The Newell Company

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How did Newell try to create value?

First of all, there are a lot of answers to that question. What strikes most is the high number of acquisitions undertaken by the Newell Company, which in the end let it become the single most important company in the business of housewares. The main effect were tremendous economies of scale and to a smaller amount economies of scope. Targeted firms all showed a big market share and helped ensuring Newell’s significant presence in the retailer’s shelf space (showing a portfolio on several price-levels), or at least improved capacity utilization while reaping the benefits of globalization. As a matter of fact, Newell’s new assets led to horizontal as well as vertical diversification. Their motto of “Build on what we do best” was integrated by leveraging core competencies, which became known as “Newellization”. After an acquisition, the companies were put through a process of streamlining, focusing on operational efficiency and profitability. When looking to exhibits 11 and 13 of the case, it is likely that Calphalon and Rubbermaid can fit this picture: although they increased net sales between 1992 and 1997, their costs also increased with result that their net income did not change a lot. By making these companies more efficient, Newell can contribute to increasing the net income they generate.

Newell’s sales approach was to sell a high volume of goods to large retailers. They pursued a clear cost-advantage strategy. Low-technology products were provided on large scale and on a regular basis. Good customer relations could evolve, as Newell was famous for their reliability and their capability of accomplishing JIT-deliveries and quality demands. Therefore Newell needed some relation-specific investments like specialized workforce, but also up-to-date technology. Although Newell was facing buyer-power to a large extent (which it tried to escape from later by acquiring stronger brands), it could afford to charge a...
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