What Lies Ahead for Electrolux - Essay Example

Corporate Global Strategy: What Lies Ahead for Electrolux 5 January, 2007 Corporate Global Strategy: What Lies Ahead for Electrolux Section A: Analysis and Evaluation 1) Internationalism paths taken in entry and development of North American and Indian Markets: In a business environment, a visible brand name such as "Electrolux" can easily determine success or failure in the marketplace. Some companies have established their reliability over time, and the public automatically accepts the quality the name implies, for instance, Maytag, a company owned by Whirlpool (Whirlpool, 2006). Whirlpool manufactures a wide variety of appliances and has benefited from Maytag's positive image because they have made sure the Maytag brand was connected to Whirlpool. Maytag marketed their washing machines in North America with an advertising campaign focusing on reliability-the Maytag repairman never had anything to do because the machine was so well made. All of Whirlpool's products benefited from this. If the Maytag washing machine gave up its brand name, as Electrolux did with its most popular product-vacuum cleaners-this would be devastating for the company. Brand names trigger specific acceptance or rejection of products, and when Electrolux gave up the name for its vacuum cleaners, it lost much of its customer base in the United States because the public was unaware of the variety of Electrolux products available. In India, the Kelvinator refrigerator had an equally respected brand visibility, and Electrolux tried to benefit from this when they entered the Indian market in 1995. Unfortunately, the company name in India was Electrolux Kelvinator Ltd, developed through a series of mergers and a multi-branding approach which in turn created an unclear position for Electrolux. 1a) Internal and external internationalisation triggers and methods Until 1965, Electrolux in America was limited to the manufacturing and distribution of vacuum cleaners, and the product became so well established through its internal method of door-to-door marketing and home demonstrations that the American public identified Electrolux solely with vacuum cleaners. Although the company expanded its line to manufacture a wide variety of home appliances and products, Electrolux sold its rights to the Electrolux name, thinking it to be a positive move, but it was not, and the company recently paid $50 million to recover it. The success of the company throughout Europe kept it from going under, but in America, even with the Electrolux name restored, external problems continued in marketing. Unfortunately, Electrolux AB's effort to regain a popular single brand name for its American products has failed because the public does not relate the Electrolux name with products sold under different, more familiar names such as Eureka (the Electrolux vacuum), Frigidaire, and Tappan. Electrolux's marketing strategy had always advocated going to the customer rather than the customer coming to them. Door-to-door sales gave way to demonstrations at trade fairs and retail shops, but the strategy did not have the desired effect. This led to replacing retail shops previously selling one brand exclusively with retail stores called "Electrolux" which carried all the company's brands. In turn, the company had internal problems with plant closings and layoffs, and, according to the case study by Mathew and Gandlur (2004), brand ratings in the United States showed Whirlpool at the top of the list with Frigidaire in ninth place and other Electrolux brands even lower. In India, Electrolux never gained a foothold in the market, basically because the company was already far behind companies like LG and Samsung which entered the market in 1995, around the same time as Electrolux. In addition, Electrolux followed the same path in India as they had in the United States with a multi-branding approach. Electrolux had Kelvinator, Allwyn, Voltas and Maxclean brands apart from their own brands and every brand had its own set of product ranges and trade partners. Different branding strategies were tried out over the years, but the public had no clear picture of what was available. In January 2004, all the brands were brought under the Electrolux umbrella but again it was necessary to close plants and cut back on the number of employees. It would appear that Electrolux showed a serious lack of foresight in planning their entry into India, and the result was lack of stability for them in the marketplace. Whilst Electrolux in North America started out as a successful, well known, though small, business, Electrolux in India never established itself with a recognisable brand. Between 1998 and 1999 the company had three options: Stay with Kelvinator and absorb it into an umbrella brand, retain Electrolux as the single brand name, and the third was to adopt a multi-brand strategy, which was the final choice. In the meantime, the Kelvinator brand was losing its positive image even though advertising was directed toward Kelvinator and Allwyn rather than the mother brand, Electrolux. In a span