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1 Kotler, P., 2003, Marketing Management, 11th Edition, Prentice Hall, USA, Page 384
1.3 Deciding which markets to enter
Whirlpool first went into the European market with the acquisition of Philips. This was a very stable, well established market and Whirlpool made a good decision to test the global waters first here. They decided to become more ambitious and hit the Asian markets (which are less stable and unpredictable), with entry into China and India.
1.4 How did Whirlpool Enter Foreign Markets
Figure 2: The 5 Modes of Entry into Foreign Markets 2
- Whirlpools statement of intent was to be market leaders and they were committed to expanding into these foreign markets; therefore they opted for joint ventures and direct investment. (High commitment, risk and needs lots of control but yields highest profit.)
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The European Union was very stable economy therefore direct investment through the acquisition of Philips Electronics was Whirlpools choice. Philips was losing market share for years and must have been eager to sell to Whirlpool, giving Whirlpool a lot of bargaining power in the deal. Whirlpool believed that their global strategy would be the key to their growth.
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China was a very attractive market; however there was a barrier to entry has Whirlpool had no distribution network in China. To setup a network in China would be extremely difficult with the cultural differences. Therefore the only option here for Whirlpool was to enter into joint ventures which it did with did with five Asian manufacturers. Whirlpool ensured it had controlling interests in each of the five manufacturers and used their original, tried and tested infrastructure to market Whirlpool products.
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2 Kotler, P., 2003, Marketing Management, 11th Edition, Prentice Hall, USA, Page 391
2. Question 1: Whirlpool’s marketing goal is to leverage resources across borders. How is this evident in its marketing approach?
Leveraging resources is the sharing of financial, technological and human resources. Operating leverage fosters stronger revenue growth, increased market share and improved profitability.
“We want to be able to take the best capabilities we have and leverage them in all our companies worldwide,” says David Whitman, Whirlpool CEO, 1994, quoted in the Harvard Business Review.3
Whirlpool’s new scale, or global platform, that emerged from their acquisitions and joint ventures offered a significant competitive advantage—but only if the individual operations and resources were working together with each other (leveraging resources). Whirlpools challenge was to integrate all the businesses together in a meaningful way that creates the leverage required for its global leadership position goal.
The advantages were easy to see. By linking the regional organizations through Whirlpool's common systems and global processes, the company could speed product development, make purchasing increasingly more efficient and cost effective, and improve manufacturing utilization through the use of common platforms and cross regional exports.
In order to fully understand Whirlpool’s marketing approach we analysed their global marketing mix (Product, Price, Place and Promotion Strategies) and to find evidence of their leveraging of resources across borders tactics, we used the Mckinsey 7S Framework.
2.1 Whirlpools Global Marketing Mix
2.1.1 Global Product Strategy:
Whirlpool followed product adaptation to meet customer preferences (needs and wants) in different regions and nations.4 The company changed the compressors for the European market whilst using the same global cabinet and wall thickness. This change was implemented to meet European energy standards, and to _____________________________________________________________________
3 Maruca, Regina Fazio, The Right Way To go Global: An interview with Whirlpool CEO, Harvard Business Review
4 Czinkota, M.R., Ronkainnen I.A., 2004, International Marketing, 7th Edition, Thompson , USA, Page 664
be efficient for customer needs. Whirlpool aims at product standardization, so as to allow for economies of scale in its production, product development, technology and procurement. Products at Whirlpool share common parts and technologies.5 The company followed straight extension of certain products into foreign markets, that is, introduction of products into foreign markets without any change.6 It also followed forward invention, that is, developed new products to meet a need in a new country 7 e.g. Whirlpool Brazil produces all Whirlpool refrigerators and China produces all their microwaves for their customers worldwide.
