This paper examines the corporate strategy of AB Electrolux through several analytical lenses. It applies Barney's VRIO framework to evaluate Electrolux's internal competencies — particularly its employee and leadership development programs — and assesses the company's ability to compete with Chinese consumer appliance manufacturers. The paper identifies Electrolux's position within a consolidated industry structure and contrasts competitive strategies appropriate to fragmented versus consolidated markets. It then outlines Porter's four generic strategies and argues that the focus strategy best suits Electrolux given its targeting of the emerging global middle class. Finally, it discusses two defining attributes of Electrolux's corporate culture: diversity and structured leadership development.
Electrolux is a company that was established in 1919. The company has grown significantly and currently retails products in over 150 markets. Electrolux designs a wide range of products, including vacuum cleaners, washing machines, dryers, and dishwashers, among others. According to Electrolux (2013), the company experienced a decline in profits over recent years; however, it has since recovered its returns. Electrolux must ensure it has an effective strategic plan in order to maintain a competitive edge over rival companies.
The VRIO framework is a tool developed by Barney (1999) that can be used to analyze the internal resources and competencies of a firm in order to determine whether they can be a source of sustained competitive advantage (Jurevicius, 2013). The framework examines whether a resource is valuable, rare, costly for other parties to imitate, and whether the company is organized to capture the value of that resource. If all four requirements are met, the resource is considered to generate sustained competitive advantage for the organization (Jurevicius, 2013).
Applying the VRIO analysis to Electrolux helps determine the company's strengths and identify areas requiring improvement.
Valuable? Yes. Rare? Yes. Costly to Imitate? Yes. Organized to Exploit? Yes. Result: Sustained Competitive Advantage.
Electrolux's ability to manage its people effectively is not only a source of differentiation but also a cost advantage. Unlike other corporations that rely primarily on trust and compensation in employee management, Electrolux employs distinct programs to manage and develop its employees as leaders. This capability allows the company to make sound decisions in selecting leaders for future periods and shows them how to exchange ideas and maximize their competencies. As a result, Electrolux is highly successful in its leadership development. This is also a rare capability, as very few companies employ three different levels of leadership programs in such an extensive and comprehensive manner. Imitating all three programs and making them effective would be costly. Electrolux is clearly organized to capture value from this capability, having cultivated competent HR managers who know how to administer these programs (Jurevicius, 2013).
AB Electrolux can compete with local Chinese consumer manufacturers. Although Electrolux initially struggled due to failed strategies, positioning itself as a premium brand in the market will make it considerably more competitive. The consumer market for home appliances in Asia is expected to double or even triple in the near future. Electrolux has invested heavily in Research and Development to drive innovation, which will allow it to compete with Chinese firms. Maintaining a distinct target market focus will further enable the company to grow its market share (Electrolux, 2013).
Industry structures vary, and different structures carry different implications for the intensity of rivalry. A fragmented industry consists of a large number of small- to medium-sized companies, none of which is able to determine the prevailing price in the industry (Hill et al., 2013). A consolidated industry, by contrast, is dominated by a small number of large companies — as in an oligopoly — or in extreme cases by a single corporation; these companies are generally able to set the prevailing price (Hill et al., 2013).
Electrolux operates in a consolidated industry. However, its competitive strategy would differ depending on the industry structure. In a fragmented industry, the appropriate competitive strategy would be to differentiate its products from rivals in order to stand out from the many competitors. In a consolidated industry, the appropriate strategy is cost leadership, in order to set an economical price within the market (Hill et al., 2013).
"Defining cost leadership, differentiation, focus, and integrated strategies"
"Focus strategy recommended for emerging middle-class markets"
"Diversity and leadership development as cultural pillars"
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