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Business History
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Why do successful companies fail? A

case study of the decline of Dunlop
Tom McGovern
Available online: 31 Jan 2008

To cite this article: Tom McGovern (2007): Why do successful companies fail? A case study of the
decline of Dunlop, Business History, 49:6, 886-907

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 Business History, Vol. 49, No. 6, November 2007, 886–907

Why Do Successful Companies Fail?

A Case Study of the Decline of Dunlop
Tom McGovern
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This article examines the internal and external factors that contributed to the decline of
Dunlop. For much of its history Dunlop operated in a protected home market or
instigated strategies to restrict competition. This enabled Dunlop to dominate the British
tyre industry. The complacency and inertia of management was exposed by a number of
external jolts that produced radical environmental changes. Management failed to
develop appropriate strategies which led to large losses in an industry suffering from
overcapacity. Plant closures and the divestment of the European tyre operations were
implemented to reduce company debt. This turnaround strategy proved to be a
temporary respite as Dunlop was acquired by BTR.

Keywords: Dunlop; Tyre Industry; Organizational Decline

Introduction
By the beginning of the twentieth century, large firms had developed the technical,
marketing and organizational capabilities which often gave them unassailable first-
mover advantages.1 This helped to entrench their positions and enabled large firms to
dominate industries. The probability that a firm ranked one or two before the First
World War would retain this position by the early post-Second World War period
was estimated to be 0.57 in the United States, 0.56 in Britain and 0.31 in Germany.2
Industry leaders were thus able to retain their dominance over a long period of time.
Dunlop was the seventeenth largest British company in 1919 with a market value of
£8.9 million. By 1948, Dunlop was the tenth largest company, with a market value of
£55.9 million.3 For nearly a century, Dunlop was Britain’s major producer of tyres. In
the late 1960s, it was the thirty-fifth largest company outside of the United States.4
Today, Dunlop is no longer an independent trading entity, although the Dunlop
brand is widely known throughout the world.

Dr Tom McGovern is a lecturer in Business Strategy at Newcastle University Business School, UK.

ISSN 0007-6791 print/1743-7938 online

Ó 2007 Taylor & Francis
DOI: 10.1080/00076790701710407
 WHY DO SUCCESSFUL COMPANIES FAIL? 887

The study of why large companies fail has not been a mainstream subject of
management research.5 One explanation is that academics have offered little guidance
to managers on how to prevent failure, while managers prefer to avoid the subject.6
The literature concentrates on the survivors, which reinforces the impression that
large firms experience longevity whilst failures are ‘forgotten or considered atypical’.7
The paradox, however, is that the factors that brought success are usually the cause of
failure.8
Research into company failure tends to be polarised between the methodological
approaches of the deterministic and voluntarist schools.9 The former attributes
failure to external factors over which management has little or no control,10 such as a
fall in demand for an industry’s products,11 a sudden environmental jolt,12 or a
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radical innovation that becomes a ‘competence destroying’ discontinuity.13 Decline is

a natural process that culminates in the death of old and weak organizations.14 The
long-term ‘downward spiral’15 of decline is symptomatic of organizational inertia,16
which increases as the firm grows older.17
The voluntarist school argues that managers make strategic choices. Failure is
attributed to management decisions and lack of competency to reverse the decline
caused by external factors.18 A crisis may stem from management commitment to
existing strategies and routines.19 Companies can experience ‘active inertia’, insofar
that the strategic frames of managers become blinders which prevent realignment
with the new environment.20 Crisis induced stress inhibits the effective processing of
information and produces a threat-rigidity response which impairs decision-
making.21 Competitive pressures can encourage the development of cautious
conservatism and an arrogant disdain among the managers.22 Some senior managers
can be infected with hubris and be narcissistic in their behaviours. Narcissistic leaders
often ignore advice and are intolerant of dissent, and their flagrant risk-taking can
lead to disaster.23
An integrative24 approach was adopted to explore the exogenous and endogenous
factors that contributed to the decline of tyre production at Dunlop and, ultimately,
led to its takeover. The study begins by examining the strategies that Dunlop
implemented to become the dominant tyre producer in Britain, and how the
management maintained this dominance by restricting competition. The article next
considers the impact on Dunlop of external jolts such as the Monopolies
Commission Report, the abolition of resale price maintenance, the steel radial tyre
and the slump in British car production. Dunlop’s strategic response to these market
changes is assessed. The final section examines Dunlop’s demise in the context of
deterministic and voluntarist theories.

Maintaining Market Dominance and Restricting Competition

In 1889, the Pneumatic Tyre and Booth’s Cycle Agency Limited was established in
Dublin by John Boyd Dunlop and Harvey du Cros to develop bicycle tyres. A major
drawback of the early tyres was the difficulty of detaching them from the rim to
 888 BUSINESS HISTORY

conduct repairs. This problem was solved separately by Charles Welch and William
Bartlett, who patented their respective inventions in 1890.25 The Pneumatic Tyre
Company purchased these patents for £5,000 and £200,000 respectively, which paved
the way for its commercial success.26
Dunlop used this patent technology to expand overseas.27 Factories were
established in France and Germany in 1892 and Japan in 1909, and licensing
agreements were signed with local companies in Canada in 1894, Australia in 1899
and Russia in 1910. During this period, the development of the motor car provided a
large new market for tyres. Dunlop started producing car tyres in 1900. To
consolidate its market position, the management pursued a strategy of backward and
forward integration. In 1901, rubber mills were established to produce rubber for tyre
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manufacturing. The management sought to strengthen Dunlop’s upstream position

by acquiring a wheel manufacturer in Coventry in 1906 and rubber estates in Malaya
and Ceylon. A cotton mill in Lancashire was acquired in 1916 to gain control of the
textile material used in tyre casings. Dunlop was one of the first multinational
companies, controlling all of the main raw materials for tyre production together
with manufacturing and selling companies worldwide.28
At the end of the First World War, Dunlop faced intense competition from the
Americans at home and abroad. The large-scale expansion of the American motor
industry acted as a stimulus to the growth of the tyre industry. The major tyre
companies, Goodyear, B.F. Goodrich and Firestone, were amongst the hundred
largest companies in the United States.29 These firms enjoyed considerable economies
of scale and scope relative to Dunlop. The post-war slump in the United States
encouraged the American tyre firms to increase exports to Britain because there was
no protective tariff and Dunlop was the only large-scale manufacturer.30
A financial crisis caused by the post-war recession and the dubious activities of
Jimmy White, a speculator with close links to Sir Arthur du Cros (who succeeded his
father), brought to an end the du Cros family’s control of Dunlop. Sir Eric Geddes
was brought in as the new chairman, accompanied by Sir George Beharrell, to rescue
Dunlop. Geddes was a former Tory Member of Parliament and government minister.
He did not support free trade, and argued that British and Empire markets should be
protected by high tariffs to encourage investment in mass production methods.
In 1927, an import duty of 33.3 per cent was imposed on imported tyres to protect
the domestic market, particularly Dunlop, from foreign competition.31 By 1929,
Goodyear, Firestone and Goodrich of the United States, Michelin of France and
Pirelli of Italy had established factories to replace their sales organizations. Dunlop
was still the largest tyre producer in Britain, but it faced greater competition at a time
when export prices were depressed because of excess capacity in the United States.32
From the late 1920s to the mid-1950s, Dunlop pursued vertical and horizontal
integration and restrictive agreements to maintain its dominance. In 1933, Dunlop
acquired control of the India Tyre & Rubber Company. The management was
concerned that tyre distribution in Britain might follow the American model, where
retailing was controlled by the manufacturers.33 To counteract any attempts by
 WHY DO SUCCESSFUL COMPANIES FAIL? 889