Philip Kotler lists the five product levels that constitute a customer value hierarchy, core benefit, expected product, augmented product, and potential product.8 Whirlpool operated at the augmented and potential product levels. At the augmented product level Whirlpool offered customers products that exceeded customer expectations. Example of this level is that Whirlpool offers customers experiences that touch customers before, during and long after the initial purchase. Whirlpools brands have put in place advertising of brands, in store purchase, call center interactions, and ongoing customer communication. This enables to set up life long relationship with the customer. Whirlpool had set up a global product development and technology organization. This fell part of the potential product, which encompasses future offerings of products. Samplings of the companies new innovations in 2002 included, Polara range, sink dishwasher, Garage works line of organizing products and appliances for the garage and transformation of the traditional laundry room into a functional family space. They built concept homes and rooms for consumer reactions. This is evidence of Whirlpools “innovation” drive.
The company looks at all the possible augmentation and transformations that the product might undergo in the future. Therefore at the heart of its Global Organization is Technology and product development. This will enable Whirlpool to use the best design and engineering staff from all regions to collaborate on product features, design and performance. Whirlpool sells durable and tangible goods and is classified
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5 Stated in the Case Study
6,7,8 Kotler, P., 2003, Marketing Management, 11th Edition, Prentice Hall, USA, Page 395-6
as heterogeneous shopping goods. Whirlpool offers seller guarantees, personal selling and service, carries a wide assortment to satisfy individual tastes, and trained salespeople to inform and advice customers.
Whirlpools brands range from Global brands to regional brands and country specific brands of appliances. The company’s brands have the following:(Kotler 2003 pg 419 )
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Attributes: durable and innovative.
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Benefits: products will last long, but provide customer with hi-tech features.
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Values: high quality
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User: person looking for innovative products.
Figure 3: List of Brands
Whirlpool’s brand sponsor decision was to produce both under its own name and under its distributor’s name (Sears Kenmore appliance). The success of Whirlpools brands is based on the ability of its regional operations to execute the company’s value added trade and distribution strategies.
2.1.2 Global Price Strategy
With the additional impact of foreign exchange influences and differing inflation rates in different market economies, it is difficult to prescribe a global pricing strategy other than to offer guidelines, such as cost plus a specific margin. Whirlpool will also take into account competitor pricing. Whirlpool has gone for direct investments to break down import duties as a barrier. Product factors such as the product life cycle, brand image and quality influence the pricing decision taken by Whirlpool. The company offers a superior quality brand with a positive brand image that has originated from a country that is perceived to produce superior products. Leveraging resources across borders creates an advantage for reducing manufacturing costs. Whirlpool has chosen this strategy due to price sensitivity problems of large scale manufacturers reducing prices to meet customer demand.
Below is Whirlpool’s plan, showing the percentage of production that is to be moved to low cost locations, where labour, raw materials and utilities costs are much lower. This move gives Whirlpool significant cost advantage shown below as between 10 – 15 % which would be very difficult for competitors to match.
% Production in Low Cost Locations
Figure 4 9
2.1.3 Global Place Strategy
Whirlpool’s operations are based in every region of the world. The main regions being: North America, Latin America, China, Asia and Europe (lesser focus on Middle East and Africa). The company has nearly 50 manufacturing and technology centres around the globe. Whirlpool manufactures in 13 countries and markets products under 11 major brands in about 140 countries. 10 The regional organizations of Whirlpool are linked through its common systems and global processes. This enables purchasing to be more efficient and cost effective and product development delivery faster. Due to leveraging resources across borders, there has been an improvement of manufacturing utilization through the use of common platforms and cross regional exports. Whirlpool’s export opportunities and distribution channels have been increased through acquisitions of appliance maker and distributor in Mexico. The acquisition of Poland S.A, a leading home appliance maker based in Poland, which complemented Whirlpool’s European manufacturing platform, gave it expanded distribution network into the region, and provided additional export opportunities.
