22a St. James's Square
Company Perspectives:
Inchcape, as an international automotive services group, provides quality representation for its manufacturer partners, a choice of channels to market and products for its retail customers and a range of business services for its corporate customers. Operating primarily in the U.K., Greece, Belgium, Australia, Hong Kong and Singapore, its key partners are Toyota, Subaru, Ferrari, Jaguar and Land Rover. Inchcape's activities include exclusive Import, Distribution and Retail, Business Services, automotive E-commerce and Financial Services.
Inchcape PLC, a company with more than a 150-year history--starting as a shipping and trading firm and evolving into a diversified conglomerate--has reinvented itself at the end of the 20th century. The company now describes itself as the world's largest independent automotive distribution group, operating in more than 20 international markets, including the United Kingdom, Greece, Australia, Hong Kong, and Singapore. Inchcape has relationships with many of the world's leading car manufacturers, including Mazda, Ferrari, Jaguar, BMW, Peugeot, and Subaru, but has a particularly strong partnership with Toyota Motor Corporation, representing that company in 11 markets, including Belguim, Greece, Hong Kong, and Singapore. With its entry into the e-commerce market with its new and used car-purchasing retail Web site Autobytel UK, Inchcape continues to reinvent itself for the future.
19th Century Origins
Inchcape PLC was launched as an overseas trading company in 1958, yet the origins of its constituent companies date back to the late 18th and early 19th centuries. Thus, the creation of Inchcape dates back to the early expansion of commerce with India by a group of Scottish merchants. In 1847 a meeting took place in Calcutta between William Mackinnon and Robert Mackenzie, two merchants from Campbeltown, which led to the formation of their general merchanting partnership, Mackinnon Mackenzie & Company. Realizing the benefits of combining trading with ocean transport, especially with the gold rush to Australia in 1851, the business expanded and diversified. In 1856, Mackinnon at age 34 founded the Calcutta & Burmah Steam Navigation Company (C&B), secured from the East India Company the contract for carrying the mails between Calcutta and Rangoon, and incorporated the company in London with a capital of £35,000, of which Mackinnon Mackenzie & Company invested £7,000, becoming agents for the new shipping line. As a result of their success in carrying troops from Ceylon (now Sri Lanka) to India during the Indian Mutiny of 1857 to 1859, and through Mackinnon's contacts with the influential civil servant Sir Henry Bartle Frere, the partners obtained further contracts to support a fleet of coastal steamers carrying mails around the Indian coast with extensions to the Persian Gulf and Singapore. In 1862, C&B raised sufficient additional capital--a total of £400,000--to float the company under the new name of the British India Steam Navigation Company (BI). Mackinnon Mackenzie & Company continued to act as agents for the BI for nearly 100 years.
Sir William Mackinnon also promoted steamer traffic to the Dutch East Indies, establishing a Dutch-registered shipping line around Java, and forming the Netherlands India Steam Navigation Company in 1868. With the opening of the Suez Canal in 1869, BI ships entered the Mediterranean Sea, establishing a trunk line between London and India via the Suez Canal in 1876. In the process, Mackinnon Mackenzie & Company became one of the greatest Eastern agency houses, and the BI posed a mighty challenge to all other shipping lines operating between the United Kingdom and the East, including the giant Peninsular & Oriental Steam Navigation Company (P&O).
These events were the backdrop to the formative years of James Lyle Mackay, named Lord Inchcape in 1911. Born in 1852, the son of an Arbroath shipmaster, Mackay left Scotland at the age of 20 and worked in the customs department of Gellatly, Hankey and Sewell. Mackay, who joined Mackinnon Mackenzie & Company's Calcutta office in 1874, was to become the heir to the Mackinnon businesses after the death of Mackinnon in 1893. Mackay first became a partner after saving the BI's Bombay office from bankruptcy, and was to become president of the prestigious Bengal Chamber of Commerce a record three times between 1890 and 1893. A member of the Viceregal Council and a close friend and confidant of Lord Lansdowne, Viceroy of India, Mackay gained a knighthood for his contribution to the solution of India's currency problems and the ultimate adoption of the gold standard in India. Mackay returned to the United Kingdom in 1894 as a director of the BI, replacing William Mackinnon's nephew, Duncan Mackinnon, as chairman in 1913. Continuing his work on the Council of India, Mackay's growing reputation as an outstanding public servant led to his being offered the viceroyalty of India in 1909. Prime Minister Herbert Asquith opposed Mackay's nomination, however, on the grounds of his commercial interests in the subcontinent, and Mackay was offered a peerage in 1911 by way of compensation. He chose the name of Baron Inchcape of Strathnaver, commemorating the Inchcape Rock, located 12 miles from Arbroath, and expressing his loyalty to the clan Mackay, whose home is in Strathnaver. Between 1913 and 1932, Lord Inchcape personified Britain's shipping industry as chairman of the BI and the P&O, after effecting a merger between the two lines in 1914.
