Bus 40 International Business
Global Business Today: Chapter 6- Case Discussion Questions
1. The history of Electrolux has demonstrated that the company has always looked
to markets outside its home country of Sweden for sales of its household appliances.
In the early 1990’s the company could see that the markets that they had
established in Western Europe and North America had matured; meaning that future
growth in these same markets would be very limited. However, the company reasoned
that demand for household appliances in other parts of the world would surely
increase. This would especially be true in areas such as Asia, Eastern Europe
and Latin America. General Electric and Whirlpool, also large household appliance
manufacturers, made similar plans at this time to expand their markets into
these areas.Therefore, in order to stay competitive and to maintain its growth
rate, it was necessary for Electrolux to act quickly and aggressively pursue
these markets.
2. The goal of Electrolux to expand their market was ambitious. The company
realized that to accomplish their goals they must take advantage of different
options before them. One option, for example, would be to acquire existing companies
that already had manufacturing facilities and a strong consumer presence in
a particular area. This was the case when they bought Lehel, Hungary’s
largest maker of household appliances. In doing so they were able to quickly
establish a consumer base in this country and avoid the costly start-ups those
new production facilities would have required. However, Electrolux opted for
wholly owned subsidiaries in other countries such as Russia, Poland, and the
Czech Republic. Their reasoning could have been that suitable production facilities
were not available in these countries, thus making green-field investments the
only other reasonable option.
3. It is likely that given the aggressive approach that Electrolux has taken
in market expansion, that the company realizes that globalization is not just
a trend, but in reality that will continue to effect world economy. No doubt
they view the whole world as a market. This being the case, barriers still exist
for them to gain a global market share. For example, tariffs on some foreign
products can dramatically increase the cost to consumers in the countries that
import these products. Often, these tariffs are designed to protect the jobs
of the competitors in the host countries. Transportation costs associated with
certain products being exported to other countries can also have similar effects
on consumer prices. Research has shown that in many cases it is more economical
for a company to have production facilities close to the consumer market in
which they desire to expand. These are some likely reasons for the preference
that Electrolux has shown in using foreign direct investments, as opposed to
exports, in gaining a share in foreign markets.
4. The household appliances that are manufactured by Electrolux find many competitors
worldwide. Some of these companies, along with Electrolux, are major players
in the global marketplace. Rival companies such as General Electric, Whirlpool,
and Bosch-Siemans have also taken an aggressive approach in expanding their
market on a global scale. It is likely that these major competitors keep a close
watch on the other’s moves, especially when it concerns their foreign
direct investment patterns. Accordingly, Electrolux has shown a general tendency
to establish its market where these other companies have made, or are in the
process of establishing, production facilities.
Electrolux moved quickly to expand its market into other foreign markets when
their main rivals announced plans to move into these areas. Though other FDI
theories cannot be ruled out, this imitation behavior by Electrolux seems to
support the strategic behavior theory.
** Minor mechanical errors/typos have been corrected by the creators of CHARLIE