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9 Presentation by Raymond James & Associates, Institutional Investor Conference, Page 15
10 Whirlpool Corporation’s Global Strategy, Thunderbird, Page 1 (online) Available at:
Whirlpool produces virtually all of their microwave ovens for the world in one location: China (leveraging low manufacturing costs). Another example of leveraging production is in Europe where production is being moved to low cost locations (Poland, Slovakia, China, Brazil, and Mexico). In North America Whirlpool has attained number one appliance position with the top national retailers and buyer groups. The company followed backward integration by purchasing Brazilian Company Brasmotor, which supplies compressors to the leading manufacturers of refrigeration systems worldwide.
2.1.4 Global Promotion Strategy
Whirlpool followed communication adaptation, by changing advertising and promotion campaigns for each regional and local market. An example of this is when Whirlpool manufactured under its distributors name (Sears & Kenmore). The company promotes its products by creating loyal customers who recommend the company brands to others. These customers request and repurchase the brands over competitors, also upgrade their appliances because of trust, innovation and value that the brands offer. Whirlpool is involved in personal selling by providing samples. An example of this is the concept of homes and rooms shown to consumers to engage consumer reaction. Employees are also involved in initiatives by becoming a customer that shops and interacts with the company’s brands and products, therefore allowing for promotion.
Direct Marketing is achieved by in store purchase call interactions, ongoing customer communications. Whirlpool also established hotlines with toll-free numbers for customer complaints and suggestions. The company used communication adaptation by acquiring distributing networks for promoting sales. All of which displays excellent Customer Relationship Management.
2.2 The Mckinsey 7S Framework11
According to the theories of Mckinsey and Company, there are seven elements in successful business practice; strategy, structure, systems, style, staff, skills and shared values and Whirlpool’s strategies affect all of these elements. Implementation and Control is important for Whirlpool’s globalization strategy to be successful.
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11 Kotler, P., 2003, Marketing Management, 11th Edition, Prentice Hall, USA, Page 109
2.2.1 Strategy
Below is a diagram showing Whirlpool’s strategy. The foundation or base of their strategy is global platform leverage.
Figure 5 12
With the decline in demand for domestic appliances in the United States, which forecasted to be flat till 2009, Whirlpool chose an international growth strategy. The forecasted international demand would grow 17% to 293 million units. This growth strategy would transform the company into the leading global manufacturer of domestic appliances, with operations based in every region of the world. 13 Whirlpool began a series of acquisitions that would give the company the resources to participate in global markets. Acquiring Philips N.V (appliance business) which gave the company a solid European base. This allowed access to markets, economies of scale and transfer of technologies, understand diverse cultures of customers, and being able to relate to specific customer needs and wants. Joint ventures established in Mexico enabled immediate access to unknown markets.
Whirlpool leveraged resource across borders, by focusing on procurement, technology and product development functions to become global. This helped reduce costs and re-align the resources to the company’s strategies for growth. Customer loyalty strategy enables Whirlpool to accomplish their goals. Whirlpool focused on winning the hearts and minds of customers by using the unmatched customer loyalty strategy. The company also chose the innovation strategy to enable Whirlpool to reap the high profits associated with customer acceptance of a new or greatly improved product. The company pursued to create a new product life-cycle therefore they needed to innovate to enable customer loyalty.
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12 Presentation by Raymond James & Associates, Institutional Investor Conference, Page 8
13
2.2.2 Structure
Whirlpool chose to focus on the home appliance industry; therefore the company sold its financing business to focus on its core business. Its growth (global platform) strategy together with innovation supported a global procurement, technology and product development structure. Unfortunately, globalization brought about some structural issues, like downsizing, and these are discussed later on in question 2.
2.2.3 Systems
Whirlpool has the following systems, which assists the company with its global platform strategy and helps with leveraging resources.
- Internet tools that assist the company in doing business with its trade partners, thus reducing costs and complexity. This aids the global procurement process.
- Manufacturing and technology research centres that provide the home appliance products with the capabilities no other manufacturer can match.
- Whirlpool’s customized six sigma; lean manufacturing quality system ensures operational excellence.