of two years, according to Mohanty and Mahav's case study (2004), four different advertisements were created for Kelvinator, and none of them did what was hoped for. 1b) Main Benefits of Internationalisation to Electrolux at Different Stages Even though Electrolux in the U.S. changed its product line in 2000 to project the name 'Electrolux' as producing top-of-the-line European Style appliances in order to target the upper-income group of consumers, the name had been associated for too many years with low-end and discount appliances for the middle-income buyer. The company's effort to establish a high-end brand has not been successful in North America. However, in Europe, Electrolux continues to be known worldwide for its high-end quality products and as of 2004, according to its annual report, it was No. 1 in estimated market shares in Europe though No. 3 in the United States (Electrolux Consumer). As Electrolux in Sweden attempted to change the American view of its products, it was also looking at expanding the international aspects of its company throughout Europe, Asia, Eastern Europe and South America. Even with its problems in India, Electrolux benefited from its European success, and its presence in India was seen as a situation in which the company was still trying to find its way with an attitude of wait-and-see. With a recent change in top management, the company promises to focus on environmental and social impact of their products. When its sustainability report was published in 2004. Global warming and greenhouse emissions were not considered as important as they are as we go into 2007, and in this respect, Electrolux shows its ability to look ahead, something the company has not always done. The public is becoming more concerned about water and energy supply, and Electrolux is concentrating on the user stage of their products, especially washing machines, as well as other appliances, to reduce consumption with more efficient machines (Our World, 2004). 1c) Which of Bartlett and Ghoshal's four typologies best describes Electrolux's strategy and has it changed over time The strategy described by Bartlett and Ghoshal (1989) that best fits Electrolux is the definition for a multinational firm characterized by decentralization and by high levels of subsidiary autonomy with emphasis on development of local resources to exploit local opportunities. Unfortunately, this approach has not always worked well for the company, mainly because Electrolux AB concentrated on where they were going when they developed the market in North America and India rather than on where they were coming from. They neglected to take into consideration the popularity of Electrolux's high-end products in Europe, where they were doing well. They had turned Zunissi's Portia plant in Italy into the world's largest washing-machine plant. Because of the Scandinavian flair for modular design, the company's Swedish and Finnish units were assigned the integrated kitchen-system business (History, 2006). However, by the late 1980s, Electrolux's portfolio included more than 20 brands sold in four countries with continuing acquisitions throughout the decade. In the 1990s Electrolux had a patchwork quilt of companies, each with a different product identity. In the current decade, a service-based economy has evolved, and it is more important than ever to meet both employee and customer expectations and needs. The company is making an effort to meet globilisation demands and address challenges of an expanded market that relies more and more on technology. In order to succeed in business, targets and goals must be established on a transnational plane to gain power and meet competition. Electrolux has attempted to do this, but they did not take into consideration what needs to happen within the company. Various plant closings and employee layoffs did little internally to offset employee dissatisfaction, and, if workers are not able to take pride in their company by being consulted about what should be done, quality of product is bound to suffer. In the two case studies presented for this paper, the attitude of the workers was not addressed. Business success depends on creating a stable environment for employees whilst creating a lack of balance for the opposition on a global basis. It is up to Electrolux to change their strategy to that of Bartlett and Ghoshal's transnational theory, with a firm that operates as a highly integrated network, where resources are dispersed from jointly developed, globally shared and highly coordinated processes. Section B: Issues in Development of Electrolux in Czech Republic 2) Relevant Theory for a Global Industry Entry of a business into another country immediately creates obstacles brought about by differences in culture. The Geert Hofstede model (Geert Hofstede, 2002) offers insights into various cultures which can be compared to a home culture. By doing so, it quickly offers the different levels of thinking and behaviour that must be explored and overcome in establishing an extension of the organisation in an unfamiliar setting. Hofstede offers a simple