognitive perspectives. The institutional orientation raises the prospect of more challenging accounts of structural relations between members of a sector. This paper highlights two particular expressions of these types of relations: first, social and commercial networks and second, community forms. The main assumption behind this study is that mapping the networks in a sector is useful but that it is not sufficient for gaining an understanding of the social structures involved. The meaning and use of the network connections, that is the social relations among the actors, can only be interpreted by reference to the communities within which these relationships are being socially constructed and reconstructed.

Sector analysts have shown an increasing interest in networks as a manifestation of institutional relations. Network structures have maintained an enduring presence within the social sciences. A network is classically defined as a specific type of relation linking a limited set of persons or events. The set of persons on which a networks rests are often termed actors.

The location of individual actors in the network has important perceptual and behavioural consequences for both individuals and the system as a whole (Knoke and Kuklinski, 1982). Historians have highlighted the role of subcontracting networks in the operation of manufacturing and textiles throughout the past two centuries (Dobb, 1963). Trust and cooperation are shown to have existed alongside profit maximisation (Thompson, 1991, p. 171).

Subsequent application of the network idea to management has led to challenging results. Network theorists question the idea of the firm as an easily isolated entity and as a dominant economic actor. To them a network is "the totality of inter-organisational relationships, direct and indirect, that a firm is involved in" (Araujo and Easton, 1995, p. 22). Those within the firm are therefore embedded in structured sets of exchange relationships that are both enabling and constraining. Actors are able to convert local knowledge and resources in to general purpose, relational knowledge. Networks are vital sources of organisational learning. Moreover, Johanson


and Mattson (1985) consider the firm's position in its network as an intangible asset, the result of the coordination of complementary investments by the firm and its exchange partners. In the mature U.K. confectionery sector, such assets have become so well established as to be almost taken for granted. Forthcoming studies of business networks could also make use of the sociologically more advanced actor-network approaches, where the development of material artefacts are analysed in relation to the building of networks of complementary actors. These kind of views already apply in the field of science and technology studies and await application in sector studies (Latour, 1987).

The second manifestations of institutional relations, the community concept, occupies one of the central positions in the pantheon of sociological thought. Recent political initiatives in the U.S.A. and Europe have re-invented the term. A new political force has been added to the work via its related connotation of "communitarianism" (Etzioni, 1995). Leaving these innovations to political analysts, the concem here is with the sociological construction of community; this may have practical relevance to the study of sectors. A community is composed of individuals/groups who share a common economic position. This is, in turn, reinforced by a range of possible joint social attachments. A community is composed of mutually dependent actors. Anthropologists such as Calhoun (1982) go further. He emphasises not only commonality of purpose but self-reg- ulation. Moral obligation is the essence of a community for him. Communities contain many types of interdependence based on, for example, economic ties, location, religion or even kinship. The paramount characteristic is that community ties do not allow individuals or groups to act wholly independently. Roles and standards are generated within communities and help to define appropriate action in the face of new circumstances (Whipp, 1985, p. 775).

In one respect, communities identified by sociologists may provide an exceptionally strong example of Loasby' s institutions which set bounds to behaviour and choice but which, at the same time, are not amenable to precise definition (see above). Whilst considerable effort has been devoted to the study of scientific communities (Kuhn, 1970) research on commercial or industrial communities has tended to be specialised around a geographical focus (see, for example, Piore and Sabel, 1984). Danish management writers though have confirmed the community to be of clear relevance to understanding a number of their industrial sectors. Borum shows how the Danish information technology sector, for example, operates in relation to six identifiable communities. These include an "IBM community", a "systems programmers community" and a "technical community" of hardware suppliers (Borum, 1990, p. 191). Borum's and colleagues' work indicates how a sector may be dominated by a single community with practitioners united by common recruitment patterns and joint understandings of methods, ideals and relations to other communities. Conversely, it is possible for such dimensions to appear only weakly, or not at all, in other sectors. The aim of the subsequent sections of this paper is to mount an exploratory inspection of the confectionery sector in order to discover the apparent strength of community forms.

At this early stage of our research, it is not possible to do justice to the full rosta of issues raised by either the specialist literatures on communities or networks. However, it may well be possible to discover the existence of these institutional forms in the confectionery sector, to detect their outlines and to begin to register the comparisons between different national locations. The aim is explorative, in the spirit of a pilot study. Accordingly the method employed has been induc- tive with a reliance on interviews with key actors, triangulated with documentary and secondary sources during 1994. The outcome at this point is a useful clarification of the strong differences in the institutional character of two distinct parts of the international confectionery sector.

In general, the orientation of the study has been towards the qualitative. The choice was


logical since the phenomenon of communities in the confectionery sector had not been studied previously. Such an approach enabled the use of a range of sources with no prior assumption of the superiority of any one type of evidence. The aim was to use a set of probes in order to discover if community forms existed. It is important to distinguish this approach from a deductive method: the project was not seeking to test existing theories or positions. In addition, the intention was to remain sensitive to many of the subtleties which surround inter- organisational relationships.

This composite approach has relied therefore on a mix of sources which are appropriate to an institutional analysis. In other words, the primary and secondary sources are employed to capture the intangible qualities of sector relationships. The concern was with uncovering the assumptions and core values which inform the actions of those across the sector. The need for such a range of sources is reinforced by the attempt to reveal both the structural and processual aspects of inter-organisational forms. Moreover, the muiti-faceted construction of the sector, described in the previous pages, demanded that adequate attention be devoted to a comparable spread of evidential material.

The result has been an attempt to triangulate three main types of data: documentary, secondary and interview-based. The documentary category included a variety of sources, internal to the focal organisations, and which had not been published (such as company communications, mem- oranda, reports and incidental material). The interview evidence (recorded or noted) was not just derived from managers in the main firms; importantly, they deliberately embraced sector specialists (such as technology experts or machinery consultants), suppliers, distributors and those who played servicing or regulatory roles. Inevitably, given the exploratory character of the study, interviews were held with other academic researchers given their role in interpreting and constructing sector recipes and practice. The secondary data sources covered commercial research reports, the publications of key associations and 10 electronic databases.

It should be noted that triangulation between these three types of evidence had two main objectives. First, to minimise reliance on any single type of data; and second, to produce a deliberate tension between them which would generate second order questions to direct the research process. The contradictions between published statements, practice and underlying beliefs provide the basis for some of the major findings reported in this paper. The process was highly iterative. Each of the three categories of evidence was visited repeatedly as research questions and fieldwork opportunities arose. Observational data, of a limited kind, was generated unintentionally as the chance to attend major exhibitions appeared. Such a spread of evidence gave rise to a rich set of concerns which reflected the broad institutional approach of the authors.

The aim of the following sections is to examine not only the economic connections within each sector but also to establish the existence of network and community forms. The attempt to discover the relevance of these inter-organisational relations was guided by a set of questions derived from the preceding discussion. The core questions in the economic sphere centred on determining the established actors, their modes of competition and the extent to which cooperation was facilitated by an economic logic. In respect of networks, the inquiry was concerned with: the character and scope of interactions between individuals and groups; the extent to which social, technical and professional networks exist beyond the routine commercial connections found across the value chain; the role of language; and how far network relations constrain or enable the actions of managers. In the community domain our concerns were with identifying the existence of commonly-accepted values and norms which regulate behaviour, the strength of rules of mutual obligation, and how far such community forms have developed by comparison to


other sectors in Europe. The preliminary responses to these questions are summarised in the following sections.

