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Electrolux AB is a company that deals in the manufacture and selling of household appliances as well as the appliances for professional products. The company is based in Sweden and the household appliances include appliances such as cookers, refrigerators, freezers, floor-care products, dryers, dishwashers, washing machines, room air-conditioners, microwave ovens, and minor home appliances. Professional products manufactured comprise food-service equipment for restaurants, hotels, and institutions and include laundry apparatus used for commercial laundry services in hotels and other professional users. Electrolux AB markets these domestic and professional products under different brand names such as Electrolux, Frigidaire, AEG, Zanussi and Eureka and is the leading global manufacturer of vacuum cleaners, especially the Electrolux and Eureka brands (Group.electrolux.com). The Electrolux Group is made up of nearly 150 companies merged together and operations in over 50 countries some of which include countries like United Kingdom, Argentina, Canada, Australia, Belgium, Finland, Brazil, Chile, China, Germany, Denmark, France, Luxembourg, Hungary, Italy, Mexico, the Netherlands, Poland, Norway, Spain, Switzerland, Sweden and the United States, among many others (Annual Report 2011).

There are several corporate strategies that companies employ to maintain their market lead and to improve productivity. Some of these strategies include merger with other existing companies or acquisition of companies whose businesses are similar, international expansion and maintaining the e current business among other strategies (Corporate Strategy, 1979). Electrolux AB has extensively employed the merger and acquisition corporate strategy to maintain their world market lead in the manufacture of appliances and has currently merged and acquired approximately 150 companies. This has improved its capital and market base around the world. Some of the major companies Electrolux AB has acquired include Videocon Industries Ltd, Antonio Merloni-Factory that was done on OCT 16, 2010, Olympic Grp for Finl Invest bought from the Paradise Capital Holding in JULY 2011 and in September 5, 2011 (Group.electrolux.com), Electrolux completed its tender offer to purchase the whole share capital of a Cairo-based company called Olympic that deals in manufacturing, retailing and wholesaling household applications, for EGP Olympic Group in Egypt (Alacrastore.com).

According to Alacrastore.com, Electrolux AB used merger approach which involves long term strategic owning of target acquired company. This method of M&A process is intended to create synergies in the long term through increasing market share of the acquiring company, expansive customer base, and improve the corporate strength of business (Heneman, 2000). Electrolux started acquiring companies in the 1960s, and has maintained the trend to date. By 1969, the company had bought Norwegian Elektra, ElektroHelios, Danish Atlas, Flymo, Finnish Slev, and many others (Group.electrolux.com).

Benefits of Merger and Acquisition Strategy

The prevailing rationale that is used to expound on the activities of M&A is that acquiring corporations seek upgraded financial performance. The motives below are regarded to improve economic performance. The merged company’s benefits from economy of scale, because the joint company can usually lessen its fixed overheads by getting rid of replica departments or tasks, thus reducing the expenditure of the firm in relation to the same proceeds stream and in turn leads in the accumulating of profit margin (Alacrastore.com).

Economy of scope is another benefit to the merging companies. It refers to the competence mainly connected to demand-side variations, like increasing or reducing the range of marketing and delivery of a variety of products to both companies. Equally, when a company acquires another and operates as one, it benefits from increased revenue or market share of the Electrolux. This is because it assumes that Electrolux will be absorbing a key competitor and in consequence increases its market strength to set major target (Werther & Chandler, 2011).

In addition, when company merges they benefit from cross-selling. Like when a bank is buying a stock dealer, it could also sell other products to the investment dealer of the customer. At the same time the dealer can register the banks client for the accounts that are brokered. Alternatively, a producer can obtain and sell complementing items. Moreover, when company merges they are able to purchase products in bulk and benefit from bulk-buying discount as a result of the synergy. These are benefits associated with big organizations for example, administrative economies like increased chance of administrative specialization. Many companies opt for merging in order to minimize their tax liability. In this case, the company that is making more profit can acquire a loss making company to use the aimed loss as a benefit to them thus decreasing the tax burden. For example, in the United States as well as other countries, regulations are set to limit the profitable company’s capability to purchase for companies that are making losses, thus regulating the acquiring company from a tax purpose.