chart (Table 1) utilising his five dimensions of cultural behaviour as follows: Power Distance Index (IDI) - Suggests that followers as well as leaders endorse a society's level of inequality. The higher a country's score, the more unequal it is. Individualism (IDV) - With loose ties between individuals, compared to the other end of the spectrum where people from birth are integrated into strong, cohesive in-groups. The higher a country's score, the more independent its members are. Masculinity (MAS) - Refers to distribution of roles between genders. Men's values contain a dimension from assertive and competitive to modest and caring. The higher a country's score, the more assertive and competitive it is and more differentiation of gender roles exists. Uncertainty Avoidance Index (UAI) - One culture offers strict laws and rules to avoid uncertainty and another is tolerant of different opinions and tries to have as few rules as possible. The higher a country's score, the less tolerant it is. Long-Term Orientation (LTO) - This dimension was developed by a group of Chinese scholars and goes from those advocating thrift and perseverance to those advocating respect for tradition. Sweden and the Czech Republic were not studied. The higher a country's score, the more it leans toward perseverance rather than appreciation of tradition. The Czech Republic has become the target area for big business, and several companies have a strong presence in the country, but cultural differences must be understood when a company such as Electrolux moves in to a foreign company. Koda Auto is a Czech automobile manufacturer, one of the four oldest car producers in the world. In 1991, it became a subsidiary of the Volkswagen Group, and has continued to be successful in the world market. One reason for this could be due to the founder's experience with cultural misunderstandings. When he wrote to a German bicycle company in his native language requesting parts for his bicycle, he received a reply in German that he should write in a language they could understand. He never forgot this valuable lesson in communication. 2a) Issues surrounding national competitiveness as it is exists in Czech Republic Relevant areas of the global marketplace are Asia, Eastern Europe, and South America. These areas are rapidly growing markets which need to be carefully studied to predict the future of the global community. A study of specific local companies in the Czech Republic indicates the various approaches to business in a global community as they relate to Porter's Diamond (Appendix 2). 1. Pilsner Beer - Czech beer, brewed in the Czech Republic, at one time was known as the Pilsner brand and was in high demand. Unfortunately, the company lost control of the Pilsner brand name, as Electrolux did with vacuum cleaners, and the name became synonymous with general brands of beer rather than specifically Pilsner (Pilsner, 2006). Obviously, Pilsner did not follow Porter's suggestions in regard to competition. 2. The Czech Republic, as one of the EU accession countries, was adopting the EU legislation on energy labels in the 1990s, according to a recent case study, but discipline of manufacturers and retailers of energy appliances had not been very promising (ELAR, 2006). It was important for the public to be made aware of energy efficiency, and the project is now considered successful. Although Electrolux Cz, sro, is involved and has contributed to the programme's success, it is Whirlpool, also involved, who has benefited in the public relations area. 3. Finally, the Czech Republic's well-known glass and jewellery company Jablonex-"where glass and jewellry are home"-has taken advantage of innovative high technology with a recently developed CAD program that offers customised jewellry to its customers (Information, 2006). The appeal of this programme creates a worldwide demand. 2b) Issues surrounding multinational activity and FDI Unfortunately, even in 2005, Electrolux had not set itself up globally as a high-quality brand. An idealised company is one whose upper management recognises the need to build and manage a different kind of worldwide company (Bartlett, 1989), and it appears that Electrolux has been very slow to realise this. According to Carl Altomonte (2000), the findings in his article "make a strong case for distinguishing between FDI inflows induced by domestic protection and those undertaken predominantly on export profitability considerations in analyzing the economic impact of international production on the host country" (p. 30). 2c) Issues of National/International culture According to Bartlett (1989), the transnational company requires efficiency as a means to achieve global competitiveness; flexibility and local responsiveness as a tool for achieving flexibility, and innovations throughout the company. Until Electrolux in its home office understands how important it is to understand foreign cultures, with major differences as noted by the comparisons between countries utilising the Geert Hofstede culture chart (Table 1), the future of Electrolux as a global giant is in jeopardy. 