THE FORMULA Electrolux in the White Goods

THE FORMULA

Electrolux in the White Goods Industry Acquisition as the entry mode Acquisition HQ SUB Gives ‘instant market access´without generating over-capacity in the industry. Lowers entry barriers: - Brand names - Distribution channels - Retaliation by incumbent firms

Electrolux in the White Goods Industry The ideal long-term structure Product A Product C Product B Components

Electrolux in the White Goods Industry Electrolux’ formula 1. Expand through foreign acquisitions 2. Retain leading local brands 3. Centralize production to few locations: Close local production, transform acquired companies to sales subsidiaries 4. Centralize production of components 5. Coordinate global purchasing for increased bargaining power

Electrolux in the White Goods Industry Electrolux’ ideal division of labor “Cold” products Standard segment Microwaves Components “Wet” products Designer segment

Electrolux in the White Goods Industry Product/brand strategy 1. Locally supplied 2. Globally supplied according to local standard 3. Group standard 1. Locally supplied products and brands 2. Acquired brands, centrally manufactured according to local demand 3. Strategic products, centrally manufactured with global standard, rapid delivery

SCI in Funeral Services SCI - Services Corporation International 3, 420 funeral service locations, 433 cemeteries, 191 crematoriums in twenty countries and on five continents. Accounts for 11 per cent of all funeral services in the United States, 14 per cent in Great Britain, 25 per cent in Australia, 28 per cent in France.

SCI in Funeral Services SCI’s formula 1. Expand through acquisitions in metropolitan areas. 2. Retain local image of acquired companies. 3. Centralize a select number of resources, skills, and activities: Hearses, limousine services, embalmers, marketers, clerical workers.

ISS in Cleaning Services ISS’ formula in the (fragmented) cleaning industry 1. Employs fixed standards and routines for cleaning of large objects. 2. Acquires only when companies turn to ISS by own will (no competitive bidding). 3. New organizational structure introduced within two weeks, reduction of personnel. 4. Assessment and control of existing contracts: Identification of contracts where new routines, cleaning schedules, and personnel reductions can be applied. Termination of unprofitable contracts.

Ispat in the Steel Industry

Ispat in the Steel Industry Ispat’s formula 1. Targets underperforming, state-owned plants that are up for sale. 2. Negotiates skilfully for right price and responsibilities. 3. Secures access to favorable loans from World Bank, EBRD, and governments. 4. Uses dedicated, international task-force to re-structure new plants. 5. Duplicates follow-up routines for continuous improvements: daily reports, daily meetings, incentive plans, CEO meetings. 6. Promotes the sharing of knowledge and best practices in the international organization. 7. Built on the founder’s dedication, attention to detail, and involvement.

Ispat in the Steel Industry Major acquisitions Year Unit Capacity (million metric tons) 1992 1994 1995 1997 1998 2001 2003 2004 2005 2006 Ispat Mexicana (Mexico) Ispat Sidbec (Canada) Ispat Karmet (Kazakhstan) Ispat Germany Ispat Inland (U. S. ) Ispat Sidex (Romania) Ispat Nova Hut (Czech Republic) Ispat Polska Stal (Poland) Ispat Iscor Ltd. (South Africa) International Steel Group (U. S. ) Arcelor (Luxembourg) 4 1. 8 5 2. 8 5 3 6 6. 5 16

Ispat in the Steel Industry Organization and profitability (2002) LNM Holdings Ispat International Ispat Nova Hut Ispat Sidex Iscor Ispat Karmet Ispat Annaba (Algeria) PT Ispat Indo (Indonesia) Ispat Unimetal (France) Ispat Germany Ispat International (Britain) Ispat Sidbec (Canada) Caribbean Ispat (Trinidad) Ispat Inland (U. S. ) Ispat Mexicana Revenue: $ 3. 8 billion Net profit: $ 564 million Revenue: $ 4. 9 billion Net profit: $ 49 million

Ispat in the Steel Industry How to turn around a steel plant SWAT team Liquidity fix Debug Product mix Integrate Prune Remove most existing managers and replace with Mittal executives to get the company running on a commercial basis quickly. Reestablish credit with suppliers to assure a steady flow of raw materials. End barter arrangements that beget corruption and destroy cash flow. Bring in Mittal technicians to improve operations such as rolling mills and blast furnaces. Rework maintenance schedules to reduce downtime. Shift to production of higher-value goods such as cold-rolled steel and galvanized sheets. Try to sell to end users rather than middlemen. Form regional groups to boos purchasing power and prevent plants from competing with each other for the same customers. Close or sell off noncore subsidiaries, from catering to hotels. Gradually cut back staff, possibly through buyout programs. Business Week, December 20, 2004

Ispat in the Steel Industry BHP Steel “Compare this with the failed international expansion strategy of BHP Steel, emanating from Australia, where the focus was almost entirely on becoming a player in the US steel industry through expensive acquisitions and joint ventures. BHP Steel announced that all its overseas steel plants were for sale, in October 1999. ” Mathews (2001)