Arcelik Turkey

Muhammad Setiawan Kusmulyono

setiawan_kusmulyono@yahoo.com

A G E N D A

Company Profile

Case Background

Theoretical Concept

Analysis

Case Question

Discussion

Theoretical Concept

Analysis

Q & A Session

T U R K E Y P R O F I L E

www.lexicorient.com

T U R K E Y P R O F I L E

AGRICULTURE

8.9 %

INDUSTRY 30.8 %

SERVICES 59.3 %

G D P 2007

www.indexmundi.com

hazelnut, fig, apricot, cherry, quince and pomegranate

textiles and clothing

tourism and banking

TURKEY’S BEST PERFORMANCE COMPANY

Electronics Arcelik, Vestel (Europe Top 3)

Construction Enka, Tekfen, Ucgen Insaat (Top International Constructor)

Automotive Fiat (Tofas), Renault (Oyak), Hyundai (Ossan) (Top 6 in Europe)

TURKISH NEW LIRA

C A S E B A C K G R O U N D

ADVANCED ECONOMIES

DEVELOPING ECONOMIES

EMERGING MARKETS

Post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure.

US Western Europe Japan Canada Australia New Zealand

Low-income countries that have not yet industrialized. They have low buying power, limited appeal to foreign firms, and limited participation in international business.

Africa

Former developing countries that develop their economies more dynamics. EM is transforming into market-driven by liberalizing trade and investment. More participation in international business and regional economic integration.

Asia and Latin America

International Business; Strategy, Management & New Realities. p. 265

C A S E B A C K G R O U N D

GDP (in billion$)

0

50

100

150

200

250

300

350

400

90 91 92 93 94 95 96 97 98 99 0̂0 0̂1 0̂2 0̂3 0̂4 0̂5 0̂6

Year

GDP (in billion$)

www.imf.org

TURKEY;s

GDP

EMERGING MARKETS

T U R K E Y P R O F I L E

Lift Iron

CLIP 1

C O M P A N Y P R O F I L E

Origins

Establishment

Ownership

Business Line

Product

Market Area

Subsidiaries

KOC Group [Family Business Conglomerate]

Appliance Manufacturer [White Goods Business]

> 100 productsAC, Dishwasher, Washing Machines, Cooking Appliances, and Refrigerator

Brands Beko, Altus, and Arcelik

Turkey, Europe (UK, Italy, Czech, Spain, Germany, Romania, Hungary)

Blomberg, Grundig, Elektra Bregenz, Tirolia, Leisure, Flavel, and Arctic

C O M P A N Y S U B S I D I A R I E S B R A N D S

C O M P A N Y S U B S I D I A R I E S P R O D U C T S

C A S E B A C K G R O U N D

• Turkey is an emerging market• Relatively low saturation level• Purchasing power is low (outside big 4 cities)• 50% are younger population (<25 y.o.)

internally

externally

• Turkey is applying EU membership• Trade barriers declined in 1980-90 (Turkish market was opened for outside competitors)• Archelik’s market share was threatened

Archelik Launched

Aggressive International Expansion

C A S E B A C K G R O U N D

I N D U S T R I A L P R O F I L E

In ADVANCE ECONOMIES, household appliance industry is mature and saturated

In EMERGING MARKETS, household appliance industry is difficult to charge premium prices and increase profit margin

a. Innovation is costly

- Frequent change production methods

- Regular re-training factory workers

b. Low spending power of buyer

I N D U S T R I A L P R O F I L E

B S H

Electrolux

G E

Haier

Merloni

National

Whirlpool

The COMPETITOR:

TODAY, Merger & Acquisition is the strategy to be Worldwide

It caused: only 5 companies control >70% market in Europe (from 400 companies)

ARCELIK: Acquired more than 7 companies in EUROPE

Dishwasher

Refrigerators and Vacuum Cleaners

China (Low Price)

High Technology Involvement

Home Laundry

National

I N D U S T R I A L P R O F I L E

Standardization the material, parts, and components1

Automated manufacturing process 2

Arcelik is categorized as HIGH TECHNICAL COMPLEXITY firms. It is operated in fully automated machine and programmed in advance.Joan Woodward; Organizational Design and Dynamics; p. 241

Build manufacturing plant outside original state3

Arcelik: Build plant in Russia and Western Europe.