2d) Issues concerning globalisation versus localization of products/services The final conclusion to be reached in studying Electrolux's global presence is that the company is slowly beginning to understand its strengths and weaknesses, as noted in the SWOT analysis (Appendix 2) but until it addresses those areas more closely as noted in the Porter Diamond (Appendix 1), it will not capture the highest market shares. The approach to its North American market must be different from its approach in India and Eastern Europe, with wide disparity in high and low percentages on the Geert Hofstede scale. Each country has its own set of cultural requirements. The opportunities are there for a company which increases its knowledge base, especially in the area of digital technology. The threats are obvious, with competition growing every day and Whirlpool's standing still far above Electrolux. Sweden, the home country of Electrolux has a number of world clusters in various markets. Unfortunately, local companies in these clusters are well established and competition is high. Also, Sweden's entry into the world market is weakening its Swedish clusters. In this respect, Sweden is looking to outside sources to recruit skilled workers (Birkinshaw, 2001). Table 1 GEERT HOFSTEDE CULTURAL DIMENSIONS Country PDI %* IDV%* MAS %* UA1 %* LTO %* World Averages 55 43 50 64 45 United States 35 91 58 41 22 Sweden 23 62 10 36 -- Czech Republic 35 58 45 74 -- India 77 40 56 40 61 PDI - Power Distance IDV - Individualism MAS - Masculinity UAI - Uncertainty Avoidance LTO - Long Term Orientation Appendix 1: Porter's Diamond NOTE: In a world market, it is not enough to use basic factors such as land, location, natural resources, labor, and local population size. Once these factors are in place, Porter's Diamond recommends further factors for competitive advantage by creating clusters of activities in and between companies. Rivalry leads to Demands for innovation and quality, and this in turn leads to exchange of ideas with Supporting Industries. The next step is to incorporate specialized Factors such as heavy, sustained investment. If other firms are unable to duplicate these factors, the company has a competitive direct cooperation and enforcing anti-trust regulations (Diamond model, 2006). advantage. Government acts as a catalyst and challenger encouraging companies to raise their performance by limiting direct cooperation and enforcing anti-trust regulations (Diamond model, 2006). Appendix 2: SWOT Analysis References Altomonte, Carlo. 'Economic determinants and institutional frameworks: FDI in economies in transition. (2001). Transnational Corporations, Vol. 9, No. 2, August 2000. Viewed 31 December, 2006. http://www.unctad.org/en/docs/iteiit21v9n2_en.pdf Bartlett, C.A. and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Harvard Business School Press. Birkinshaw, J. 'Swedish Open: The need for attracting foreign skills'. (2001). ISA Council of Economic Advisors. Viewed 31 December, 2006. http://www.isa.se/upload/english/Publications/Swedish_Open.pdf Diamond model - Michael Porter. (Last updated 27 September 2006). Value Based Management.net. Viewed 1 January, 2007. http://www.valuebasedmanagement.net/methods_porter_diamond_model.html ELAR - Energy Labelling of Household Appliances, Czech Republic. (Last modified 11 January, 2006). ManagEnery.net. Viewed 4 January, 2007. http://www.managenergy.net/products/R671.htm Electrolux Consumer Durables. (2004). Electrolux Annual Report 2004. Viewed 29 December, 2006. http://ir.electrolux.com/html/annual2004en/20050614/page.phppage=36&mode= 'Electrolux quick facts'. (2005). Electrolux Corporate Information. Viewed 31 December, 2006. http://www.electrolux.com/node93.aspx 'Geert Hofstede Cultural Dimensions'. (2002). ITIM International. Viewed 1 January, 2007. http://www.geert-hofstede.com/geert_hofstede_resources.shtml 'History Time Line'. (2006). Electrolux Corporate Information. Viewed 31 December, 2006. http://www.electrolux.com/node295.aspx 'Information regarding Design for Customer Project'. (27 October, 2006). Viewed 4 January 2007. http://www.jablonexgroup.com/ Mathew, M. and Gandlur, S. (2004), 'Electrolux: Reinventing Operations in North America', ICFAI Business School Case Development Centre, Hyderabad, India Mohanty, D. and Madhav, T. P. (2004), 'Electrolux in India', ICFAI Business School Case Development Centre, Hyderabad, India 'Our world our approach: Electrolux sustainability report'. (2004). Viewed 29 December, 2006. http://www.electrolux.com/Files/Sustainability/Sustainability_reports/sustainability_report_2004.pdf 'Pilsner'. (27 December, 2006). Wikipedia. Viewed 4 January, 2006. http://en.wikipedia.org/wiki/Czech_beer#Pilsner 'koda Auto'. (31 December, 2006). Wikipedia. Viewed 4 January, 2007. http://en.wikipedia.org/wiki/%C5%A0koda_Auto 'Swedish Open: The need for attracting foreign skills'. (2001). International Studies Abroad (ISA). Viewed 2 January, 2007. http://www.isa.se/upload/english/Publications/Swedish_Open.pdf 'Whirlpool complete acquisition of Maytag 2006'. 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