Facit, Expansion, Complexity And Growth
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Facit, Expansion, Complexity And Growth

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How expansion creates complexity and why shareholders should watch out when CEOs speak about emerging markets.

How expansion creates complexity and why shareholders should watch out when CEOs speak about emerging markets.

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Facit, Expansion, Complexity And Growth Presentation Transcript

  • 1. ”3000 at Facit have to be fired”
  • 2. The Swedish company Facit collapsed when electronic calculators disrupted their mechanical products.
  • 3. The example is often used in order to illustrate how successful firms can go under rapidly due to a technological shift.
  • 4. This description should be regarded as accurate.
  • 5. … However, it should be pointed out that the company started to encounter problems long before the electronic revolution destroyed Facit.
  • 6. It is true that all curves had been pointing upwards during the 1960s…
  • 7. ”Company turnover above 1 billion.”
  • 8. The acquisition of Addo was one reason for this (the leap in 1965-66 below).
  • 9. One should also bear in mind that the inflation rates were very high in the 1960s.
  • 10. However, all different measures of profitability declined during the 1960s, before electronics became a significant threat.
  • 11. One important reason for this is the increased competition.
  • 12. Sweden had stayed outside the second world war and could benefit largely from this during 1945-1960.
  • 13. A huge demand and a low supply in those years had given Facit a fantastic position.
  • 14. But over time, competition became much tougher.
  • 15. However, an important reason for the declining profitability also seemed to be the aggressive expansion that Facit undertook in the 1960s.
  • 16. A larger organisation implies an increased complexity, more structures, more bureaucracy and less control of the business.
  • 17. ys
  • 18. ”Facit enters Mexico.”
  • 19. The Mexican expansion became a failure since Facit could not handle the labour market regulations properly. Facit lost millions here every year.
  • 20. ”Facit enters India.”
  • 21. … India…
  • 22. … did not become a success either.
  • 23. ”Facit and Odhner get a common sales organisation.”
  • 24. Odhner had been a part of the Facit group since the mid 1940s. The integration of the two companies did not take place until 20 years later! This was not strange at all back in those days.
  • 25. ”Addo becomes a part of Facit but keeps its sales organisation.”
  • 26. The acquisition of Addo became a failure for several reasons…
  • 27. Facit also built new sites around Sweden…
  • 28. … In Stockholm…
  • 29. In Åtvidaberg a new site was built.
  • 30. The Strömstad site expanded.
  • 31. When it was stated later on that the turnover had reached above 1 Bn, this had happened at the expense of Facit’s profitability.
  • 32. The international expansion turned out to be much more difficult than had been anticipated.
  • 33. It is not the same thing to manufacture calculators in Sweden as in Mexico.
  • 34. Companies which ignore this fact and enter ’emerging markets’ usually get into trouble.
  • 35. The integration of acquired companies does usually not end up in the way that was intended either.
  • 36. Detta bör absolut inte betraktas som orsaken till Facits slutgiltiga fall…
  • 37. … The reason why Facit collapsed should be spelled electronics.
  • 38. This slideshow can be thought of as an illustration of how difficult it is to grow and maintain good profits.
  • 39. A quick geographical expansion results in an increased complexity and less control.
  • 40. … which in the long run creates a lower profitability.
  • 41. To all shareholders: When top management speaks about acquisitions, synergies, global expansion and emerging markets – start to glance at the sell button.
  • 42. Thanks to ’Brukskultur Åtvidaberg’ och the municipal government of Åtvidaberg. The Facit archive is a fantastic source.
  • 43. Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. www.christiansandstrom.org christian.sandstrom at chalmers.se