competitors to establish new outlets, Dunlop covertly acquired control of several tyre
distributors during the late 1920s, and pursued this policy for the next two decades.
By the mid-1950s, Dunlop had a retail network across Britain giving it control of 20
per cent of replacement sales.34 These firms sold directly to the public as well as the
trade, which provided Dunlop with guaranteed wholesale and retail sales, and
information about the selling methods of its competitors.35
The second strand of Dunlop’s strategy to control the British market was to restrict
price competition. This was assisted by government policy during the inter-war years
which sought to reduce domestic competition by raising tariff barriers and
encouraging cartelization and collusion.36 The instability of trading conditions in
the 1920s and the presence of foreign competitors encouraged Dunlop to take the
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lead in establishing the Tyre Manufacturers’ Conference (TMC). The TMC was set up
in 1929 to regulate distribution and eliminate price cutting.37 Membership was open
to all tyre producers that agreed to observe price maintenance and stop lists. By 1939,
common price lists were used by most TMC members and these were Dunlop lists.38
The TMC restricted competition by fixing identical retail prices for the same size and
type of tyre sold in the replacement market; limitations were agreed on ‘wasteful
advertising’, and the production of private brands or unbranded tyres for non-
members was prohibited. Prices were enforced through the machinery of the British
Motor Trade Association. Any distributor offering discounts on tyres could be
summoned before a quasi-judicial committee and, if found guilty, could be fined or
placed on the stop list. Further, trade terms were restricted to traders on the Tyre
Trade Registers, which created a ‘privileged class of trader’.39
The original equipment market was not subject to price restrictions. The tyre
producers negotiated prices directly with the vehicle assemblers. All the large
assemblers were on the TMC’s ‘No Restriction’ register, which accounted for 95 per
cent of all car and giant tyres sold as original equipment. Prices were uniform for
similar quantities. This was attributed partly to the price leadership of Dunlop, and
partly to the purchasing strength of the assemblers, who were aware of the prices paid
by competitors.40 However, Dunlop made secret ex gratia payments to some British-
owned assemblers where it was the sole supplier, which could be interpreted as a
loyalty rebate to protect its market position. The smaller assemblers not on the ‘No
Restriction’ register were supplied on original equipment terms only.
Export markets were subject to little competition. Between 1925 and 1955, Dunlop
and the Rubber Export Association of America consulted informally about changes in
export prices. Dunlop acted as the link with the Americans, but kept the other
European producers fully informed. This led to a common world price level in all
markets where prices were not determined by local manufacture. However, in
October 1955, the United States Federal Trade Commission instructed the Rubber
Export Association of America to cease all contact with Dunlop.41
Dunlop’s strategy to restrict competition was shaped by a political climate that
encouraged collusion during the inter-war and immediate post-war periods.42 This
enabled Dunlop to exert a degree of control over the British market which was
 890 BUSINESS HISTORY

unequalled elsewhere.43 By 1952, Dunlop was supplying as original equipment 72 per

cent of car tyres, 38 per cent of commercial vehicle tyres and over 98 per cent of
bicycle tyres.44
It has been argued that government failure to enact tough antitrust policies
contributed to the large manufacturing productivity gap between Britain and her
major competitors.45 Paradoxically, however, the American tyre industry was 5.5
times more productive than the British tyre industry in the mid-1920s, but only 2.8
times more productive in the late 1940s.46 The relative improvement in British
productivity can be attributed to the entry of foreign firms after the imposition of the
tariff in 1927. Increased competition probably encouraged Dunlop to become more
efficient which directly improved productivity.47
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One explanation for the higher productivity of the American tyre industry is the
scale and standardization of output. In 1954, the United States produced 77 million
car tyres compared with 7 million in Britain.48 The American car firms specified
standard tyre sizes which facilitated high volume production.49 During the 1950s,
Dunlop produced over 400 different types and sizes of tyres at Fort Dunlop to meet
customer requirements.50 British cars had many variations in wheel sizes, and the
plethora of tyre sizes hindered standardization and contributed to higher unit costs.
The publication of the Monopolies Commission Report on the tyre industry in
1955 undermined Dunlop’s strategy. The Commissioners found that the discussions
on prices within the TMC, resale price maintenance, the fixed discounts in the
replacement market, the ban on the manufacture of private brand tyres, the tyre trade
registers, and the advertising constraints on traders restricted competition and were
against the public interest. Dunlop’s confidential loyalty rebates, its price-setting
system for exports and its control of distribution were not deemed to be against the
public interest. Competitors were now aware that Dunlop owned some of their best
retail customers. Their response was to reduce Dunlop’s stranglehold by establishing
their own outlets. In 1956 the Restrictive Trade Practices Act outlawed the collective
enforcement of resale price maintenance. This was strengthened by the Resale Prices
Act (1964), which outlawed resale price maintenance by an individual company.
In the wake of the Report, Sir Edward Beharrell became chairman in 1957, but the
more influential figure was Sir Reay Geddes, the managing director. Geddes later
took over as chairman in 1968. Their fathers had rescued Dunlop in the 1920s; it was
their mission to lead Dunlop in the new competitive era. Reay Geddes saw himself as
an industrial statesman. He served on the National Economic Development Council
and the Federation of British Industries. Like his father, Reay Geddes preferred
orderly marketing to unrestricted competition. He was concerned about the surplus
tyre capacity in Europe and the threat of an American takeover. His strategy
emphasized growth, diversification and marketing. A synthetic rubber plant was
opened at Fort Dunlop in 1957, followed by the acquisition of the golf-club maker,
John Letters of Scotland, and the formation of Dunlop Footwear. In addition,
Dunlop tried to protect its market position by switching the emphasis from vertical
to horizontal acquisitions by the takeover of John Bull Rubber in 1958.51
 WHY DO SUCCESSFUL COMPANIES FAIL? 891

The management was displaying ‘active inertia’52 by pursuing a strategy that was
misaligned with the new competitive environment. It should have concentrated on
improving the operational efficiency of the tyre plants. Further, distribution strategies
based on orderly marketing and upholding resale price maintenance were being
pursued in the early 1960s, although this structure had broken down.53 The British
tyre industry was still dominated by a small number of large firms, but it was now
highly competitive.54 The management remained unresponsive to market changes as
Dunlop’s dominance was further undermined by the radial tyre.

