BACKGROUND INTRODUCTION The estimated $228. 9 billion in the year 20092 global household appliances market can be described as a global industry in condition that the coordination and integration of sourcing, manufacturing, operations, research and development and marketing activities across multiple world regions and countries is accomplished. Enterprises capable of harnessing the benefits of strategic global locations and integrate them into one single global vision are the ones that can be described as global.
The industry was invented and still dominated by European and American key manufacturers. However, Asian manufacturers from Japan, Korea, and China are enforcing a strong and rapid growing competition in the last few decades. In terms of global industry aspects, over 65 percent of the global appliances sales are through specialty retailers, the rest is divided between hyper markets, department stores and general merchandisers. Multinational manufacturers experience high fixed and exit costs.
The majority of manufacturers does not forward integrate and usually depend on large retailers to distribute their products while retailers tend sometimes to backward integrate. Shedding the light on the US, Europe, and Asia household appliances market, we find that the saturated and highly-competitive market in the US has washing machines, vacuum cleaners and dryers as the most frequently-bought categories. The oligopolistic market has consolidated into top four players; Whirlpool, General Electric, Electrolux, and Maytag with 80 percent market share for the four corporations combined.
Other competition in the US includes Korean brands especially in specific categories such as microwave ovens. Japanese foreign direct investments in the US in the appliances and electrical machinery were aggressively competing in providing high quality goods for fewer prices than local manufacturers. Whirlpool led the American market and achieved a growing market share from 1995 to 2000 in categories including; dishwashers, Microwave ovens, and refrigerators. The company’s share is most threatened by Electrolux with growing shares in categories like; dishwashers, and anges. In the world’s top home appliances market of Europe, Categories expected most to grow are microwave ovens and dishwashers; while the slowest are refrigerators and freezers. Many European manufacturers are shifting to lower-wedge countries to produce in order to save cost. In terms of competition and consolidation, Europe was moving towards an oligopolistic scene in the mid 1990s. Appliances market by unit was dominated by less than a handful of main manufacturers; Electrolux (22. 5 percent), Bosch-Siemens (15 percent), Whirlpool (14 percent) in the year 1994.
Mentioning few integration examples; Electrolux acquired White of the US, and Zanussi of Italy, Maytag acquired Chicago of the US, General Electric formed a joint venture with GEC of the UK which is the owner of the brand Hotpoint. The new ambitious Korean entrants were adding to the tough competition and dominated the microwave ovens category, unlike the American market, European appliances market is highly regionalized with diversified preferences across countries. In Asia; the Asian financial crises occurred in the year 1997 affected most Asian economies with a downturn of consumer demand and trust in the area.
Whirlpool’s competitors were also not far from this challenge. General Electric for example reported challenges in its Asian market due to currency exchange and interest rates in the region in its 1997 annual report. The world’s second largest and fastest growing home appliances market can be considered as a very attractive market to develop and penetrate. Estimated to reach $30. 3 billion in 2003, the market is divided into six main categories; washing, refrigeration, and cooking appliances, dishwashers, heaters, and vacuum cleaners. Over a third portion of the market is with the cooking appliances.
The market is led by Japanese manufacturers such as Matsushita Electric, Toshiba, Sanyo and Rannai. Korean manufacturers such as Samsung Electronics and LG Group, and small Chinese manufacturers were also trying to gain a small market share. GE is leading the Indian market where Electrolux is racing to have a stronger presence of nearly four percent in the year 2003 by covering both mainstream brand of Electrolux and the high-end German-engineered brand of AEG. Due to a highly-diversified level of maturity between Asian countries a great degree of product localization to specific needs where required.
After shedding the light on the global appliances industry and special characteristics for the US, Europe, and Asia, the paper analyzes first Whirlpool’s financial performance within the period of 1995-1998, then it goes deeper into analyzing the company’s global sourcing, entry and marketing strategies, and finally scans key macro environmental factors. As seen in (Exhibit 2-6), the inventory turnover ratio dropped in the year 1996 which indicates a problem in distribution or a downturn in consumer demand.
Another problem indicated in the days’ sales outstanding ratio which indicates a problem in collection due to an incorrect collection policy or lack of liquidity by buyers. An increase in debt in the year 1997 and 1998 shows the cost of interest due to aggressive investments or integration strategies. The company’s ability to meet its debt obligations drops significantly in the year 1996 due to closing the year at a loss, yet the company managed to control it gradually in the following two years.