3. THE U.K. CONFECTIONERY SECTOR: ECONOMIC, NETWORK AND COMMUNITY FORMS

3.1. The value chain Before explaining the inter-organisational relationships, the first task is to describe the value

chain of the confectionery sector in the U.K. and the confectionery manufacturers and their competitive and cooperative strategies. The U.K. confectionery market is one of the largest in the world, with consumers currently spending over £4.4 billion on confectionery each year. Chocolate confectionery accounts for £3 billion and sugar confectionery £1.4 billion (Nestl6-Rowntree, 1994). The U.K. market is fragmented not only by different tastes for chocolate (white, milk and dark chocolate) but also according to the purpose of the purchase. In the U.K. confectionery is popular with men, women and children (Mintel, 1993a, pp. 17-22). This is supported by an abundance of market research information which has influenced the manufacturers' product range and brand positioning (Mintel, 1993a; Mintel, 1993b; Trebor-Bassett, 1994; Nestlr-Rowntree, 1994). Confectionery is purchased primarily on impulse, however it is becoming increasingly rationalised with the increased purchasing of multi-packs from supermarkets where consumption is planned for a future date (Mintel, 1993a). Overall, the U.K. chocolate market is distinctive in several ways, not least, because of questions of taste which were shaped in the last century and also because of its established own label segment in both the mass and luxury areas of the market (cf. Sutton, 1991; Eriksson, 1994b).

The major raw materials of the industry are cocoa, sugar, milk and fats, together with machinery and packaging. Cocoa is the most important raw material in chocolate production and is sourced predominantly from West Africa (Economic Intelligence Unit, 1989, p. 41). The U.K. chocolate industry has benefited greatly from the historical Commonwealth links with the cocoa bean producing countries. This has resulted in manufacturers, such as Cadbury, becoming closely involved with their source of supply by setting up a processing plant in Nigeria. Cadbury and NestlE-Rowntree both import and grind their own beans. Mars, on the other hand, does very little grinding and instead purchases cocoa butter (UNCTAD, 1991, p. 39). Intermediate cocoa products, which are often made to a manufacturer's specific recipe, are available directly from a few U.K. companies or else are purchased from European companies. Continental Europe is also the main source of machinery for the sector (Voipio, 1993, p. 120). The German, Swiss and Italian machinery manufacturers are important actors in the sector and aid in the transfer of information and production technology. Many of these machines are purchased through sales agents located in the U.K.

Wholesalers are important in the distribution of confectionery. They handle approximately 55% of all production (Trebor-Bassett, 1994, p. 25). Their biggest customers are the independent grocery retailers (63% of sales) and caterers. The supermarket chains are also a key group, accounting for 23% of all confectionery sales. In the U.K., own label products have grown with the chain retailers. They are important to the retailer because they have lower advertising costs, lower packaging costs and higher gross margins. The growth of own label products has directly resulted in the increased advertising expenditure of the branded manufacturers (Trebor-Bassett, 1994).

There are many who provide service roles in the sector, including the Biscuit, Cake, Chocolate


and Confectionery Alliance (BCCCA). A spokeperson for the BCCCA regarded the organisation as "the voice of the industry". Eighty-four confectionery companies belong to the BCCCA, and it is in their interest that the Alliance works, for example, to remove legislative obstacles and promote training. Other servers include consultants. These are predominantly technical specialists who have gained experience at one or several of the confectionery companies or their suppliers. These people often have an unparalleled knowledge due to their access to numerous production sites (production manager). Advertising companies and the confectionery press are amongst the other servers. There are two major confectionery magazines in Britain: Confectionery Production and Kennedy's Confection. The first provides broad information on the technology for the industry. The second reports on developments in the sector, such as company mergers, new product launches and the career moves of managers. It is seen as important by managers in the industry for enabling personnel to keep in touch with past colleagues. The regulators of the sector are agents of the U.K. government and the EU. The manufacturers must adhere to strict hygiene, packaging, labelling and quality of raw material regulations as specified by the EU. Government departments also serve the sector by funding agencies that promote confectionery products abroad. The confectionery companies are frequently recognised by the British government for export achievements and their importance within the British economy (Nestlr-Rowntree, 1992).

3.2. Confectionery companies and their competitive and cooperative strategies The U.K. sector is dominated by three manufacturers - - the British company Cadbury

Trebor-Bassett (29%), the Swiss company Nestlr-Rowntree (21%) and the American company Mars (17%) (Nestlr-Rowntree, 1994, p. 1). Characteristics of the major confectionery companies and the U.K.sector are shown in Tables 1 and 2. There are, in total, over 100 companies manufacturing confectionery in the U.K., however the "Big 3", together with 15 smaller finns, account for virtually all of the production. The ownership of the production facilities has become increasingly concentrated with the number of companies producing confectionery falling by 60% in the U.K. since 1950 (Smith et al., 1990, p. 27). Chocolate confectionery is more concentrated than sugar confectionery due to its more expensive start-up costs, the technological barrier and extensive advertising for branded products (cf. Sutton, 1991). Branding is far more important in the chocolate market than it is in the sugar confectionery market where approximately 38% of confectionery is unbranded and is produced by comparatively small companies (Mintel, 1993b). In contrast, less than 4% of chocolate confectionery is sold under an own label and Marks and

Table 1. Basic characteristics of the confectionery sectors in the U.K. and Finland

Characteristics of the sector (1993) U.K. Finland

Number of companies Consumption (volume)/capita Degree of internationalisation Degree of concentration Status of the sector Industry sub-groupings

112 13.5 kg high high high 1. Large international companies,

"The Big 3" (European and U.S. models)

2. Middle-sized companies (own labels)

3. Small local companies (luxury and novelty products)

6 8 kg moderate/increasing high peripheral/increasing I. Large and middle-sized Finnish-

owned companies (European model) 2. Small Finnish companies (special

products) 3. Foreign sales companies (European

and U.S. models)

THE EUROPEAN CONFECTIONERY SECTOR

Table 2. Basic characteristics of the major companies in the U.K. and in Finland

367

Major companies Turnover Number of Number of Leading product categories (1993) (million pounds) factories employees and brands

Cadbury Limited 632 (U.K.) several (U.K.) 5590 (U.K.) All product categories, solid (U.K.) chocolate leading (Dairy

Milk)

Nestlr-Rowntree 660 (U.K.) 7 (U.K.) 7000 (U.K.) All product categories, (U.K.) chocolate covered biscuit

leading (Kit Kat)

Mars (U.K.) 682 (U.K.) 1 (U.K.) 3000 (U.K.) Chocolate and sugar confectionery, count line leading (Mars)

Leaf (Finland) 486 (world) 3 (11 world) 5200 (world) Many product categories, chewing gum, count line and medicated pastilles leading

Fazer (Finland) 175 (world) 3 (7 world) 900 (world) All product categories, solid chocolate and count line leading

Panda (Finland) 35 (Finland) 1 (Finland) 376 (Finland) Many product categories. boxed chocolates, liquorice and dragees leading

Spencer are "the only significant force in this area" (Anon, 1989). There is a tacit agreement between the major manufacturers that none of them will supply own label products and this has provided an opportunity for smaller firms to produce copy products (due to the advantage of existing knowledge) for one or several of the major retailers. According to the confectionery pur- chaser of one of the U.K.'s largest four retailers "the initiative for own label products may come from either the manufacturers or the retailers and many companies may be involved in supplying one retailer".

The U.K. industry can be divided into three clusters of firms with different strategies (UNC- TAD, 1991, pp. 84-85). Firstly, there are the major manufacturers who operate globally (Cadbury Trebor-Bassett, Nestlr-Rowntree, Mars and Wrigley). The first three produce both chocolate and sugar confectionery whilst Wrigley produces only sugar confectionery. Cadbury and Nestl6 follow the European strategy model whilst Mars and Wrigley adopt the American approach. The European model is based on a wider product range, differentiation, multiple site production and brand advertising. The American model relies on a more specialised and standardised product range, marketing and distribution, single site production and aggressive pricing (Smith et al., 1990, p. 21). Before competition intensified in the sector, in the 1970s, different business recipes could exist simultaneously due to extensive market segmentation. Each of the "Big 3" companies was aware of how the others were behaving, but it was not until competition intensified that it was possible to determine which was the superior model. It was at this point that Cadbury decided to move towards the Mars model (Smith et al., 1990). The fact that Rowntree-Macintosh did not change may have been a major contributory factor to its eventual takeover by Nestl6 (Smith et al., 1990). The second cluster of firms contain those that are "smaller but still substan- tial 'general' manufacturers" in the British market (UNCTAD, 1991, p. 84). Most of these are specialised to produce either chocolate or sugar confectionery whilst some, for example Loveils


Confectionery, produce both. Some companies, such as Gerber Confectionery, compete for the highly valued contracts to produce own label products for the national supermarket chains (Bresnen and Fowler, 1996). Marks and Spencer, for instance, purchase their own label confectionery for the U.K. market from an estimated 35 confectionery manufacturers according to one confectionery buyer. Thirdly, there is the group of specialist manufacturers, who are either sugar or chocolate confectionery manufacturers, who produce a small product range, operating on a smaller and sometimes more local level, for example Pollard's of the South West of England. Many of these companies are not in direct competition with the larger firms but are instead producing luxury or novelty items (possibly for the cheap children's market). Some of these may also join together to market, package and distribute their products, as in the case of Sweetmate (Anon, 1991).

