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Electrolux Case Analysis

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Electrolux Case

Introduction * In 1912, Electrolux produced the first household vacuum cleaner known as the Lux 1 and in 1925, Electrolux entered the refrigerator market. * In 19151 first household washing machine and 1959 first household dishwasher was introduced. * Acquired over 300 companies from various countries and in 1997, Electrolux began restructuring program to improve its bottom line. * After success in the European markets, Electrolux appliances were introduced in North America in 2004 and Hans Straberg was appointed President and CEO in 2002. * Electrolux is worlds second largest appliance maker behind Whirlpool, 50,000 employees in over 50 countries

Product Offerings & Brands * Sells consumer durables (kitchen products, laundry products, floor care products) and professional products (food service equipment, laundry equipment) which are 40 million products in 150 countries. * Through its acquisition strategy in 1980s and 1990s, Electrolux has acquired different brands in global markets with various brands with half of the 40 million products sold under the global Electrolux brand.

Strategic Direction * Principle is to offer products and services that consumers prefer, they benefit both the people and the environment which consumers are willing to pay a h9gher price for. * In the premium market category of household appliances * Consumer driven company with the “Thinking of You” slogan shows that they place importance on focusing on customer needs. * Vision of the company coincides with vision of its founding father 90 years ago that said every home should have a vacuum cleaner and the vision is to surpass Whirlpool and become the world s largest manufacturer of household appliances. Vision illustrated with N America marketing campaign featuring Kelly Ripa with tag line “be even more amazing.”

Industry Environment * Sluggish salves moving through the current recession. Cash for Clunkers type of program for appliance industry which are meant to rid homes of non-energy efficient appliances but also increase demand. * To satisfy consumers, many companies are developing more and more energy star approved efficient products and in a environmentally friendly manner. * Paper published in 2008 showed that appliances are inelastic which means that appliances are a necessity * Appliance industry is mainly dominated by Electrolux and Whirlpool . Industry market capitalization is about 10 billion with industry profit margin of approximately 8.42%.

Competition * Whirlpool, only appliance industry ha a market capitalization of over 6 billion. * Prior to 2006, Electrolux was first but since Whirlpool acquired Maytag, that changed. * Whirlpool has 20 billion in sales, operating margin of 5.8% and growth rate of 8.8% which is below industry average of 29%. * Pro0ducts are medium cost and quality. They excel beyond the generic counterparts but fall behind in features of any luxury appliance brands offer. 67000 employees. * GE Appliances, subsidiary division owned by GE has product ix similar to Electrolux, they produce high quality ranges, overs, refrigerators similar to Electrolux products. * GE has a market capitalization of over 167 billion with one benefit being that with a diversifiable company, it can use resources from another division and reallocate resources to the appliance subsidiary if needed. * LG Electronics is privately owned subsidiary of LG, Lucky Star offers a lower cost product mix with few high end appliances but does not have certain features that other brands offer. * Lucky Star employs 28895 people and has an advantage because it is part of a very large diversified parent company like GE appliances.

Sustainability * Implementing a production restructuring program that involves reallocating approximately 60% of its manufacturing to low cost countries such as Mexico and China. * Electrolux has a goal of recuing its over all energy consumption by 15% of the 2008 levels by 2012 to achieve efficient energy consumption in its manufacturing process. * Company has goals specific to climate change, sound business practices, responsible sourcing and restructuring. * Launched green range of products to increase awareness of the company’s energy efficient and climate smart products. * The American Recovery and Reinvestment Act passed in 2009 earmarked 27.2 billion to energy efficiency and renewable energy research and investment so going green is incentivized by the government.

* Electrolux is in prime position to capitalize on this trend by rapidly rolling out energy efficient products that capitalize on todays consumer awareness and positions it well for tomorrows mandates.

The 2008-2009 Global Recession * Appliance market is impacted greatly by the fluctuations of the credit market. Retailers had limited credit to stock appliances and consumers had no budget so they rather fix their appliances than buy new ones. * As credit becomes available more homes are bought or remodeled which will increase appliance purchases * Like automotive industry, appliance market is facing competition from Asian companies like LG, Haier and Samsung, which will pose a challenge to Electrolux. * Electrolux just keep in mind that outsourcing might be risky because China’s wages are going to increase.

The Growing Middle Class in Asia * Asian families with income between 6 K and 30 K and growing, by 2020 there will be 1 billion more people ready to buy these appliances and expecting more due to long hours and expectations for appliances to satisfy their needs. * People ore concerned not just about what it can do but how, where and when is everything about the product.

Technical Advancements * Energy consumption is an important factor for selecting home appliances, * The ability to use different raw materials in developing appliances is also a technological opportunity. * Significant threat is the Internet giving consumers excessive access to information about products and services leading to greater price awareness.

Global Opportunities and Threats * Ability to manufacture at low costs is an important opportunity.so they relocate production to countries like Poland, Hungary, Mexico, China, Thailand to reach companies global market. * Several attractive markets are, Southeast Asia, Latin America, Mexico, Argentina and Brazil. * Identify companies, which introduced economy recovery plans like Brazil, which lead to an increase in demand. * As raw materials prices fluctuate, and natural resources companies have to be mindful about the changing economy.

Financials and Operations * The company’s income in all regions increased in 2009 primarily due to the lower cost of raw materials and cost cutting measured taken by the company. * In 2005 company’s net income loss was mainly due to the higher cost of raw materials, namely steel.

Innovation * Core competency is its unique focus on comprehensive innovation and ability to successfully create differentiated value in its products. * Electrolux takes cutting edge technologies and integrates them into products which cater to consumers tastes. The ability to combine practicality and aesthetics has made it one of the leaders in the industry * Ultra Silencer Green vacuum cleaner, 200G Compass Control Electrolux Industrial washer machine which notifies users when cycles are competed, Electrolux Calima washing machine for sensitive clothing are all examples of these innovations. * Electrolux listens to its customers and recognizing evolving consumer demands. * Electrolux has been unable maintain sales of high profit margin appliances in Germany, Spain, UK and China. * Due to low price competition and an inability to differentiate products such as refrigerators and dishwashers, the company only squeezed out low profits from these mature markets. * The return on the company’s current manufacturing facility assets has de lined significantly as a result of the past recession. * Although Electrolux has closer 16 plants and cut back production in 5 others, low capacity utilization is still a major issue that Electrolux must resolve in order to compete on price against other low process competitors. * Focused on value over volume, although it chose to lower its production utilization and lessen its inventory levels, due to the abrupt decline of consumer demand during the last recession, Electrolux has been stuck with inventory in factories.. * Just like Electrolux competitors experience this leads to an industry wide problem of increased supply with decreased consumer demand. This leads to a basic economic dilemma leads to downward pressure on prices and lower profit margins for Electrolux.

Conclusion

Electrolux has not maintained innovation, value and competitive advantage in its business units and with multiple brands and a lot of products that are hard to differentiate Electrolux does not have a sustainable competitive advantage. Electrolux should identify its strengths and harness them and work on its weaknesses to have a sustainable competitive advantage.

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