Jeff Dyer - BYU

THE NEED FOR GROWTH:

THE U.S. APPLIANCES INDUSTRY

MARKET AND ENVIRONMENTAL FORCES

Jeff Dyer - BYU

Jeff Dyer - BYU

BYU students with refurbished fridge in Singapore

Jeff Dyer - BYU

APPLIANCE INDUSTRY:STRATEGIC IMPERATIVES

FOR THE 1990s and BEYOND:

• Find growth opportunities overseas; U.S. markets are saturated (2% growth) and the industry has consolidated.

• Achieve Economies of Scale in R&D and Manufacturing (particularly components)

• Conduct final assembly close to final customer (high cost to ship).

• Ensure products meet needs for local differentiation

Jeff Dyer - BYU

RESPONSE TOSTRATEGIC IMPERATIVES

• Electrolux enters U.S. market with acquisition of White Consolidated Industries (Frigidaire, Westinghouse, Gibson)

• Whirlpool acquires Philips in Europe; enters South America and Asia

• Maytag acquires Hoover in Europe (U.K.)• GE enters emerging Asian countries

(Thailand, Indonesia, Vietnam) through Joint Ventures with local companies.

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Actions:Actions:• Rationalized assets: (e.g., 36 to 16 warehouses;

cut suppliers by 50 percent).• Redesigned products around common platforms/components• Merged national affiliates into a regional company for Europe• Established Whirlpool brand presence (co-brand with Philips for two

years); establishing a brand is single largest expense.

Outcomes:Outcomes:

• European market share up, margins doubled initially.

• Globalization model now being applied in India, East Asia.

• Local competitors are developing customized response strategies and are lowering costs; Whirlpool’s profits are declining. GE is out-

performing Whirlpool in Asia by tailoring products to local markets through joint ventures with local partners (a more multi-domestic strategy).

WHIRLPOOL ACQUIRES PHILIPS

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High

Low

Low High

GlobalGlobalStrategyStrategy(Cost)(Cost)

Transnational orTransnational orMass CustomizationMass Customization

StrategyStrategy(some functions are

global, some are local)

Multi-DomesticMulti-DomesticStrategyStrategy

(Differentiation)(Differentiation)

TYPES OF INTERNATIONAL STRATEGY:

A FRAMEWORK

Local Strategy

Forces for LocalDifferentiation

(Differences in Customer Needs)

Forces for Global

Integration

(cost sharing across countries)

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Function/Activity National Regional Global

Research & Development

Product Design

Components

Assembly

Marketing

Sales & Distribution

Service

X

X

X

X

X

X

X

X

X

X

X

WHIRLPOOL: ACHIEVING BOTH INTEGRATION AND DIFFERENTATION

X

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Cost Structure Sensitivity AnalysisCost Structure Sensitivity Analysis

1% savings 2% 3%

2% 4% 6%

3% 6% 9%

4% 8% 12%

5% 10% 15% savings

1010%%

2020%%

3030%%

4040%%

5050%%

PercentPercentof costof coststructurestructureinfluencedinfluencedby globalby globalscalescale

Experience Curve SlopeExperience Curve Slope

90% 80% 70%90% 80% 70%

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IN SUMMARY: DIFFERENT STRATEGIC POSITIONS HAVE DIFFERENT MANAGERIAL REQUIREMENTS

Pressuresfor GlobalIntegration

Pressuresfor LocalDifferentiation

Global StrategicGlobal Strategic

ManagementManagement

Central direction and national affiliates in supporting roles

Multi-DomesticMulti-Domestic ManagementManagementA federation of autonomous subsidiaries sharing some central services

Trans-National Trans-National ManagementManagement

Some functions global, some local, semi-autonomoussubsidiaries, andclose coordination

Home Market BaseHome Market Base

Opportunistic export/investments

Source: J. de la Torre

Jeff Dyer - BYU

Pressuresfor GlobalIntegration

Pressuresfor LocalDifferentiation

DIFFERENT INDUSTRIES HAVE DIFFERENT POSITIONS

SemiconductorsCons. electronics

MainframeComputers Pharmaceuticals

SpecialtyChemicals

Autos

CivilianAircraft

BulkChemicals

Telecom

Prof. Services(e.g., M&A)

AgriculturalEquipment

Beer

PackagedFoods

Retail BankingFoodRetailing

Appliances

HouseholdServices

IndustrialServices

Source: J. de la Torre

Jeff Dyer - BYU

THE KEY TO SUCCESS:

Distinguish Between What CAN and SHOULD Be Integrated

Versus

What MUST Be Differentiated to Satisfy Local Tastes and Requirements