Summary Whirlpool Coporation's Global Strategy

7 Summary Whirlpool Coporation’s Global Strategy

Introduction case
1989 Ambitious global expansion emerged:
• Objective: becoming the world market leader in home appliances.
• Purchase of a majority stake in an appliance company owned by Philips.
• Purchased a majority stake in an Indian firm.
• Established four joint ventures in China.
• Made new investments in its Latin America operations.

1990 Serious problems emerged in the international operations:
• 1995 European profit fell by 50 percent.
• 1996 Reported $13 million loss in Europe.
• 1996 Whirlpool lost $70 million in Asia.
• 1997 Lost $62 million in Asia.
• 1997/1998 Victim of spiraling interest rates in Brazil.
• 1998 Appliance sales in Brazil plummeted by 25%.
• 1999 Third straight year of declining sales in Brazil.

1997 In response to these problems, Whirlpool began a global restructuring effort:
• Announced that it would cut 10 percent of its global workforce over the next two years.
• Pulled out of two joint ventures in China.
• In Latin America 3,500 jobs were abolished and significant investments were made to upgrade plants and product lines.

What went wrong with Whirlpool’s global strategy?

Appliance industry in the late 20th century
The appliance industry is in general classified in 4 categories being laundries, refrigeration, cooking and other appliances, usually varies among regions. An overview of the regions US, Latin America, Europe and Asia:

The US market:
• World’s largest home appliance market
• Highly consolidated, there are only four players
• High saturation level of the market, therefore limited growth opportunities.
• Focus should be on cost reduction, productive efficiency, and product quality as well as product innovation.
• Focusing primarily on replacement purchases and purchases for new housing development.

The European market:
• Market structure is in a trend to become more concentrated.
• Mature market with a high concentration rate (70% market share for the five largest firms).
• Highly regionalized industry, consumer preferences vary from country to country
• Distribution mainly through independent retailer.
• Retailers have more bargaining power.
• Upcoming trend that low-end products gain more market share.

The Asian market:
• Second largest home appliance market
• Fastest growing market, with annually growth rates between 8 and 12%.
• Customer preferences are different from US and European market.
• Traditionally distributed through small retail shops but beginning to shift to big retailers.
• In Asia the market penetrations varies.

Whirlpool Corporation
Whirlpool was founded in 1911 as The Upton Machine Co. in St. Joseph, Michigan, to produce an electric motor-driven wringer washer. The Whirlpool brand was introduced in 1948 and trough a series of acquisitions and mergers, the company emerged as a leading force in the U.S. appliance industry with annual revenue reaching $2 billion in 1978. As of 1998, Whirlpool Corporation manufactured in 13 countries and marketed its products under 11 major brand names to over 140 countries. Sales were $8.2 billion in fiscal year in 1997.

Globalization of Whirlpool
By the mid 1980’s, Whirpool saw that its profit margins were rapidly decreasing in North America. Top management settled on further global expansion for two main reasons: the company wished to take advantage of less mature markets around the world and it did not want to be left behind its competitors, which had already begun to globalize.

Whitwam’s vision and Platform Technology
Whitwam vision was to integrating Whirlpool’s geographical business so that the company’s expertise would not be confined to one location or product. He wanted to standardize the company’s manufacturing processes and produce single Appliances that could be sold anywhere.

Given the view that standardization should be the focus, Whirlpool planned to base all its products, wherever they were built or assembled, on common platforms. The products could then be diversified to suit individual and regional preferences. Platform technology represented only the beginning of Whirlpool’s globalization strategy.

Developing and implementing global strategy

European Expansion
Whirlpool believed the European market was getting very similar to the US, so Whirlpool world be able to replicate their US successes. The European integration resulted in the trend of consolidation. The plan was to be one of the big players following this consolidation. Whirlpool strategy was focus on brand segmentation and operation efficiency. It was believed that companies that produce the most innovative products while reducing cost would capture the market. Most operations were streamlined in order to achieve reduced cost through economies of scale and efforts were taken towards product innovation.

However whirlpool wasn’t the only company aggressively attacking the market. Other competitors also improved their efficiency and reduced the costs. Recession in Europe caused consumers to be more cost-conscious. With companies producing more efficient the competition shifted towards product innovation. Innovations were noticed by consumers but the industry appeared to extremely mature.

Problems for Whirlpool
Whirlpool sales dropped and profits began to fall. In response to that, the company initiated a mayor restructuring. The restructuring didn’t solve the problems Whirlpool was facing and Whirlpool European operations recorded a mayor loss of 13 million. In 1998 profit margins had reduced further to 2.3%, compared to the 10% in the US. Whirlpool manager’s blamed a number of causes, such as reduced demand, poor economic growth, rising Italian Lira and intense competition. But an analyst claimed that the strategy has been a failure.

Asian Expansion
Whirlpool’s strategy in Asia consisted of five main points:
• Partnering to build win-win relationships.
• Attracting, developing, and retaining the best people.
• Ensuring the quality in all aspects.
• Exceeding customers need and expectations.
• Offering the four key products.

The company decided to focus on India and China on two main reasons:
• Changes in the government regulations made it possible to own a controlling interest in manufacturing companies.
• Large population reduced the risk of establishing large-scale operations.

Various join-ventures and acquisitions were made following its acquisition strategy. Despite the heavy investments, however, the company still suffered operational losses. In response, Whirlpool restructured the over capacity which drove market prices down.

New small Chinese competitors were growing, strongly supported by the Chinese government (“buy Chinese”). Too many producers were making similar goods and the market became quickly saturated.
The company overestimated the size of the Chinese market. The Chinese middle class who could afford new home appliances was small and traditionally Chinese customers don’t change when appliances are working properly.
Huge geographical distance between cities and lack of strong distribution channels resulted in problems with the distribution system. The company also faced mayor problems with telecommunications and it had difficulties finding qualified people.

Latin American Expansion
Brazil was Whirlpool’s most profitable foreign operation, because Brazil had a low appliance penetration rate and Latin America was getting more economic stable. Many customers were able to buy appliances using budget plans and credit arrangements. Shortly after Whirlpool made large amount of investment in Brazil, however, interest rates in the country began to climb. Customers foresaw inflation and realized that they couldn’t buy appliances on credit anymore. Whirlpool sales in Brazil dropped heavily and reserves shrunk in value against the dollar. In response, Whirlpool restructured its Latin America operations and improved efficiency and was still confident that profitability in Latin America will return.

Whirlpools poor results from the globalization plan raise doubts if globalization was the best strategy.

Bottom line: Whirlpool’s advantages by responding early to globalization were easily imitable. Globalization isn’t a sustainable competitive advantage by itself, which is a classical mistake.