(FORTUNE Magazine) – THINK BACK TO 1983, when the dream of a single European market was just starting to take shape. Leif Johansson, then 32 and a manager at Electrolux, the Swedish appliance maker, was captivated by new marketing studies showing a convergence of European lifestyles. ''More pasta was being eaten in certain neighborhoods of Stockholm than in Italy,'' he recalls. Johansson figured that Europe would become like the U.S., where a few powerful companies compete across an entire continent, and that 325 million European consumers would be eager to buy the same refrigerators, ovens, and dishwashers. Marshaling his evidence, he persuaded his bosses to buy Italy's Zanussi Group and, by combining it with Electrolux, build Europe's largest appliance maker. A decade later Johansson, now Electrolux's president, is having the same problems with his vision as are the statesmen in Brussels who are trying to forge a united Europe. Despite increased pasta consumption in some unlikely places, national tastes and national markets remain strong -- especially when it comes to appliances. Northern Europeans want large refrigerators because they shop only once a week, in supermarkets; southern Europeans prefer small ones because they pick through open-air markets almost every day. Northerners like their freezers on the bottom, southerners on top. And Britons, who devour frozen foods, insist on units with 60% freezer space. Electrolux is still making money, but the market fragmentation, along with Europe's downturn, has squeezed profits. Last year the company earned only $32.6 million on sales of $14 billion, down from an already weak $66.8 million in 1991. (For the first half of this year, profits were up about 1% in Swedish currency.) The company cut its dividend in half, the first reduction in 90 years. ''Electrolux keeps promising 5% profit margins and never delivers,'' complains Bjorn Germer, a security analyst at Matteus Fondkommission in $ Stockholm. A little less than two-thirds of sales come from household appliances, the rest from forestry and garden equipment, auto parts, and mining. Although Electrolux does not disclose operating profits for individual divisions, officials acknowledge that the flagship appliance business is hardest hit. For people who want to sell in Europe, Electrolux's experience offers a clear warning. Despite a decade of mergers and acquisitions, the American model still doesn't apply to Europe. In appliances, for example, four giant firms control almost 80% of the U.S. market. In Europe, 100 appliance makers continue to battle it out. Almost all American refrigerators have freezers on top, come in only a few sizes, and are sold under a handful of national brands. In Europe, Electrolux alone produces 120 basic designs with 1,500 variants. In response to the bumps on the road to a united Europe, Johansson has scaled back his initial dreams. ''I want to be a good Frenchman in France and a good Italian in Italy,'' he says. ''My strategy is to go global only when I can and stay local when I must.'' Even so, he thinks a global strategy is Electrolux's only option. The company couldn't concentrate on its home market because Sweden is so small. ''The choice was either to grow and become a market leader,'' Johansson says, ''or to get out of the appliance business.'' By the mid-1980s, particularly after the acquisition of Zanussi, which was about the same size, Electrolux was selling throughout Europe. In 1986 the company leaped the Atlantic by buying White Consolidated in the U.S. In Europe, Electrolux wound up with a proliferation of brands, ranging from Arthur Martin in France to Zoppas in Italy. It decided to keep them all. Alongside these, two Europe-wide brands were created: Zanussi, aimed at younger consumers, and Electrolux, for well-heeled older buyers. For expansion, Johansson is looking to the former Soviet Union, the booming countries of Asia, and the U.S. To improve results from its Frigidaire brand in the U.S., a distant No. 3, Electrolux has begun promoting new ''European style'' Frigidaire kitchens. But no one at Electrolux talks about a large- scale convergence of American and European tastes. The company's modest aim is to fill some market niches in America. After two decades of preparing for the mirage of a single global consumer, Electrolux has learned the hard way to scale back its ambitions.