- Customer Relationship management systems, examples of which are the hotline for customer complaints and suggestions, in store purchase, call centre interactions and on going customer communications.
- K.M, a knowledge management employee intranet site, for people around the world to connect virtually.
- Innovation database to enable employees working on innovation projects to get help, resources, and find answers to questions.
2.2.4 Style
Whirlpool’s employees are all customer focused, innovative and expected to participate in the companies’ innovation of products.
2.2.5 Skills
Best engineers from all regions collaborate on product design and features’ according to customer wants and needs.
2.2.6 Staff
Employees who were involved on innovation projects were assisted and trained by 600 innovation mentors and consultants. Whirlpool ensured that there was a transfer of innovation capabilities and skills to employees everywhere in the organization. The company also implemented employee purchase programs to ensure that employees better understood consumer tastes.
2.2.7 Shared Values
Diversity within Whirlpool enables the company to understand customers in every region and country that it operates in. Diverse employees reflects Whirlpool’s Global customer base.
2.3 Conclusion to Question 1: Whirlpool’s Global Leverage Strategy
Michael Porter of Harvard University proposed the Value Chain (See appendix 1), as tool for identifying ways to create more customer value. We see evidence of Whirlpool focusing on three elements of the value chain and leveraging them globally. The three main areas are i) Procurement, ii) Design (technology & innovation) and iii) Manufacturing process.
Procurement: This was the first function to go global during the mid-1990s. Whirlpool aimed to gain competitive advantage by leveraging the volume purchasing power of their worldwide operations to eliminate costs and redundancies across regions. Because of their global scale they became very attractive to suppliers who would give Whirlpool access to their best technology, best people and highest quality to stay in business with Whirlpool. Having a global presence gives Whirlpool a lot buying power and they can negotiate the best prices for their raw materials or parts. It also gives them the advantage of sourcing the cheapest goods from around the world. Centralized purchasing gave Whirlpool the economies of scale advantage.
Design – Technological: Cross regional teams of product development engineers collaborate and come up with innovative initiatives that are distributed to all Whirlpools operations. "Our global product development structure and process allow us to rapidly migrate innovative consumer solutions from one part of the world to another," says Jeff Fettig, Whirlpool's president. An example of this; is Whirlpool’s operations in Brazil where they manufacture refrigerators with innovative features and designs and in 2002, the region exported these popular refrigerators to Europe. Because of Whirlpools global product development process, Whirlpool India was also able to leverage the Brazilian platform and quickly ramp up production of similar refrigerators. As a result of the successful launch, Whirlpool India now claims the number 1 refrigeration position in the country.
Manufacturing: Whirlpool increased exports between regions from their low cost manufacturing locations as discussed above in their Place strategy.
From the graph below we can see the cost advantage gains that Whirlpool forecasts as a result of their overall global resources leveraging. We can only conclude that Whirlpools leveraging of resources globally is successful and is paying off, although globalisation has these many advantages we will see in the next section that it is not without problems.
Figure 6 14
3. Question 2: Issues that may arise due to Whirlpool’s Globalisation
To get an understanding of the complications/problems and issues arising from Whirlpools globalisation drive; we used Porters five forces and then went into detail on specific internal issues such as cultural obstacles (using Hofstede’s Model), internal structural problems and product and technology transfer issues.
3.1.1 Suppliers
A major problem with going global for Whirlpool was trying to control all their suppliers and getting consistent quality. On acquiring Philips they inherited about 1600 suppliers. The only solution was to form partnerships and strategic alliances with their suppliers and on doing this it trimmed down Philip’s list of suppliers by 50
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14 Presentation by Raymond James & Associates, Institutional Investor Conference, Page 11
15 Pierce & Robinson, 2003, Strategic Management, 11th Edition, Macgraw-Hill, USA, Page 70
percent. Whirlpool also standardised parts to further cut down suppliers. Alliances with a few reliable suppliers gave Whirlpool a guarantee that they will get consistent quality goods at the best prices. Better controls over suppliers were put in place and this enabled better decision making and allowed Whirlpool to easily source parts from anywhere in the world and take advantage of their volume purchasing power.