Also, merging companies are able to diversify geographically. As a result of combined ideas, capital and other investment plans. This is aimed at aligning the income result of a firm, which along the period ensures the streamlining of prices of a company’s stock, which gives conventional financier more assurance in capitalizing in the organization. In contrary this does not constantly brings value to the owners. Merger and acquisition gives Electrolux an advantage of resource transfer where resources are unequally distributed across several firms. This helps the company spread the risks of operation such that in a case one segment of the merger fails to achieve the goal in terms of performance; the other segment can achieve the goals (Alacrastore.com). This reason gives Electrolux AB and the merged companies a chance to combine scarce resources needed especially when the capital required for entry into certain market is higher. The resources transferred in this case include the experienced human resource conversant with the business operations of particular regions (Heneman, 2000).

Methods of Merger and Acquisition

Vertical integration: this occurs when upstream and downstream companies merge or in a case one buys the other. Such mergers have taken place in Electrolux where the company acquires a downstream firm commanding a particular international market and is beneficial to internalize an existing external challenge affecting the two firms (Chesnais, 2000). This strategy allows Electrolux to generate value by generating its own inputs and distributing its own appliance products, especially in a case the company intends to reduce its input costs by generating its own inputs such as distribution costs but still maintain delivery of quality services to its customers (Corporate Strategy, 1979).  For example, Electrolux AB entered into agreement with Cairo-based Company called Olympic that deals in manufacturing, retailing and wholesaling household applications since the company enjoys substantial monopoly in the selling appliances in Egypt just like Electrolux (Annual Report 2011). Such monopoly forces the two firms to reduce their productivity from the competitive phase to the monopoly phase, thus leading into underutilization of the full potential of a firm. To avoid such rivalry, the companies merge their operation to consolidate their customer base and to capitalize in their monopoly to win more customers to increase earnings of the firms and consumer surplus.

Hiring; this method of acquisition majorly takes place when the acquired company is a small private company or when still a starting business, but with talented staff for example in marketing that requires. Electrolux which is the acquiring company leases the talented staff of the target private company making the small company to be dissolves after meeting limited legal issues.

Absorption of businesses; this occurs when similar businesses are absorbed to operate under single management as was the case between the Cairo based Olympics and Electrolux group. Electrolux AB has expanded over the years using mergers and acquisitions which have improved their capital base, customer base improved expertise from the respective acquired companies.

Suggest Potential Corporate Strategies for the Company

Corporate strategies are dynamic depending on the business environment the company operates in. One of the potential corporate strategies that Electrolux AB can use includes;

1. Corporate-level growth strategies concentration; this strategy focuses on growing the existing businesses the company currently holds also known as stability strategy. This is done by entering new markets to seek more markets for the appliances and will make the corporation larger through growing each segment of the business that will in turn grow the sales (Chesnais, 2000).  Electrolux AB can also enter more markets and businesses than are not currently explored through vertical or horizontal Integration, or through acquisition of companies operating in markets where the there is no presence Electrolux. This can include expansion of own unit to venture in untapped business area (Heneman, 2000).

2. Diversification strategy; this is a growth strategy that Electrolux needs to adopt where different products not limited to the currently manufactured are made available both to the households and the commercial sectors. This strategy will ensure that all necessary home and industrial appliances are manufactured to make Electrolux a one stop shop for all, where any category of customers can get all types of appliances they may need. Diversification also comprises acquiring or integration with other companies or business units in different but related industries that to create synergy that would not be achieved if operating independently.

