MARKET AND ENVIRONMENTAL FORCES THE NEED FOR GROWTH

MARKET AND ENVIRONMENTAL FORCES THE NEED FOR GROWTH: THE U. S. APPLIANCES INDUSTRY January 1998 Jeff Dyer - BYU

Jeff Dyer - BYU

BYU students with refurbished fridge in Singapore Jeff Dyer - BYU

APPLIANCE INDUSTRY: STRATEGIC IMPERATIVES FOR THE 1990 s and BEYOND: • • January 1998 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 TO STRATEGIC IMPERATIVES • • January 1998 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. Jeff Dyer - BYU

WHIRLPOOL ACQUIRES PHILIPS 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: • 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 outperforming Whirlpool in Asia by tailoring products to local markets through joint ventures with local partners (a more multi-domestic strategy). Jeff Dyer - BYU

TYPES OF INTERNATIONAL STRATEGY: A FRAMEWORK High Forces for Global Integration Global Strategy (Cost) Transnational or Mass Customization Strategy (some functions are global, some are local) (cost sharing across countries) Low Local Strategy Low Multi-Domestic Strategy (Differentiation) Forces for Local Differentiation High (Differences in Customer Needs) Jeff Dyer - BYU

WHIRLPOOL: ACHIEVING BOTH INTEGRATION AND DIFFERENTATION Function/Activity National Regional Global Research & Development X X Product Design X X X Components Assembly X X X Marketing Sales & Distribution X Service X X X Jeff Dyer - BYU

Cost Structure Sensitivity Analysis Experience Curve Slope 90% 80% 70% 10% Percent 20% of cost structure influenced 30% by global scale 40% 50% Jeff Dyer - BYU

IN SUMMARY: DIFFERENT STRATEGIC POSITIONS HAVE DIFFERENT MANAGERIAL REQUIREMENTS Pressures for Global Integration Global Strategic Management Central direction and national affiliates in supporting roles Home Market Base Opportunistic export/investments Source: J. de January 1998 la Torre Trans-National Management Some functions global, some local, semi-autonomous subsidiaries, and close coordination Multi-Domestic Management A federation of autonomous subsidiaries sharing some central services Pressures for Local Differentiation Jeff Dyer - BYU

DIFFERENT INDUSTRIES HAVE DIFFERENT POSITIONS Pressures for Global Integration Civilian Aircraft Mainframe Computers Pharmaceuticals Autos Semiconductors Cons. electronics Telecom Bulk Chemicals Industrial Appliances Specialty Chemicals Prof. Services Beer (e. g. , M&A) Services Household Services Source: J. de January 1998 la Torre Agricultural Equipment Packaged Foods Food Retail Banking Retailing Pressures for Local Differentiation 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 January 1998 Jeff Dyer - BYU