Whirlpool The world is experiencing a third wave in the economy and many changes are taking place. One of these changes is the growing corporation that decides to go global. Most U. S. companies, both large and small, are rapidly acknowledging the necessity of global marketing. The demand for foreign products in the fast-growing economies of Europe, South America, Asia, and Pacific Rim nations offer one example of the benefits of global thinking. One company that has adapted to this new economy by globalizing has been Whirlpool.
In 1989, Whirlpool Corporation embarked on an ambitious global expansion with the objective of becoming the world market leader in home appliances. However, by the mid-1990s, serious problems had emerged in the company’s international operations. Whirlpool’s European profit fell by 50%, lost $70 million in Asia, appliance sales in Brazil plummeted by 25% although the company invested hundreds of millions of dollars to modernize operations. In response to these problems, Whirlpool began to question the problems and called for the global restructuring effort (Johansson, 2000).
What went wrong with Whirlpool’s global strategy? Did Whirlpool have enough understanding of how to create a global strategy? Was the appliance industry more suited for regional than global? What are some key success factors in appliance industry that Whirlpool did not have? Was it possible for Whirlpool to identify the problems and reacted earlier? In this case study, I intend to answer all of these questions that are mentioned above regarding to the appliance industry and Whirlpool Global strategies.
There are four separate sections in this paper- the first two questions are related to the appliance industry in general and the last two questions regard to specific questions on Whirlpool global strategies. 1. To What extent is the appliance market regional rather than global? During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries.
To create a successful global strategy, companies first must understand the nature of global industries and the dynamics of global competition. The furniture industry is an example of an industry that did not lend itself to globalization before the 1960’s. Because furniture has a high bulk compared to its value and because furniture is easily damaged in shipping, transport costs traditionally were high. Government trade barriers also were unfavorable. The Swedish furniture company IKEA pioneered a move towards globalization in the furniture industry.
IKEA’s furniture was unassembled and therefore could be shipped more economically. The company also lowered costs by involving the customer; the customer carried the furniture home and assembled it himself (Babyak, 1995). The differences between regional and global market concept in the appliance industry certainly play a big part. In the regional market, products are customized for each market, and local-decision-making puts enormous impact on companies. Product differentiation, local responsiveness, minimized political risk, and minimized exchange rate risk are just few advantages of the regional market concept.
On the other hand, the global market favors centralized control, which little decision making authority on the local level. Reduced costs, coordinated activities, faster product development are the advantages over regional market. I strongly believe that the appliance industry is regional than global in terms of product customization and competitions. For example, in Europe refrigerators tend to be smaller than in the U. S. , have only one outside door, and have standard sizes so they can be built into the kitchen cabinet.
French are concerned about the refrigerator’s capacity to keep fruit and vegetables fresh while Spanish are concerned with meats. In Japan, refrigerators tend to have several doors in order to keep different compartments at different temperatures and to isolate odors. Also, because houses are smaller in Japan, consumers desire quieter appliances. It would be extremely difficult for a home appliance company, such as Whirlpool, to compete in these countries if it does not meet these specific requirements. Furthermore, 300 local manufacturers in developed markets like Europe created very intensive competitions.
This is another reason why the appliance market was not very attracted to go global. However, the appliance market can be global in terms of reducing costs and maximizing profits. The appliance sales were growing at double-digit percentage rates in developing countries. The U. S. appliance market was completely saturated in 1986. Increased pressure from other companies like GE who implemented a $1 billion restructuring project on its appliance division, and Electrolux, a company that just inherited WCI and became a huge presence within the U. S. gave the Whirlpool top management concern on how to stay competitive . Whirlpool had to look outside of the box (Weiss, David & Gross, 1995). What Whirlpool did first to transform a largely domestic operation into a global powerhouse was purchasing the European appliance business of Dutch consumer goods giant Philips Electronics. The Whirlpool strategy called for reversing the decline in European market share and improving profitability. In order to achieve this Whirlpool had to change product designs and manufacturing processes and also by switching to centralized purchasing.
The successful transformation cut its list of 1,600 suppliers by 50% and it converted the national operations to regional companies (Vlasic, Bill & Zachary, 1996). Whitwam believed that in order to make Whirlpool one company worldwide it first required making Whirlpool a global brand, which was a formidable task in Europe where the name was not well-known. Because of the different preferences of consumers in different markets, a purely global strategy with standard products was not appropriate. Whirlpool would have to adapt its products to local markets, but maintain some global integration in order to realize cost benefits. . What seem to be the key success factors in the appliance business? The key success factors in the appliance business are to cut cost, produce innovative products continuously, and meet or exceed customer preferences. These are “must-have” factors that all appliance businesses intend to focus on. In my opinion, cutting cost is the most important factor in the appliance business. According to G. E. Appliances CEO David Cote, “This industry doesn’t reward investment, so we have to spend money sparingly and carefully. After Maytag pulled out from Europe, the company concentrated in North American Market. Despite the failure in Europe, Maytag increased its sales as much as 20%, and also increased share price up to $46. 56. This type of success could become possible because Maytag cut cost by revising its suppliers. Sourcing down its 936 suppliers in 1996 to 135 suppliers in 1999, Maytag gained enormous profits and competitive advantage over its competitors. GE also concentrated on cutting cost by creating joint ventures with companies abroad.