3. Global product strategy; this strategy seeks to venture in to the international markets as has been implemented by the Electrolux group currently operating in approximately 50 countries. However, the strategy focusses on same product in all the markets without any customization of products based on market differences (Ward, Prammer & Schopper, 2005).  This strategy is beneficial to the Electrolux group since it utilizes similar marketing approach in all markets and the standardization of production process offers lower production cost. On the other hand, this strategy may not be beneficial to the company since it disregards national differences that native competitors can address to their advantage. The local competitors may embrace multi-domestic product strategy where they customize products to meet specific demands and may use the strategy to gain and control the local market share.

4. Retrenchment and exit retrenchment; Electrolux AB can also close down the smaller unprofitable business units that weakens the overall performance of the group. This is a strategy that is used to stabilize operations in the cash cow businesses rechanneling the resources to the growing units. This strategy can also be adopted by the group to minimize production cost but maximize profits of the company (Werther & Chandler, 2011).

Business/Product Portfolio Analysis (BCG Matrix)

Analysis using BCG matrix is useful for a multiproduct company like Electrolux group that deals in several appliances both for households and professional bodies. To analyze the business portfolio for Electrolux, the matrix looks at market growth rate and relative market share of the company based on the two segments in relation to the four categories of business performance.

These include products or businesses lines that perform well in high growth markets though with low market share. This usually happens when a company is acquired resulting in a new product launch into the new market, especially if there is an existing market (BCG Matrix). There is always concern that the new unit may or may not compete effectively in the long run because of the eminent threats. Electrolux management in this case faces the same fear for the newly acquired Cairo based Olympics company in relation to the possible weaknesses that would hamper Electrolux product development, market penetration and market development that would eventually affect performance

Electrolux group management needs to identify the business segment, markets, and products that are the market leaders and experiences high growth rates. These are usually the segment that expands faster with stable earnings in the long run. Such segments need reinvestment to maintain growth momentum and to preserve the leadership position. Stars category provides the foundation for long term growth and profitability. The company therefore need to that ensure proper integration both forward, backward and horizontal, market penetration, market development are maximized through the mergers and acquisitions of any relevant company that can build their operation (BCG Matrix; Chesnais, 2000).

This category of business is the most profitable in the business portfolio. It is characterized by high market share in low growth area where opportunities for investments are saturated. Electrolux must therefore identify their highly profitable segment of appliances and business that is enhanced by economies of scale to maintain strong lead in the performance. Cash Cows are usually the sustainers of nosiness and must be protected to ensure continuity of Electrolux group (Boston Consulting Group Matrix). The strategies that Electrolux AB needs to employ in this category include product development and concentric diversification. However, if the performance continually declines, the management should consider employing retrenchment strategy to avoid getting to the ‘dogs’ phase.

Dogs

This category involves business units and branches that experience low-market shares in slow growth markets. Maintenance of such units may be expensive for Electrolux, thus the corporate management and should consider revitalizing, liquidating or be divestment. This can include the acquired companies that Electrolux find to be unprofitable (Boston Consulting Group Matrix).

This product portfolio analysis is also aided by SWOT analysis that that helps the management team to identify the strength of the corporation that the Electrolux need to focus on, the company weaknesses that should be avoided or improved, the opportunities to be tapped, and the threats in the business environment (SWOT analysis, 2009). It is noted that Electrolux AB has focused on the opportunities that has facilitated the identification of the companies to merge with and to acquire to maintain their lead position in the appliances industry world over.

The Competitive Strategy

Competitive strategy involves strategic management approaches that ensure that the overall company gains competitive advantage in the market they are operating. Competitive advantage makes a company to create or sell goods, in this case appliances more effectively than other competitors (David, 2011). Some of the competitive strategies that Electrolux management needs to consider include;

Cost leadership strategy allows a company to operate the lowest cost in the production of goods than any other company in the industry. This strategy if implemented will help Electrolux increase its sales volumes in all corporate segments and improve profits through economies of scale approach. Low cost of production will result into lower consumer prices charged on goods than competitors. Cost leadership strategies emphasizes on obtaining highest quality raw materials at the lowest price to produce high quality products (Chesnais, 2000).