Profitability ratios show a recovery in the year 1998 after a downturn that continued for two years, but still didn’t get the company to its previous performance before 1995. Analyzing financial performance by region, in terms of sales volume, shows the best performance trend in the Latin American market, then follows the Asian market, yet a decline in the Asian market accompanied with a slight decline in North America and Europe in 1997, except the Latin American market which witnesses a significant growth rate in the same year.
In terms of profitability; the American market has a stable positive trend, where European operations recovered from a strong downturn in 1996, and finally Asia with a continued loss for four years. Shedding the light on Whirlpool’s key competitors’ financial performance, General Electric and Bosh Siemens; we find that in 1997 Whirlpool’s profit margin is significantly lower than its competitors’ average. Digging deeper into the issue, we find that Whirlpool’s return on assets ratio is far beyond its competitors with two percent compared to 9. percent for GE and 4. 7 percent for Bosh-Siemens (See Exhibit 5). Sourcing & Operations Strategies Whirlpool chose to in-source all of its manufacturing through horizontal integration and foreign direct investment in global markets. While the company sold the vast majority of its production to the US and Europe, the two markets also held the vast majority of its global manufacturing and/or assembly plants (See Exhibit 1).
In terms of its global sourcing strategy classification; it can be classified under the resource-based view; which illustrates the motives behind global sourcing as a way to increase technological capabilities and production automation through more computer-related production processes, intensive research and development, and a higher number of new products. The Platform Technology initiative which Whirlpool adopted also matches the same strategy, yet until 1994, management acknowledged the initiative’s benefits are still to be harnessed.
Adding to this fact, the separate business entity founded in 1990 to manage businesses outside North America and Western Europe, Whirlpool Overseas Operations which was separated into Whirlpool Asia and Whirlpool Latin America in 1993 indicates a multinational or region-specific strategy for each region. Whirlpool is a leader in terms of product innovation. The company released a compact washer for the Japanese market that doesn’t wrinkle Saris, the traditional Asian outfit, it also innovated the front hatch for washers, and the dual-source 3D microwave oven. Entry Strategies
The company started thinking outside of its borders as early as the 1950s and 1960s starting by the neighboring countries of Brazil and Canada through foreign direct investment. However, the expansion into the world top appliances market in Europe came as late as 1989, the same year Maytag also entered Europe, despite the late entry, Whirlpool was still ahead of its other American competitor; GE who entered Europe in 1992. The company started the European expansion by establishing an equity joint venture with Phillips, until it acquired a full ownership in 1991 and transferred the venture to a wholly-owned subsidiary.
In the formed joint venture, Whirlpool had the upper hand in terms of bargaining power as the Dutch Phillips was struggling at that time. In terms of knowledge advantage, Phillips had a huge technology and market experience advantage in the region. While European regulations have relatively low foreign equity restrictions on foreign multinationals, the agreement resulted in a major share for Whirlpool. A natural result of this power balance when the multinationals have the bargaining advantage while the domestic firm has the knowledge advantage, under investment usually occurs in the domestic firm.
In terms of management, Whirlpool clearly transferred its American management style and people to its European subsidiary at the early stages of the joint venture. While not being sourced information, it can be logically concluded according to a research conducted in 2004 that finds the percentage of expatriate managers is positively-related to the size of the multinational and negatively related to the age of the joint venture. It can be concluded that local knowledge wasn’t given enough focus against Whirlpool’s core management style.
The company planned its entry to the Asian market setting up a differentiation strategy with a focus on quality and building strong alliances. The decision to choose fridges, air conditioners, washers, microwave ovens, matches the Asian anticipated most categories in demand. The company entered the Asian market in 1987 starting with a joint venture in India followed by an aggressive series of Joint Ventures and acquisitions in India and China. Across all of its agreements, Whirlpool has always kept the majority interest in joint ventures.
The joint venture in India with Sundram Clyton, a company which is not specialized in home appliances is a type of joint venture that Whirlpool had both the braining advantage and the knowledge advantage. A deal that also should lead to less investment in the domestic Indian firm. In China, the company owned the majority interest in the largest microwave oven manufacturer in China, MC Microwave Products Co. , Ltd. , and the state-owned Beijing Snowflake Electric Appliance Group Corp. to build the first refrigerators factory in China.
The company also formed another joint venture with Shenzhen Petrochemical Holdings Ltd. (SPEC) to make and sell air conditioning appliances. In Latin America, Whirlpool’s integration strategy and early entry have focused on Brazil and Argentina only in terms of manufacturing and intensive distribution and did not develop a strong existence in other potential markets such as Mexico. The company’s operations in the region are all in the form of foreign direct investments; it is the only global region where no joint ventures established (See Exhibit 1).