3.1.2 Customers
Customers are becoming increasingly aware of designs, features and quality. They are making much more informed decisions Customers are more educated and environmentally aware and demand “green products,” especially in Europe where the green movement is very strong. Each customer in different countries has specific requirements, like Japan where they prefer small appliances due to the size of dwelling. This poses a huge challenge to Whirlpool where customer in each area has to be taken into account and their product adapted accordingly. This could reverse the economies of scale advantage Whirlpool was hoping for by standardising products, as this may not be possible because of customers’ diverse needs.
In certain countries such as Europe there is strong brand loyalty to existing brands and Whirlpool’s customer brand loyalty in Europe is low as compared to local competitors. To elicit a change, Whirlpool would have to invest substantial capital in advertising to build brand awareness.
3.1.3 Competitors
In North America there exists strong competition with GE, Maytag and Electrolux. The problems in the North American market forced Whirlpool to look at new markets. However, these new markets such as China have well established local manufacturers and Whirlpool faces a different type of competitor in likes of Kelon and Haier. These competitors know the local market and have good local network already in place. Whirlpool’s only way was to form joint ventures with other Chinese white goods producers who knew the local customs and had some sort of existing network.
Europe would turn out to be tough market to crack, as there a number of well established brands and Whirlpool was virtually unknown in Europe. There would be tough competition from these local brands. Therefore Whirlpool entered this market through acquiring Philips a well known brand in Europe. Both Whirlpool and Philips names appeared on all advertising and on the products. This way slowly introducing Whirlpool as a brand to the Europeans, they eventually converted to Whirlpool alone.
3.1.4 Barriers to Entry
As discussed above Whirlpool experienced a barrier to entry in Europe due to its low brand awareness in that country (bought market share in EU by buying Philips). In China they faced the problem of not having distribution channels and they entered into joint ventures with Chinese companies to solve that problem.
A major stumbling block in Asia was the huge cultural, and language barrier. The easiest way to get around this is to employ people of the existing country. This also makes it easier to learn the local signs, symbols, manners and customs from them. Since this is one of the biggest reasons for failure this section is dealt with in some detail below. The ultimate aim would be to get the local companies culture to follow that of Whirlpool and to get both to work together and harmoniously.
Political and legal barriers also need to be considered although there is no evidence of his in the case. Countries such as South Africa have a strong union influence giving labour substantial bargaining power and there is always a threat of strike action. There are also labour laws, such as the Basic Conditions of Employment Act in SA, to consider. Minimum wage rates could also be a deterrent to enter a specific country. Unfortunately, there is no way around these issues; Whirlpool would have to weigh up the financial advantages to whether it is profitable to enter markets with these barriers.
To protect their own markets, countries are forming economic trading blocks like the European Union agreement. This is can be a barrier to a company of country outside this agreement.
There are economic issues to consider such as interest rates, inflation, exchange rates, productivity, per capita earnings etc. In a country where people simply cannot afford home appliances, Whirlpool could look at leasing products or extending instalment payments over a longer period. They must be very careful when taking this risk and ensure that the country is stable.
Environmental issues are becoming a barrier; such as in Europe. They demand efficient and environmentally friendly products and soon other countries will follow suit.
3.2 Cultural Obstacles
All too frequent a company’s globalisation efforts end in failure, due to a gauntlet of blows from forces of ingrained habits, suspicion of foreign ways and culturally-based preferences for existing processes and procedures.
Human resource challenges are the greatest and there is a need to help employees to understand and effectively handle cultural requirements, by building sensitivity to languages, national customs, legal and regulatory environments, and other country and regional differences.