Less well known than Lord Inchcape's shipping activities is his consolidation of an extensive group of commercial interests in India and beyond. These began with his accumulation of shares in Mackinnon Mackenzie & Company. Sir William Mackinnon had no son, his nephew Duncan died in 1914, and his great-nephews were killed in World War I, so Inchcape became the sole-surviving senior partner of the Mackinnon enterprise, and by 1950 the Inchcape family held a controlling interest. Inchcape's chairmanship of the BI and P&O resulted in a very close connection between Mackinnon Mackenzie & Company and the shipping line, to the extent that many observers came to believe that they were one company.
Mackinnon Mackenzie & Company spawned a variety of other enterprises to serve the BI routes. The BI originally employed small private firms in local ports of call as agents, but eventually replaced them with firms within the Mackinnon complex. These all came under the control of the senior partners and ultimately under Lord Inchcape himself. To separate the trading businesses from the shipping line, the Macneill & Barry partnership was developed to take over the extensive tea and merchanting operations that Lord Inchcape had acquired in 1915. Amalgamated in 1949, Macneill & Barry Ltd. comprised three merchant partnerships formed in the second half of the 19th century: Barry & Company, Macneill & Company, and Kilburn & Company, involved in tea, coal, jute, river steamers, and various trading enterprises. Their principals included the Assam Company, the oldest tea company in India; the River Steam Navigation Company; and the India General Steam Navigation and Railway Company. Between 1951 and 1956, Macneill & Barry took over Kilburn & Company, and the three groups set up Pakistan-based companies. In 1965 the two river steamer businesses were sold to the government of India.
In 1906, Mackay made a successful strategic acquisition, of Binny's, a South India-based textile business. Founded in 1799, Binny's originally carried out banking and general merchanting, diversifying in the 1840s into agriculture and textiles. Indian production of textiles boomed in the 1860s, when the U.S. Civil War interrupted cotton supplies, and by the late 19th century Binny's mills managed 70,000 spindles with over 1,500 looms. Yet in 1906, with the crash of the great Arbuthnot & Company banking house with whom it was closely involved, Binny's faced bankruptcy. Its greatly undervalued assets were acquired by Mackay and a consortium of Mackinnon partners for £53,000. Binny & Company Ltd., as it had become in 1906, made record profits in World War I with the production of khaki cloth, and by 1917 was supplying over a million yards per month. Binny & Company was subsequently restructured, setting up an Engineering department, and rose to greater prominence during World War II, producing one billion yards of cloth a year by 1942.
Owing to the need to supply shipping-agency services to the BI, Mackinnon group enterprises were established in East Africa, the Persian Gulf, Australia, and London. In East Africa, as Sir William Mackinnon began to open up the region to British influence, the BI operated a steam shipping service. In 1872, Archibald Smith, a member of the staff of William Mackinnon & Company in Glasgow, Scotland, together with a Mackenzie man from Calcutta, established an agency to operate as BI agents and general traders. In 1887, Sir William Mackinnon won from the sultan of Zanzibar in East Africa, the right to administer a coastal strip of land in return for customs revenue, which led to the founding of the Imperial British East Africa Company (IBEA), partly in response to the buildup of German interests in this area. Smith Mackenzie & Company took a stake in IBEA and acted as its agents, until the charter was surrendered in 1897. Smith Mackenzie & Company and the agency for Shell in East Africa became joint coaling agents to the admiralty during World War I and in the 1930s gained the agencies for British American Tobacco, Imperial Chemical Industries, and British Overseas Airways Corporation.