Whirlpool: Build plant in China

I N D U S T R I A L P R O F I L E

Home appliances are commodities

Product life-span is 10 – 15 years the lifecycle is slow

Value lower prices create lower profit margin

In advance economies country, market are saturated

Different market, different country, different culture

Sales Distribution of Household Appliances

34%

24%

23%

19%

Asia Pacific

Western Europe

North America

Other

Appliance manufacture & world market share reporter

I N D U S T R I A L P R O F I L E

Different market, different country, different culture

in INDIA: Low Price

in CHINA + LATIN AMERICA: Ample Features but Low Spending Power

in EUROPE: Strict Environmental Rules

Difficult to suit the local market

Difficult to charge average price in every country

“Hard Factors” tooling, factory layout, procurement, and design do not provide long-term competitive edge

I N D U S T R I A L P R O F I L E

I N D U S T R I A L P R O F I L E

Emphasize in Dynamic “S O F T” Factors

Merger and Acquisition

Find Global Opportunities

Comparative Advantage

Benefited from Regional Economic Integration

Erin 1

CLIP 2

A R C E L I K

SUCCESS FACTORS

Produce product in lower-income countries1

Modernize the operations and Double the capacity2

Establish Distribution Centers throughout Europe3

Cooperated with IT Companies to build World IT System4

THREATS

Arcelik’s brands are largely unknown outside Europe1

A R C E L I K’s success factors

Produce product in lower-income countries1

- Manufacturing plant in Turkey and Eastern Europe (Russia)

- Arcelik’s produce appliances less expensively than other

Modernize the operations and Double the capacity2

- Additional investment to build factory in Russia and adapt new production system technology

- Established sales subsidiaries in Czech, Hungary, and Italy

A R C E L I K’s success factors

Establish Distribution Centers throughout Europe3

1.700 unparalleled distribution network (Beko) and 1.700 non-exclusively agents 530 authorized service shops

Cooperated with IT Companies to build World IT System4

CISCO builds Virtual Networked Organization Online

Establish after-sales service network

COMPETITIVE ADVANTAGE

A R C E L I K’s success factors

COMPARATIVE ADVANTAGE

Concept that helps answer the question of all nations can gain and sustain national economic superiority

COMPETITIVE ADVANTAGE

Concept that helps explain how individual firms can gain and sustain distinctive competence vis-à-vis competitors

A R C E L I K

THREATS

Arcelik’s brands are largely unknown outside Europe1

Brand becomes barrier to entry and threats for short-term success

Merger and Acquisition

Global Distribution Network

- Tailor the meet customer needs in respective country

A R C E L I K

To sustain continuous growth

To become a leading global household company

Improve operational efficiency

Increase investment in high-growth markets

Focus in emerging market [Eastern Europe, Asia, and LA]

Lowering operating manufacturing cost

Leveraging low-cost manufacturing platforms and IT

Produce product that appeal to foreign markets

CASE QUESTION

Case Question

Orbital

CLIP 3

CASE QUESTION

Arcelik has been very active in Western Europe,

Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ?1 -

In what ways, are EM and DE attractive to Arcelik?-

How can firm reap benefits from such market in order to maximize performance?-

CASE QUESTION (number 1)

Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ?-

Prospect Arcelik in emerging market and developing market

than advanced market

DIMENSION Advanced Market Emerging Market Developing MarketPopulation (% of the word) 14 62 24

Approximate average per capita income (US dollars; PPP basis)

33.750 13.250 6.450

Trade volume High Low High

Education level High Moderate Low

Trade barriers Minimal Rapidly liberalizing Moderate to high

Industry Highly developed Rapidly improving Poor

Inward FDI High Moderate to high Low

Economic or political system Capitalist Rapidly transitioning to

capitalismAuthoritarian, socialist, or

communist

Country risk Low Variable Moderate to high

CASE QUESTION (number 1)

- In what ways, are EM and DE attractive to Arcelik?

Emerging and developing market are attractive than advance market

• Reason– High population– Fast-growing markets– Urbanization is increasing low-cost labor (ideal bases for

locating manufacture)– Industry rapidly increasing

CASE QUESTION (number 1)

- How can firm reap benefits from such market in order to maximize performance?

