Please read the following case study carefully and answer the questions given at the end: Electrolux is Sweden’s largest manufacturer of electrical household appliances and was one of the  world’s pioneers in the marketing of vacuum cleaners. However, not all the products the Electrolux  name are controlled by the Swedish firm. Electrolux vacuum cleaner sold and manufacturer in the  United States, for example, have not been connected with the Swedish Firm since the U.S subsidiaries  were sold in the 1960s. The Swedish Firm reentered the U.S. market in 1974 by purchasing National  Union Electric, which manufacturers Eureka vacuum cleaners. Electrolux pursued its early international expansion largely to gain economies of scale through  additional sales. The Swedish market was simply too small to absorb fixed costs as much as the home  markets for competitive firms from larger countries. When additional sales were not possible by  exporting, Electrolux was still able to gain certain scale economies through the establishment of foreign  production. Research and development expenditures and certain administrative costs could thus be  spread out over the additional sales made possible by foreign operations. Additionally, Electrolux  concentrated on standardized production to achieve further scale economies and rationalization of  parts. Until the late 1960s, Electrolux concentrated primarily on vacuum cleaners and the building of its own  facilities in order to effect expansion. Throughout the 1970s, though, the firm expanded largely by  acquiring existing firms whose product lines differed from those of Electrolux. The compelling force was  to add appliances lines to complement those developed internally. Its recent profits ($220 million in  1983) have enabled Electrolux to go an acquisitions binge. Electrolux acquired two Swedish firms that  made home appliances and washing machines. Electrolux management felt that it could use its existing  foreign sales networks to increase the sales of those firms in 1973, Electrolux acquired another Swedish  firm, Facit, which already had extensive foreign sales and facilities. Vacuum cleaner producers were  acquired in the United States and in France; and to gain captive sales for vacuum cleaner. Electrolux  acquired commercial cleaning service firms in Sweden and in the United States. A French Kitchen  equipment producer, Arthur Martin, was bought, as was a Swiss home appliance firm. Therma, and a  U.S. cooking equipment manufacturer, Tappan. Except the Facit purchase, the above acquisitions all involved firms that produced complementary lines  that would enable the new parent to gain certain scale economies, However, not all the products of  acquired firms were related, and Electrolux sought to sell off unrelated businesses. In 1978 for example,  a Swedish firm, Husgvarna, was bought because of its kitchen equipment lines. Electrolux was able to  sell Husqvarna’s motorcycle line but could not get a good price for the chain saw facility. Reconciled to  being in the chain saw business. Electrolux then acquired chain saw manufacturers in Canada and Norway, thus becoming one of the world’s largest chain saw producers. The above are merely the most  significant. Electrolux acquisitions: the firm made approximately fifty acquisitions in the 1970s. In 1980, Electrolux announced a takeover that was very different from those of the 1970s. It offered  $175 million, the biggest Electrolux acquisition, for Granges Sweden’s leading metal producer and fabrication Granges was itself a multinational firm (1979 sales of $ 1.2 billion) and made about 50  percent of its sales outside of Sweden. The managing Directors of the two firms indicated that the major  advantage of the takeover would be the integration of Granges aluminum, copper plastic, and other  materials into Electrolux production of appliances. Many analysts felt that the timing of Electrolux’s bid  was based on indications that Baijerinvest, a large Swedish conglomerate, wished to acquire a non— ferrous matels mining company. Other analysis felt that Elctrolux would be better off to continue  international horizontal expansion as it had in the 1970s. The analysts pointed to large appliance makers  such as AEG Telefunken of West Germany that were likely candidates for takeover because of recent  poor performance.

 Questions: 1. What are Electrlox’s reasons for direct investment? 

2. How has Electrolux’s strategy changed over time? How has this affected its direct investment  activities?

 3. Which of Electrolux’s foreign investments would be horizontal and which would be vertical? What are  the advantages of each? 

4. What do you see as the main advantages and possible problems of expanding internationally primarily  through acquisitions as opposed to building one’s own facilities?

 5. Should Electrolux take over Granges?