To compete effectively, the Electrolux corporate managers need to adopt the strategies of differentiate their goods from others in the industry. This may involve actual differentiation where the company produces new products currently not offered in the market or having diversified products that meet specific needs. It may also involve perceived differentiation where Electrolux appliances are branded or positioned differently to be having unique features not found in the competitor’s products. The perceived differentiation is developed through marketing technique that describe similar product in different ways, to position the products as first choice in consumers’ minds (Ward, Koch & Harvey, 1998).

Product pricing is a vital element to ensure gain of competitive advantage. The strategies include penetration, skimming, economy, bundle, and promotional strategies. Penetration pricing is commonly used to gain new market share by setting lower prices, then gradually raise the price to normal level after stabilization (Ward, Koch & Harvey, 1998). This is very relevant for Electrolux especially after acquiring new companies. The management should also consider setting economy pricing that will ensure lowest prices possible, skimming price and bundle pricing strategy that will encourage consumers to buy several household or professional appliances together at slightly lower price.

The Development Strategy and Methods of Development

The product development strategies as developed by Ansoff framework indicate a marketing tool used to grow businesses and corporations. The tool assists marketers to achieve the set growth objectives of developing and selling products as the Electrolux do. These are categorized into four as discussed below (RapidBi, 2007).

 

Existing Products

New Products

Existing Markets

Market Penetration

 Product Development    

 New Markets

Market Development    

Diversification

Market Penetration; this strategy of market development involves marketing the existing products to the existing customers. This means that the overall Electrolux management does not develop any new appliances or seek any new market; instead they increase the company’s revenue by either promoting present product or repositioning the brand within the present market without seeking new consumers. Market penetration is the least risky strategy because it influences most of the corporation's present resources and capabilities (Ansoff, 2007).

Market Development; this strategy involves seeking fresh markets to sell the existing product range. This strategy has been widely used by Electrolux AB through the mergers and acquisition of new companies operation in different countries. This strategy is met by exporting the same product, or establishing new market regions (RapidBi, 2007).

Product Development; involves creatingnew product that has never been in circulation to be marketed to the current customers. These new innovated products are usually to replace present ones or to offer more choices to the customers based on taste and preferences. This strategy has also been employed by Electrolux corporate company by developing different brands such as cookers, refrigerators, freezers, floor-care products, dryers, dishwashers, washing machines, room air-conditioners, microwave ovens among others for household customers at different intervals. This strategy helps to recapture all customers and to create loyalty.

Diversification; this strategy involves adopting absolutely new products introduced to new customers. The diversification can either be related where the company remains in the same industry or unrelated where a company ventures into new unfamiliar (Ansoff, 2007). Venturing in unrelated industry may prove futile since the company has no experience in such markets and may take time before operations become productive. This is the most risky strategy that should always be avoided since it needs  fresh development of both product and market, and may be within the principal competencies of the company (RapidBi, 2007: Ward, Prammer & Schopper, 2005).).

Conclusion

Electrolux AB a Swedish company that deals in the manufacture and selling of household and professional appliances. The household appliances produced include cookers, refrigerators, freezers, floor-care products, dryers, dishwashers, washing machines, room air-conditioners, microwave ovens, and minor home appliances. Professional products manufactured comprise food-service equipment for restaurants, hotels, and institutions and include laundry apparatus used for commercial laundry services in hotels and other professional users. The corporation has extensively employed the merger and acquisition corporate strategy to maintain their world market lead, and has currently merged and acquired approximately 150 companies. Corporate strategies adopted are usually dynamic depending on the corporate environment the corporation functions in (Ward, Prammer & Schopper, 2005). To analyze the business portfolio for Electrolux AB, the matrix looks at market growth rate and relative market share of the company based on the two segments in relation to the four categories of business performance that include the question mark, the star, the cash cow and the dog categories. Companies must also embrace competitive strategies that can give them competitive advantage in the market. Finally, it is important for the company to adopt strategic management framework that involve product development, market penetration, market development, and product diversification (David, 2011: Chesnais, 2000).

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