Electrolux Created February 2006 Arunesh Chand Mankotia
CASE STUDY ON:ELECTROLUXArunesh Chand Mankotia
CASE SUMMARY Electrolux, a Swedish company is the world’s largest manufacturer of household appliances. More than 85% of its sales was from outside Sweden. Over 50% in Western Europe & 30% in North America. In early 2001, company employed approx.. 85000 people worldwide, had 150 factories, 300 warehouses located in 60 countries & sold about 55 million products per year in 150 countries. Demand for household appliances in Western Europe & North America was limited- 2% to 3% annually. Electrolux undertook expansion strategies in Asia, Eastern Europe & Latin America. It was estimated that demand would grow at 20% annually in these countries.
STATEGIES ADOPTED FOR EXPANSION Different approaches were adopted for different countries which included acquisitions of going concerns, Green-field developments, Joint Ventures and enhanced marketing. In Eastern Europe it acquired Lehel, Hungary’s largest manufacturer of household appliances. Green-field developments in Russia, Poland & Czech Republic. In Asia there was a need to adapt to local conditions. In India & China Electrolux was compelled to work through joint ventures.
In Southeast Asia, the emphasis was more on marketing of imported goods from China, rather than local production. In Latin America it went for acquisitions. In 1996 it acquired Refripar, the largest producer of refrigerator products in Brazil.
GLOBAL COMPETITORS General Electric Whirlpool Bosch-Siemans of Germany. These competitors also had similar plans for expansion in Asia, Eastern Europe & Latin America.
OBJECTIVES OF ELECTROLUX Short-Term Objective> To double its sales in Asia, Eastern Europe & Latin America from $1.35 billion in 1994 to $2.7 billion in 1997.> Electrolux to become one of the top 3 suppliers of household goods in Southeast Asia by 2000. Long-Term Objective> Globalize its production and sales base.
PROBLEMS FACED BY ELECTROLUX Serious weaknesses developed in Electrolux’s global production system. Although the company expanded rapidly via acquisitions, but had not rationalized its production process. There was often duplication of facilities.
INTERNAL ENVIRONMENT STRENGTHS WEAKNESSES World’s largest Profit slump exposed manufacturer of weaknesses in households appliances Electrolux’s global with sale of around $14 production system billion. It expanded rapidly via Co. employed approx. acquisitions but didn’t 85,000 people rationalized its worldwide, had 150 production operations. factories & 300 warehouses in 60 Duplication of facilities countries. within the region. Prepared to spend million $ per year to increase the presence in emerging markets
EXTERNAL ENVIRONMENT OPPORTUNITIES THREATS It can expand in Threat from global developing as well as competitors - GE, under developed Whirlpool & Bosh countries. Siemans. Approaches such as Competition from acquisitions, JV & existing dominant green field players in the development can be domestic market. considered for further capturing the markets.
SOLUTION Michael Treschow, announced the Restructuring plan that called for the loss of 12,000 jobs and closure of 25 factories & 50 warehouses. The restructuring plan lasts for more than 2 years and divestment took place certain areas (like food & beverages vending machines) to streamline the operations.
Future strategies for expansion: - New product-line organization in Europe and US. Restructuring program to improve under- performers. Stricter criteria for investments requests.
Ques. What theory or theories, best explains Electrolux’s FDI decisions during 1990s: The market imperfection approach The strategic behavior approach The product life cycle approach The location specific advantages approach?
Product Life Cycle Approach Electroluxs FDI decisions during 1990s can be best explained with this approach. According to this Approach firm undertakes FDI at particular stages in the Life Cycle of a product, they have pioneered. Demand for household appliances was mature in Western Europe & North America. Growth in these regions were limited to replacement demand & the growth in population & unlikely to exceed 2 to 3 percent annually. To maintain its historic growth co. can’t depend on these matured markets & have to find new markets in developing world.
Strategic Behavior ApproachThis approach says that FDI flows arereflection of strategic rivalry between thefirms in global market place. • There were three global competitors – GE, Whirlpool & Bosch Siemans and they were following competitive moves.Also a firm can raise entry barriers and shutnew competitors out of an industry. • In 1991 Electrolux acquired Lehel, Hungary’s largest manufacturer of household appliances, when it entered into Eastern Europe.
Market Imperfection Approach Few FDI decisions were based on this approach as there were impediments to exporting. There were import barriers, which made direct exporting from Western European and North American plants uneconomical. Government tariffs on imported goods, increase the cost of exporting relative to FDI.
Location Specific Advantages Approach This approach does not hold true as there were no advantages that Electrolux can exploit from foreign markets. This is true especially in case of natural resources, such as oil & other minerals, which are specific to certain locations.