Throughout the history of confectionery production in Britain there has been inter-firm cooperation. During the 1920s there were close links between Cadbury, Fry and Rowntree. These firms cooperated on issues such as purchasing cocoa, advertising, pricing and agreeing not to poach employees (Voipio, 1993). In 1934, Nestl6 and Terry were also included in these informal agreements (Smith et al., 1990, p. 74). Until the 1970s, Cadbury supplied chocolate to Mars for their count line product and Cadbury consciously decided not to enter this segment of the market from fear of losing this profitable deal (Smith et al., 1990).

The largest manufacturers have grown organically and then by acquisition and mergers, including Rowntree-Macintosb (1969), Cadbury-Schweppes (1969) and Nestlr-Rowntree (1988) and Cadbury and Trebor-Bassett (1989) (UNCTAD, 1991, pp. 76-79). The 1960s were characterised by diversification as well as signifying the start of the merging of chocolate and sugar confectionery companies (Rowlinson, 1995, p. 126). This was also when power began to shift within the sector from the manufacturers to the retailers. The main reasons were the abolition of the Resale Price Maintenance, increased concentration of the retailers, the onset of own label products and the introduction of advanced point of sale information technology (Hyde et al., 1991). Since this time the supermarket chains have been able to demand strict specifica- tions from the manufacturers, for example - - packaging requirements, and often refuse to stock slow moving lines according to two purchasers from the major supermarkets.

The frequency of the mergers and acquisitions amongst the confectionery manufacturers, since the 1960s, can be partly explained by market saturation. It has become increasingly difficult for established companies to increase their market share by either promoting their existing brands or developing new ones. Instead, it is more efficient for a company to purchase market share. This saturation also led to increased exporting, particularly in the 1970s. The U.K. is currently the largest European exporter of sugar confectionery (see, for example, Sutton, 1991 and Eriksson, 1994b). Since the early 1980s many manufacturers retrenched into their core confectionery business and core brands, in some cases abandoning the low-earning sections of their product portfolio (Smith et al., 1990). Simultaneously some companies have attempted to grow by using their established brand image with new products, for example Mars ice-cream bars. These brand extensions have involved new forms of cooperation between food manufacturers, for example ice-cream and confectionery companies (Nestlr-Rowntree, 1994, p. 2).

Historically there have been U.K. chocolate centres in Birmingham, Leeds and Bristol. Manufacturers in these areas maintained contact points through local colleges or night schools that provided training for the industry. More recently there has been greater movement of operatives between confectionery companies in the same area, as in the three in the Bristol area (production manager Bendicks). Since the 1980s interaction between the manufacturers in

THE EUROPEAN CONFECTIONERY SECTOR 36!)

general has increased; this has occurred for a variety of reasons, some of which are discussed in the following section.

3.3. Evidence of network relationships It is by no means straightforward to display the network relationships that exist within the con-

fectionery sector. The primary need is to examine the interaction between managers of firms of different sizes within both sugar and chocolate confectionery as well as the central role of the BCCCA within the confectionery sector.

The U.K. confectionery sector contains networks that are both formal and informal, and that are fragmented between chocolate and sugar confectionery companies. Even after the extensive mergers and acquisitions, which have brought both activities into one company, the businesses are frequently left as separate divisions, operating on different sites and with different labour markets. This has resulted in the continued divide between the sugar and chocolate confectionery networks. Even though the BCCCA, which is a major meeting point for the sector's members, rep- resents both chocolate and sugar confectionery, here too the separation persists.

Figure 1 is a schematic representation of the social networks operating between individuals in the different confectionery manufacturers. The data collection process for this diagram originated with a detailed search of published articles and reports as well as company documentation. This was supplemented with interviews with senior managers of a wide variety of confectionery manufacturers, from the "Big 3", medium-sized branded and own label manufacturers and smaller more local manufacturers. In addition, interviews were conducted with 10 importers in order to gain a different perspective of the U.K. confectionery sector. The nodes portray individual managers and the number of nodes is not precisely equivalent to the number of actors within the sector. The linkages represent exchanges between the managers of different organisations, which are predominantly of a social and informal nature even though they are frequently founded upon an economic basis.

Interaction in the sector is very separate between sugar and chocolate confectionery managers and in the case of sugar confectionery can be broken down between different types of sugar confectionery, for example boiled sweets and toffees. The chocolate confectionery network is far denser and it is generally considered in the industry that the network has matured to the point where "there are people in every chocolate factory in Britain who will know people in most other chocolate factories (in Britain)" (a chocolate confectionery Managing Director). Connections between the sugar confectionery firms are not as widespread, largely due to the greater number of firms involved but also because of the more fragmented nature of the market. In general, both sugar and chocolate confectionery networks are seen to be more informal between the employees of smaller firms, compared to the links between the larger firms. Most relationships are between companies that are similar in both size and product type. The situation is illustrated in Fig. 1.

The contact between the largest firms is more formal and centres around the BCCCA. This was evident from the committee structures at the BCCCA (BCCCA Annual Review 1994, pp. 37-41). During fieldwork it was found that employees of the largest firms were more likely to interact with managers of medium-sized firms within their product grouping, i.e. chocolate or sugar confectionery. There was little evidence of relationships between employees of the largest and smallest confectionery manufacturers. Where this did occur it was most likely to follow an acquisition, for example the Trebor-Bassett purchase of Lion Confectionery. The strongest informal interaction occurred between managers of medium-sized companies. It was in these companies that managerial mobility was highest, so enabling the development of numerous social relationships between both past and present colleagues.


Ch an1

Chocolate Chocolate e.g.

relationship between individuals or groups within different companies

O chocolate confectionery company

( ~ sugar and chocolate confectionery company

sugar confectionery company

Fig. 1. A schematic representation of networks of individuals/groups in the U.K. confectionery sector.

It is not unusual for employees to work all their lives within the confectionery sector, if not within one firm. This was commented upon by nine different managers. However, our findings showed that it was not uncommon for the senior managers, particularly of medium-sized companies, to have gained experience with three or four different firms, although it was rare for employees to move between sugar and chocolate confectionery manufacturers. Even when they transferred to a manufacturer that produced both they continued to work within the same product group.

In the smallest firms, contact was primarily less formally structured and again was between personnel of companies producing a similar product. Interaction was most likely to have been initiated at an exhibition or similar function. Connections between medium and small manufacturers were common because many of the smallest manufacturers had been established by managers with previous experience of one or several medium-sized confectionery companies. Within the confectionery sector there were some medium-sized companies that produced both chocolate and sugar confectionery and it was their managers that had links in the two separate networks.

Interviews with both domestic manufacturers and importers revealed that importers are peripheral players in the U.K. sector and on the whole are not well connected to the U.K.-based manufacturers. However, some importers do have close links with staff of U.K. manufacturers,


for example some managers have left manufacturing companies to work for an importer of finished confectionery. Some importers have close ties but these are between companies that are most likely to be situated in the same country and which have a history of interaction within their domestic market.

All of the senior managers that were interviewed agreed that it used to be the convention that if one worked for a major confectionery company then transferring to a competitor was highly unlikely. This was thought to have existed until competition increased in the 1970s. However, since then there has been a change in the operations of the sector's social and commercial network and a reduction in the formal cooperative behaviour. At one level secrecy has increased between the manufacturers and it is no longer possible for employees of one company to visit another within the U.K., instead it has become more likely that staff of a U.K. manufacturer would travel abroad (especially to Europe) to view another confectionery manufacturer. This has dra- matically affected the transfer of knowledge in the sector.