In 1862, when a contract was won to carry mail eight times a year up and down the Persian Gulf, the merchant partnership that became Gray Mackenzie & Company was formed, helping to develop navigation on the Euphrates and Tigris Rivers, and establishing a diversified trading business in an area that was also facing German expansionism. In World War II, Gray Mackenzie & Company acted as agents for the British government in unloading military cargoes; the growth of its business was helped by the spectacular development of the oil industry and the rapidly growing need to service the expanding ports of the Middle East.
The Mackinnon complex also branched into Australia, with BI services at first managed by the British India and Queensland Agency Company Ltd. The Mackinnon partners invested in the formation of a major Australian shipping conglomerate in 1887, the Australasian United Steam Navigation Company (AUSN), formed with a capital of £600,000. In 1894, Mackay was appointed to the board of the AUSN and, in 1900, spent several months in Australia successfully restructuring the business. In 1915 he created a new merchant partnership, Macdonald Hamilton & Company, formed by two trusted Mackinnon appointees, B.W. Macdonald and David Hamilton. The AUSN, which had once owned 42 steamers, declined in the face of increasing competition from railways in the 1920s, and Macdonald Hamilton & Company diversified its activities into mining, pastoral management, and operating the P&O agencies in Australia. The P&O acquired Macdonald Hamilton's P&O-related activities in 1959 and 1960.
The London partnership of Gray Dawes & Company was set up to serve the BI as a shipping and brokering agency, and eventually became a bank and a travel agency. It represented the interests of Smith Mackenzie & Company and Binny & Company in London, and set up a Secretarial department to administer the estate of James Mackay, the first Lord of Inchcape, after his death in 1932.
Consolidation and Expansion: Late 1950s through 1970s
These diverse Mackinnon group interests were consolidated and reorganized during the 1950s, coming together as Inchcape & Company Ltd. in 1958 at the initiative of the third Lord of Inchcape. Tax considerations necessitated the conversion of these companies into private limited companies--whose former partners became the principal shareholders--controlled through London-based subsidiaries. Also in 1958, Inchcape & Company became a public company through a public offering of 25 percent of its equity, and starting in 1958 embarked on a program of growth and diversification, principally through acquisitions. The group today reflects the merger and acquisition activities of the last quarter of the 20th century, rather than the original companies that came together in 1958.
During the 1960s and 1970s, under the leadership of the third Lord of Inchcape, the company expanded to over 150 times its previous capitalization, due principally to a series of successful acquisitions, especially those of the Borneo Company in 1967; Gilman & Company in 1969; Dodwell & Company in 1972; Mann Egerton & Company in 1973; Anglo-Thai Corporation in 1975; A.W. Bain Holdings in 1976; and Pride & Clarke, which held the Toyota agency for the United Kingdom, in 1978. In this period, through several capitalization issues, 64 original shares costing £80 in total in 1958 were worth nearly £2,000 by 1975.
The merger with the Borneo Company almost doubled the size of Inchcape overnight, bringing in new interests in Canada, the Caribbean, Hong Kong, Malaysia, Singapore, Brunei, and Thailand. The Borneo Company operated jointly with Inchcape in the United Kingdom and Australia, but introduced two new activities into the group's portfolio: motor vehicle distribution and timber and construction business. This merger, in which Inchcape entered new geographical regions in familiar businesses and entered new businesses in regions that it knew well, established a pattern for subsequent acquisitions and allowed considerable local autonomy to exist among local staff.
Through Peter Heath, originally a director of the Borneo Company, Inchcape acquired Gilman & Company, one of the great trading groups of Hong Kong. Gilman & Company was seeking an acquirer but did not wish to be taken over by an existing Hong Kong business. The acquisition of Dodwell & Company gave the group further interests in this region, which it maintained as quasi-independent companies, rather than forming one large entity. Dodwell & Company was founded in Shanghai in 1858, and by the 1970s had established extensive businesses in shipping, motors, and business-machine trading in Hong Kong, Japan, and many other Far Eastern ports and cities.
Mann Egerton & Company, acquired in 1973, laid the foundations for Inchcape's motor-distribution business. Founded at the end of the 19th century in Norwich by an electrical engineer and an early motoring pioneer, Mann Egerton sold cars manufactured by de Dion, Renault, and Daimler for between £200 and £300 per car, at the turn of the century initially from branches in the eastern counties of England. By the 1970s, Mann Egerton distributed British Leyland cars, as well as an extensive range of luxury cars, but faced a possible takeover bid from an unwanted source, and felt increasingly vulnerable as a result of a wave of oil shocks.
