A Mexican Firm Goes International

Jun 18, 2014

Comex Group (Mexico)
Group 9:
Rijul Bhardwaj
Rashmi Chauhan
Sureshkumar A.
2
Based in Mexico, Comex Group has grown through international
acquisitions in last decade
Source: Case author, Company Website
1954
Inception of Comex in
Mexico
Business of mixing water-
based and paint oils
1958
Shifted to new facilities
Started manufacturing
Vinyl Paint
1988
Marcos Achar Levy, nephew
of the founder joined Comex
2012
Fourth largest paint
manufacturer in North America
Has 3,300 Retail Stores
2004
Marcos Achar Levy became
CEO
First Cross- border acquisition
of Professional paints
Established own
stores after boycott
from retailers
Established 100 stores
owned by themselves
Current
Was acquired by
Sherwin Williams
Company
Journey of Comex Group so far
3
Using a unique combination of franchising model and family values,
Comex achieved domestic and international success
Franchising
Family
Success Story at Home
Exclusive distributor of its own paint
Stores specialized in one brand of paint unlike
multi-brand shops.
Allowed stores to become franchises
Managers became business owners

Family owned business
Guiding principles
Openness to brothers
Respect for elders
Opportunity for the most capable
Development of dedicated workforce and
dealers
Employee satisfaction from increased
responsibility
Customer satisfaction from vast array of
products of a single brand
Ahead of competition because of Increased
alertness
No. 1 in Mexico
No. 4 in U.S. , Canada &
Central America
3,300 retail stores
Source: Case author
4
Major paint manufacturers were acquired post 2004 in North
America
4
International Acquisitions
Head office
> To maintain a major growth
rate, Comex has expanded
internationally
> Acquisition was chosen as
mode for international
expansion
> Professional Paints
acquired in 2004 allowed a
lot of subsidiary paint
companies to come in
Comex fold
COMMENTS
Major Brands acquired in North America
Frazee Paints
San Diego
Parker Paint
Tacoma, WA
Ideal Paint
Toronto
Kwal Paint
Denver
Professional Paints
Lone Tree, Colorado
Central Paints
New Hampshire
General
Paints
Vancouver
Source: Case author, News reports
5
International expansion through acquisitions remains an important
mode, but has its own specific HR issues
Why Acquisitions? HR Issues to be tackled
> Need to compete with global firms achieving world
class market entry and industry leadership
> Acquire assets and resources needed to compete
that would be either
> Expensive
> Impossible to develop internally
> Usually seen as a quick and effective way to develop
a presence in local market
> Acquisition helps yield value and profits due to:
> Industry consolidation
> Geographic Expansion
> New Market Entry
> Acquisition of Technology/Knowledge
> Realization of Synergies
HR complications often include issues like
> Overestimation of the abilities of partner firm
> Exaggerated assumption of the synergies
> Inadequate attention to incompatibilities of the firms
programs, ways of conducting business and culture
> Unwillingness to prepare for loss of productivity and staff
post acquisition
> Integration issues surrounding legal and cultural
systems in different countries


Comex Group wanted to bring color without
borders for creativity without bounds
Issues need to be tackled at every stage of the
acquisition process
Source: Case author
6
These issues must be tackled across all phases of acquisition
activity
Activity HR Involvement
Phase 1: Pre
Combination
> Initial target screening and
pre-bid courtcship
> Due diligence
> Price Setting and negotiations
> Agreement on contract
wording
> Involvement in due diligence to
analyze potential issues
> Preparation Stage
> Content Stage
Phase 2:
Combination and
Agreement Signing
> Detailing implementation
> Discovery and resolution of
differences
> Signing of Agreement
> Advice on implementing the deal
> Anticipating problems during
implementation
Phase 3: Post
Combination and
implementation
> Enforcement of deal
> Implementation
> Facilitating integration
> Creating employee communication
regarding business consummation
> Training employees for new fits,
staffing and compensation systems
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Due Diligence is the most essential pre-combination activity
performed by the acquirer
PHASE 1: PRE COMBINATION 1
Due Diligence: A detailed audit
> Financial Issues: Review Annual Reports
> Marketing Issues: Product brochures
> Legal issues: Legal documentation
> Strategic issues: Business memos
> Company credentials: Certificates concerning
principals, activities and other requirements

Key components in any Due Diligence activity
Overall HR Issues
> Build understanding of HRM practices and
people issues of acquired firm
> Compatibilities in corporate cultures
> Employee attrition
> Succession and talent planning

1
2
Preparation: Items to determine ahead of time
Content of Due Diligence: Specific issues to assess ahead of time during the due
diligence phase
8
Preparation work for due diligence has its own peculiar HR issues
which must be addressed
Key Steps
> Development of Pre-determined
action plan and checklist of items
to evaluate due diligence
HR Issues
> When and where will deliberations
occur
> Measuring deliverables and
outcomes