In order to compensate, firms began to recruit personnel from their competitors, for example when Cadbury recruited Mars personnel (Smith et al., 1990, p. 322). The frequent takeovers in the industry have also meant that the sector's network has developed through easy access to other manufacturing establishments and techniques which had been acquired into the group, as in the case of Cadbury in France and the U.K. More recently, people have moved within the confectionery industry through competitive recruitment policies, "Previously this would have been completely unheard of and definitely frowned upon but then there would have been much greater loyalty shown towards the employee. Nowadays, they are reducing their staff" (chocolate confectionery Managing Director, 1995). The increased movement of staff between firms is seen as a direct response to the reduction in loyalty of the employers as witnessed by the job losses and rationalisation programmes. It used to be very rare for people to leave, especially from the shop-floor. However, in the 1980s redundancies in the confectionery industry became commonplace. Employee movement is also thought to have increased because of disenchantment with the new "foreign" management styles following a takeover or merger. Such approaches are seen not to fit with the previous family ownership and paternalistic management. This has resulted in companies losing technologists and craft expertise.

The research findings reveal that fewer informal relationships have developed between the largest manufacturers due to there being comparatively less movement of staff out of these firms. The result is managers in these organisations being more orientated towards their own company and having fewer links with the other manufacturers in the sector. The explanation lies in these organisations having the scope to offer sufficient career opportunities within their group. The greater movement of personnel between the medium- and small-sized companies explains why it is their managers that are more likely to have broader personal networks within the confectionery sector.

The BCCCA is a central feature of the confectionery sector and acts as an important meeting point for representatives of the industry. The Alliance has 24 different committees and these are comprised of staff from 59 different organisations, mostly manufacturers. They are predominantly middle and senior managers who have closely related areas of expertise. The ties amongst the Alliance's members are based around personal and social interaction as well as the formal committee membership and are strengthened by the sharing of experiences, values and knowledge. The largest manufacturers have the strongest presence in the association through their high level of committee membership (see Fig. 2). This diagram was derived from the information supplied by the BCCCA (For example, the Annual Reviews of 1993, 1994 and 1995). Some


larger foreign companies which are important within the U.K. market are also members of the BCCCA, but choose to play only a small role, for example Wrigley. Some of the smallest manufacturers are also members but do not have any representation on the committees, for example Grosvenor Confectionery. It is commonly accepted by the sector's members that the chief exec- utives of all the large companies know each other through the Confederation of British Industry - - the main employers' association, The Food Research Association and the BCCCA and that "they are always talking to each other" (a sugar confectionery Managing Director). The U.K.

BCCCA Alliance Council / nrh,r t, ll~o,., \ ~ Committees:

President's Committee Conference Committee Legislative Standards Committee Environmental Committess Cocoa Committee Cocoa Research Sub-Committee External Relations Committee Health and Nutrition Sub-Committee f ~ Supply Committee Dairy Sub-Committee Dried Fruit Sub-Committee Scientific Advisory Committee Additives Working Party Microbiology and Hygiene Sub-Committee Residues Working Party Industrial Relations Committee Export Committee Statistics Committee Database Working Group f S&A Lesme- ~ Training and Education Council / Callebaut \ Training Conference Sub-Committee [ Alliance Council member \

J CABATEC Working Party - '- '---"l "7 ~mnl . . . . . . . . [ Engineering Training Sub-Committee ~ ~ l~'ae~.~;~'~" ] Technology Conference Committee

Fig. 2. Company network around BCCCA. Source: Annual Review of BCCCA 1994.


networks are sufficiently developed that if one company wanted to sell part of its operations, the information would be passed to all likely buyers in the industry "like wild-fire" (a chocolate confectionery Managing Director). The sale of Bendicks in 1988, was a case-in-point. These networks can be viewed as a resource. If a manager is considering changing a source of supply, they routinely contact another firm requesting that firm' s experiences of that supplier.

Members of the chocolate network feel that the sugar specialists do not have the same cama- raderie due to their products being more fragmented and more peripheral to the U.K. confectionery sector. In spite of this, there was evidence of very close commercial cooperation between some smaller sugar confectionery manufacturers who produce some products for each other as well as helping out when they are busy or are experiencing mechanical problems. No evidence of this type of relationship was found in the chocolate confectionery sector due to the more sophisticated nature of the product and the greater secrecy of recipes. However, in chocolate confectionery there were instances of"borrowing" raw materials from fellow manufacturers if stocks were low and suppliers could not deliver on time.

Economic relationships in the sector (between a manufacturer and a supplier) ~'start as totally professional and develop in time to become social. This is part of the importance of the relationship because when things go wrong you've got to be able to trust the person on the other end of the phone" (chocolate confectionery Managing Director). The inter-firm nel- works in the sector do tend to be based primarily around an employee 's function. This is because employees from a similar function have the opportunity to meet at national exhibitions (for example, marketing and sales personnel) or training courses (for example, production or engineering personnel). Conferences can also prove important. When reporting on the 41st Alliance Technology Conference, the BCCCA wrote "It commands a faithful audience of regulars" (BCCCA Annual Review 1994, p. 36). These relationships are strengthened by the ready identification of shared experiences and common technical problems within the U.K. sector.

The suppliers of intermediate cocoa products are also an important link in the economic network, especially for the smaller firms. These suppliers employ confectionery experts who have a detailed knowledge of food chemistry, for example chocolate, and when this is combined with their routine interactions with chocolate factories around the world, they become vital information conduits in the confectionery sector. As one Managing Director said "they act as remarkably good channels for communication". They are seen as central, not only for their knowledge of confectionery production processes but also for their contacts and their own personal links with confectionery experts which they have built up. They are often used as a communication channel when a manager wishes to change jobs within the industry.

The recent increased movement between confectionery firms has extended the confectionery networks and made the sector more open. In Nestlr-Rowntree there has been a steady two-way flow of personnel between the U.K. and Switzerland since 1988. Currently, more than a quarter of the staff at Nestlr 's major confectionery research centre in York are from outside Britain (Lorenz, 1994). In another chocolate company one Director talked of his previous colleagues in four different confectionery firms in the following terms: "they would all talk to me as if I saw them yesterday, whereas it is more likely to have been at least 2 years." The familiarity within the sector is undoubtedly increased by there being comparatively few people within the specialist technical or managerial bands in the sector's employment hierarchy. This is especially true for the specialist functions such as chocolate chemists or trained sugar boilers. "You tend to know all of them, and you tend to talk to all of them from time to time" (chocolate confectionery Managing Director).

374 P..ERIKSSON et al.

Although movement of personnel within confectionery has increased within the sector, strong loyalty to a product area persists. The divide between the sugar and chocolate confectionery networks can be witnessed in the distinctive languages of professional expertise which are used by the sugar and chocolate confectionery actors in the U.K. sector. These are common to English- speaking sugar and chocolate confectionery sectors across the world.

3.4. Evidence of community relationships The managers within the confectionery sector studied in this research believed that there was

a confectionery community within the U.K. and that it was predominantly divided between sugar and chocolate confectionery manufacturers. Older and more experienced managers in the sector thought there was a confectionery community, because of the "allegiance" that so many employees have to the sector. One of the dominant norms of the community is the long career paths within one or several confectionery companies.

The nature of the two communities appears to be different. The chocolate community is smaller and more united (probably due to its higher concentration) resulting in its ready identification by its members. One of the most important issues for the chocolate manufacturers has been to maintain their high product integrity. Chocolate production was considered to be a craft which needed to be mastered and there were thought to be only a few "chocolate masters" in Britain. These were managers or food technicians that had received extensive formal training in continental Europe. Interestingly, the majority of manufacturers were agreed in their view that the "Big 3", even with their domination in the U.K. and world markets were not chocolate masters but instead were experts at manufacturing "clever" chocolate by using cheaper raw materials and advanced technology. In spite of this, the large manufacturers are important within the community, because of their high profile in the external relations of the sector and also because of their central role within the BCCCA. The BCCCA is seen as having a central role for the community by providing a fulcrum point, "One of the joys of going to these functions [at the BCCCA] is that you are guaranteed of knowing two or three people in the room that you may not have seen for 10 or 15 years" (chocolate confectionery Managing Director).

