SKF in Poland
Within a period of only five years, SKF, a Swedish manufacturing company, made the transition from a purely Northern European firm to being a major global player. This transition was accomplished by investing at an accelerated pace in Asia, Latin America, and Eastern Europe. In the initial stages of globalization, every new capital expenditure, large or small, had to be referred by the country managers to headquarters in Gothenburg for approval. This regimented process caused significant time delays and problems in general. The allocation of capital was not always rational given the limited knowledge of corporate regarding intricacies of successful investment in these complex emerging markets. To overcome these problems, Tore Bertilson, SKF's Finance Director, introduced a new financial reporting system than he called the Twin Track Approach. Under the new system, only large investment expenditures required headquarters approval. Funding for these projects became the responsibility of the regional treasurer. The new system appears to have improved investment efficiency and timing, as well as successfully motivating regional managers to reduce the overall cost of funding.
The case is designed to be used in a course in global finance in a section focusing on the opportunities for interest rate arbitrage in reducing the costs of funding capital projects. The case asks that students identify funding and arbitrage opportunities for the lowest cost funding of a six-month, $10 million loan that SKF wants to use in financing a new capital investment in Poland.