For example, GE established partnerships with Godrej and Philacor to manufacture refrigerators and laundry products. Since these two companies, based in India and Philippines, could manufacture quality products at low price, it was a massive advantage for GE. Through this successful partnership with these suppliers, GE was able to cut cost and generate $6. 4 billion in sales in 1996 (Johansson, 2000). Introducing innovative products continuously is another important factor in the appliance business. For example, Maytag created a “Galaxy initiative,” a line-up of nine new products.
Neptune, front-loading washer, attracted millions of customers due to its energy efficiency- consumes less water. Whirlpool also introduced new product line-up in clothes washing, refrigeration, air conditioning and cooking in order to stay competitive in the market (Johansson, 2000). Customer satisfaction is also a very important factor. Customer preferences differ from market to market, and meeting these requirements is very essential to many companies. For example, Danes need to spin-dry clothes while Italians often line-dry due to its different climates.
The British are more concerned with well constructed products while Italians and Germans are concerned with childproof safety and the environmental friendly features. These three key factors are very essential to any companies that are involved in the appliance market. In order for a company to aggressively lower the costs, it needs to focus on improving efficiency and productivity. Generating quality innovated products and creating these products adjust to customer preferences are also important in order to survive in the appliance market. 3.
Are Whirlpool’s difficulties with its global strategy due to internal factors or to external factors beyond its control? Both internal and external factors in different countries created enormous difficulties for Whirlpool. First I would like to take a look at external factors that put negative impacts on Whirlpool. As the global financial crisis extended from Asia and Russia into Latin America, Whirlpool’s Brazilian operations have been thrown into chaos. To guard against an attack on its currency, Brazil doubled interest rates in October 1997 and again next autumn after they had slowly fallen back.
As a result, Whirlpool’s appliance sales in Brazil fell sharply by about 25 percent in 1998. In a battle to increase the Brazilian market, the company has invested hundreds of millions of dollars to modernize and reduce costs in Brazil and consolidate its position as the market leader in refrigerators, room air-conditioners, and washers (Janesurak, 1995). The language issues and cultural differences are other external factors that created difficulties for Whirlpool across Europe and Asia. The language barrier is the biggest problem with many U. S. companies that are trying to invest abroad.
It is extremely difficult to negotiate and communicate business deals between different languages. I know for a fact that sometimes it is impossible to translate the complete meaning of one language to another. Cultural difference is another factor that caused difficulties for Whirlpool. As I mentioned earlier, in Europe refrigerators tend to be smaller than in the U. S. , have only one outside door, and have standard sizes so they can be built into the kitchen cabinet. In Japan, refrigerators tend to have several doors in order to keep different compartments at different temperatures and to isolate odors.
Also, because houses are smaller in Japan, consumers desire quieter appliances. Another example, the green movement is a major market issue in Europe, and consumers will evaluate appliances in terms of their energy efficiency, water conservation, compact size, uses of recyclable materials, nature of packaging material used, and environmental consciousness of the manufacturer. Whirlpool failed to understand this type of external factors, and it resulted the decline of sales (Quintanilla & Carlton, 1997). Some of internal factors also existed for Whirlpool across Europe and Asia.
Whirlpool failed to recognize the different competitors and distribution channels in Europe countries. This type of internal factors created manufacturing inefficiencies. One concern over Europe was that it was extremely fragmented and hence not easy to achieve economies of scale. In Japan, there was already a strong presence of Japanese appliance manufacturers although Japan was also a site for potential growth. Whirlpool acquired Philips’ Major Domestic Appliance Division, 47% in 1989 and the remainder in 1991. Initially, margins doubled as predicted.
However, local competitors responded by better tailoring their products and cutting costs; Whirlpool’s profits then began to decline. Whirlpool applied the same strategy to Asia, but GE was outperforming Whirlpool there by tailoring its products as part of its regional strategy (Johansson, 2000). In my opinion, the European countries may be fragmented, but there is evidence that there is increased future collaboration amongst the countries and their purchasing decisions. Furthermore, Whirlpool can cut costs by vertically integrating its components and changing only the exterior of the appliances if necessary.