In contrast, the sugar community was more fragmented and there were signs of lower company and sector loyalty; this was confirmed by lower interaction between the manufacturers and the propensity of the managers to leave sugar confectionery to work in other areas of the food sector. This is interesting, considering that it is chocolate that, as a raw material, has the wider use within food manufacturing. It may be that there is less loyalty in sugar confectionery because of it having a lower craft status and requiring fewer specialist skills.

Where economic links did exist between sugar confectionery manufacturers they appeared to be closer, for example, in sharing production or packaging facilities (Production Manager, sugar confectionery). This may be because there are more opportunities for economic cooperation due to the need for less secrecy regarding production techniques within the industry. Even recipes for different types of sugar confectionery are published in the industry magazine (Kennedy's, 1994, pp. 36--39). However, the social network was more fragmented and the community less tangible, this was commented upon by representatives from 15 different sugar con- fectioners. Nevertheless, amongst the smaller manufacturers, particularly of the higher quality sugar confectionery, there was typically a closer social network and a greater awareness of the confectionery community.

An important feature of the confectionery sector in the U.K., is the historical tradition of the firms' "moral" behaviour and pride in their welfare management principles (Voipio, 1993; Nestlr, 1993). The major confectionery companies, have throughout their history, been involved


in and supportive of the areas where their plants are located, as in the well-known case of Cadbury building houses for its employees. The major British manufacturers have been in continuous contact with each other over issues concerning their sector's environment and have established norms of behaviour and mutual obligation (marketing manager, Cadbury). Examples include agreements not to recruit directly from each other and not to supply own label products. However, as loyalty has fallen and the sector has been opened to a greater number of actors so the community norms have been threatened. This has resulted in behavioural changes, including more competitive recruitment practices. However, for the larger manufacturers life-long employment in one company persists.

Rules of behaviour exist, especially in respect for "professional" boundaries, particularly amongst the older managers. Experienced managers who are connected socially but who work for rival firms will "never discuss some issues (for example, production techniques), you just wouldn't ask the question" (chocolate chemist). This is also true for prior colleagues of the same firm who would not even discuss how they used to manufacture confectionery. Even though movement across the sector has increased there are still signs of mutual obligation between companies and individuals. Some managers reported that when they had left one confectionery company and gone to work for a rival, they had not recorded the recipes of their previous employer nor had they been asked to, even though they had the necessary knowledge "it would not be appropriate to do so, it was theirs [the previous employer], they had worked hard for it" (chocolate chemist).

Mutual obligation and shared values also exist within the confectionery community. For example, according to industry consultants, there was a shared interest to maintain positive company images, especially for the largest manufacturers. Cadbury and Nestl6-Rowntree both wish to preserve their paternalistic image whilst Mars and Wrigley are both intensely secretive and their employees keep a low public profile. Alternatively, Cadbury is more open and its employees work hard to maintain a strong public face. Other shared ideals in the sector included raising awareness of "quality" confectionery, this was particularly true for the medium- and small-size chocolate producers. Evidence was also found of trust between companies currently manufacturing products for each other.

Managers reported that the nature of the community has been changing due, in part, to environmental pressures, such as increasing international competition, changing consumer tastes, a shifting of power within the sector towards the retailers, and changing employment profiles (Smith et al., 1990). Some of these changes were seen to result in diminishing loyalty. Currently, the younger managers seemed to associate more closely with their function and showed less loyalty towards their company or sector.

The major market for most companies in the U.K. sector is the domestic one (Mintel, 1993a, b). However, an international awareness has emerged in recent years as the number of foreign companies acquiring U.K. production units has increased together with the size of the U,K.'s confectionery exports. This has had an effect on the community. A confectionery buyer for one of the major U.K. supermarket chains, felt that Rowntree has changed its priorities since the Nestl6 takeover. She thought that they were now far more globally orientated and were less inter- ested in their U.K. customers. This was shown by the supermarket having to cope with stock shortages whilst Nestl6-Rowntree were launching their products in new foreign markets and the resulting strain put upon domestic commercial networks.

Practices of inclusion and exclusion seemed to be operating within the U.K. community. Companies operating outside of the U.K. were not thought of as being included in the U.K. confectionery community (although some obviously are involved in the commercial networks,


particularly suppliers). From interviews with staff of 10 Belgian, French and German manufacturers, the authors conclude that importers, especially the small luxury Continental companies, were not thought of as being included. This is because they are distant from and critical of U.K. production techniques, training and raw materials. A foreign manufacturer has a greater chance of being included in the U.K. community if they are producing within the U.K. This is because they are more likely to be seen as British, due to employing British staff when acquiring a British company.

4. THE FINNISH CONFECTIONERY SECTOR: ECONOMIC, NETWORK AND COMMUNITY FORMS

4.1. The value chain As in the U.K., the most important raw materials used in confectionery production in Finland

are sugar, milk (powder), cocoa, fats, and flour (for liquorice). Sugar, milk (powder) and flour have been domestic monopolies because of the Finnish agricultural policy. This is changing now that Finland is a member of the EU (e.g. Tukiainen, 1994). The largest confectionery company, Fazer, buys cocoa powder and cocoa fat through intermediaries in Holland, Germany and the U.K. (Donner, 1991, p. 46). According to industry experts all the other Finnish companies no longer grind their own cocoa beans. Each of the companies have developed their own relationships with cocoa and other raw material suppliers over time (Donner, 1991, p. 48; Volk and Mikkola, 1994, p. 37) and, according to managers, the companies hardly use the same intermediaries. Production machinery is supplied by foreign suppliers, German and Italian producers, for example (Volk and Mikkola, 1994, p. 43). However, the managers interviewed reported that each manufacturer usually remodels the machinery for their own use.

Distributors are amongst the most important actors within the confectionery sector (cf. Peltola, 1991; Kuparinen, 1992; Volk and Mikkola, 1994). Because of the concentrated retail trade in Finland, the manufacturers have to sell their products on a yearly basis to four large wholesale organisations, who distribute them to retail shops, kiosks, cafrs and petrol stations. Despite the power of wholesale organisations over manufacturers (Lindqvist, 1983) and the problems in the cooperative relationships, this intensive inter-relationship is also mutually beneficial. According to managers, wholesale organisations carry part of the stock, they transport the goods to the retailers and give considerable marketing support to the manufacturers. The wholesale organisations have some own label confectionery products but this segment has not yet grown important (cf. Eriksson, 1999; Holtari, 1993). During recent years, each company has developed its own distribution channels (Kinturi, 1981; J~ms~i, 1993; Vaalavirta, 1994) and respective networks abroad (for an example, see Hyv/Snen and Vihma, 1995, p. 34). They have also made agreements with the emerging European-wide retail alliances (Sahiluoma, 1992; Korhonen, 1993). Tax-free trade is an important distribution channel for one of the largest Finnish companies, Fazer (cf. Kauhanen, 1993).

The Finnish state and the EU are the most important regulators of the Finnish confectionery sector (Volk and Mikkola, 1994, p. 27 and p. 32). One of the servers, the Finnish Food Industries Federation (FIF), is an important intermediator between the confectionery companies and the regulators (including state and trade unions) (cf. FIF Annual Reports; Alanen, 1992). Others who play service roles include consultants, advertising and market agencies and financial institutions. According to industry experts, the large companies use the same international consultant and market agencies but each tend to have their own advertising agencies and financial arrangements.


Finnish consumers eat less confectionery, particularly chocolate, than consumers in many other countries (Eriksson, 1994a, see also Table 1 ). However, the Finns spend approximately the same amount of money on confectionery as the British consumers. Confectionery is more expensive in Finland, but according to respondents, the Finns also prefer higher quality. Local tastes are deeply rooted (Eriksson and Pantzar, 1992), which is reflected in the relatively high consumption of liquorice-based confectionery products in Finland, for example. According to market research, most of the confectionery in Finland is eaten by children, teenagers and women and is bought on impulse.