The Radial Tyre

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During the 1960s, tyre demand in Europe grew at an annual rate of 9 per cent due to
the post-war boom in vehicle sales.55 The producers responded by expanding
European car and truck tyre capacity from 419,000 to 759,000 units daily between
1964 and 1969. Michelin increased capacity from 87,000 to 201,000 units daily.
Dunlop concentrated on replacement investment and increased capacity from
87,000 to 100,000 units daily.56 The tyre firms’ calculations were upset, first, by the oil
crisis of 1973–1974, which led to a slump in car production and, thus, a fall in
original equipment sales and, secondly, by the spread of the radial tyre, which caused
the replacement market to shrink. At the end of the 1970s, excess tyre capacity in
Europe was almost 20 per cent.57
Michelin began producing steel radials in 1949. The radial had many advantages
over the crossply, including longevity, safety, durability and better fuel economy.
In 1953, the steel radial went on sale in England where it received a mixed
reaction. Dunlop’s technical staff dismissed it as a gimmick.58 The early radials
were unsatisfactory in wet conditions and prone to occasional violent
‘breakaway’, particularly when cornering at speed. This problem was not eradicated
until the mid-1950s, when suspension systems were designed to accommodate steel
radials.
The other tyre producers, with the exception of Pirelli, failed to recognize the
importance of Michelin’s technological breakthrough. In 1951, Pirelli patented a
textile-reinforced radial tyre, the Cinturato; a technology later licensed to other firms,
including Dunlop. However, it proved to be an intermediate technology between the
crossply and steel radial. Michelin’s tight patent coverage forced competitors
converting to radial production to use a breaker reinforcement made from a material
other than steel. It was not until 1967 when the patent expired that other firms were
able to adopt steel radial technology. By then, Michelin had established a considerable
technological lead.
British assemblers were slow to adopt radials as original equipment, primarily
because they were 25 per cent more expensive than crossply tyres. It was not until
Jaguar, Rover and Triumph designed their new models to suit the properties of the
radial that they became standard fittings. In 1973, fabric radials became the dominant
fitment in the original equipment market, with a share of 74 per cent.59 Dunlop
 892 BUSINESS HISTORY

adopted the fabric radial because it was cheaper than investing in expensive steel
radial technology. The fabric radial offered the twin advantage of a more controlled
‘breakaway’ than the steel radial and, more importantly, it could be used on cars of
earlier design.60
The growth in fabric radial demand coincided with the 1973–1974 oil crisis.
The cutback in vehicle mileage, combined with the radial’s higher mileage capability,
caused the replacement market to shrink dramatically in size. In 1975, the steel
radial captured 25 per cent of replacement sales, causing further contraction.61 The
feasible life of a crossply was 18,000 miles, compared to 28,000 for a fabric radial and
40,000 miles for a steel radial.62 The British tyre producers were facing the
twin dilemma of surplus capacity in Europe and substantial obsolete capacity in
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Britain.
European capacity was reduced by 97,000 tyres per day between 1977 and 1981;
equivalent to 11 per cent of total capacity.63 British capacity was reduced by
44,000 tyres per day, compared with 26,000 per day in West Germany and 19,500 per
day in Sweden.64 The major phase of plant closures began in the spring of 1979.
Rationalization proceeded rapidly because firms pursuing global strategies
sought economies of scale. Uniroyal sold its European tyre operations to Continental
of Germany, whilst Goodrich and General Tire closed their European plants.
Firestone ceased production in Britain, and Goodyear and Pirelli shut factories in
Glasgow and Carlisle respectively. Firestone reduced capacity by 28,000 tyres per day,
followed by Dunlop, which cut capacity by 19,000 tyres per day; underlining
Dunlop’s failure to restructure its European tyre operations and invest in steel radial
technology.

The Original Equipment and Replacement Markets

Tyres are a complementary product. Original equipment sales broadly parallel vehicle
production patterns. Car tyre sales reached a peak of 9.6 million units in 1972, but
slumped to 4.6 million in 198165 due to the decline of the British car industry. Lack of
investment in the 1960s had left the car industry with uncompetitive plant and an
ageing model range.66 The British assemblers competed amongst themselves for
domestic market share, and were insulated from the rigours of international
competition by high tariffs.67 In 1973, Britain joined the EEC and by July 1977 duty
on Community imports had been removed, allowing European producers to exploit
the domestic market. Ford, General Motors and Talbot also replaced British output
with tied imports from their European plants. In 1973, tied imports accounted for
less than 2 per cent of home demand; by 1981, 284,000 new registrations were tied
imports, representing 19 per cent of the total market. Further, total imports
accounted for over 55 per cent of the home market in 1981 compared with 5 per cent
in 1965.68 The tyre producers underestimated the decline in British-produced cars
and the rise in imports. Plans to expand steel radial production were therefore
delayed.69
 WHY DO SUCCESSFUL COMPANIES FAIL? 893

The growth in imports was not compensated by an increase in exports. British

Leyland’s exports fell from 309,000 cars in 1976 to 122,000 in 1981 due to lack of
investment in suitable models.70 Ford, General Motors and Talbot stopped exporting
British cars to North America71 and reduced exports to Europe. Between 1970 and
1980, exports fell from 690,000 to 359,000 cars, of which 54 per cent were
unassembled.72 As Britain was not a member of the EEC during its rapid period of
growth, the assemblers sourced non-EEC markets with British cars in kit form
for overseas assembly. Tyres fitted to unassembled cars were supplied from sources in
or near to the country of assembly.73 The decline in car output and the rise in imports
represented a production ‘loss’ in the early 1980s of nearly 4.5 million tyres per year.
The replacement market is the most profitable car tyre segment. It is 2.5 times
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larger in volume than original equipment demand. Table 1 shows that net
replacement sales reached a peak of 16.1 million tyres in 1972 and then declined
to 14.4 million by 1981 due to increased radial penetration. The domestic producers
(members of the British Rubber Manufacturers’ Association) supplied the home
market from their British plants and with imports from Europe. Dunlop and
Michelin claimed that production difficulties in Britain in 1974 and 1977 made it
necessary to import steel radials from their European plants.74 In both years there was
a large increase in captive imports. Initially, they fell back to their previous level, but
after 1977 captive imports displaced home production.

