Whirlpool's Quest for Global
Leadership
Table of Contents
Introduction
Strategic Profile and Case Analysis
Situational Analysis
General Environment Analysis Industry Analysis
Competitive Environment Analysis Internal Analysis
Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses (SWOT Analysis)
Strategy Formulation
Strategic Alternatives and Evaluation Alternative Choice
Strategic Alternative Implementation
Action Items Action Plans
Epilogue
Conclusion Works Cited
Charts and Graphs
Appliance Industry Market Share Whirlpool's Financial Analysis
Business Unit Revenues and Operating Profit
Global Home Appliance Industry:
Saturation Level by Region Demand and Market Growth
Introduction
Whirlpool Corporation is a global leader in home appliances. Whirlpool began as a family company in Michigan making wringer washers. In the past fifty years, Whirlpool has expanded from a domestic company with operations in the United States to a global company with operations in Asia, Europe, Latin America and North America. Whirlpool's great success can largely be attributed to its strategic actions. These strategic actions are a result of Whirlpool's vision, value creating objectives, shared values, and worldwide excellence system. Whirlpool Corporation has gradually built itself up through international expansion to be the leading appliance manufacturer and marketer in the world. It has gone to great lengths to achieve the successes that have allowed it to be the appliance industry leader. Whirlpool's stay at the top depends on its strategic actions and decisions for the future. As a team we will make recommendations about Whirlpool's future strategy. To do this, we first must analyze Whirlpool's internal and external environments, its industry and competitors, and its strengths and weaknesses. Once we have analyzed Whirlpool in these categories, we will look at strategy formulation and strategic alternative implementation.
Strategic Profile
The appliance industry has flourished in the last fifty years due to constant innovation. Through many mergers after World War II, this industry went from about two hundred and fifty companies down to five companies that truly dominate the industry. In addition, the United States market has offered little growth for these appliance companies. Whirlpool, therefore, found it necessary to participate in massive global expansion to find new market share and to dominate the industry.
Situation Analysis
General Environmental Analysis
Whirlpool's globalization in the appliance industry has been achieved partly though analysis of the demographic segment. For example, Whirlpool is expanding into the Chinese market where there is a law limiting the number of children families can have. However, the population in China is so overwhelming that while it offers a very attractive market, the standard of living is so low that appliances may be hard to sell because they will be considered luxury items. On the opposite end of the scale, there is a trend in the United States where more and more people are working out of their homes. This provides new opportunities for the appliance industry. For example, people working out of their homes may want appliances that make absolutely no noise. The analysis of demographic segment is important to develop the operations by Whirlpool in each market.
The economic segment is also important. Whirlpool has shown through massive investments in China and India that they are serious about committing to the Asian market. The economic environment in this area of the world has proven to be unstable through currency values changing and the fact that China has threatened to terminate agreements with U.S. companies that have invested in China. In addition, Whirlpool is expanding into Brazil where the currency has had major problems. All of these factors affect Whirlpool and the rest of the appliance industry as they continue to expand globally.
There are also many political and legal issues surrounding the appliance industry. After World War II, the government began to become more involved in U.S. companies
and industries. In addition, the government became more concerned with theenvironment and as a result raised the standard for appliances. For example, the industry needed to decrease the amount of CFC's released from appliances. These regulations caused an increase among competition among the companies. Another factor cause by political standards is the trend towards free trade. As geographically close countries agree to allow free trade across borders, such as Europe, firms with foreign investment are going to have a difficult time competing in these markets. One of Whirlpool's largest competitors, Electrolux, is based in Europe and will greatly benefit from the formation of the
European Union. Whirlpool must use its joint venture with N.V. Philips to ensure that it will stay competitive in the European market where it is currently in third position.
As globalization increases for this industry, Whirlpool must concern itself with the different social and cultural values in the foreign countries. In the United States, women are becoming a dominant factor in the work force and, thus, will have less time to worry about household appliances. In the less developed countries such as China and India, men make the majority of the income and may be the crucial decision makers in purchasing new products. Therefore, Whirlpool may need to market products towards men in those markets.