4.2. Confectionery. companies and their competitive and cooperative strategies There has been a strong trend of concentration within the Finnish confectionery sector since

World War II. In 1994, there were only six domestic confectionery companies. The three largest are Fazer Confectionery (part of Fazer Companies, owned by the Fazer family), Leaf Finland (part of the international Leaf Group owned by the Finnish Huhtam~iki Corporation) and Panda (former cooperative, bought by three managers in 1988) (see Table 2, also Eriksson, 1994a). These companies have almost 70% of the domestic market. The other three companies are very small, accounting for about 5% of the market. In addition, there are a number of large international confectionery companies in the Finnish market, such as Mars, Marabou and Nestl6 (Voipio, 1993, p. 121). These operate through their own sales offices or agents but have no production in Finland. Imports account for almost 30% of the Finnish confectionery market but exports are almost twice the amount of imports (FIF).

Traditionally, the Finnish confectionery companies have produced a wide range of products. Each of the large companies have a variety of well-established core brands but each of them also introduce experimental brands (cf. Eriksson and Pantzar, 1992; Teirisalo, 1990). New brands generate more profit, but they do not usually have a long life cycle (cf. Peltola, 1991, p. 14; see also Eriksson, 1991). Typically for a mature industry, the companies fight for rather small changes in domestic market shares. Since the increasing imports from the early 1970s, companies have made efforts to rationalise and modemise their production processes and product ranges with varying success (e.g. Monto, 1973, 1975; Nevalainen, 1986; Eriksson, 1991). However, according to the managers interviewed, none of the Finnish companies have yet adopted the U.S. model of narrow product range and standardised production (Saastamoinen, 1992; Jaakkola, 1996).

Fazer Confectionery (including Chymos range) is the market leader, being particularly strong in chocolate with their high quality Swiss-type milk chocolate brand for which they have developed a technology of their own using fresh milk. Fazer also has leading brands and a good market share in count lines, pastilles and candies (Teirisalo, 1990; Eriksson and Pantzar, 1992). Leaf Finland has specialised in chewing gum, count lines and medicated pastilles, in which groups it has several "number one" brands (Teirisalo, 1990). It is emphasised in Annual Reports and Company Newsletters that Leaf's strategy has an emphasis on health issues. They developed a manufacturing technology using a new sweetener, Xylitol (which is mostly used in chewing gum), in cooperation with another Finnish food industry company (e.g. Isosaari, 1994). They have also launched a low calorie count line brand. Panda used to have a very wide product range, which was sold exclusively in cooperative retail shops (cf. Kinturi, 1989; Vaalavirta, 1994). Since the management buy-out, Panda has rationalised its product range and is specialising in assorted chocolates, liquorice and dragees, in which groups it has a larger market share than its competitors (Ohrnberg, 1994). Panda has developed its own technology for liquorice production, which is based on all natural ingredients (cf. Wessman, 1990; Volk and Mikkola, 1994, p. 44).

The Finnish confectionery companies are situated geographically apart, which supports the


statements by managers that there are few cooperative relationships based on locality, such as movement of labour and staff between the companies. According to a labour union representa- tive, the Finnish confectionery companies are considered to be the best employers within the food sector. They have better remuneration packages, offer better training and life-long employment. When managers or workers have left a company, they have usually taken new employment outside the confectionery sector.

Linking interviews with managers and industry experts with their public statements has revealed little cooperative activities between the domestic companies (see also Volk and Mikkola, 1994, p. 47). However, the large confectionery companies have developed some cooperation when they have identified a common threat or an opportunity, such as the increasing imports in the 1970s and the issues concerning Finland's membership in the EU in the 1990s. According to managers, rising imports forced the large domestic manufacturers to discuss the future of the industry and to make an industry rationalisation agreement (see also Monto, 1973, 1975). There has also been some cooperation in the form of product exchange and some joint export efforts (Karkk~iinen, 1976; Jonsson, 1992). However, these cooperative relationships have never been industry-wide. The Panda cooperative was left out of the industry rationalisation agreement and Fazer stayed outside joint export efforts in the 1970s (Eriksson, 1991). Campaigning for the EU membership made Fazer and Leaf work together more closely for 2 years (Donner, 1991; Tukiainen, 1994). However, these, or any other forms of cooperation, have not been widespread. For example, Peter Fazer has been the key figure in the EU membership and the related domestic raw-material monopoly discussions but Leaf and Panda management have remained in the background (for examples, see Alanen, 1992; Hertsi, 1993a, b). On the other hand, the large companies have developed their own network relationships both within and outside the Finnish market. These will be discussed in more detail in the next section.

4.3. Evidence of network relationships In this section, we will first discuss the fragmented nature of networks within the Finnish con-

fectionery sector and provide an example of one of the separate company networks: the innovation network of Leaf Finland. Secondly, we will investigate the recent activities within the network of the domestic confectionery companies evolving around the industry association, the FIF.

In general, both formal and informal networks within the Finnish confectionery sector seem to be rather fragmented and separate. Historically, each of the major companies have developed their own domestic and international networks based on their own strategic interests within the confectionery sector (cf. Eriksson, 1994a). This is even more true outside of confectionery in areas such as cooperative retailing, pharmaceuticals, packaging, cleaning services, construction and other food industries. Geographical distance between the confectionery companies, high loyalty and low mobility of labour and staff, and, according to industry experts, a general attitude of competitiveness and secrecy have advanced this development of building networks outside the confectionery sector.

The research findings reveal that the current networks are built around broader divisions, some of which are also found in other sectors of the Finnish economy (for divisions in the whole Finnish economy, see Alestalo, 1985, p. 180, for example). Fazer Group is one of the old and well respected corporations within the Swedish-speaking economic circles in Finland (cf. Hoving, 1951; Leikola, 1985). It has bought firms and made cooperative agreements primarily with companies in other Nordic countries, and more recently in the Baltic countries (Korhonen, 1992; Kauhanen, 1993). It has also divided its production between the Nordic countries. Leaf Group has acquired companies and made cooperative agreements in North and South America,


Europe and China (Korhonen, 1990; Asikainen, 1993). Leaf has developed relationships with the innovative food technology companies, such as Cultor and Xyrofin (Isosaari, 1994), which can be explained by the interests of the whole HuhtamLki corporation in innovative businesses, i.e. pharmaceutical and packaging businesses (Hurri, 1994). Panda used to be a cooperative until the late 1980s with good networks within the cooperative movement; it had its own exclusive distribution channel, for example (cf. Kinturi, 1989; Vaalavirta, 1994).

These divisions and respective differences in company strategies may have implications for the language and vocabulary used within the largest companies and their networks. As professional magazines show, a common language of manufacturing expertise, for example, is well developed within the world confectionery sector. However, due to the Swedish-speaking culture of Fazer (and the company's initial links to the Russian and French confectionery making and recipes), the earlier manufacturing experts created a manufacturing vocabulary of their own in this company. According to Fazer's manufacturing and product development management, some of this vocabulary was still in use in the 1980s. In a similar way, we may assume that innovation- related language and vocabulary is richer in Leaf Finland's networks compared to Fazer' s. Panda has probably started to enrich the language related to marketing and distribution since it became independent from the cooperative governance in 1988 (cf. Kinturi, 1989).

In the following, we describe Leaf's innovation network concerning two innovations: Xylitol sweetener and LO Light low-calorie count line brand (see Fig. 3). This network is only one example of a rich set of different types of networks in Leaf and in the whole Huhtam~iki Corporation. Furthermore, our description is a simplified version of the network as we do not yet have all the details. Data collection process for the network diagram provides a good example of our composite data collection and triangulation process described in the methodology section of the paper. It is well known among various industry experts (consultants, researchers and FIF staff) that Leaf has emphasised health-related innovations in its European strategy. Also, the company promotes this issue in its Annual Reports and Newsletters (e.g. Xylitol News, Leaf Business

-- Leaf I L~f H~dqu~ers I

Fig. 3. Leaf's innovation network for Xylitol products and LO Low.

exchange of ~xperie.ce and knowledge

coordination and informalion exchange

project relationship

long-~'m working r~.hfionship


Background and Huhtamigki Review) and in public statements, such as published interviews of Leaf managers in newspapers and professional magazines. Data provided by these sources gave us an initial indication of the relevance of the issue and prompted another round of data collection and triangulation from primary and secondary sources and some informal discussions with industry experts.