Table 1
United Kingdom Net Replacement Passenger Car Tyre Sales, 1971–1981 (’000)a

BRMAb Net
UK Captive Competitive Distributor Replacement
Production Imports Importsc Exportsd Market

1971 11,835 728 1,727 597 13,693

1972 13,462 1,482 2,019 838 16,125
1973 12,177 1,766 1,987 897 15,033
1974 10,940 2,219 2,136 599 14,606
1975 12,430 1,577 2,287 1,366 14,928
1976 13,038 1,895 2,836 1,955 15,814
1977 11,022 2,795 2,932 1,828 14,921
1978 11,218 2,994 3,536 2,432 15,316
1979 10,332 2,824 4,150 2,005 15,301
1980 9,501 2,150 3,491 1,440 13,702
1981 8,825 2,910 3,791 1,083 14,443
a
Notes: Approximate only, stock movements and other unidentified factors not taken into
account; excludes replacement tyre sales to the government.
b
Includes tyres sold to distributors, which are subsequently exported.
c
Includes some tyres imported to be fitted as original equipment, and also some parallel
imports (i.e. BRMA brand tyres imported by independent distributors).
d
Includes some tyres imported from abroad which are then exported.
Source: derived from McGovern, ‘‘Accounting and Trade Unions,’’ thesis, 394, table 17 and 404,
table 27.
 894 BUSINESS HISTORY

Competitive imports reached a peak of over 4 million tyres in 1979 to capture

27 per cent of the replacement market. The main source was independent distributors
who took advantage of large discounts in Europe to sell in Britain at a lower
price than identical tyres produced in the same manufacturer’s British plant.75
Distributor imports rose from 495,000 tyres in 1971 to over 2 million in 1981. The
‘drag’ effect of imported cars contributed on average to another 1.3 million tyres each
year from 1977 to 1981, as consumers replaced the original tyres with the same brand.
Eastern Europe was an important source of cheap crossply and fabric radials,
which increased from 150,000 in 1971 to a peak of 958,000 in 1978. Outlets owned
by Dunlop and Goodyear were selling these tyres at the expense of their parents’
brands because the mark-up was so high.76 The volume and low prices of these tyres
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helped to depress prices in a market suffering overcapacity. After 1981, Eastern

European imports declined following anti-dumping action by the European
Commission.
Competitive and captive imports combined were supplying almost half the net car
tyre replacement market by the early 1980s. The poor domestic performance was
matched by a decline in exports. Britain’s share of world trade for all tyres fell sharply
from 11.5 per cent in 1971 to 8.5 per cent in 1972 and averaged 8 per cent for the rest
of the decade.77 The British tyre industry was in decline before the first oil crisis, and
certainly before the radial had made an impact on the domestic market.

Dunlop’s Strategy
Dunlop’s post-war strategy was to reduce its reliance on the British market and to
extend its product and geographical spread. The aim was to increase sales generated
from overseas operations from 60 to 70 per cent,78 and to reduce the dependency on
tyres. The weakness of this strategy was that tyres accounted for 60 per cent of
turnover while the non-tyre businesses were mainly small and fragmented.79 In 1969,
the George Angus group specialising in fire-fighting, hose and belting was acquired to
complement Dunlop’s hose division. Dunlop’s strategy, however, lacked focus at a
period when the industry was undergoing technological change and facing growing
international competition.
As demand increased, Dunlop was forced to re-equip at enormous cost with radial
technology. Fabric radial equipment was bought from Pirelli, and in 1969 Avon’s new
factory at Washington, County Durham was acquired. However, between 1971 and
1979, Dunlop’s share of the domestic car tyre replacement market fell from 35 to 16
per cent, whilst Michelin’s share rose from 13 to 21 per cent.80 The main reason for
Dunlop’s loss of market share was its late entry into steel radial production. Dunlop
was slow in switching from crossply tyres in the mid-1960s. It then made the wrong
technological choice by investing in the fabric rather than the steel radial. In the early
1970s, Dunlop began to convert from fabric to steel, but by then Michelin had
become market leader. From 1978 to 1981, Dunlop invested over £50 million
modernizing its European tyre plants.81
 WHY DO SUCCESSFUL COMPANIES FAIL? 895

Another reason for Dunlop’s loss of market share in Europe was competition from
the American producers. Until the late 1960s, the European tyre market was
fragmented and largely nationally based. The development of the EEC provided a
stimulus for the more marketing orientated American firms to expand their
operations throughout Europe. By 1969, there were 29 American subsidiary plants in
Europe.82 Only Dunlop and Michelin with plants in Britain, France, and Germany
were able to match their international operations. The American plants were
equipped to produce crossply tyres, but all were producing at least one line of radials
by 1968. Although their radials were considered inferior to those produced by
Dunlop, Michelin and Pirelli, the Americans had captured 25–30 per cent of the
European market by 1970.83
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Geddes’ objective was to protect Dunlop from a possible American takeover and to
establish the company as one of the world’s leading tyre producers. He sought a
partnership with Pirelli to strengthen Dunlop’s position. The two companies had
established a co-production agreement in 1959 and had recently discussed developing
broader production and marketing agreements.84 On 1 January 1971, the Dunlop-
Pirelli Union was established. The new tyre group was the strongest in Europe, with
24 per cent of European sales compared with Michelin’s 23 per cent, Goodyear’s 12
per cent and Firestone’s 9 per cent share.85 The Union was the world’s third largest
tyre producer behind Goodyear and Firestone. The merger was a rational response to
the American challenge which, during 1969, when discussions first took place, was a
major concern. But by 1971, the Americans were no longer a serious threat in the
European market.
The strategic argument was that Dunlop and Pirelli were too dependent on their
home markets, which in a normal year accounted for two-fifths of turnover and one-
third of profits in each case.86 Dunlop and Pirelli depended too heavily on one
customer to generate domestic profits: British Leyland and Fiat respectively. A long
strike at Fort Dunlop in 1970, however, caused British Leyland to end its sole supplier
contract with Dunlop. Pirelli similarly lost its monopoly supply contract with Fiat.
The strategy was nevertheless seriously flawed. The five year accounting statements
prepared in accordance with the common accounting principles revealed that both
companies were in a weak and deteriorating financial position. In 1968, Dunlop’s
operating profits reached a peak of £31.8 million, producing net attributable profits
to shareholders of £11.2 million. The following year higher interest payments reduced
net attributable profits to £9.3 million. Pirelli reached its peak of profitability in 1966
with operating profits of £35.7 million and net attributable profits to shareholders of
£14.8 million. By 1969, operating profits had slumped to £24.8 million and net
attributable profits fell to £6.2 million. The pro forma Union profit and loss account
showed that attributable profits fell from £23.1 million in 1968 to £10 million in
1970. Thus, ‘judged by figures alone, Europe’s newest giant appears to have been
born, not from aggressive strength, but from a defensive posture’.87 A stronger
independent-minded board of directors would have challenged the hubris in this
strategy.
 896 BUSINESS HISTORY

