Of course Electrolux was going to choose Thailand over Orange

Over the weekend Current.com.au received a lot of well-meaning comments on our coverage of Electrolux’s corporate head office in Sweden choosing to close its Orange factory and move its regional refrigeration manufacturing holus bolus to Rayong in Thailand.

This is not good news for the workers at the factory, the people of Orange or Australian manufacturing in general. It is terrible news, and one can only imagine how troubled the 544 employees now facing an uncertain future must feel.

This plant will close by 2016, Electrolux says, and it is hard to envisage work for all of these men and women will be available in Orange or the surrounding area.

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A lot of people within this industry and consumers had their say over the weekend.

“Should this factory close it will mean a burden of doubt across our whole industry,” said retailer David Hunt from Rozelle Electronics World in Sydney. “From the loss of critical jobs in the rural area to a lack of self-sufficiency in an industry already hit hard.”

Hunt said he would like to see the “captains of the industry” rise up to help the workers at this factory, while another observer called on consumers to boycott the brand.

These people may have their hearts in the right place but they are being very naïve on this issue.

Electrolux was always going to choose Thailand over Australia. Not because of corporate greed or ambivalence to Australia or Swedish malevolence.

Electrolux was always going to choose Thailand because it is the right choice to make.

When I visited the Orange factory last month I was told by management that there is no question that once the Rayong facility is upgraded it will be considerably cheaper to assemble refrigerators in Thailand than it would be in Australia. It will take a large up-front payment to bring Rayong up to standards, but once there, Electrolux will save millions in salaries, entitlements, logistics and overheads.

In pretty much every single way you can measure it, Rayong will be cheaper.

Now look at the commercial advantages of maintaining the Orange facility: you get to put an Australian Made sticker on your appliance. To the retailers reading this, ask yourself: are consumers willing to pay more for that sticker?

Every supplier and retailer I speak to echo what every retail expert says about the Australian consumer: we are driven by price.

And in that corner of the market where Westinghouse and Kelvinator sit, price is even more important. They are everyday Australian refrigerators — there is no door-in-door or SodaStream dispenser or Wi-Fi connectivity — these are old-fashioned reliable appliances that we’ve all had in our homes at some point. It is an extremely price-sensitive segment.

Electrolux may be able to compete on price today but it knows the future could be very different. If it committed to Orange it would be an outlier in global appliance manufacturing. While its rivals continue to find cheaper, more efficient ways to assemble refrigerators in Thailand, China, India and, eventually, Africa, Electrolux would be playing catch-up, constantly with its hand out to the various governments for grants and subsidies.

Having visited the factory and met so many of the wonderful people that will be affected by this decision, it would be easier to break into some parochial rhetoric about how Australian manufacturing is the best and ‘they don’t make ‘em like they used to’ and ‘boycott Electrolux’, but that obfuscates the reality.

Electrolux has supported local manufacturing for a long time — years after rival companies made offshoring decisions — and it still maintains one last factory, for cookers in Dudley Park, South Australia. Although there is anger at this decision, Electrolux should be applauded for holding on as long as it has.

If the industry wants to see this last remaining factory remain open and vibrant, it needs to think about what effect the constant price-based marketing is having on consumer behaviour.

Aggressive discounting, savings-based marketing, bizarre gift-with-purchase promotions, white label brands through the hardware channel — none of these is going to save Australian manufacturing.

Disclosure: The author of this article has several friends in Orange directly affected by this decision.

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