Leaf's strategy concentrates on such health-related innovations as sugar-free and low calorie confectionery products. Innovative activities are also typical of the Huhtam~i Corporation, in which Leaf is the largest division. Of the two other divisions, Leiras engages in pharmaceuticals with original products such as contraceptive implants. Polarcup Group ranks as the world's third largest food packaging business and works to improve environmental solutions for packaging (Leaf Business Background, 1993). There are several links between all three Leaf divisions. They rotate managers and exchange information and knowledge (Puttonen, 1994; Hyv6nen and Vihma, 1995). Both Leaf and Leiras have been involved in industry rearrangements with Swedish Procordia (Asikainen, 1993), which sold its confectionery businesses to Leaf and cooperates with Leiras (Kuparinen, 1990).

Leaf has been involved in developing a new sweetener, Xylitol, with another Finnish company, Cultor Corporation and its joint venture with F. Hoffman-La Roche Co., Xyrofin. In addition to the production of Xylitol, Xyrofin also provides its clients technical, marketing and product development services (Isosaari, 1994). Xylitol technology has been a success factor particularly in Leaf' s sugar-free chewing gum brands, in which product segment Leaf is the second largest in Europe. According to industry experts, cooperation with Xyrofin and developing the use of Xylitol in Leaf' s products has initiated Xylitol-related research projects and working relationships with research institutions and dental experts in Finland and elsewhere (for exam- pies, see Huhtamaki Review and Huhtamaki Rumpu, 1990-1995).

Another innovation by Leaf, low-calorie count bar (LO Light), was developed mainly through in-house cooperation between Leaf Finland and Leaf UK. This innovation is an example of Leaf' s internal network organisation, the development and use of which the top management has emphasised in public statements during the past few years. Leaf's headquarters in Amsterdam coordinates all company R&D activities and Leaf's R&D Centre in the U.S. is also involved in many innovation projects (Huhtam~ki Review, 1992; Huhtam~ki Rumpu, 1992, pp. 9-11).

According to the industry experts and managers interviewed, FIF has become an important venue of interaction within the Finnish confectionery sector (see Fig. 4). The food industry is the third largest industry in Finland (measured by the value of production and number of employees) and the benefits of the whole agricultural sector have been well protected by the policy makers (Volk and Mikkola, 1994). However, certain segments of the food industry, such as the confectionery industry, have not been central in terms of industrial policy. For example, the export achievements of confectionery companies have been rarely recognised, they have been unable to win development subsidies from the Finnish government and the agricultural policy has made them use domestic raw materials (e.g. Donner, 1991; Alanen, 1992).

The Confectionery and Biscuit Section (CBS) of FIF is a specialist organisation working for the common interests of the national producers, particularly towards the state and the EU (see Fig. 4). All six of the domestic confectionery companies belong to FIF and five of them have two members on the board of the Confectionery and Biscuit Section. These members are usually CEOs and marketing experts. The largest confectionery companies also have representatives on the various committees and working groups of FIF. None of the foreign confectionery companies have been invited to join CBS.

CBS is active in producing statistical and market information for the manufacturers and keep-


CAOBISCO IOCC EU FINNISH STATE

~ i runberg oard men D, Sales anager

MD, Marketing Director

FIF Board MD from Leaf, Fazer and Chymos Chair of the Board from Panda

Board of C o n f e c t i o n e r y / and Biscuit Section

Panda "N~ / Fazer "~ Board members: I Board members: MD, Chair o f ] ~ MD, Marketing the Board / ~Manager / /

Board members MD, Marketing Director

Board members: MD, Marketing

FIF Committees Trade Committee Marketing Committee Raw-material Committee Food Poole

Direct routine relationships

Fig. 4. Company network around the FIF. Source: Annual Report of the FIF.

ing close contact with the Finnish government officials, the EU and the world-wide producer organisations, such as the International Cocoa Organisation (ICCO). Both the government and the EU are important regulators of the confectionery sector and a combination of formal networks and lobbying are needed when the manufacturers wish to make their voice heard. However, according to a FIF spokesman, there are a number of issues concerning domestic competition, which are never openly discussed in FIF. For example, the manufacturers are able to find out their own market shares in different product categories, but not those of their competitors. The Confectionery Section is far more secretive than many of the other food industry sections in FIF. Routine connections dominate this network. However, the spokesman interviewed also emphasised the possibility of network relationships beyond these routine connections.

4.4. Evidence of community relationships The evidence of community relationships also points to the fragmented nature of the Finnish

confectionery sector. It is very difficult to find any commonly accepted values. The dominant ideals and values found in Fazer emphasise high quality, hard work and interdependence of the company (cf. Bask, 1991; Donner, 1991; Eriksson and R~is~inen, 1995). Leaf, in turn, has publicly put forward values such as internationalisation, innovation and social responsibility (cf. Nevalainen, 1981; Sahiluoma, 1993; Puttonen, 1994). One shared ideal in Fazer and Leaf is, though, the focus on company image and identity and keeping the personal life of top managers out of media publicity (cf. Korhonen, 1992; Eriksson and R~iinen, 1994; Puttonen, 1994).

Our findings detect only few rules of mutual obligation between the large domestic confectionery companies. One rule concerns mobility of managers and experts between the companies: according to managers and industry experts, the companies do not usually poach employees from


each other. There is also some evidence of a rule of mutual obligation concerning collaboration in periods of major sectoral threats, such as the threat of increasing imports or unfavourable industrial policies. Whereas the companies are linked by a degree of economic interdependence (e.g. shared domestic distribution channels), social and moral interdependence and the existence of deep trust relations are highly questionable. For example, it has been impossible to agree on industry-wide rationalisation arrangements or extensive export collaboration.

Coherent community norms and standards are also difficult to find. However, life-long career paths within Fazer and Leaf are one indication of these (for Fazer, see, for example, Eriksson, 1991 and for Leaf see, for example, Puttonen, 1994; Hyvrnen and Vihma, 1995). However, there are still large differences in career paths and methods of recruitment between individual companies, particularly concerning management. Leaf Group relies on internal training and rotation of managers between different divisions of the Huhtamaki Corporation (cf. Pekkala, 1983; Hyvrnen and Vihma, 1995, p. 34). Fazer relies on a combination of internal training, rotation and outside recruiting (e.g. Eriksson, 1991; Eriksson and R~is~inen, 1994). Panda has used a combination of different methods of recruitment and career development (M~intym~iki, 1994, p. 205).

In conclusion, it is not possible to identify a unified Finnish confectionery community. At present, it seems that the confectionery sector networks reflect the bigger divisions in the Finnish economy and that this particular industry does not have an independent social existence as a united business community in a similar way to the larger Finnish sectors. The fragmented nature of confectionery networks in Finland is rather surprising in the light of the evidence produced from other sectors in this small country. The dominant forest sector has been observed to have a typical "club structure" with dense and influential national networks (Lilja et al., 1992; R~is~inen and Whipp, 1992; Eriksson, 1995). The same is true for the Finnish telecommunications cluster, which is now being centred around the very fast growing and internationally successful Nokia corporation (V~i~in~inen, 1995). However, in the future, the large internationalised Leaf Group might become a similar type of driving and uniting force within the Finnish confectionery sector.