Recommendations
> Information from internal and
external sources, determined ahead
of time
> Standardizing outcomes in the form
of a report or recommendations
> Creating a SWAT team: Identifying
individuals who have strong non-
directive interviewing skills
> Must have cross-cultural, language
and business expertise
> Familiarity with Compensation and
Benefits financials
> Sensitivity to cultural and language
differences
> Awareness of union and labor
differences
> Senior executives with past
experience in acquisition
management
> Internal reorganization to draw the
right talent out
> Forming and communicating new
culture
> Clear communication on
expectations of culture from new
firm
> Create and communicate
expectations to old and new
workforce members
PHASE 1: PRE COMBINATION 1
9
Various concerns must be tackled when designing content for due
diligence
General concerns
> Adequate funding for pension and healthcare plans
> Foreign employment regulations (legal requirements and their enforcement)
> HR department status, practices, policies and organization
> Merger of corporate cultures
Specific Concerns
Staffing
> Laws on hiring/firing
> Scrutiny of employment contracts
> (Potential) Downsizing costs

HR Information Systems
> Data protection norms
> Hardware/Software differences

Compensation and Benefits
> Mandates on benefit plans
> Country and firm pay scales
> Treatment of ESOPs, incentives
Labour Relations
> Presence of unions and their
forms
> Role of government

Career Development
> Importance in overall strategy
> Details on location and channels
> Cultural and national values
Works Council
> Presence or absence in different
countries

PHASE 1: PRE COMBINATION 1
10
Integration may pose unique effects on morale of employees, which
impact acculturation of acquired firm
Effect on Employees Effects on Culture
> Integration problems originate from resistance
to change
> Employees feel frustration and insecurity in
new firm
> Teamwork may break down due to stress
> Employees lose faith in the organization
> Lack of commitment, loyalty and enthusiasm
> Loss of identity post acquisition
> Short term attrition can make recovery and
integration difficult
> Employees sense loss of corporate culture and
values
> Assimilation of cultures may be driven by
dominating culture
> Worries about loss of national character important
Leads to acculturation: individuals and organizations
adapting and reacting to each others cultures.
> Involves formal acquisition process and post-acquisition (Phase 2 and Phase 3)
> Organizational integration leads to several key issues
COMBINATION AND POST COMBINATION 2,3
11
Comex Group has allowed blending of cultures across its acquired
firms
11
> Comex group allowed its
acquisitions to retain most of their
culture
> Its subsidiaries adopted the
franchising model and complete
store concept
> Branding was changed to match
Comex Group identity





> Acquired firms however were
allowed to operate their sales and
distribution independently

COMMENTS
Positioning Comex Group acquisitions




Portfolio



Blending

New Creation

Assimilation
Four Approaches
to Integration
Maintain separate cultures Choose best from each culture
Develop a new culture to fit the new
organization
Assign legitimacy to one culture and expect
assimilation by members of other culture
COMBINATION AND POST COMBINATION 2,3
Source: Case author, News reports
12
Firms must follow key steps to ensure smooth acculturation
Source: Pfizer website, Bayer Website, Lessl (2011), Roland Berger
> Identify and address cultural gaps
> Assign an executive leadership group including participants from acquired firm leading the change
> Create and communicate shared vision for the organization, clearly defining goals, roles and
responsibilities
> Establish a strong link between business strategy and quality, skills and number of people to achieve the
plan
> Reach a consensus on processes and procedures around compensation, incentives and recognition
programs
> Create a plan to consolidate health, welfare and retirement benefits
> Establish measures and rewards, and communicate and align them with organizations goal.
COMBINATION AND POST COMBINATION 2,3
13
Franchising model offers an alternative to acquisition as a mode of
expansion, has its own specific HR issues
Franchise: mix of successful ingredients at home with training and marketing support from franchisor

To motivate the employees at local level
To have standard training methodology
across franchises for employees
To have the correct employment policies and
provide training to managers on recruitment
and managing payrolls
To communicate the budget and similar
expectations
To provide help in identifying the correct
organizational structure
To ensure that appropriate , safe and
healthy work environment is available for the
employees
Legal compliance
Tax reporting
Adaption to the market conditions
is limited
Security cover of the parent
organization
Can benefit from the existing
brand name & defined
performance measures

Business owners can benefit
from the existing customer
insights
Quicker intervention
Easy means to gain the assets
and resources



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Franchising vs Acquisitions
HR issues in franchising
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Franchises can tackle these HR issues through certain long-term
and short-term steps
Regular interaction with the leadership teams and communication of the organizational goals
Clearly define and effectively communicate plan for employee growth
Set targets for franchise buyers and timely reward them for their contribution in the for business growth
Deploy own resources at franchise for people management
Well defined labor law communication and job descriptions
Set-up standard processes and forms for hiring, training, employee appraisal and counselling
Deploy technological solutions for HR management
Solutions
Thank you