The strategy was further undermined when the symmetry of the Union was
shattered in the first year of trading. Pirelli’s Italian subsidiary, Industrie Pirelli,
suffered losses of £18.6 million under the common accounting principles. As a result,
Union attributable profits fell to a disastrous £1.3 million. The Union never
recovered as Industrie Pirelli suffered increasing losses in the early 1970s. Two capital
restructurings at Industrie Pirelli in 1973 and 1980 reduced Dunlop’s holding in the
company to 19 per cent, which effectively signalled the end of the Union. On 23 April
1981, the Stock Exchange was informed that the Union was to be terminated.
Dunlop probably lost more than it gained from the Union. The profit and loss
account benefited by £23.6 million between 1977 and 1980. This was offset by a net
cash outflow over this period of £22.1 million. The Union was a financial link-up
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rather than a merger. Dunlop and Pirelli’s strategic choice was to manage their plants
separately and to market their own brand of tyres.88 The failure to develop an
integrated production strategy and focus on operational efficiency prevented the
Union from challenging Goodyear and Michelin for global leadership.89
The focus on the Union led to diverging priorities and prevented Dunlop from
addressing earlier the poor performance of the tyre plants.90 The link-up with Pirelli
also hindered the necessary strategic and operational transition from a focus on
Commonwealth to one on European markets.91 This was the challenge facing Sir
James Campbell Fraser who took over as chairman in 1978. Dunlop had to raise
substantial capital to fund its diversification programme and to convert to steel radial
production. However, operating losses in its European tyre operations of £20 million
in 1978 forced a cut in capacity.92 The Dunlop board sought financial aid from the
Labour Government before the general election in 1979. The Government
recommended that the £50 million required should be met partly through a rights
issue and partly through investment by the National Enterprise Board. The Dunlop
board saw this as nationalization through the back door and rejected this offer.93 The
new Conservative Government offered Dunlop £6 million, contingent on the
management raising new investment funds; none was forthcoming during a period of
retrenchment. Campbell Fraser had, like Geddes, become a spokesman for British
industry in his role as President of the Confederation of British Industry. However,
this carried little influence with an administration that had rejected corporatism.
Dunlop had substantial obsolete capacity in an industry with excess capacity; the
management’s strategic choice was rationalization and plant closures.
Dunlop’s turnaround strategy focused on three themes: quality, market share and
cost structure.94 The aim was to increase market share by producing tyres of original
equipment quality for all market segments. This required investment in retraining,
the establishment of quality circles and a revision of the piecework system. By 1982,
Dunlop regained its position as the main supplier of original equipment car tyres by
winning business from Ford, Talbot and Vauxhall where it had previously a low
share. Dunlop’s market share increased to 34 per cent compared to 31 per cent for
Michelin.95 In the replacement market, Dunlop focused on distribution and
marketing. The National Tyre Service chain was expanded in the early 1980s from
 WHY DO SUCCESSFUL COMPANIES FAIL? 897

420 to 530 outlets,96 but market share only increased slightly to 17 per cent in 1982
compared to Michelin’s 23 per cent.97
The shift system was increased from five to ‘six and a bit’ days to improve the
utilization of equipment. Dunlop had been slow to improve the poor productivity of
its tyre operations. The British plants, with the exception of Washington, were less
than half as productive as the European plants.98 This was partly because the early
stages of the production process at Fort Dunlop and Inchinnan were only partially
automated. The plan was to reduce unit costs through increased automation.99
The Rubber Processing Sector Working Party recommended that productivity in
the British tyre industry needed to increase on average by 30 per cent to match
international standards.100 Experts believed that there was extensive overman-
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ning.101 Dunlop’s rationalization plan included the closure of Speke in 1979, which
accounted for 20 per cent of its British capacity and was its least efficient plant. In
1981, Inchinnan, which was producing crossply car tyres, was closed. Dunlop’s
British tyre workforce fell from 12,000 to 4,000 employees. In 1981, Dunlop’s
British plants were producing the same volume of tyres as in the late 1970s, but
with one-third of the workforce; equivalent to a three-fold increase in
productivity.102
The impact of Dunlop’s strategy on its financial performance can be seen in
Table 2. The management had set a target for return on capital of 15 per cent before
interest and tax, which was later raised to 17.5 per cent.103 However, this target was
not met even during the high growth period of the 1960s.104 During the 1970s, the

Table 2
Sales Revenue, Operating Profits, Pre-Tax Profits, and Return on Capital Employed of
Dunlop Holdings, 1970–1983

Operating Pre-Tax Profit

Sales Profit Profit Margin ROCE
(£m) (£m) (£m) (%) (%)

1970 563 38 31 6.5 10.4

1971 585 44 38 7.5 11.5
1972 636 45 40 7.0 12.0
1973 750 49 36 6.6 10.8
1974 888 60 42 6.8 11.4
1975 1,015 65 50 6.6 12.4
1976 1,289 87 72 6.7 13.8
1977 1,361 75 54 5.5 11.2
1978 1,475 64 40 4.3 9.4
1979 1,569 64 26 4.1 9.7
1980 1,386 50 7 3.6 8.3
1981 1,456 52 (3) 3.6 7.2
1982 1,525 41 (9) 2.7 7.2
1983 1,603 63 16 3.9 9.6

Source: Dunlop, Annual Reports.

 898 BUSINESS HISTORY

highest rate of return that Dunlop achieved was 13.8 per cent in 1976 compared to an
average return on capital employed between 1973 and 1979 of 18 per cent for British
component suppliers.105 This confirms that strategies based on maintaining domestic
leadership positions in the vehicle components industry have been unsuccessful both
in terms of profitability and sustaining long-term competitive positions.106 To
compound Dunlop’s problems, interest charges rose steadily after 1970 because of the
large debt. In 1981, interest charges of £51 million exceeded pre-tax profits,
producing a pre-tax loss of £3 million.107 The following year interest charges
increased to £67 million, resulting in a pre-tax loss of £9 million.
Between 1978 and 1982, Dunlop’s British tyre plants suffered operating losses of
£72 million.108 Dunlop lacked the funds to both restructure its tyre operations and
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expand its non-tyre interests. As the level of debt mounted, internally generated funds
were insufficient by 1980 to meet either expenditure on fixed assets or the repayment
of long-term debt. The management was forced to contain borrowings and raise
finance. Angus Fire Armour was sold in 1980, and the following year Dunlop Estates
was sold for £60 million. In 1981, total debt was £378 million compared with
ordinary shareholders funds of £253 million and minorities of £73 million. The
European tyre losses had produced a severe imbalance of liquidity and gearing stood
at 116 per cent.
Dunlop’s problems led to speculation of a takeover. There were persistent rumours
from the beginning of 1980 that Malaysian investors were preparing a bid. Goodyield
Plaza and its subsidiary, Pegi Malaysia, companies owned by Abdul Ghafar Baba,
together with other Far Eastern investors, had secretly built up a large shareholding in
Dunlop. The sellers were mainly British financial institutions whose fund managers
were concerned that dividends were being paid out of reserves. By the middle of 1980,
Pegi had increased its stake to 17.5 per cent.109 The Malaysians sought boardroom
representation but this was opposed by Campbell Fraser. Pegi continued to acquire
shares, and by April 1983 its stake had risen to 26.1 per cent.110 Baba and his associate
Eng once again sought seats on the board, and were now offered non-executive
directorships.111
Dunlop’s share price was 49 pence, valuing it at £70.5 million, as against a net asset
value of £650 million. Pegi could have bought control for £25 million.112 Under
British law, Pegi would have had to make a full bid if it raised its stake beyond 29.9
per cent. Dunlop believed that Pegi lacked the industrial management expertise to
seek control.113 Investors were aware that the sum of the individual parts was worth
more than its market value, and expected this to be reflected in any bid. Experts
valued Dunlop’s foreign quoted subsidiaries at £160 million and unquoted
subsidiaries at £140 million, giving a total realisable value of £300 million.114
The management was under pressure to reduce the debt and to protect
shareholders’ interests. A breaking point had been reached where stress overcomes
inertia.115 Closing the plants was not an option because of the large redundancy and
closure costs, and the political difficulties. Even for a potential bidder a separate hive-
off of the European facilities would have been difficult because, while much of the
 WHY DO SUCCESSFUL COMPANIES FAIL? 899