Despite that, the region is the top performer among Whirlpool’s global operations. Marketing Strategies When completed the acquisition of Phillips in 1991, Whirlpool Europe planned an expensive brand-transfer plan costing the company $110 million which started by introducing the dual brand Phillips-Whirlpool against the advice of their agency. The company launched the first pan-European advertising campaign of “Whirlpool brings quality to life” in 1995. The successful awareness campaign phased out the brand Phillips in the European markets while putting Whirlpool as the most recognized brand in Europe.
Whirlpool segmented its brands in the US market based on consumer’s needs to achieve better loyalty and differentiation, while a price discrimination strategy was adopted in Europe to target all segments. The majority of the marketing budget went for the mainstream brand of Phillips-Whirlpool, where the high and the lower end brands had the minimal share. Whirlpool’s marketing strategy in Asia aimed to build awareness only for Whirlpool brands, yet with optional differentiation by creating brand extensions to target specific segments within a category.
Again, aiming to achieve economies of scale, Whirlpool saw a potential to create a pan-Asian brand that can target different Asian markets at once. Shedding the light into competitors’ marketing strategies, we find that Electrolux’s globalization strategy aimed to keep one global brand of Electrolux, yet following a more localized approach in Europe where it had three pan-European brands; Electrolux, Zanussi, and AEG besides keeping key brands for key markets such as Faure in France, Tricity Bendix in the UK, and Zanker in Germany.
Bosh-Siemens also took into consideration specific different needs in products characteristics and features in each European market. Political, Economic, Social, and Technological Environment The dot-com boom in the early 1990s has pushed many brick and mortar companies to sell their products and services online. Whirlpool made a relatively late decision to launch its e-commerce website in 1995. The reunification of Germany also represented an opportunity for more demand.
Environmental concerns in Europe are considered to be a rising trend demanding innovative technologies to save water and electricity in appliances, as well as the removal of chlorofluorocarbons (CFCs) from refrigerators and recycling constraints in materials used in products. In China, large amounts of consumers were found to prefer Chinese-made products, a trend that was also encouraged by the government. The introduction of the Euro currency should facilitate operations, processes and financial operations in Europe.
An accelerated time-to-market trend was also rising, as well as an increasing focus on product features and innovation and customer service. European manufacturers also faced rising raw materials and labor costs. Decline Whirlpool faced a declining performance in its early stages of globalization due to three main factors; the first factor is illustrated in the corporate-level or global-level strategic assumptions, and the second is illustrated in region or country-specific mistakes, and finally the third factor of macro environmental changes that occurred during the study period.
On the corporate level, Whirlpool assumed it was moving towards being global while its regionalized management or multinational approach was actually not indicating that. From the distribution of its manufacturing centers in global markets, and the separate regional business units created, Whirlpool did not manufacture where it was more efficient, it mostly sold where it sourced. Having the majority of manufacturing facilities in high-wedges labor countries in the US and Europe should defiantly increase the cost of sales and fixed assets.
The argument is supported the low return on assets and profitability in the financial analysis. The industry can be described as a component-intensive one. Such industry requires a high-productive manner in terms of global manufacturing efficiency and economies of scale. High productive global companies within the component-intensive sector are found to be moving towards South or less-developed countries in terms of outsourcing labor to achieve more cost reduction in countries where cheaper labor exists.
The company also assumed that foreign direct investment and joint ventures are the most effective entry strategies to any global market regardless of its specific factors. The company entered mostly all of its new markets through the two most risky entry strategies regardless of the new markets’ economic, cultural, behavioral, political, and operational factors. The Entry strategy worked in Europe should not necessarily work in Asia or Latin America.
Another strategic assumption is in product design and manufacturing standardization with a careful study to global consumers’ common needs in product features without enough parallel careful study to each market existing competition, buying behaviors and distribution aspects. The same assumption is illustrated in the European market entry of assuming similarity in preferences between European consumers and American ones where competitors adopted more localization strategies. Whirlpool’s management decisions to cut jobs frequently have defiantly affected employees’ morale and motivation which affects productivity.
Other assumptions on the regional and operational level for Whirlpool’s globalization strategy include; In Europe, the company put the majority of its marketing budget in building an awareness for a new mainstream brand of Phillips-Whirlpool, While the majority of the budget could better be utilized in promoting the already-known high-end brand of Bauknech to reinforce consumer’s decision paying for the product at a price premium matching the price discrimination strategy adopted in Europe. The continuous rotation of European management affected local distribution partners due to having constantly-changing management styles and initiatives.