Technology is an important factor in the appliance industry. Whirlpool has become a leader in the industry because of its desire to be innovative and its commitment to research and development. In July of 1995, "Whirlpool Corporation [invested] $10 million in a research and development center in Singapore." (Singapore News) By introducing new products to the market and by gaining first mover advantage in many foreign countries, Whirlpool is establishing itself as a global leader. Technology is also
important in helping to tailor products to have different features for different cultures. For example, since the windows in Japanese homes are on average very small, Whirlpool has made small, compact air conditioners that will fit perfectly in their homes. The appliance industry can also be affected by the infrastructure of a country in terms electrical outlets and currents. For example, European products may have different outlets while some Asian and Latin American homes may not have electricity. The most interesting effect of globalization in the technology segment is that government regulations about CFC's have encouraged massive innovation. These technological innovations help produce more environmentally friendly products at a faster rate.
Industry Analysis
The industry can best be analyzed by using Michael Porter's Five Forces Model of Competition. This model examines the industry in light of the following five factors: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, the threat of substitute products, and rivalry among competitive firms. The first aspect of industry analysis involves the threat of new entrants into the industry. In the North American market, the barriers to entry into the appliance industry are substantial. A new company would need a significant amount of capital to start a new plant where the appliances would be manufactured. This is evident by the fact that manufacturing costs comprise about seventy percent of total costs. In addition, since there are only four major competitors in the market, these companies are very large and are thus able to experience economies of scale. Whirlpool and its major competitors have already established brand loyalty among customers and this increases the difficulty for new entrants to succeed in the industry. In the European market, the segmentation of the market served as an entry
concern. Firms entering the appliance market had to decide whether or not to tackle one particular geographic segment with particular customer preferences, or an entire line of appliances such as dishwashers for many different market segments. Another barrier to entry in the European market is the European Union and the problems gaining entry
associated with "Fortress Europe."
The industry environment can also be analyzed through the bargaining power of the suppliers or buyers in the industry. The members of the distribution channel inthe appropriate industry work closely together. Whirlpool wanted to improve quality in their products and use a JIT delivery system to reduce costs. They succeeded at these goals by establishing relationships with only a few suppliers. Whirlpool and its major competitors began to use fewer and fewer suppliers, while expecting more of a relationship from them. These successful relationships that Whirlpool has with suppliers are difficult for competitors to imitate. These relationships are mutually beneficial and therefore suppliers will not to abuse these successful relationships. Buyers need these items since the world is becoming increasingly fast paced and technologically dependent. Buyers perceived value will govern the product features, however, they need these appliances, and therefore won't abuse the buyer-seller relationship.
The industry environment can also be examined in terms of the threat of substitute products. For each different line of appliances that Whirlpool manufactures, there are substitutes to the service provided by the product. For example, if a washing machine was not used in the home, clothes could be taken to a laundry mat or they could be washed at home in the sink, or perhaps even beaten against a rock in a river. In North America, the most realistic substitute to having a washer in the house is taking the clothes to the
laundry mat. Most consumers would rather spend $2.00 to wash and dry a load of clothes than wash them in the sink or in the river. As a result, the threat of substitutes for washers and dryers in North American is low. In other markets though, these substitutes may pose more of a threat. In Asia there is limited space for a washer/dryer unit to be stored in the
house. Unlike American homes, the units are rarely hooked up to a permanent water supply. Rather, they are on wheels and are moved out into the hall way when not in use. Because of inconveniences associated with having a washer and dryer, the laundry mat may not be such a bad option. In even more primitive markets, clothes are washed in rivers with special soap, therefore this could serve as another substitute. In Latin America where income is more limited, washing clothes at a laundry mat or at home in the sink would be a viable substitute for having a washer in the home. The threat of substitutes is greater in Asia and Latin American markets than it is in North American and European markets.
The industry can also be analyzed using the last of Porter's Five Forces Model of Competition-rivals within the industry. In the North American market, there have been many mergers in the past fifty years, which have consolidated the major competitors in the industry from 250 manufacturers to five major companies including Whirlpool, General Electric, Raytheon, Electrolux, and Maytag. One of the major areas of competition among the competitors was cost controlling mechanisms. The competitors used several different ways to go about reducing costs, such as more efficient manufacturing achieved by renovating and building more efficient facilities. Competitors also had to contend with each other on the issues of quality, delivery and innovation. In the European market, Whirlpool's competition was not only its four major rivals, but
thirty-five other European manufacturers producing limited lines of products directed at one market segment. Competition in the European market is based on price, features, performance and quality. In Asia, fifty manufacturers that were widely diversified dominated the market. Competition in this market is based mainly on product features such as size and weight, price and quality. The Latin American market contained approximately sixty-five competitors. Competition is based mainly on product features, price, quality, performance, warranties, advertising, and service.