The acquisition of Anglo-Thai Corporation involved the issue of nearly nine million Inchcape £1 ordinary shares, three times the number issued before, increasing Inchcape's market value by about 90 percent, and adding to group assets in the Far East and Southeast Asia. In one of the group's few predatory bids, valuable businesses such as Caldbeck Macgregor & Company, a well-known importer and distributor of wines and spirits, were included. In 1976, with A.W. Bain Holdings, Inchcape developed an important insurance business through a share issue second only to that involved in acquisition of the Anglo-Thai Corporation. With Pride & Clarke, the group gained the valuable concession of exclusive Toyota distribution in the United Kingdom after an issue of £1 million in £1 ordinary shares and £6.9 million in cash, in what some observers called the biggest bargain of the century. By 1989, the Motors segment was contributing two-thirds of group turnover and 53.6 percent of group profits, the greater part contributed by Toyota.
Reorganization in a Modern Era: 1980s, 1990s, and Beyond
Inchcape--reincorporated as Inchcape PLC in 1981--under the chairmanship of George Turnbull in the 1980s reinforced its concentration on its core businesses. Inchcape's key businesses at that time were organized into three main areas: services, marketing and distribution, and resources. The service businesses consisted of buying, insurance, inspection and testing, and shipping. The marketing and distribution businesses covered business machines, consumer and industrial services, and motors. The resource-based businesses covered tea and timber.
In April 1990, Toyota paid Inchcape £110 million in cash for a 50 percent stake in Inchcape's United Kingdom-based distributing business known as Toyota (GB). With this acquisition, Toyota also acquired a holding of nearly 5 percent in Inchcape itself.
Inchcape had a difficult time in the early 1990s during CEO Charles Mackay's tenure in part because it had in prior decades overdiversified into areas not related to its core distribution business. The company continued to expand during this period, in particular in the shipping services and insurance areas. Through a variety of acquisitions from 1990 through 1993, Inchcape expanded into or expanded its shipping businesses in China, Korea, Vietnam, Indonesia, Canada, Turkey, Ecuador, and the United States. The U.S. acquisitions were seen as particularly strategic as Inchcape was able to secure operations for the Pacific, Atlantic, and Gulf coasts of the United States, with the goal of operating a broad shipping agency covering all three coasts.
In insurance, Inchcape's Bain Clarkson Ltd. insurance broker was bolstered through the 1994 acquisition of Hogg Group PLC for £176.6 million (US $264.9 million). The newly named Bain Hogg Group instantly joined the ranks of the world's ten largest brokers, and Inchcape had gained a presence in the U.S. insurance market for the first time through Hogg Robinson Inc. Meanwhile, Inchcape's marketing operation was bolstered in a smaller way with the 1992 acquisition of the Spinneys group of companies, which ran a chain of supermarkets in the Middle East, from Bricom Group Ltd. for £32.1 million (US $57.9 million).
A combination of factors plunged Inchcape into its two most difficult years ever, 1994 and 1995. Difficult economic conditions in some of the company's key markets--particularly in Western Europe and Hong Kong--dampened consumer spending, while the strength of the yen made Inchcape's Japanese products, notably the Toyota automobiles, less attractive than those of competitors based outside Japan. In certain areas such as marketing, Inchcape had also become a more bureaucratic organization than in the past, and had lost touch with some of the local markets it served. As a result, pretax profits fell 15.8 percent from 1993 to 1994 and 92.4 percent from 1994 to 1995. The resulting plunge in Inchcape stock caused the company to be dropped from the prestigious PT-SE 100 index in late 1995. First, David Plastow retired as chairman of Inchcape at the end of 1995 and was replaced by Colin Marshall, who at the same time was chairman of British Airways PLC and deputy chairman of British Telecommunications PLC. Then in March 1996 Mackay stepped aside as CEO, and Philip Cushing, who was managing director, took his place.