The company placed the two main European manufacturing centers in Italy where labor is expensive while they could’ve been placed in Eastern European locations. Similar to the situation in the European market, the company did not carefully study the Asian market characteristics, logistics, and competition before entry. Many distribution, labor, behavioral, and demand-re lated issues were discovered after the entry which indicates a poor market research prior to making the investment decisions. The choice of Asian domestic companies to form ventures focused on operational apabilities more than the knowhow and technical competency in their area of specialty. In Latin America and after nearly 60 years since entering the Brazilian market, and with a steady performance for Whirlpool there, the company continued to focus most of its integration investments in Brazil and Argentina and did not leverage the valuable market knowledge into neighboring countries such as Mexico where more potentials for successful market development in terms of sourcing and selling exist, especially with a highly-fragmented competition pattern, high potentials for new entrants to lead the market exist.
This increases the potential risk of external environmental factors that can put the whole regional unit in risk. Poor planning for macro environmental dynamics had its share from Whirlpool’s declining performance. The unexpected Asian financial crises in the late 1990s had a strong impact on Whirlpool’s operations in Asia affecting consumers spending and demand. The reaction to this change was clearly not effective. Cutting work force alone did not help generating more business. The affected region could’ve been used as a global industrial center that integrates in a global strategy for exports to other healthier economies during the crises.
The governmental economic regulations in Brazil also had a strong impact, yet the crises could’ve been avoided if the company did not depend primarily on the Brazilian market and developed other markets in neighboring countries. Theme The analysis is on Whirlpool Corporation’s Global Strategy was a case study conducted in the year 2001. The case aims to spot key reasons behind the declining performance the company experienced in the late 1990s a few years after the start of its globalization plan in the year 1987.
The plan initiated under the new leadership of David Whitwam encountered many problems in its early stages illustrated in a declining profitability in its home market, losses in the European market and failure in some of its joint ventures in the Asian market. With such poor performance and failure in achieving competitive edges in global markets, Whirlpool was at a great risk of losing huge investments made in foreign markets, and losing highly-potential market shares in emerging international markets to aggressive competitors.
The case illustrates core strategic mistakes around three main strategies; sourcing and operations, entry, and marketing strategies adopted. The goal is to address lessons learned from Whirlpool’s experience in globalization in order to shed light for future strategies or building globalization plans for small and medium enterprises aiming to have global footsteps. MAIN ISSUE Where the strategies used by whirlpool enough to establish themselves in global locations and turn their losses into profits?
SWOT analysis (alternately SWOT Matrix) is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies.
Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization. * Strengths: characteristics of the business, or project team that give it an advantage over other. * Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others. * Opportunities: external chances to improve performance (e. g. make greater profits) in the environment. * Threats: external elements in the environment that could cause trouble for the business or project
Considerations * Product/Services Demand * Technology * Financial Resources * Absenteeism/ turnover * Organizational Growth * Management Philosophy Forecasting Demand Forecasting Demand Demand refers to the number and characteristics (skills, characteristics, abilities and pay level) of people needed for particular jobs at a given point in time and at particular place. In fact, demand forecasting determines how many people need to be working and in what jobs to implement organizational strategies and attain firm objective. Considerations Product/Service Demand
Every human being takes the decision to buy or purchase a product/service after feeling negative demand that leads to avoidance to excess demand that outpaces supply. According to economic expression demand can be explained in a different manner. Here, demand is the desire and ability to pay for goods and services. In a word, the essence of demand is the willingness to exchange value goods or services. Creation of demand for any particular need is totally psychological. Technology In general technology is the relationship that society has with its tools and crafts, and to what extent society can control its environment.
It is the practical application of knowledge especially in a particular area as well as a capability given by the practical application of knowledge. At the centre of technology lies design. It assists in the design of any product or even human resource in any organization. The motivating factor behind all technological activity is the desire to fulfill a need. For this reason all designs should be made or realized – whether that is through prototype, batch or mass production or some form of three-dimensional or computer model. Financial Resource
Financial resource is the monetary support required to launch a business as well as to maintain all the operations of a company. Financial resource is the only driving force for any corporation. This world is competitive and in order to survive here nothing is more important than the financial backup. A major portion of this resource is expensed for the purpose of paying bills and compensation of human resource employed in the organization. There are various sources of financial resources but indiscriminate choosing of these resources may bring devastating result for the company.
Absenteeism/Turnover Absenteeism is the term generally used to refer to unscheduled employee absences from the workplace. To be precise when the employee’s absence forms a pattern this suggests that s/he is dissatisfied with their work or that their absence could have been avoided. If such absences become excessive, they can have a seriously adverse impact on a business’s operations and ultimately its profitability. To address absenteeism a company should take some steps. At first, the organization should find out whether the absent employee missed work willingly or involuntarily.