Moreover, I strongly believe that the joint venture with Phillips would benefit Whirlpool due to Phillip’s strong international presence and its strong appliance division. Whirlpool should consider concentrating on expansion in Europe and Asia with the solutions for these external and internal factors that caused the company complexity. 4. To what extent does Whirlpool experience suggest that globalization is not a good idea in the appliance business? Explain fully. There are many reasons why Whirlpool experiences suggest the globalization is not a good idea in appliance business.
I mentioned many difficulties that Whirlpool faced in its globalization in the previous question. I listed some key points: •Fragmented distribution network in Europe •Different consumer needs and preferences. For example, in Europe refrigerators tend to be smaller than in the U. S. , have only one outside door, and have standard sizes so they can be built into the kitchen cabinet. In Japan, refrigerators tend to have several doors in order to keep different compartments at different temperatures and to isolate odors.
Also, because houses are smaller in Japan, consumers desire quieter appliances. •Whirlpool already was the dominant player in a fragmented industry. •High costs due to tailored products in Europe and Asia. •The innovation from the local R&D groups resulted in products that were R&D driven instead of market driven. •External and internal factors that I mentioned on Question #3. In 1995, Whirlpool’s European profit fell by 50% and in 1996, the company reported a $13 million loss in Europe. In Asia, the situation was even worse.
Although the region accounted for only 6% of corporate sales, Whirlpool lost $70 million in Asia in 1998 and $62 million in 1997. In Brazil, Whirlpool found itself a victim in 1997, and again in 1998, of sky-rocked interest rates. Despite the company’s investments of hundreds of dollars throughout the 1990s to modernize operations there, appliance sales in Brazil plummeted by 25% in 1998 (Johansson, 2000). I strongly believe that Whirlpool had extremely difficult experiences in globalizing their market because the company did not meet the customer preferences.
The European market consisted of more than 320 million consumers whose preferences varied by country and by region. For example, Swedes preferred galvanized washing machines to withstand the damp salty air. The British washed thier clothes more often than the Italians did, and wanted quieter machines. The French liked to cook on gas at high temperatures, splattering grease on cooking surfaces, and so preferred self-cleaning ovens, while the Germans liked to cook on electric stoves at lower temperatures and did not need such features (Janesurak, 1995).
Asian consumer preferences were different from those in Europe or North America. Kitchen appliances needed to be smaller to fit in Asian kitchens. Lack of space sometimes required the consumer to store the appliance in an outside hallway and transport it into the kitchen for use. Also refrigerators also tended to be smaller and more colorful. When Asian countries first began to experience significant economic growth, some East Asians viewed their refrigerators as status symbols (Vlasic, Bill & Zachary, 1996). These external factors put numerous pressures on Whirlpool.
In addition, other external factors- intensified competition in Europe, Mexico’s peso devaluation crisis, unprecedented raw materials cost increases- did not help to improve the situation either. The internal factors, such as manufacturing inefficiencies, start-up costs associated with production of a redesigned mid-size refrigerator and restructuring of the pan-European sales forces, also created many complexity for the company. Few companies or industries lend themselves to “naive” global strategies. All require some degree of adaptation to regional and national conditions.
The international strategy agenda has over-emphasized standardization. Integration and coordination bring great benefits if companies are sufficiently skilled to implement them effectively. Greater clarity of information will create an increasing requirement for consistency in quality, delivery, and marketing of products and services across borders. Not all companies will be able to allocate the resources or develop the capabilities for such management of quality and responsiveness across wider and wider geographic boundaries (Babyak, 1995).
Companies are also in danger of foregoing the benefits of differentiation from recognizing and capitalizing on country-specific and regional opportunities. In pursuing a global strategy, companies should not ignore the existence of individual countries altogether. Many successful product or service innovations have resulted from ideas observed elsewhere. A presence in international markets creates tools for gathering market intelligence and is considered an important benefit of a varied nternational presence and a factor that is leading to centralize operations. Indeed Whirlpool has come a long way since embarking on its global strategy. Revenues have doubled more than 80 billion. The company now reaches markets in more than 140 countries, leading the markets in both North America and Latin America. Whirlpool is now number three in Europe and the largest Western Appliance Company in Asia. Bibliography: References Babyak, Richard J, “Strategic Imperative,” Appliance Manufacturer, Feb. 1995. C. Quintanilla and J.
Carlton, “Whirlpool Announces Global Restructuring Effort,” Wall Street Journal, 19, Sept. 1997:A3, A6 Janesurak, Joe, “South American Sales Co. : Linking the Americas, Europe,” Appliance Manufacturer, Feb. 1995 Johansson, Johny, “Globalization Headaches at Whirlpool” Global Marketing, 2000, p85 Vlasic, Bill and Zachary Schiller. “Did Whirlpool gone Too Far Too Fast? ” Business Week, 24 June 1996. Weiss, David D. and C. Gross, “Industry Corner: Major Household Appliances in Western Europe,” Business Economics, Vol. 30, Issue 3, July 1995: 67.