(Hofstede’s Model)
Figure 8 16
An example of how Whirlpool used the above model to be successful; is its integration into the Indian market where it faced a mountain of cultural issues. In India the firm conducted 14 months of research on local tastes and values. India falls in the high context section of Hofstede’s model. Due to the negotiation process being slow and ritualistic and it being time consuming to establish trust, Whirlpool provided incentives to Indian retailers to stock its products. This would reduce time for Whirlpool to introduce its products to the Indian market. 17 (Hitt et al 2003).
The Indians valued personal relations and it is that reason that Whirlpool used local contractors to collect payments and deliver appliances throughout India. Since implementing this strategy in 1996, Whirlpools sales in India had grown 80% by 2001. This shows how Whirlpool overcame the cultural barrier in India and emerged successful.
The communications and language barrier presents a huge stumbling block and a very difficult one to solve. At Whirlpool’s Shangai facility, teams of American, Italian and Chinese technicians must work through three interpreters to set up production
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16 http://gsb.nu.ac.za/modules/Resources/hofstede.pdf
17 Hitt, Ireland, Hoskisson (2003), Strategic Management:Competitiveness and Globalization, Fifth Edition,
Thomson, USA
Although changing consumer tastes and practices linked to cultural values or traditions is not simple, following an international strategy is particularly attractive option to firms (such as Whirlpool) competing in domestic markets that have limited growth opportunities.
3.3 Organisational Structural Issues
Whirlpool is faced with a huge human resources issue, due to its major realignment designed to increase its share of the worldwide appliance market. According to The Wire, a Michigan newspaper, “Whirlpool Corp. will eliminate 4 700 jobs world wide … The company said the restructuring will result in a $350 million charge against its third quarter earnings, but will save $180 million annually by year 2000.” 18
These job reductions will affect 10% of Whirlpool’s worldwide work force. This will definitely have a negative impact on remaining employees as they will be left with no sense of security. According to Maslow’s Hierarchy of Needs theory, safety needs (security, protection) is the second tier of the pyramid, making it one of the most basic of human needs; Whirlpool is faced with a problem with its employees not having this need satisfied.
In the same article Whitman said, “While difficult, these changes are necessary to reach the level of operating performance our employees, customers and shareholders expect.” 19
Whirlpool’s challenge is to control its restructuring after every acquisition, and give its employees some sense of security. As Whirlpool improves processes and reduces complexities it will have more redundant employees which it can handle by attrition and some retirement incentive programs.
3.4 Flexibility
Organisational flexibility is a major problem in most companies. Opportunities develop and pass quickly in the global arena. Many managers and other key employees still feel more comfortable with traditional ownership and control; they have difficulty working within complex network and matrix organisations. Flexibility is more important because global companies increasingly work with partners around the world.
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18,19 From The Wire Staff Reports, Whirlpool Restructuring to Cut Jobs, Benton Harbor Local News (Online) Available at: http://www.whirlpoolcorp.com/news/releases/release.asp?rid=53
Whirlpool can be regarded as a very flexible global organisation and seems to have solved the above problem. It has effectively established acquisitions (Philips), joint ventures (4 Chinese companies) and strategic alliances vital in creating opportunities to combine capabilities and apply them across the global market place.
Their source was from the top as the CEO was driving Whirlpool into being a very flexible organisation ready to change in whichever direction the external environmental forces dictate.
3.5 Product & Technology Transfers Issues
High technology initiatives often encounter limited local capabilities due to lack of expertise and resources within the smaller and less mature subsidiaries. Whitman talked about solving this in his vision of integrating Whirlpool’s geographical businesses so that the company’s expertise would not be confined to one location or product.