Then it should decide whether the absenteeism is excessive or minor and take action accordingly. Organizational Growth Organizations value growth. However, liberalized global environment requires organizations to plan and ensure growth for their very survival. The organizational growth requires adoption, change and innovation. Environmental sensitivity, organizational learning, leadership and people processes play a significant role in planning and managing organizational growth. The top management of a company is expected to proactively scan the environment and provide leadership for planning & managing organizational growth.
Human resource systems & processes are expected to enhance the effectiveness of organizational learning process and develop leadership pipeline. Management Philosophy Management philosophy means the options (judgments) of the top executive as well as the bottom line executive and other knowledgeable persons about the organization’s overall strategy. It is the inner emotion and standard that the management holds in its mind while operating activities. It can be compared to the beliefs that people believe by heart as well as try to apply in situation where problem solving is required.
Having a wide spread management philosophy is very important for an organization as it gives employees the overall idea about how to control various firm operations and how to treat. Techniques * Trend Analysis * Managerial Estimates * Delphi Technique Forecasting Demand Techniques Trend Analysis It tries to predict the future movement of a variable based on the past data. On the basis of the observation of past happenings, the future is predicted under this tool. To be technically correct, trend analysis uses a technique alled least squares to fit a trend line to a set of time series data and then project the line into the future for a forecast. It is a special case of regression analysis where the dependent variable is the variable to be forecasted and the independent variable is time. It is very simple to use provided the appropriate software is available. Managerial Estimates The name itself clarifies the main thought of this technique. Here on the basis of managerial expertise and skills managers make fruitful estimation.
It is not that difficult task for managers. It’s because they usually are always aware of the market and hence know about the labour demand situation. This estimation capability sometimes helps the manager to predict future profit potential as well as future loss prospect. Delphi Technique Delphi is based on the principle that forecasts from a structured group of experts are more accurate than those from unstructured groups or individuals. Here in this technique carefully selected experts answer questionnaires in two or more rounds.
After each round, round as well as the reasons they provided for their judgments. Thus, participants are encouraged to revise their earlier answers in light of the replies of other members of the group. Techniques * Staffing Tables * Markov Analysis * Skills Inventories * Management Inventories * Replacement Charts * Succession Planning Forecasting Supply Forecasting Supply Supply forecast can be derived from both internal and external sources of information. However, internal sources are most available and more crucial.
Present performance level, ages and information about the loyalty of current employees can be used to predict future vacancies caused by raids of top talent, involuntary turnover, retirement and employee initiated job changes. The accuracy of statistical techniques for forecasting future supply levels depends entirely on the accuracy of the user supplied figures about how employees are likely to flow through the organization. Techniques Staffing tables: Table is the coherent and systematic presentation of data and information combined with textual descriptions for the purpose of making people understand particular findings.
But staffing table is somewhat different than the traditional idea of tables. In the staffing table graphic representation of organizational jobs along with the number of employees currently occupying those jobs and the need for future employment requirement are shown. On the basis of the staffing table it becomes very convenient for the management to forecast human resource supply. Markov analysis Markov analysis is a statistical technique used in forecasting the future behaviour of a variable or system whose current state or behaviour does not depend on its state or behaviour at any time in the past.
In other words, it is random. In marketing, it is used in modeling future brand loyalty of consumers based on their current rate of purchases and repurchases. In quality control, Markov analysis is applicable to common-cause problems and other sequence dependent events, and can handle system degradation. Skills inventories Managing employee skills and competencies lays the foundation of any organization. A skills inventory is essentially a checklist or database of organizational capabilities, that can help a company determine whether it can deliver a particular product on time or service the client efficiently.
The difference between the existing and expected conditions determines the skills gap. It is the responsibility of line managers and the HR department to analyze the skills gap and provide the necessary training. Replacement charts Replacement chart is the listing of current jobholders and persons who are potential replacements if an opening occurs. This replacement chart usually determines the way of filling job vacancies, whether the vacant position is going to be filled up by internal precisely by the replacement chart. Charts make it easier to understand the relationship among different job positions.
As the replacement charts can be read more quickly than the raw data, busy executives and top management often prefer it over many other clumsy options. Succession Planning Succession planning is a process whereby an organization ensures that employees are recruited and developed to fill each key role within the company. Through the succession planning process an organization retains superior employees because they appreciate the time, attention, and development that the company is investing in them. Any organization trying to effectively design a succession planning must identify its long term goals first.
