Koc Holding: Arcelik White Goods Prepared by: Alex Sagastume 10/3 Which Countries are involved in this case? Describe the diplomatic relations between those countries? Are there any trade agreements, policies, sanctions, political circumstances, or diplomatic issues which would impact management’s decision to enter the market? There are several countries involved in this case; specifically Turkey, Germany, France, and the UK are all countries in which products under the Arcelik, or Beko brand are being sold.
Turkey, being a secular country established in 1923, has the advantage of being very neutral and so there is no trade tension between any of the countries it does business with. Therefore, it can be said the relations with the companies it does business with are unaffected by political or religious issues. A major recession in 1994 caused a decrease in exports and an increase in imports, however due to trade agreements with the European community for white goods established in 1988, tariffs would be reduced from 40-50% to 0 between 1992 and 1996. This certainly promoted trade and is worth noting its success.
Tariffs on imports were also being cut to zero, which would also mean that domestic prices would get more and more competitive as a result. The countries, which I as Vice President of global strategy seek to establish a presence in, are Korea/Japan. Without trade tariff agreements, like those established with the EC, it will be much harder to be as competitive with prices remaining an OEM supplier. Which geographical markets are being considered in this case? Provincial, country, regional, and or global? Arcelik has established a presence in markets across the European community.
With tariffs on exports down it was only logical for them to move across into western Europe, specifically: Germany, France, and the UK. Our goal now is to move east, in the Asian community and establish a presence in Korea/Japan. It is still possible to be am OEM company in these countries, however it would not be possible to move into the US market where there is already so much domestic competition, where export fees would be high, and consumer data and knowledge is low. What are the cultural considerations, which may impact the overall business strategy?
Turkey has the advantage of being a secular country; this in a sense makes them very neutral. Without the problems you see in other surrounding countries with extremely corrupt governments, trade can be as painless as possible. With the Turkish Government establishing good trade relations with other countries only the market culture is to be considered. For example, the difference between Germany and the UK. Germany has a need for Arceliks products to be of higher quality and thus of a certain value, once the price drops to much it will not be bought.
It was noted that a reputation in Germany would need to be established in order to thrive. In the UK the strategy was different and prices were lower due to the fact that the culture demands things at lower prices regardless of reputation etc. These two differences can be attested to cultural implications from each country. Germany being a more developed country with more wealth, has a higher standard of living and therefore have the luxury of choosing only the best products for new homes. These types of markets will be harder to break into, due to an un established reputation.
What are the cultural considerations within the company and specific management team? KOC Holding’s company has had a certain culture, engrained since its inception by Vehbi Koc. A sort of aggressive entrepreneurship and a need for healthy expansion has driven this company into the international competitor it is today. Arcelik prided itself with lean management with only four levels of management, as well as its top managers were very educated most of had attended business schools in North America or Europe.
Koc has always had an eye for the future and growth, its evident in the letter that he left for his grandsons, challenging the third generation to grow socially and globally. Why has Arcelik succeded in Turkey? A major reason that Arcelik has done so well selling its white goods in Turkey, is that there is such a high-unmet demand for it within the country. With 99% of households in Turkey owning a refrigerator and imports only servicing 3% of the populations demand for white goods the Market was wide open for domestic competition.
With the recession hitting in 1994, imports were drastically cut down, and it was Arcelik who had the reputation and brand recognition when the demand reached an all time high. By being an OEM company, Arcelik was able to manfacture their products at better quality standards and yet at still low prices. Theis reputation among older generations was reinforced in the younger demand, through heavy advertising and marketing. Why is Bosch entering the Turkish Market? Is Bosch’s entry a threat? Bosch was Arcelik’s primary competitor, and they certainly were a threat, however the threat was not that great.
After Peg Profilo had been bought by Bosch-Siemens of Germany in 1995, they had began selling their products under the AEG brand name. They sold premium appliances. Several Bosch shops were opened and they began a heavy advertising campaign to begin to take over some of the market. With more up to date appliances, Arcelik managers thought they would have the advatange in washing machines, and dishwashers, areas which Arcelik had not devoted much R&D to. On top of that Siemens had a well established network which they were more than likely to use. Why is Arcelik pursuing international markets? Does this make sense?