According to Whitman, “Today products are being designed to ensure a wide variety of models can be built from the same basic platform … much of the technology and manufacturing process involved are similar.” 20
Therefore Whirlpool was focussing on standardisation to solve technology transfer issues. They planned to base all its products, wherever built or assembled, on the same common platforms which would form the heart of the product. These could then be diversified to suit individual and regional preferences. This would enable easy training as key people could be taken to other manufacturing sites, learn the process and take the knowledge back to their own manufacturing facility as the products and processes are so similar. This common platform technology would bring in a $200 million annual savings in design and component costs. Management also believed that this would put them two to three years ahead of its competitors. 21
3.6 Conclusion of Question 2
There are many forms of resistance that Whirlpool’s global initiatives may meet, and cultural issues may prove to be the most difficult to solve.
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20,21 Building a Global Loyal Following, 2004. (Online), Available at: http://www.whirlpoolcorp.com
4. Question 3: Global trends among Major manufacturers
A SWOT analysis of the appliance industry yields some prominent trends amongst the major appliance manufacturers. A detailed look at a few of the major manufacturers confirmed the direction of the industry.
4.1 SWOT Analysis of the Appliance Industry 22
From the analysis of a few of the major players we find that appliance makers are on a global quest. They have decided to compete in all the major markets of the world.
4.2 Globalisation Trend
Electrolux also has global growth strategy in place, it has recently acquired Email Ltd., Australia’s leading producer of household appliances. It has also entered into joint ventures with local partners in India and China. It has set-up 5 manufacturing plants in China. It is expanding into Latin America through acquisition of Refripar largest producer of refrigerator products in Brazil. (www.Electrolux.com)
Electrolux had to always look to other markets for its growth, as it had only a small home market (Sweden), 85% of its sales are generate globally.
Globalisation is also at the core of GE’s growth strategy. They are also focussing on China, not wanting to be left out of what is predicted to be the biggest market in the world by 2010. They also have interests in Europe, Russia and Latin America. Their global revenues were $61 billion in 2003, up 14% and they expect it to grow 15% in 2004. (www.GE.com)
Maytag has a presence in markets around the world including operations in Australia, Mexico, Puerto Rico and the United Kingdom. (www.Maytag.com)
Haier, China’s No. 1 domestic appliance manufacturer has also seen the advantages of globalisation and set up a production facility in the United States. Haier’s aim is to develop their brand overseas, and have setup facilities in Europe, America, Asia and the Middle East. (www.Haier.com)
All the major manufacturers have seen that the only way to survive is to be competitive in every market in the world. There has been a race to put their brands out there in all markets, for fear of losing out to competitors, and trying to get first mover advantage. As the traditional markets (USA, Europe) reaches saturation, all major manufacturers are looking for new emerging markets that can provide an opportunity. We see a trend of all the major players moving into the emerging markets of Asia (India, China), Eastern Europe (Russia, Poland) and Latin America and investing in production plants and creating strong brand awareness of their products in these countries.
Eventually competition amongst the major players in these areas will reach the levels found in the US. Soon there will be no option but to look at the last developing market and that would be Africa. We already see that trend in South Africa, where Whirlpool is fast becoming a very popular brand in washing machines and Electrolux in vacuum cleaners. It is only a matter of time when all the major players will have there products being marketed in every country in the world on some scale.
4.3 Increased Global Competition
We see the major players entering emerging markets, but the local manufacturers are being forced to retaliate as their market share is being eroded. We see this with Haier now entering the US market. This is a major concern for those manufacturers with a US base. Asian competitors like Haier, LG, Samsung and Daewoo are gaining market share and destabilising the North American market. This trend can be seen on the graph below as these Asian manufacturers market share is growing in the US by the quarter.
Figure 9 23
A competition trend with emerging market manufacturers trying to take away market share from the traditional players in their own markets will materialise. See appendix 2 for Global Market Share graph. Although the Asian manufacturers are lagging in global market share they have all three (Samsung, LG and Haier), stated that their goal is to be number 3 in the world. With their culture – striving for perfection and zero defects approach, it can be ascertained that they will in future displace some of the American and European giants on the global arena.