Alongside this, the company needs to identify and understand the developmental desires of its employees. The firm must ensure that all key employees understand their career paths and the roles they are being developed to fill. HUMAN RESOURCE PLANNING MODEL FORECASTING DEMAND Considerations Product/service demand Technology Financial resources Absenteeism/turnover Organizational growth Management philosophy Techniques Trend analysis Managerial estimates Delphi technique Techniques Staffing tables Markov analysis Skills inventories Management inventories
Replacement charts Succession Planning External Considerations Demographic changes Education of the workforce Labor Mobility Government policies Unemployment rate BALANCING SUPPLY AND DEMAND (Shortage) Recruitment Full-time Part-time Recalls (Surplus) Reductions Layoffs Terminations Demotions Retirements FORECASTING SUPPLY STRENGTHS * To survive in the market whirlpool corporation engages itself in activities for product innovations Product innovation was critical for surviving in the competitive appliance market and therefore innovations were vital.
The appliance firms segmented their products according to different consumers’ needs, and each strived to achieve greater economies of scale. Whirlpool Corporation focused on customizing products that were demanded by the customers. Information: This topic falls under the Product/ service demand of Considerations of Forecasting Demand factor of the Human Resource Planning Model. This topic tells us that product innovation is a part of product/service demand, research and development is essential for running any business. A company needs to stay ahead in producing goods to grab more customer base.
This falls again under the product/service demand of Considerations of Forecasting Demand factor of the Human Resource Planning Model. This topic tells us that product innovation is a part of product/service demand, research and development is essential for running any business. A company needs to stay ahead in producing goods to grab more customer base. This topic falls under the Product Demand of Considerations of Forecasting Demand factor of the Human Resource Planning Model. According to this model Customer oriented product with proper quality and quantity have the ultimate reason to be successful in the market.
Justification: Whirlpool is a giant home appliance which has a strong brand loyalty and value. * Whirlpool was effective in production Whirlpool was efficiently using its resources and producing products effectively. Productive efficiency occurs when the economy is utilizing all of its resources efficiently. Production efficiency measures whether the economy is producing as much as possible without wasting precious resources. Theoretically, production efficiency will include all of the points along the production possibility frontier, but this is difficult to measure in practice.
Because resources are limited, being able to make products efficiently allows for higher levels of production. If the economy can’t make more of a good without sacrificing the production of another, then a maximum level of production has been reached. Information: This topic falls under the Technology of Considerations of Forecasting Demand factor of the Human Resource Planning Model. This topic tells us that efficiency of production is now possible because of the new emerging technology. Justification: The company uses technology for its distribution channel and management system like data transfer. Customized product line The appliance industry segmented their products according to the taste and demand of the customers. As a result people find their desired product in the shops and therefore ready to buy it. This in turn is a value creation activity and therefore increases sales of Whirlpool. Information: This falls again under the product/service demand of Considerations of Forecasting Demand factor of the Human Resource Planning Model. This topic tells us that product innovation is a part of product/service demand, research and development is essential for running any business.
A company needs to stay ahead in producing goods to grab more customer base. Justification: Whirlpool went for product lines for income classes and innovated products to suit their taste. * Strong retail relationship In North American industry saturation had left the distributors focusing primarily on replacement purchases and purchases for new housing developments. In European and Asian industries most appliances were sold through independent retailers, who had become organized in buying groups or as multiple store chains.
A smaller channel was through independent kitchen specialists who sold complete kitchen packages, including appliances. Whirlpool was founded in 1911 as The Upton Machine Co. in St Joseph, Michigan, to produce an electric motor-driven wringer washer. The company merged with The Nineteen Hundred Washer Company in 1929 and began to sell their first automatic washing machine through Sears, Roebuck & Co. in 1947. The Whirlpool brand was introduced in 1948 and steadily built a strong retail relationship with Sears. Through a series of acquisitions and mergers, the company emerged as a leading force in the U. S.
Information: This topic tells us that distribution is a part of technology, a well established distribution channel is essential for running any business. Same goes for skilled and experience management system. Both of the established distribution channel and skilled and experienced management’s demand is very high. Justification: The company uses technology for its distribution channel and management system like data transfer. * Whirlpool Corporation claimed to be the world’s leading manufacturer of major home appliances. As of 1998, Whirlpool Corporation claimed to be the world’s leading manufacturer of major home appliances.