The new management team determined that Inchcape had to focus on its core international distribution businesses in order to turn things around and began making significant business divestments, including selling the Bain Hogg insurance brokerage subsidiary to the Aon Corporation in the United States for £160 million in 1996. The company began to jettison unprofitable businesses, and significantly reduce the workforce.
In March 1998 spurred by the fact that the Asian economic crisis had more than split in half Inchcape's shares between October and January, Inchcape made a major announcement. The diversified company was to undergo a complete restructuring to focus exclusively on worldwide car distribution, the most successful part of the group. One of the first major sectors to go was the company's Russian soft-drink bottling business, whose losses skyrocketed from £7.1 million to £21 million between June and September 1998. Inchcape sold that part of their operations to The Coca-Cola Company for US$87 million in October (US $100 million less than the price agreed on in principle just two months earlier). The sales of bottling businesses in South America, marketing services in Asia and the Middle East, the global shipping business, and the Asia-Pacific Office Automation business were some of the wide range of divestments that quickly followed. In July 1999 another management shuffle had Peter Johnson succeeding Philip Cushing as CEO, and that same month the new motors-only Inchcape was officially born. The appointment of Sir John Egan as Chairman in June 2000 (replacing Marshall) rounded out the new leadership, reflecting the newly refocused Inchcape.
The transition to a motors-only focus was not entirely smooth. The automobile industry in the United Kingdom was thrown into controversy in 2000 when the Competition Commission issued report findings showing that new car prices in the United Kingdom were between 10 percent and 12 percent higher than in other countries. Consumer confidence plummeted, and the industry suffered. Inchcape's operating profit in the U.K. fell from £25 million in 1999 to £0.7 million in 2000. The auto industry scrambled to respond to the report, offering lower interest rates and price reductions. The consumers came back, and in 2001, the U.K. new car market soared by 10.7 percent. This helped Inchcape's U.K. operating profit to improve to £13.7 million in 2001.
The year 2000 found Inchcape selling its 49 percent share of Toyota (GB) to Toyota Motor Corporation for £42.1 million, which provided Inchcape with additional funds for investments in other ventures, plus gave Toyota 100 percent ownership in one of its key markets. The partnership between Inchcape and Toyota remained strong, as Toyota's largest independent distributor, Inchcape continued to represent the company in markets including Greece, Belgium, Hong Kong, and Singapore.
Inchcape's Asian investments steadfastly rebounded from the region's economic crisis of the mid- to late 1990s. The Hong Kong market profits posted an exceptional spike in 2001, due mainly to the strength of taxi sales. Due to a government incentive campaign that encouraged taxi drivers to switch from diesel to Liquified Petroleum Gas (LPG) cars, taxi sales surged 130 percent. With Toyota dominating 90 percent of the taxi market, Inchcape saw its Hong Kong operating profit leap from £40.7 million to £48.9 million between 2000 and 2001.
In 1999, Inchcape expanded into the rapidly developing market of e-commerce with the launch of Autobytel UK, the result of a partnership with the U.S.-based Autobytel.com, an Internet-based new and used car purchasing service. Though by 2001, the wholly owned U.K. subsidiary still posted losses, Inchcape had high hopes for future growth in expanding this market of e-commerce. By taking a chance in a financially unproven medium, Inchcape continued its quest to anticipate market changes and remain at the forefront of the industry.
Principal Subsidiaries:Autobytel Ltd. (U.K.); Bates Motor Group Ltd. (U.K.); Borneo Motors (Singapore) Pte. Ltd. (63%); Crown Motors Ltd. (Hong Kong); Eurofleet Ltd. (U.K.); Inchcape Automotive Australia Pty. Ltd.; Inchcape Automotive Ltd. (U.K.); Inchcape Fleet Solutions Ltd. (U.K.); Inchcape Motors Ltd. (Singapore; 63%); Inchcape Overseas Ltd. (U.K.); Inchcape Retail Ltd. (U.K.); Inchcape Vehicle Contracts Ltd. (U.K.); Maranello Concessionaires Ltd. (U.K.); Mazda Motors (Hong Kong) Ltd.; The Motor & Engineering Company of Ethiopia Ltd. S.C. (94%); Subaru (Australia) Pty. Ltd. (90%); Toyota Hellas S.A. (Greece); Toyota Belgium N.V./S.A.
Principal Competitors:Hyundai; Mitsui O.S. K. Lines; Pendragon.
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