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Videocon to extend ties with Electrolux, globally

Videocon to extend ties with Electrolux, globally

Author | Source: The Economic Times | Thursday, Jun 30,2005 7:04 AM

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Videocon to extend ties with Electrolux, globally

The proposed alliance between Swedish white goods maker AB Electrolux and Indian durable major Videocon may involve more than acquiring the Indian manufacturing facilities of the former. Videocon may enter into a worldwide alliance with Electrolux, which will involve taking over manufacturing and marketing of the Electrolux brand in some Asian markets, it is reliably learnt.

The arrangement may be structured so that Electrolux may lease out the brand to Videocon, which will pay a royalty. Videocon is looking at being a global supplier to Electrolux in the low-end of the market. It is also learnt that Videocon is interested in acquiring the Allwyn and Kelvinator brands.

Videocon already markets colour TVs of Sansui and Hyundai. The company has what it calls its brand-flanking strategy which will help the group get most of the volume in the market by marketing several brands.

When contacted, senior Videocon officials said that the deal with Electrolux would look beyond a domestic alliance and may tie up with Electrolux as suppliers and partners globally. Lawyers from both sides have entered into a dialogue to iron out certain issues and reach an agreement in the near future.

European companies have begun vacating the low-end of the durables market owing to falling profit margins. Most of them are focusing on the high end of the market where the margins are much higher. u Electrolux may relocate plants to Asia:

Globally, durable companies are focusing on futuristic technology where there are higher profitable margins. Videocon is understood to be getting ambitious about taking its operations to a global scale and tap the export potential in various markets.

In order to take on the might of majors like LG and Samsung, the Videocon group is pumping up its manufacturing scale and global network.

On Tuesday, Videocon signed a deal to acquire Thomson SA's colour picture tube business for Rs 1,263.6 crore.

Informed sources said the Indian subsidiary of Electrolux has been improving their market position by launching new models and beefing up the distribution network. Electrolux's trouble in India started in late 1990s, though the bottomline went bust only in '01.

According to sources, Electrolux Kelvinator's (EKL) losses have actually dropped over 50% to less than Rs 100 crore in '04, down from Rs 226 crore in '03. Insiders maintain that the Indian subsidiary actually achieved its targets last year.

They claim that this year, too, looks promising with the dependence on refrigerators having significantly come down from 90% to 65% during the last two years with the launch of three new categories.

Globally, AB Electrolux has been reviewing its global operations to strengthen the group's long-term competitive position and profitability. It will shift more of its manufacturing to low-cost countries, as it grapples with rising raw material prices and stiff competition.

Electrolux, whose brands include AEG, Zanussi and Frigidaire, said it was accelerating its restructuring programme, which aims to save an annual 2.5bn to 3.5bn Swedish Kroner (1 Kroner=Rs 5.60) from '09.

The world's top home appliances maker also forecast lower '05 operating profit and reported an expected drop in the fourth-quarter profit.

The Swedish firm plans to relocate many of its 27 plants in Europe and North America to Asia, Eastern Europe and Mexico.

“We see that about half of the plants in high-cost countries -- that is around 10 -- are at risk,” the company's chief executive said.

The maker of vacuum cleaners, washing machines, fridges and freezers has faced stiff competition and rising steel costs. It has already cut staff strength and moved plants to low-cost nations.

The firm, a leading maker of consumer durables, said sales were at 28.6bn Kroner against a forecast of 28.0bn, and 28.3bn a year ago.

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