Reap benefits from such markets

Advance Market Emerging and Developing Market

Population

• Well educate• Income per capita high

can gain a high profit margin

• Low-labor cost• Income per capita rapidly

increase should be adjusting price and cost little gain profit margin

Industry • Saturated• Open up to be growth as the

way as technology improvement

CASE QUESTION

Arcelik is keen on entering EM and DE,

What type of risk that they challenge in EM?2 -

What management do to identify the most promising market?-

How should firm adapt the product?-

CASE QUESTION (number 2)

- What type of risk that they challenge in EM?

Political Instability• Corruption, Collusion, Nepotism• Week Legal Framework

Week Intellectual Property Protection• No laws enforcement

Bureaucracy, Red Tape, and Lack or Transparency• Burdensome Administrative rules• Excessive requirements for license

Partner Availability and Qualifications• characterized by inadequate legal & political framework

Dominance of Family Conglomerates• Highly diversified• Control the majority of economic activit (half the revenue in korea)• government protection and support• superior market knowledge

Less Reliable (business env.)

CASE QUESTION (number 2)

- What management do to identify the most promising market?

Partnering with Family Conglomerates• Reduce the risk, time, and capital requirement• good relationship with government and other key local player• target market opportunities more rapidly and effective• overcome infrastructure-related hurdles • leverage FC’s resources and local contact

Marketing to Governments in Emerging Market• government buy enormous quantities of product• usually emerging country have economic development plan (need to build or improve national infrastructure)

Skillfully Challenge Emerging Market Competitors

CASE QUESTION (number 2)

-

Per-Capita Income as an Indicator of Market Potential

Middle Class as an Indicator of Market Potential

Use of a Comprehensive Index to measure market potential

GDP are indicator of purchasing power of customer

Size and growth rate of middle class serve a signal of dynamic market economy

-Market Size (all population) -Commercial Infrastructure-Market growth rate (GDP) -Economic Freedom-Market intensity -Market Receptivity-Market consumption capacity -Country Risk

What management do to identify the most promising market?

CASE QUESTION (number 2)

- How should firm adapt the product?

Merge and acquisition with other company in emerging market

Collaboration technology, knowledge (product and market), share distribution channels, etc.

Produce potential product base on customer wants

Purchasing power in emerging market is relative low

CASE QUESTION

Arcelik may be better poised to cater economic development of EM and DE,

In what ways Arcelik skillfully fulfill its CSR ?3 -

Suggest specific approaches of CSR-

CATERING TO ECONOMIC DEVELOPMENT NEEDS OF EMERGING MARKETS AND DEVELOPING

ECONOMIES

• Leading firms display good corporate social responsibility by engaging in

activities that facilitate economic development in emerging market and

developing economies.

• There are 2 (two) trends as form of CSR:

– Fostering Economic Development with Profitable Project

– Microfinance to Facilitate Entrepreneurship

CASE QUESTION (number 3)

- In what ways Arcelik skillfully fulfill its CSR?

FOSTERING ECONOMIC DEVELOPMENT WITH PROFITABLE PROJECTS

• Firms serve low income countries with inexpensive, specifically-designed products and

services and community involvement.

IN OTHER WAYS…

• Firms create jobs and contribute to development.

• Investments generates tax to improve living standard.

• Transferring technology and know how

• Develop community-oriented social programs.

CASE QUESTION (number 3)

- In what ways Arcelik skillfully fulfill its CSR?

Microfinance to Facilitate Entrepreneurship

• Microfinance, emerging of financial institutions that serve emerging market

entrepreneurs with small scale loans.

• By providing small loans, can help pull them out of poverty.

• Various organization now offer other forms of small scale financial services,

including insurance and mortgage lending.

CASE QUESTION (number 3)

- Suggest specific approaches of CSR

ARCELIK’S CORPORATE SOCIAL RESPONSIBILITY IN EMERGING MARKET

FOSTERING ECONOMIC DEVELOPMENT W/ PROFITABLE PROJECTS

• Firm creates product that meet local demand with lower price compared to its quality.

• Firm enter the market and establish manufacturing/assembly plant.

• Firm establish distribution centers throughout country.

• Firm boasts a strong after-sales service network with large number of authorized service

shop.

MICROFINANCE TO FACILITATE ENTREPRENEURSHIP

• Firm offer financial services that provide installment purchase for its customer.

REFERENCES

REFERENCES

Cavusgil, et.al. International Business

Gardner, et.al. Organization Design and Dynamics

www.lexicorient.com

www.imf.org

www.indexmundi.com

www.arcelik.com

www.turkivz.com

closing

Thank you