EYESHENZHEN  /   Opinion

The ruthless strategy to acquire and kill

Writer: J. Liu  | Editor: Jane Chen  | From:  | Updated: 2019-05-13

On the evening of May 2 at Wells Fargo Center in Philadelphia, 76ers center Joel Embiid slammed a windmill dunk five minutes before the end of Game 3 of their playoff series against the Toronto Raptors. He glided through the court before putting a hand behind his ear to enjoy the roar of fans, a tribute to the signature celebration of 76ers Hall of Famer Allen Iverson who was also fired up sitting courtside.

Then the players continued to wrap up the game, wearing mostly Nike and Adidas sneakers. Does anyone wonder what shoes Iverson was wearing back in his days?

Reebok, an answer much to the surprise of readers who are not Iverson fans. Today Reebok is almost nowhere to be seen on the NBA basketball court, even as lesser-known brands such as New Balance and Puma are trying to break into the basketball sneakers industry.

Reebok was a super player in basketball in the beginning years of this century. Their sneakers were endorsed by then-Most Valuable Players Iverson and Kobe Bryant, and Reebok came very close to signing LeBron James. What happened?

Adidas was struggling to gain market share in basketball, and it made a bold move to wipe off a major competitor. They bought Reebok for around US$4 billion and took over its players, connections, management and sales channels, but shut down Reebok in basketball to make room for Adidas.

Following the acquisition, Adidas replaced Reebok as the official uniform supplier for the NBA in 2006 with an 11-year deal, and established itself as a leading NBA sponsor.

This ruthless strategy to acquire and kill is no stranger to the Chinese market. Power 28 was a super brand in powder detergents in the 1990s, and once boasted of 80-percent market share at its peak. German household manufacturer Benckiser secured majority ownership when Power 28 ran into difficulties. Then German management shut down Power 28 to push for its own brand, taking advantage of the production capacity and sales network of Power 28.

The same thing happened when Robust bottled water was bought by French conglomerate Denone, and when Sanxiao toothpaste was acquired by U.S. company Colgate. A number of local Chinese brands had the same fate.

Let us not make this too political. Kitchenware maker Supor has continued to be very successful after French SEB became its majority shareholder. The hotpot chain Little Sheep failed after the acquisition by Yum! Brands, not because Yum! Brands did not want Little Sheep to succeed, but because of ill management and poor business strategy.

In short, “acquire and kill” is a ruthless but sometimes very efficient business step. By shutting down the target brand, the acquirer eliminates an important competitor, expands business connections and gains significant distribution capacity. Though seemingly barbarian, “acquire and kill” can provide a great leap forward when carried out properly.

(The author is an independent financial investor and freelance writer.)