Competitive Environment Analysis
Maytag
Maytag's current strategy is to provide convenience to customers by offering a one-stop place to shop. Maytag guarantees the lowest prices, so it is follows a low-cost strategy in order to gain market share. Maytag also emphasizes quality service in which their customers can trust. Maytag's strategic intent is to be a leader in the appliance industry by finding ways to cut their own costs, so customers can realize these cost savings. Following the purpose of Maytag's strategic intent, the company's mission is to become a one-stop shop for all appliance needs while guaranteeing the lowest prices and exceptional service. Maytag is able to pursue this strategy through its capability of carrying all the products offered in their industry. Its main focus is not concentrated on innovation but on carrying a diversified line of products and realizing the decreased costs associated with a high product volume. In other words, Maytag uses economies of scale to pursue its strategy. Maytag's core competencies are derived from having products aimed towards many different price tiers. Maytag reaches highly price sensitive customers through their guaranteed lowest prices. Maytag built a production facility in
Mexico to take advantage of lower labor costs. In response to global expansion by the other competitors in the industry, Maytag has expanded into Europe, South America and China.
Electrolux
Electrolux's current strategy is to prove itself "uncommon" in the appliance industry. Electrolux wants to have unique product and service satisfaction. By demonstrating products to customers in their homes, Electrolux's strategy is to "build value and gain [customer's] confidence." (). Electrolux's strategic intent is to provide the best, most innovative products in the industry. From this intent, Electrolux uses its personalized approach of selling its products directly to consumers at a fair price and to create increasing customer loyalty. Electrolux has the capability to produce products that last for an average of twenty-three years as compared to its competitor's which last for about three years. As a result, construction techniques and product durability have become a major core competence. In addition, since Electrolux has no need for distributors, its unique distribution channel becomes a core competence. This attribute may benefit the company the most when venturing into new markets. Having the capability to deal with customers directly may help Electrolux get its products to the market at a faster rate rather than competitors. In addition, Electrolux would not have to go through dealers in order to distribute its products. Electrolux has the largest market share in Europe and plans to maintain this status through anticipating competitor's moves and acquiring many of the smaller European companies that have small niche markets.
General Electric
General Electric's strategic intent lies in being a highly technological company and applying its leadership position in the appliance industry by supplying customers in global markets and building value for shareholders (). GE's strategy focuses on innovation and customer satisfaction. Its strategic mission evolves out of its strategic intent to be a global leader. "[GE's] commitment to customer satisfaction continually drives [the company] to develop, manufacture, and market innovative new appliances with features and values consumers want most." () Through investment in innovation, GE is able to gain first mover advantages in the appliance industry. For example, in 1963, GE was the first to introduce a self-cleaning oven. This has helped GE gain loyalty and establish its brand name in the market. "GE is the appliance brand most often mentioned among the brands rated as offering the best products and services in America." (1997 Louis Harris Poll) GE prides itself on quality products with service provided before, during and after the purchase. GE's response to competitors is mainly focused on global expansion. The five major companies are attacking the Asian and South American markets and each is responding to the other by finding their own joint ventures and acquisitions in these markets.
Raytheon
The appliance business is only a small section of Raytheon's primary business which is aircraft and defense electronics. Raytheon's strategic intent is to be the leader in supplying defense mechanisms to governments. Recently, Raytheon moved into the commercial segment by creating products, such as radar detectors, for the commercial customer. Its appliance business aims to gain market share at the high end of the scale by
marketing to customers who are in the process of replacing, constructing or remodeling their kitchens. Raytheon also uses its line of heating and air conditioning to target customers like hotels who will purchase large quantities of its products. Raytheon's core competencies stem from their company strategy of focusing on innovation. Raytheon has translated their success in innovation to the appliance market. Since Raytheon is not as concerned with the appliance industry because it is a very small portion of the company's revenues, Raytheon does not really feel the need to warrant a response to competitor's actions.