AB Electrolux, popularly known as Electrolux, is a global leader in home and professional appliances, including refrigerators,

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AB Electrolux, popularly known as Electrolux, is a global leader in home and professional appliances, including refrigerators, cookers, dishwashers, washing machines, vacuum cleaners, air conditioners, and small domestic appliances. It sells more than 50 million products in 150 countries. Headquartered in Stockholm, Sweden, Electrolux was founded in 1919, as a result of a merger between AB Lux, and Svenska Electron AB. In 2013, Electrolux had revenues of approximately $14.5 billion and employed 61,000 people worldwide.

The Electrolux group consists of six business divisions, including four major appliances divisions, a small appliances division, and a professional products division.

The vision of the Electrolux Group is to become the best appliance company in the world as measured by its customers, employees, and shareholders. It bases its strategy on four pillars: innovative products, operational excellence, profitable growth, and dedicated employees. Its brand portfolio is strategically planned to serve luxury, premium, and mass markets. Alongside the Electrolux brand, the group has seven other strategic brands, namely Grand Cuisine, AEG, Zanussi, Eureka, Frigidaire, Molteni, and Westinghouse.

The “innovation triangle” at Electrolux encourages close cooperation between its marketing, R&D, and design functions to ensure faster reach to the market based on solid consumer insights. This enables Electrolux to use “same product architecture, differentiated design” to develop global modularized platforms. These platforms facilitate planning across divisions by making it easier to spread a successful launch from one market to another with adaptations to local preferences, and deliver greater customer value.

By maintaining strategic emphasis on increasing operational efficiency, Electrolux has restructured its production across divisions globally. Electrolux has shifted nearly 65 percent of its manufacturing from mainly Western Europe and North America to low-cost regions. Pursuing its strategy of profitable growth, Electrolux continuously innovates to enhance its current products and ranges to penetrate existing markets. In 2013, it launched many innovative products in North America and Japan. Expanding to growth markets, Electrolux tapped the potential of the Chinese market by launching a full range of kitchen and laundry appliances of more than 60 products designed exclusively for China.

An important aspect of Electrolux’s strategy is to grow through mergers and acquisitions, and build to give the company more financial horsepower on its balance sheet to do even more business around the world. With a growing portfolio of smartly positioned brands, global reach, innovations based on consumer insight, operational excellence and manufacturing efficiency, and increased financial power, Electrolux is all set to establish greater dominance in the global home appliances industry.

The core markets for Electrolux are Western Europe, North America, and Australia, New Zealand and Japan accounting for 65 percent of group sales. These markets are characterized by low population growth and high replacement product sales. The growth markets for Electrolux are Africa, Middle East and Eastern Europe, Latin America, and Southeast Asia and China contributing 35 percent to its sales. Given the rising living standards in the growth markets, Electrolux aims to increase its share of sales in these markets to 50 percent by introducing innovative product offerings in the next two years. In 2013, Electrolux was among the top five global players in the household appliances industry, along with Whirlpool, the Haier Group, Bosch-Siemens, and LG Electronics. These companies contributed to nearly 50 percent of the global appliances sales.

The major drivers of this industry are increased per capita income, changing lifestyles, consumer spending, housing activities, and urbanization. Economic growth in emerging markets is expected to boost the industry. The main competitive advantages of Electrolux are global brand portfolio through horizontal integration. In the last 40 years, the group has had a series of acquisitions around the world that strengthened its global position through effective targeting and brand positioning in domestic and regional markets. Examples of such acquisitions include Zanussi in Europe; AEG in Germany; Frigidaire, Kelvinator, and White Westinghouse in North America; Refripar in Brazil; and the Olympic Group in Middle East and North Africa. In September 2014, Electrolux unveiled its agreement to acquire the appliance business of General Electric, GE Appliances, for a cash consideration of $3.3 billion.

GE Appliances is one of the leading manufacturers of kitchen and laundry products in North America, and makes more than 90 percent of its sales in this region and runs its own distribution and logistics network. The acquisition also included a 48.4 percent shareholding in the Mexican appliance company Mabe that develops and manufactures a portion of the GE Appliances product range as part of a joint venture with GE. According to Keith McLaughlin, President and CEO of Electrolux, the acquisition was expected presence, consumer insight, design, professional legacy, Scandinavian heritage, wide product range, people and culture, and sustainability leadership.

Questions

1. Evaluate Electrolux’s strategy in light of its vision and the global trends in the household appliance industry.

2. What benefits will Electrolux receive from the acquisition of GE Appliances? How does it fit in with the strategic direction of the group? What other strategic options can Electrolux pursue for future growth to achieve greater global dominance?