£400 million net debt related to tyres, borrowings had generally been secured against
all of the businesses. The strategic choice was to sell the tyre facilities.
On 19 September 1983, Dunlop announced that it was selling its European tyre
operations to Sumitomo; a company with which it had a long-standing partner-
ship.116 The sum agreed for the tyre operations plus Dunlop’s 40 per cent stake in
Sumitomo Rubber was £82 million.117 Sumitomo also agreed to purchase the
inventories for £30 million, which released to Dunlop the large sums tied up in
working capital. The car tyre facility at Fort Dunlop and the French operations were
excluded from the deal. The French subsidiary went into liquidation in October 1983
and was bought by Sumitomo in July 1984 for one franc.
Sumitomo knew that the plants had obsolete technology and restrictive union
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agreements.118 The workforce was demoralised and apathetic due to job losses and
lack of resources.119 However, Sumitomo was producing more tyres in Japan bearing
the Dunlop marque than its own. The 20-year technical agreement with Dunlop
expired the following year; it might not have been renewed if there were a Malaysian
takeover. The concern was that a competitor could purchase these facilities.
Campbell Fraser was one of a small number of directors opposed to the sale of the
European tyre facilities but, was presiding over a divided board.120 He commanded
the support of those members whom he had appointed. Ranged against him were the
Malaysian directors, who were concerned about the deteriorating financial
performance, and Alan Lord, the chief executive whom he had appointed. Their
relationship deteriorated because of disagreements over strategy.121 In November
1983, Campbell Fraser resigned, ousted by the Malaysian investors.122
In January 1984, Sir Maurice Hodgson became chairman, but in November 1984,
under pressure from the banks he resigned, along with Alan Lord. Sir Michael
Edwards was appointed executive chairman. His terms for taking the job included the
resignation of the rest of the board except Ghafar Baba and Eng. Edwards’ first task
was the capital reconstruction of Dunlop. He improved cash flow by closing the
London headquarters and by selling the remaining tyre plants in the United States,
New Zealand and India for £200 million. This reduced net borrowings from £400
million to £80 million. But, before Edwards could build on this success, BTR
launched a bid for Dunlop in January 1985 at 22 pence per share. In March 1985, the
bid was increased to 66 pence per share and Edwards recommended acceptance. At
the end of April 1985, 80 per cent of shareholders had accepted BTR’s offer and
Dunlop ceased to be an independent company.

Conclusions
The reasons why Dunlop declined are complex and inter-connected. An integrative
approach was adopted to assess the impact of both internal and external factors in
Dunlop’s demise. During the inter-war years, government sought to reduce domestic
competition, and to protect Dunlop, by raising tariff barriers and encouraging
collusion. However, Dunlop’s focus on orderly marketing and restricting competition
 900 BUSINESS HISTORY

became a core rigidity.123 This path dependency and the resultant inertia constrained
Dunlop from developing world class production capabilities necessary to compete in
the global environment. Dunlop can be regarded as an example of collusion and
tariff-induced failure.
The crisis was caused by a combination of external jolts that produced radical
environmental changes. Dunlop was vulnerable because the management was
complacent and committed to established routines, processes and strategies. The
management failed to assess the potential impact of these changes and develop
appropriate strategies. The recommendations of the Monopolies Commission and
the abolition of resale price maintenance weakened Dunlop’s leadership position. The
twin impact of the radial tyre and the oil crisis of 1973–1974 reduced the size of the
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replacement market which impacted on all tyre companies. Firms that failed to invest
in radial technology became misaligned with the environment, and were forced to
divest their operations. This supports the population ecology perspective. Firms that
formulated appropriate strategies prospered in the new environment, which is
consistent with the strategic choice perspective. Dunlop made the wrong
technological choice, and was slow to adopt the steel radial.
The management had not planned for a sharp fall in domestic car production.
Dunlop was too dependent on the British market and one major customer, British
Leyland, which was also losing market share. The management was blinded by a
strategic frame which viewed the Americans as the major threat rather than Michelin
and the steel radial. This led the top management to establish a disastrous link-up
with Pirelli. The strategy underpinning the Union was fuelled by hubris, and its
ending saw Dunlop suffering from soaring indebtedness caused by losses from the
European tyre operations. Dunlop required decisive leadership during this crisis.
Unfortunately, the board was divided on strategic issues which stoked the inertia. The
management’s attention was also distracted by the Union and by the leadership role
that successive chairmen played in the employers’ federation.124
The management was slow to improve the operational efficiency of the tyre plants
and continued to utilize labour intensive processes and outdated practices such as
piece rates. Population ecologists argue that firms have limited ability to reshape their
core structure because of inertial constraints.125 Dunlop needed to enrich its
absorptive capacity126 by acquiring knowledge on world class production methods.
Dunlop was providing technical assistance to Sumitomo, but board members failed
to establish reciprocal arrangements to acquire this expertise.
Dunlop’s failure to turn around the tyre operations can be contrasted with
Sumitomo’s successful rejuvenation strategy.127 It was based on efficient production
and effective management of the workforce, which broke even after two years.128 A
team of Japanese industrial engineers was brought in to impart new operating
routines and redeploy world class manufacturing capabilities.129 Sumitomo invested
£50 million from 1984 to 1988 to replace the ageing plant and equipment with
Japanese process equipment. This improved job security and raised both morale and
acceptance of change. A total quality management philosophy was implemented
 WHY DO SUCCESSFUL COMPANIES FAIL? 901

supported by productivity initiatives, including benchmarking, preventative main-

tenance, team-working, in-house training, and a communications strategy.
This strategy transformed the poor operational performance of the plants, which
typified large-scale mass production industries that suffered bad industrial
relations.130 The plant closures changed the attitudes of management and workforce.
By the mid-1990s, the British tyre plants were more productive than the European
plants. Sumitomo measures total direct labour hours for the production of each type
of tyre rather than kg/man hour. This allows comparisons to be made between each
plant. The Japanese plants had ratings of 2 to 3 in the mid-1990s, the British plants 7
to 9, the German plants 8 to 10, and the French plant 12. At the time of acquisition,
the British plants averaged 14, being well behind Germany.131 The strategic outcome
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was that Sumitomo produced 40 per cent more tyres with 30 per cent less people.132
Turnover increased by 35 per cent between 1984 and 1988. Furthermore, from 1985
to 1992, the British operations achieved an average return on capital of 28.5 per
cent.133 This was achieved with the same managers and employees who had worked
for Dunlop. Sumitomo’s success confirms that the pursuit of operational advantages
in the vehicle components industry will produce higher rates of return and is more
sustainable than strategies based on domestic market leadership.134

