Bold Acquisition in Eastern Europe: Boras Wafveri's Purchase of Krenholm

Strategic Insights -

Boras Wafveri's purchase of Estonia's giant Krenholm textile plant in 1995 was a bold and strategically significant move, aiming to take advantage of low Estonian wages to retain competitiveness. However, the plant's performance has been mixed, with ongoing restructuring and job losses. Despite this, Thomas Widstrand, Boras's chief executive, remains optimistic about the plant's prospects, citing its geographic position and potential benefits from EU membership. The purchase has been politically sensitive due to the plant's location near the Russian border and its workforce being predominantly ethnic Russians.

Key Takeaways:

  • The purchase of Krenholm was a significant move, costing $30m, and was undertaken to take advantage of low Estonian wages to retain competitiveness.
  • Krenholm employs 4,450 people, making it Estonia's largest private sector employer, while Boras's Swedish operations have only 250 employees left.
  • Employee costs in Estonia are significantly lower than in Sweden, with Estonian wages costing just one eighth of an employee in Sweden, including social security costs.
  • Krenholm has undergone restructuring programs and faces further job losses to improve productivity and competitiveness.
  • The competitiveness of the plant remains a challenge, with wages in places like Pakistan and China being much lower than Estonian ones.
  • The Estonian crown's rise against the dollar has made the exchange rate less favorable for the plant, affecting its profitability.
  • The plant has undergone significant investments to modernize and raise quality levels, but has not been fully integrated with Boras's Swedish operations.
  • A new integration drive has been launched to address this issue.
  • The plant's long-term prospects are tied to its competitiveness, with Boras's fortunes rising and falling depending on its performance in Estonia.

Statistics:

  • The purchase of Krenholm cost $30 million.
  • Krenholm employs 4,450 people, making it Estonia's largest private sector employer.
  • Employee costs in Estonia are one eighth of an employee in Sweden, including social security costs.
  • Last year, Krenholm lost money, partly due to the weak dollar.
  • Boras has made losses for the last three years.
  • The International Finance Corporation supplied loans to modernize the plant.

Sources:

  • Christopher Brown-Humes, "Swedish firm in question over Estonia textile plant; HAS it been a success?", The Scotsman, 2005.