The company manufactured in thirteen countries and marketed its products under eleven major brand names (including Kenmore, Sears, Kitchen Aid, Roper, Inglis, and Speed Queen) to over 140 countries. Whirlpool’s sales were $8. 2 billion in fiscal year 1997. Information: This topic falls under the Succession Planning of techniques of Forecasting Supply factor of the Human Resource Planning Model. When a company is going global or doing business in a foreign country which has unique culture, to know that host country better it is very much required that they take help from a local company.
Here understanding the reason that Whirlpool had strategic partners that made it possible for them to expand globally. Justification: The case speaks of a situation where the company plans ahead about their employees. * Platform Strategy According to Whitwam, products are being designed to ensure that a wide variety of models can be built on the same basic platform. Varying consumer preferences required to have regional manufacturing centers. But even though the features vary from market to market, much of the technology and manufacturing processes involved are similar.
Given this view that standardization should be the focus, Whirlpool planned to base all its products, wherever they were built or assembled, on common platforms. These platforms would produce the technological heart of the product, the portion of the product which varied little across markets. The products could then be diversified to suit individual and regional preferences. In this way, the parts that the customer sees the dimensions of the appliance, the metal case, and the controls could be varied by segment or market to fulfill consumers’ needs.
The products would also have to meet rigorous quality and environmental standards to ensure that they could be used in different countries around the world. Whitwam believed that the platform technology would bring a $200 million annual savings in design and component costs by the time it was fully implemented in the year 2000. In addition, management was convinced that the platform strategy would put the company two to three years ahead of its competitors. Information: This topic falls under the Organizational growth of Consideration of Forecasting Demand factor of the Human Resource planning
Model. As costs will be reduced organization will grow in future. Justification: The case suggests that decrease in production process will lead the company towards growth. * Brand Recognized and loyalty of customers By 1995, however, consumer research showed Whirl-pool to be the most recognized appliance brand name in Europe, despite the fact that many Germans, Italians, and French had a problem pronouncing the name. Information: This topic falls under the Product Demand of Considerations of Forecasting Demand factor of the Human Resource Planning Model.
According to this model Customer oriented product with proper quality and quantity have the ultimate reason to be successful in the market. Justification: The case suggests that decrease in production process will lead the company towards growth. * Centralized Distribution To better manage sales and service throughout the region, Whirlpool set up two centralized distribution centers: one in Cassinetta, Italy, and one in Schorndorf, Germany. Operations were streamlined in order to achieve reduced costs through economies of scale, and considerable efforts were put toward product innovation and increasing operational efficiency.
Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. As operations are efficient cost of production streamlined. Justification: The ups and downs of profits due to increased expense of production are shown in this case. * Data transfer system and flexible product lines In 1997 in Brazil, Whirlpool spent $217 million to increase its equity share in Bras motor from 33% to 66%. Whirlpool then invested another $280 million in 1997 and 1998 to renew plants and product lines.
The company introduced data transfer systems, flexible production lines, and launched new products. Information: This topic tells us that it is a part of technology, a well established system is essential for running any business. Same goes for skilled and experience management system. Justification: The company uses technology for its distribution channel and management system like data transfer. * Strong strategic partners Whirlpool intensified its Asian acquisition strategy in 1995 with various acquisitions and joint ventures in both India and China.
The company bought controlling interest in Kelvinator in India, combined it with Whirlpool Washing Machines Limited, and renamed the new entity Whirlpool of India (WOI). In addition to giving Whirlpool a 56% interest in WOI, the Kelvinator purchase gave the company direct access to more than 3,000 trade dealers in India. Information: This topic falls under management philosophy. As they succeeded in making win- win relations with strong groups. This topic falls under the Management Philosophy of Considerations of Forecasting Demand factor of the Human Resource Planning Model.
Management is not doing their job right, that’s why they could not select a person with more abilities and competencies. Justification: The organization has no HRIS to detect the suitable person and thus the CEO was not competent WEAKNESS * Profit margins were continuously falling By the mid-1980s, Whirlpool saw that, despite increasing efficiencies and product quality, its profit margins were rapidly decreasing in North America. Top management believed that if the company continued to follow its current path, the future would be “neither pleasant nor profitable. They considered restructuring the company financially or diversifying into related businesses but eventually settled on further global expansion. As the case suggests that even though the product quality of Whirlpool was excellent they were not being able to make profits due to the saturated market and extreme competition. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the huge competitions let the competitor having no pricing power.
Even more and more financial resources are required in running flexible pricing and promotional activities to stay in the market As a result the profit margins are falling gradually. Justification: The ups and downs of profits due to increased expense of production are shown in this case. * No formal training of CEO to manage a MNC David Whitwam joined Whirlpool in 1968 as a marketing management trainee and rose through the sales and marketing ranks to succeed Jack Sparks as CEO in 1987. Although Whitwam admitted that he had never actually run a multinational company until Whirlpool.