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Notes
1 Chandler, Scale and Scope, 34.
2 Teece, ‘‘The Dynamics of Industrial Capitalism,’’ 214.
3 Chandler, Scale and Scope, 683.
4 Heller, ‘‘Where Dunlop is Driving,’’ 61.
5 Cameron et al., ‘‘Issues in Organizational Decline,’’ 14; Sheppard, ‘‘Strategy and Bankruptcy,’’
795–796.
6 Wilkinson and Mellahi, ‘‘Organizational Failure,’’ 233.
7 Hannah, ‘‘Marshall’s ‘Trees’ and the Global ‘Forest’,’’ 255.
8 Miller, The Icarus Paradox, 2.
9 Mellahi and Wilkinson, ‘‘Organizational Failure,’’ 21.
10 McGahan and Porter, ‘‘How Much Does Industry Matter, Really?’’ 23–29; Rumelt, ‘‘How
Much Does Industry Really Matter?’’ 176–182.
11 Zammuto and Cameron, ‘‘Environmental Decline and Organizational Response,’’ 231–233.
12 Meyer, ‘‘Adapting to Environmental Jolts,’’ 515.
13 Tushman and Anderson, ‘‘Technological Discontinuities,’’ 442.
14 Mellahi et al., ‘‘An Exploratory Study into Failure,’’ 16.
15 Hambrick and D’Aveni, ‘‘Large Corporate Failures as Downward Spirals,’’ 13.
16 Hannan and Freeman, ‘‘The Population Ecology of Organizations,’’ 930–933.
17 Hannan and Freeman, ‘‘Structural Inertia and Organizational Change,’’ 157 and 163.
18 Hambrick et al., ‘‘The Influence of Top Management Team Heterogeneity on Firms’
Competitive Moves,’’ 679–682; Mone et al., ‘‘Organizational Decline and Innovation,’’ 25.
 WHY DO SUCCESSFUL COMPANIES FAIL? 905

19 Staw, ‘‘The Escalation of Commitment to a Course of Action,’’ 584.

20 Sull, ‘‘Why Good Companies Go Bad,’’ 45.
21 Staw et al., ‘‘Threat-Rigidity Effects in Organizational Behaviour,’’ 516.
22 Ranft and O’Neill, ‘‘Board Composition and High-Flying Founders,’’ 126.
23 Maccoby, ‘‘Narcissistic Leaders,’’ 73–75.
24 Genus, ‘‘Understanding Inertia,’’ 213–216; Mellahi et al., ‘‘An Exploratory Study into Failure,’’
16–18; Mellahi and Wilkinson, ‘‘Organizational Failure,’’ 31–33; Witteloostuijn, ‘‘Bridging
Behavioural and Economic Theories of Decline,’’ 501–502.
25 Cross du, Wheels of Fortune, 145–152; Tompkins, The History of the Pneumatic Tyre,
14–15.
26 Tompkins, The History of the Pneumatic Tyre, 15.
27 Jones, ‘‘The Growth and Performance of British Multinational Firms,’’ 37–38.
28 McMillan, The Dunlop Story, 37.
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29 Sull, ‘‘The Dynamics of Standing Still,’’ 435.

30 Everly and Litle, Concentration in British Industry, 125; Monopolies and Restrictive Practices
Commission (hereafter Monopolies Commission), Report on the Supply and Export of
Pneumatic Tyres (hereafter Pneumatic Tyres), 5 and 81.
31 Everly and Little, Concentration in British Industry, 125.
32 French, ‘‘The Emergence of a US Multinational Enterprise,’’ 74.
33 Monopolies Commission, Pneumatic Tyres, 88.
34 Ibid., 10.
35 Ibid., 90.
36 Broadberry and Crafts, ‘‘Britain’s Productivity Gap in the 1930s,’’ 535–536.
37 Monopolies Commission, Pneumatic Tyres, 22.
38 Ibid., 45.
39 Ibid., 121.
40 Ibid., 38.
41 Donnithorne, British Rubber Manufacturing, 47.
42 Broadberry and Crafts, ‘‘Competition and Innovation in 1950s Britain,’’ 108.
43 Woodruff, ‘‘Growth of the Rubber Industry,’’ 38.
44 Monopolies Commission, Pneumatic Tyres, 86.
45 Broadberry and Crafts, ‘‘Britain’s Productivity Gap in the 1930s,’’ 554.
46 Broadberry and Crafts, ‘‘Explaining Anglo-American Productivity Differences,’’ 378, table 1.
47 Ibid., 397.
48 Donnithorne, British Rubber Manufacturing, 52–53.
49 Ibid., 53.
50 Ibid; in the late 1960s, 220 distinct types of car tyres were produced at Fort Dunlop.
51 Walshe, Recent Trends in Monopoly in Great Britain, 61.
52 Sull, ‘‘Why Good Companies Go Bad,’’ 43.
53 McMillan, The Dunlop Story, 124.
54 Prais, Productivity and Industrial Structure, 213; the domestic market remained highly concen-
trated. In 1975 the five largest tyre manufacturers in Britain: Dunlop, Goodyear, Michelin,
Firestone and Pirelli accounted for over 90 per cent of sales of domestically produced tyres and
tubes.
55 Harkleroad, Pneumatiques Michelin II, 8.
56 Ibid., 18, exhibit 7.
57 Gooding, ‘‘The Michelin Man Sheds Spare Capacity,’’ 4.
58 McMillan, The Dunlop Story, 89.
59 ‘‘Firestone Assess the 1976 Car Tyre Market.’’ Tyres & Accessories, Nov. 1976, 40.
60 Tompkins, The History of the Pneumatic Tyre, 101.
 906 BUSINESS HISTORY

61 Tyres & Accessories, Jan. 1981, 29.

62 Tyres & Accessories, Jan. 1980, 24.
63 Gooding, ‘‘The Michelin Man Sheds Spare Capacity,’’ 4.
64 Charles Zub Associates, European Tyre Market, 362.
65 Rubber Statistical Bulletin, various issues, International Rubber Study Group.
66 Rhys, ‘‘Motor Vehicles,’’ 186.
67 Whisler, The British Motor Industry, 284.
68 Tied plus competitive imports. Society of Motor Manufacturers and Traders (hereafter
SMMT), The Motor Industry of Great Britain, various issues.
69 Tyres & Accessories, Jan. 1981, 29.
70 SMMT, The Motor Industry of Great Britain, 1977 and 1982.
71 Maxcy, The Multinational Motor Industry, 222.
72 SMMT, The Motor Industry of Great Britain, various issues.
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73 Fishwick, A Study of the Evolution of Concentration, 9.