4.4 Technological Trends
An emerging trend in the appliance industry is increased utilisation of technologies. This trend is most visible with the appearance of Smart Appliances. Technology is being transferred directly from the telecommunications and hi – tech industries to create domestic appliances with added functionality. Technology should be consumer focused and it is important not to add technology for technology’s sake. It is also essential that these new products provide real consumer benefits that are easily recognised and understood by the consumer. Product differentiation will be a key factor in attaining market acceptance. An example would be not to use a fridge to order food, when this function can be performed by the internet or cell phone. Benefits of making use of these technological advances at this stage may be shown by higher degrees of functionality, improved product efficiency through energy control, or development of smart appliances.
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23
4.5 Conclusion of Question 3
All major manufacturers followed similar strategies to enter foreign markets, that is, globalisation, growth, acquisitions, strategic alliances and joint ventures, improve operational efficiencies, leverage resources, innovation, and improve customer satisfaction, customer loyalty and brand awareness. This led to the consolidation of the home appliance industry in the U.S and other regions.
There was a break down of trade barriers by reducing tariffs, forming economic blocs, and encouraging market based economies. Governments from less developed regions encouraged foreign investments into their countries by providing incentives. The major manufacturers experiencing mature markets in the U.S seized opportunities to invest in foreign markets. They experienced the following trends:
- Increased competition from foreign local manufacturers.
- The local manufacturers protected market share against foreign multinationals. Maytag pulled out of Europe due to intense competitive rivalry.
- Bosch-Siemens were increasing their local market share thus not allowing new entrants into the European market. Chinese manufacturers Haier also increased their local market share.
- The major manufacturers were competing for a small share of the market in Asia and Europe.
- Oversupply of home appliances in Asia, due to competition will lead to price wars. This will also lead to saturation of market.
- Buying power of consumers in less developed regions were low, thus major manufacturers will have to offer lease and credit options. Rising interest rates in Brazil and Argentina will pose a major problem to lease options, thus sales would fall.
- Manufacturers will have to continuously reduce prices due to customers wider choice of products.
5. Bibliography
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Czinkota, M.R., Ronkainen, I.A., (2004), International Marketing, Seventh Edition, Thomson, USA
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Kotler, P., (2003), Marketing Management, Eleventh Edition, Prentice Hall, USA
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Hitt, Ireland, Hoskisson (2003), Strategic Management:Competitiveness and Globalization, Fifth Edition, Thomson, USA
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Presentation by Raymond James & Associates, March 1st 2004, Institutional Investor Conference (online), Available at:
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Martin, M., Algar, S., Kumar, V. 2000, Whirlpool Corporation’s Global Strategy, Thunderbird, The American Graduate School of International Management.
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Maruca, R.F., The Right Way to Go Global: An interview with Whirlpool CEO David Whitwam, Harvard Business Review, March-April 1994, pp. 137-140
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11. Webster, C., May 2001, Trends and Issues in the Appliance Industry, Appliance Magazine, Guest Editorial (Ref CCL-624), pp. 1-4
12. “Whirlpool in Asia” and “India & Asia Operations: Success in India”, 2003. (Online), Available at: http://www.appliancemagazine.com
13. Electrolux to acquire the household appliances operation of Email Ltd., Australia, 2000. (Online), Available at: Electrolux.com
14. G. McIvor, "Electrolux Comes under the Scalpel," Financial Times, October 29, 1997, p. 27;
15. Electrolux's Global Investment Strategy, 2004. (Online), Available at: Electrolux.com
16. GE’s Growth Strategy, 2004. (Online), Available at: GE.com
17. About Maytag, 2004. (Online), Available at: Maytag.com
18. International Strategy Bears Fruits – Haier, 2002. (Online), Available at: http://fpeng.peopledaily.com.cn/200202/19/eng20020219_90595.shtml
19. Pierce & Robinson, 2003, Strategic Management, 11th Edition, Macgraw-Hill, USA.
Appendix 1: The Value Chain
Appendix 2