The non-existence of a Finnish confectionery community is supported by the fact that the authors found indications of a strong network and, probably even community type of relationships between the largest confectionery companies and actors outside the confectionery sector described earlier. Representatives of Fazer and Leaf often mention links to the actors outside the confectionery sector, whereas they hardly ever refer to any type of interconnection between themselves. For example, the whole Fazer Group is both professionally and socially linked with some of the other large companies which draw their management resources from the Swedish-speaking section of the Finnish society (for an example, see Leikola, 1985, p. 34). As the new Managing Director of Fazer Companies (a Swedish-speaking Finn) said in an interview about his relationship with the main owner and Chairman of the Board, Peter Fazer: "I myself and Peter come along very well as we have known each other for a long time" (Sahiluoma, 1993, p. 15, see also Mikkonen, 1992). In addition, Fazer Confectionery might be more strongly linked to other food sectors (compared to Leaf) due to Fazer's interests in biscuit, bakery and catering businesses. This suggests that there may exist shared norms, rules, values, trust and even mutual obligation among these companies, or among individual managers at least. Peter Fazer has publicly talked about the trust between Fazer and Nestlr, for example (Luotonen, 1973, p. 15). We have some evidence of issues such as the diffusion of managerial knowledge and practices between these companies and the individuals, but more detailed findings of these relationships are a focus of further investigation.

The fragmented nature of the Finnish confectionery sector notwithstanding, there is some evi-

THE EUROPEAN CONFECTIONERY S ECTOR 383

dence of major changes towards a more unified sector since the mid-1980s. The Finnish food industry has been traditionally considered a peripheral mature industry, with little prospect of growth. However, the recent internationalisation of the large Finnish confectionery companies, the new expanding markets in Eastern Europe and Finland's membership of the EU have given confectionery companies a new opportunity to increase their status. These changes are partly due to new challenges and opportunities, such as the growing internationalisation of the sector and the more recent trend in Huhtamaki Corporation and Fazer Companies towards emphasising confectionery as their core business (cf. Abonen, 1992; Korhonen, 1993). In addition to the acquisitions and ownership changes within the Finnish confectionery sector (Leaf-Rettig-Merijal and Fazer-Chymos) both Leaf and Fazer have withdrawn from some other businesses. Fazer has sold its cleaning company and more than half of its biscuit business during the 1990s. Huhtam~iki has sold its food division and has announced that it will withdraw from the pharmaceutical sector during spring 1996 (cf. Jaakkola, 1996). A major ownership change was announced at the end of 1995: Panda was bought by a Norwegian company, Rieber & Son. All these structural changes have probably started to break parts of the old domestic networks. However, they have also given opportunities, particularly to Leaf and Fazer, to develop wider and more unified networks within the Finnish confectionery sector.

The largest companies seem to have realised that in order to achieve new goals and to be able to join the emerging European and international club of the confectionery sector, they will need to focus their resources. They will require a more extensive but also a more united network and an increased amount of cooperation and trust, particularly within the confectionery sector. In Finland, the emerging international structure means that only one Finnish confectionery grouping will be accepted and, therefore, the Finns have to join their forces or remain smaller and more local players. Recently, the companies have started to see each other as allies, at least in policy issues towards the Finnish state and, particularly, towards the EU and its member organisations. According to industry experts, FIF and CBS have played a role in providing a venue for developing this new collaboration within the domestic confectionery sector. Both Fazer and Leaf are active in FIF - - an interesting question is whether one of them eventually takes the lead in creating a Finnish confectionery community or whether they will work together on this issue.

5. CONCLUSION

Even at an early stage of research, this paper may be able to make a contribution to both the conceptual and empirical spheres. In the first category, we have tried to examine the institutional perspective on industrial organisation. The paper has sought to illuminate the way conventional categorisations of industry structure may be extended to embrace the inter-locking assumptions, conventions and procedures which inform the actions of those who work within industries.

More narrowly, the previous pages have offered a distinctive attempt to specify the sector concept, in spite of its extraordinarily common use among academics. Our emphasis is on an extended collection of organisations involving supplying, servicing, regulatory and customer or competitor roles; where cooperation and competition may coexist; the diverse logics of action; and the constantly emerging alternative economic and organisational blueprints. This composite approach allows the combination of economic, sociological and related perspectives on management. The community and network concepts were employed as suitable instruments to investigate the problem of the institutional arrangement of a given sector. Although seldom considered in tandem, we argue that they are important devices for revealing the conventions and procedures


which condition the operation of a sector. Above all, they supply an important means of understanding the patterns of cooperation and conflict which operate simultaneously within given organisational fields.

More field work is required to uncover the full institutional life of the sector. However, even at an early stage, our work indicates that in addition to the economic aspects of the sector, network and community forms appear to be a useful means of understanding both the U.K. and the Finnish confectionery sectors. This is as true when the sectors are taken separately as it is when they are compared.

As Borum (1990) found in the IT sector in Denmark, extensive mergers and acquisitions notwithstanding, it makes sense to regard the U.K. confectionery sector as containing two communities - - sugar and chocolate. These communities are separate and different in terms of their tasks, norms, rules and values. Community relations in chocolate manufacturing are characterised by a greater reliance on personal relations, arising from continuous employment in chocolate producers and a consequent strong mutual interest in the product. Compared to the smaller, close-knit and secretive characteristics in the chocolate part of the sector, the sugar community is more fragmented and dominated by commercial ties. The result is a weaker community where specialist knowledge is less prevalent and allegiance to the product is correspondingly diminished. Overall, in spite of successive rationalisations across the sector, employment, supplier and manufacturing networks are still heavily conditioned by the community beliefs which underpin them.

By comparison, the Finnish confectionery sector has been more fragmented. Each company, given their comparatively small total population of firms, has generated its exclusive network arrangements, linking foreign and domestic operators, suppliers, distributors and specialist consultants. As a result, there are only few community-type relationships between the confectionery companies, and shared norms, rules and values are difficult to find across the whole sector.

One major difference between the Finnish and U.K. confectionery sectors is their status and visibility in the economy. In the U.K., the confectionery sector is well established and focuses around a large central market and country. In Finland, the confectionery sector is considerably smaller and the more peripheral nature of the sector is apparent. Partly as a consequence, key actors in the Finnish sector have not been solely concerned with confectionery. Historically, the largest confectionery companies have been owned by corporations with strong interests in other sectors, such as cooperative retailing and pharmaceuticals. In fact, it has been the strength of the competing networks which help explain the absence of an identifiable confectionery community in Finland.

However, major changes such as the internationalisation of the large Finnish confectionery companies and Finland's membership in the EU seem to have given rise or new attempts at creating a more united business community. It will be interesting to see whether Leaf or Fazer, or one of the large international confectionery companies, not yet well established in Finland, becomes a key actor in a similar way as IBM Denmark in the Danish IT community (Borum, 1990). In the U.K. confectionery sector, internationalisation and EU membership are not new issues and the U.K. confectionery sector includes several large companies which have been active in creating the new international "club".

On the evidence shown here, it would appear the international confectionery sector is at an important juncture. It is possible, in Porac and Thomas' terms (1992), to detect common views on reputational ordering and strategic paradigms - - as shown by the European and U.S. models. Yet country-specific trajectories persist in the face of the EU and the moves by leading companies to ensure membership of an international "club".

Community and network forms seem to be relevant to both the U.K. and Finnish confectionery


sectors, not least as a means of comparison. However, more work is necessary in order to reveal the operation of the sector in its full institutional context. Precise reconstruction of the networks involved and fuller evidence of the assumptions which lay behind them is needed. It may then be possible to characterise more fully the intangible assets locked within those inter-linkages and the knowledge differentials which result. Above all, the unfolding of these sector relations must be traced historically. It will then be possible to test the models of the evolution of community or network links. Current thinking (Shearman and Burrell, 1987; Lovio, 1993) regards them as separate phases. The evidence of the confectionery sector points to their joint existence in given periods. Productive questions are consequently in ready supply.

Acknowledgements - -The authors are grateful to the members of the working group on Cooperation and Conflict in Inter- Organisational Relations at the 12th Egos Colloquium, "Contrasts and Contradictions in Organisations", Istanbul, July 1995, for their comments on an earlier version of this paper and the suggestions of referees of the Scandinavian Journal ¢?f Management.

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Documents

Business communities in the European confectionery sector: A U.K.-Finland comparison