CASE STUDY

ELECTROLUX ACQUISITIONS
Electrolux, the worlds largest manufacturer or electrical household appliances, once
pioneered the marketing of vacuum cleaners. However, not all products bearing the Electrolux
name have always been controlled by the Swedish firm. For example, Electrolux vacuum cleaners
were independently sold and manufactured in the United States from the 1960s until 1987. The
Swedish firm also manufactures Eureka vacuum cleaners.
Electrolux pursued its early international expansion largely to gain economies of scale
through additional sales. The Swedish market was 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 still was able to gain certain scale economies through the establishment of
foreign production. Research and development expenditures and certain administrative costs thus
could be spread out over the additional sales made possible by foreign operations. Additionally,
Electrolux concentrated on standardized production to achieve further economies of scale and
rationalization of parts.
Until the late 1960s, Electrolux concentrated primarily on vacuum cleaners and building 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 goal was to add appliance lines tom complement those developed internally. Its profits
have enabled Electrolux to go on 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 increases the sales of those firms. In 1973 Electrolux acquired
another Swedish firm, Facit, which already had extensive foreign sales and facilities. Electrolux
acquired vacuum-cleaner producers in the US and in France; to gain captive sales for vacuum
cleaners, the company bought commercial-cleaning service firms in Sweden and the US. Electrolux
also bought a French kitchen-equipment producer, Arthur Martin, along with a Swiss homeappliance firm, Therma, and a US cooking-equipment manufacturer, Tappan.
Except for the Facit purchase, these acquisitions all involved firms with complementary
lines that would enabled the new parent to gain certain scale economies. However, not all of the
acquired firms products were related, and Electrolux sought to sell off unrelated business. In 1978,
for example, Electrolux bought a diverse Swedish firm, Husqvarna., because of its kitchenequipment lines. Electrolux was able to sell Husqvarnas motorcycle line but could not get a good
price for the chain-saw facilities. Reconciled to being in the chain-saw business, Electrolux then
acquired chain saw manufacturers in Canada and Norway thus becoming one of the worlds largest
chain-saw producers. The firm made approximately 50 acquisitions during the 1970s.
In 1980, Electrolux announced a takeover distinguished from those of the 1970s. It offered
$175 million, the biggest Electrolux acquisition to date, for Granges, Swedens leading metal
producer and fabricator. Granges was itself a multinational firm (1979 sales of $1.2 billion) with
about 50% 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,
plastics and other materials into Electroluxs appliance production. Many analysts felt that the
timing of Electroluxs bid was based on indications that Beijerinvest, a large Swedish
conglomerate, wished to acquire a nonferrous-metals mining company. Other observers thought
that Electrolux would have been better off to continue international horizontal expansion, as it had
in the 1970s.

Since the Granges takeover, Electrolux has resumed its acquisition of appliance firms. It
bought Italys Zanussi to become Europes top appliance maker with 23% of that market. In 1986 it
acquired White Consolidated Industries, the US manufacturer of such appliance brands as
Frigidaire, White-Westinghouse, Kelvinator, and Gibson. This made Electrolux the largest
appliance maker in the world; however, this lead was short-lived as Whirlpool acquired a
controlling interest in the appliance business of Phillips, a Dutch giant.
Meanwhile, other producers were growing through consolidation as well. Maytag, for
example, acquired such brands as Magic Chef, Admiral, and Norge and then combined European
operations with Hoover. The Electrolux president, Anders Scharp, said that industry consolidation
would not allow for much more growth through acquisition of household-appliance firms. One
wonders whether Electrolux can continue making so many acquisitions because its sales have been
increasing much more rapidly than its profits. The company has had a penchant for buying poor
performing firms cheaply and then spending heavily to turn them around.
Electrolux and its competitors were becoming global appliance producers even though this
traditionally has been an industry in which companies have sold little outside their home countries.
The varying sizes of kitchen from one country to another complicated international standardization
of models, but Electrolux was betting that life-styles in the industrialized nations would be
increasingly similar. If they were right, the company could take advantage of economies of scales
in technical breakthroughs and designs. In 1990 Electrolux admitted its difficulty in streamlining
operations. Within Europe alone it had 40 different brands of refrigerators selling 120 basic designs
with 1500 variants, and the company was adding models to hit specialty niches. Meanwhile,
Whirlpool has been adding its name (Phillips/Whirlpool) to appliances sold in Europe though its
acquired operations there. The plan is to drop the Phillips brand name once European consumers
accept the Whirlpool name.
Questions:
1. How has Electroluxs strategy changed over time? How have these changes affected its
direct investment activities?
2. What are the main advantages and possible problems to a company of expanding
internationally primarily through acquisitions as opposed to building its own facilities?
3. Should Electrolux have taken over Granges?
4. What will be the future global competitive situation in household appliances and how does
that fit with the Electrolux strategy?