Mike Smith steered his car slowly though the motorway contra-flow system. It was a dark winter's evening and the headlights of the oncoming cars dazzled in his eyes. As he prodded the BMW forward, his mind raced back to that afternoon's management team meeting.

Mike was the Managing Director of the UK subsidiary of Arrivederci Ice-Creams (advertising slogan "A good buy in any language"). The UK market for so-called indulgence ice-creams had grown rapidly over the last ten years and Arrivederci had been able to establish itself at the top of the market as a producer of high quality, specialist Italian ice-cream for the home and catering trade. The Arrivedercis were a family business, founded in Northern Italy at the end of the Second World War, and the UK subsidiary had originally been founded by Paolo Arrivederci, the founder's youngest son, in the early 1980s. Smith had been brought in following a career with a major multi-national food manufacturer, to take the helm at Arrivederci UK some three years before, following a dispute between Paolo and top management back in Italy.

The Italian board, now run by Paolo's elder brother, Severino, was concerned that Arrivederci UK was not keeping pace with growth in the overall market and was losing market share to higher profile companies like Haagen-Daaz and Ben and Jerry's. Smith had his own ideas about how Arrivederci should regain its market share in the UK but he wanted the decision to be taken by the management team as a whole and not imposed by him personally. So he had tasked the members of the management team, each of whom was responsible for a functional area within the company, to bring forward ideas for growing the business.

Predictably perhaps, the proposals had reflected their own functional bias. Angus Baird, the Productions Manager, had made a strong pitch for a new flexible production line which would allow them to extend their product variety and switch rapidly from one product line to another. Jeff Bold, the Sales Director, had just been on holiday in St Petersburg and had become fascinated by the potential of the market, "Everyone in Russia is crazy about ice-creams. People walk about the streets in sub-zero temperatures licking cornets. Some of the big players are already in there, Baskins & Robbins and Mars have a high profile, but there is still room in the market for a genuine Italian brand". Despite himself, Smith responded critically to the suggestion. "Big multi-nationals may be going in. Some companies are also coming out. Ben and Jerry's, for example, have already withdrawn from the market. For a relatively small player like Arrivederci, the Russian market is a potential minefield. Officialdom is bureaucratic and unpredictable. Organised crime and corruption are rife. Supply lines will be extended and vulnerable and the price levels of the end product will probably be significantly below the level in Western Europe".

Corelli, the Marketing Manager, on secondment from Italy, was married to one of the Arrivederci daughters. He had recently returned to Head Office in Turin and had brought back with him the latest recipes. Smith waited patiently as he regaled the meeting with descriptions of the latest Tiramisu flavoured ice-cream.

Following a brief pause in the discussions, Smith cleared his throat and preceded to launch his bombshell. "The UK market for indulgence ice-creams is starting to become mature. There is increasing consumer resistance on price and health grounds. The growth rates that we saw in the past ten years are unlikely to continue in the future. We know that there is already excess capacity in the market place and that supermarkets are exploiting this to put pressure on manufacturers' margins. Under these circumstances, I am proposing that we acquire Brio Ice-creams".

There was a stunned silence as the meeting took in the import of the suggestion. Brio Ice-Creams was a long standing competitor, once family owned but, for the last twenty years, a subsidiary of a British food conglomerate. It specialised in cheap, mass market products with a fake Italian image. Consolidated, Brio's parent, was known in the industry to be looking for a buyer.

Angus Baird was the first to recover. "Oh I get it", he said, "You want to acquire Brio and shut it down. The best thing you could do to it, in my opinion. The factory's over fifty years old and Consolidated have starved it of investment over the last ten years". "More to the point", Jeff Bold interjected "Over half of the production capacity of Brio is devoted to supermarket own brand ice-cream. In order to make the factory run economically, we would be dependent on their business. The supermarkets would exploit this leverage and force us to produce supermarket own brand versions of our own specialised products. What's the point of Corelli and his chums back in Turin dreaming up exotic flavours to differentiate our products if the benefit accrues to the supermarkets and not to us?".

Mike had expected the reaction and allowed his colleagues time to let off steam before he returned to the fray. "Angus, you're right about the state of the factory. Sometime in the next year or so, they will either have to close it down or make a massive reinvestment. Not least because of the impact of EU regulations. That would give us a window of opportunity to prepare for producing on our site. If we do decide to acquire the new flexible production line you propose we will need more volume to keep it working at capacity. As for the supermarket own brand issue, you all know my views on this and they haven't changed. We have no need to go down that route at the moment, indeed we have no capacity at our current site to cope with that type of business. Let's not kid ourselves, however, we're a relatively small manufacturer, faced with the might of huge supermarket buying power. Irrespective of whether we acquire Brio, the supermarkets have the power, should they choose to exercise it, to force us down this route. The only way that we can resist is by continuing to invest in our own brands through product development and aggressive advertising".

Ferguson, Arrivederci's Finance Director, had been quiet until that point. "Are we to take it then that you have already made the decision to acquire Brio?" he inquired. Smith smiled a little sheepishly. "No, not exactly, the decision to buy will ultimately be a question of price and we have yet to see the books. But I have talked it over with Severino and he is happy that we should at least pursue it. What I'm really looking for at this point, is that we agree that acquiring Brio is an avenue we ought to explore".

Should Mike Smith pursue the Brio acquisition or not? If you have a view on this, e-mail me, Ian Turner. Solutions will be discussed in the next issue and a copy of Entreprise 1to1 or equivalent prize awarded to the best contribution.

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