Consumer: Electrolux seeks fortune from change

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By Liu Jie (China Daily)
Updated: 2009-02-16 07:56

Change has become a buzzword amid the global economic turmoil. And Electrolux is no exception, with big changes in store in China for the Fortune 500 firm over the next few years.

The Sweden-based company hopes to bring an end to more than a decade of losses in China and become a leading premium household appliance brand in the nation by focusing on a number of key areas and the introduction of a high-end refrigeration platform.

Gunilla Nordstrom, head of the company's Asia-Pacific sector and vice-president of AB Electrolux came to China recently to announce the firm's new strategy.

Regarding geographic concentration, Electrolux will focus on eight core provinces -Heilongjiang, Hebei, Shanxi, Jiangsu, Zhejiang, Sichuan, Guangdong and Fujian -and four municipalities - Beijing, Shanghai, Tianjin and Chongqing.

"In these areas, we are going to accelerate, broaden and deepen our presence in terms of cooking and laundry and also in the building part of the market to make the products available to more consumers in these concentrated areas," indicated Nordstrom.

Electrolux decided to focus on the eight provinces and four municipalities after conducting a nationwide consumer survey. Commenting on the company's new strategy for China, Nordstrom said: "We prefer somebody somewhere to nobody everywhere."

Electrolux, with over nine decades of experience, plans to introduce cutting-edge products to the Middle Kingdom and develop China-tailored technologies and products as soon as possible.

The Stockholm-listed firm has a leading cooking and washing machine product portfolio. It plans to sell to the premium segment in China and will shortly launch a new range of colored appliances.

Turning to the construction of the firm's new high-end refrigeration platform near Hangzhou. Nordstrom said the investment was very significant, but refused to disclose the exact amount.

After the establishment of the platform, the company's production and R&D in China will be concentrated there.

Li Xiaoyong, a consumer appliances analyst at Guotai Jun'an Securities, said it's too early to tell how effective Electrolux's "change" strategy will be, given the cutthroat competition in China's household appliance market and the firm's hitherto poor performance in the nation.

China already has a number of major domestic appliance brands, such as Haier, Rongsheng and LG. Siemens, Electrolux's archrival, had a 5.3-percent share of China's domestic appliance market last year. Bosch, Siemens's high-end brand, is the top premium household appliance brand in China with over 30 percent of the market.

Electrolux's market share in China remains rather "humble", said Nordstrom, adding that this means the growth potential for the firm is huge.

Li pointed out that Electrolux's continuous loss since it entered China in 1996 was mostly due to constant reshuffles among top management, resulting in strategy adjustment and an inconsistent brand positioning that hurt its sales.

Nordstrom started to directly run the Chinese operation after Li Yan, the former general manager of Electrolux China, quit the position at the end of last year. Li was the seventh top executive of Electrolux China to resign during the firm's 13 years in the country.

Led by Nordstrom, who joined the firm in 2007, Electrolux's Asia-Pacific business notched up a record performance last year, but the company denied to reveal the exact figures.

She told China Business Weekly that she and her managerial team were confident of achieving their goals in China, but "we still have a lot of things to do here, and it should be step by step".

First and foremost, Electrolux needs to reposition itself as a high-end brand, overcoming its image among Chinese consumers as an "economical and affordable" brand.

"Branding cannot be overnight, but the market is so competitive that there is no time to lose ," said Li.

But Nordstrom emphasized: "In a competitive market, we should remember that nobody is too big here to be challenged, because of that nobody is to be too small to become a challenge."

Cai Jing, an analyst at investment firm Capital International, said he believed the change strategy was a reasonable course of action for Electrolux at this point in time.

"They have made clear what they want to do in China and keep in line with its global image, which means they have got a long-term target and have thought carefully about what they can do and what they cannot do," he stressed.

Cai also indicated that the headquarters' decision on efforts in China is in response to the gloomy market in Europe and the United States, two of the firm's key marketplaces.

The Swedish firm chalked up a record loss of 474 million kronor ($58.2 million) in the fourth quarter of last year, compared with net profit of 1.1 billion kronor ($135 million) in the final quarter of 2007.

For the whole of 2008, the company registered a net profit of 366 million kronor ($45 million), an 88 percent drop from the previous year.

"It's time for the multinationals to concentrate strength on emerging markets, especially China with its huge population base," said Cai.

To align its refrigerators in China with the premium strategy, Electrolux will exit the low-end refrigerator sector. Production at its Changsha factory, which is geared toward unprofitable economical products and with an annual production capacity of 500,000 units, will therefore cease by the end of the first quarter, a decision that will cost the jobs of 700 local employees.

Meanwhile, geographic concentration will result in lay-offs among marketing staff in other areas.

The company said that it would prepare a support program together with local authorities to facilitate the smooth transfer of employees affected by the restructuring to alternative jobs outside Electrolux.

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