74 NEDO/RP/IS (78) 3rd Meeting, Rubber Processing Sector Working Party, National Economic
Development Office (hereafter NEDO), 17 April 1978, 1.
75 Hood and Young, Multinationals in Retreat, 143.
76 McMillan, The Dunlop Story, 170.
77 NEDO, TI(82)7, ‘‘UK Share of World Tyre Exports,’’ Tyre Industry Sector Working Party,
NEDO, 8 Feb. 1982, 1.
78 Heller, ‘‘Where is Dunlop Driving,’’ 60.
79 McMillan, The Dunlop Story, 147.
80 Economist Intelligence Unit (EIU), ‘‘The UK Tyre Industry,’’ 30, table 12; and ‘‘The UK Tyre
Market,’’ 45, table 21.
81 Dunlop, document on the union with Pirelli sent to shareholders and debenture holders 7 May
1981, 2.
82 Harkleroad, Pneumatiques Michelin (1B), 6.
83 Ensor, James. ‘‘Battleground between US and Europe,’’ Tyre Industry Survey, Financial Times,
16 July 1971, 13.
84 Norbye, The Michelin Magic, 181.
85 Ensor ‘‘Battleground between US and Europe,’’ 13.
86 Crawford, ‘‘Dunlop-Pirelli,’’ 227.
87 Thomas, ‘‘Dunlop-Pirelli’s Squeezed Start,’’ 69.
88 Prais, Productivity and Industrial Structure, 213.
89 Few British firms have achieved global market leadership in the vehicle components industry.
GKN Hardy Spicer achieved a dominant position by exploiting its patents in constant velocity
joints. The global strategy was underpinned by operational efficiency and a global production
network. Pilkington also used patents and overseas production to achieve the number two
position in the world for the supply of automotive glass (see Carr, ‘‘Global, National and
Resource-Based Strategies,’’ 557).
90 Newman, ‘‘Dunlop’s Tight Turn,’’53.
91 Broadberry, The Productivity Race, 386.
92 Whitaker, ‘‘Dunlop – Assessment of Rationalisation Plans,’’ 2.
93 McMillan, The Dunlop Story, 176.
94 Newman, ‘‘Dunlop’s Tight Turn,’’ 54.
95 EIU, ‘‘The UK Tyre Market,’’ 38, table 13.
96 Newman, ‘‘Dunlop’s Tight Turn,’’ 55.
97 EIU, ‘‘The UK Tyre Market,’’ 45, table 21.
98 Dunlop Joint Trade Union Action Committee, Dunlop Spekes, 8. In 1977 productivity at Speke
was 7.31 kg/man hour and Inchinnan 9.6 kg/per man hour. The corresponding productivity
 WHY DO SUCCESSFUL COMPANIES FAIL? 907

for Washington was 17.20, Wittich 20.12, Hannau 16.9, Amiens 14.11 and Montlucon 15.0 kg/
per man hour.
99 Whitaker, ‘‘Dunlop – Assessment of Rationalisation Plans,’’ 3.
100 NEDO/RP/IS (77)18, ‘‘Market Objectives for the UK Tyre Industry,’’ Rubber Processing Sector
Working Party, NEDO, 23 June 1977, 1.
101 Prais, Productivity and Industrial Structure, 215.
102 Newman, ‘‘Dunlop’s Tight Turn,’’ 55.
103 Heller, ‘‘Where is Dunlop Driving,’’ 60.
104 Newman, ‘‘Dunlop’s Tight Turn,’’ 55.
105 Carr, ‘‘Global, National and Resource-Based Strategies,’’ 556.
106 Ibid., 559.
107 After excluding exceptional items of £3 million.
108 Calculated from: Dunlop Holdings, Phillips & Drew, Equity Book Service, 29 June 1982;
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Dunlop Holdings, Phillips & Drew, Motor Research, 4 June 1981; Dunlop Holdings plc and
Sumitomo Rubber Industries, Statement to Stock Exchange and Press, 22 Sept. 1983.
109 Peyman, ‘‘Hiding Behind a Nominee,’’ 90.
110 ‘‘Pegi Buys More Company Shares,’’ Financial Times, 12 April 1983, 42.
111 Ghafar Baba was chairman of Pegi Malaysia and Eng was chief executive of Eastwind Holdings,
a Malaysian investment company.
112 ‘‘Dunlop squeezed by Europe, stalked by Asia,’’ Economist, 30 April 1983, 79.
113 ‘‘Pegi Buys More Company Shares,’’ Financial Times, 12 April 1983, 42.
114 Excludes the subsidiaries in India, Nigeria, Zimbabwe and Zambia which would have been
difficult to repatriate because of local exchange controls, see Goodway, ‘‘Are Dunlop’s Parts
Worth More than the Whole?’’ 35.
115 Barker et al., ‘‘Organizational Causes and Strategic Consequences,’’ 258.
116 The partnership was formed with Sumitomo in the early 1960s. The agreement gave Sumitomo
45 per cent and Dunlop 40 per cent of a new company called Sumitomo Rubber Industries that
was formed to produce tyres in Japan.
117 Dunlop Holdings plc and Sumitomo Rubber Industries, ‘‘Statement to Stock Exchange and
Press,’’ 22 Sept. 1983.
118 Strange, Japanese Manufacturing Investment in Europe, 343.
119 Radford, ‘‘How Sumitomo Transformed Dunlop Tyres,’’ 28.
120 ‘‘Malaysians ousted Fraser as Dunlop Chief,’’ Financial Times, 5 May 1984, 3.
121 McMillan, The Dunlop Story, 170. Alan Lord was Second Secretary at the Treasury when
Campbell Fraser recruited him in 1977 as managing director of Dunlop International. Three
years later, he was appointed chief executive of the Group. This was part of Dunlop’s
traditional strategy of developing networks within the corridors of power.
122 ‘Malaysians Ousted Fraser as Dunlop Chief’, Financial Times, 5 May 1984, 3.
123 Leonard-Barton, ‘‘Core Capabilities and Core Rigidities,’’ 118.
124 McMillan, The Dunlop Story, 188.
125 Dobrev et al., ‘‘Shifting Gears, Shifting Niches,’’ 267.
126 Cohen and Levinthal, ‘‘Absorptive Capacity,’’ 141.
127 Stopford and Baden-Fuller, ‘‘Corporate Rejuvenation,’’ 401.
128 Radford, ‘‘How Sumitomo Transformed Dunlop Tyres,’’ 28.
129 Helfat and Peteraff, ‘‘The Dynamic Resource-Based View,’’ 1007–1008.
130 Broadberry, The Productivity Race, 387.
131 Carr, ‘‘Competency-led Strategies,’’ 58.
132 Radford, ‘‘How Sumitomo Transformed Dunlop Tyres’’, 32.
133 Carr, ‘‘Competency-led Strategies,’’ 57.
134 Carr, ‘‘Global, National and Resource-Based Strategies,’’ 564.