Therefore the expansions of the company globally were in shaky hands. Information: This topic falls under the Management Philosophy of Considerations of Forecasting Demand factor of the Human Resource Planning Model. Management is not doing their job right, that’s why they could not select a person with more abilities and competencies. Justification: The organization has no HRIS to detect the suitable person and thus the CEO was not competent. * Weak Distribution Channel in China Once in China, Whirlpool also realized that it had not properly understood the distribution system.
The company discovered that there were huge geographical distances between Chinese cities and that the country lacked strong distribution channels. The company had not expected to face major problems with telecommunications and, despite the country’s huge labor supply, Whirlpool had difficulties finding qualified people for its factories. Information: This topic falls under the Technologies of Considerations of Forecasting Demand factor of the Human Resource Planning Model. This topic tells us that distribution is a part of technology, a well established distribution channel is essential for running any business.
Same goes for skilled and experience management system. Both of the established distribution channel and skilled and experienced management’s demand is very high. Justification: The geographical distances in between China created huge communication barriers for companies operating there. * Strategy of brand segmentation according to price The European subsidiary, Whirlpool Europe BV (WEBV), created a brand portfolio segmented by price. Bauknecht (Philip’s German brand) served as the company’s high-end product while Ignis served as the lower-end, value brand. The Philips/Whirlpool brand filled the middle range.
However, the company decided to heavily market the Whirlpool brand name at the expense of managing its other European brands. Managers at Bauknecht in Germany saw their marketing budgets slashed and Bauknecht’s market share fell from 7% to 5%. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. As a result of this their profits were affected. Justification: The ups and downs of profits due to increased expense of production are shown in this case. * Job rotation made it worse
The strategic focus was overlaid with a global outlook, and managers were regularly rotated between Europe and the United States. The rotation generated a crossover of ideas but annoyed retail clients who felt that they had no continuity when dealing with senior managers. Information: This topic falls under the Markov Analysis of Considerations of Forecasting Supply factor of the Human Resource Planning Model. Management is not doing their job right, that’s why customers suffered dealing with upper managers. Justification: The customers were unsatisfied dealing with higher level managers as they changed due to job rotation. Repeated Layoff demotivated employees Due to financial crisis and repeated losses in production they reduced their workforce size globally. This in turn creates dissatisfaction among the existing employees and restrains them from giving their best. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. As a result of this their profits were affected. Justification: The demotivated employees did not give proper feedback and hence they suffered loss. * Rise in material and labor costs
The cost of production is rising continuously as raw materials and labor costs rises. As a result they were suffering losses. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. As a result of this their profits were affected. Justification: The rise in labor cost and resources made their operating costs high and hence more losses. OPPORTUNITIES * Asia, the world’s second-largest home appliance market, was also the fastest growing market of the 1980s.
Asia, the world’s second-largest home appliance market, was also the fastest growing market of the 1980s. By the mid-1990s, it was growing at a rate of between 8% and 12% annually, a rate that was expected to continue well past the year 2000. The industry was highly fragmented, consisting of manufacturers primarily from Japan, Korea, and Taiwan. Matsushita, the market leader, held less than10% market share outside Japan. Information: This topic falls under the demographic changes of external Considerations of Forecasting supply factor of the Human Resource Planning Model.
This topic shows us how the Asian market is yet to expand and the opportunities it has for the new entrants. Justification: The case has the Asian market and details about how it expanded. * The growth in Latin American economy and reduced tariffs The economic stability in Latin America in the 1990s made the region an attractive growth proposition. The appliance makers hoped that the days of hyperinflation and economic mismanagement were over, and they were pleased to see that governments were reducing tariffs.
Information: This topic falls under the Government Policies of External Considerations of Forecasting Supply factor of the Human Resource Planning Model. This topic shows us how government had proposed rules and regulation to enter in this huge attractive market for the foreign companies. Justification: The market will do well as interest rates are decreasing and it is a result of government policies that affect business. THREATS * Saturated market for home appliances With limited growth opportunities many analysts believed that the market for appliances was saturated and that there would be little increase in growth rates.
This saturation had left the distributors focusing primarily on replacement purchases and purchases for new housing developments. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the huge competitions let the competitor having no pricing power. Even more and more financial resources are required in running flexible pricing and promotional activities to stay in the market. Justification: The market was saturated and people by home appliances only when required. Low Barriers to Entry Whirlpool was not the only company aggressively attacking the market, and competition subsequent to Whirlpool’s entry grew fierce. Electrolux and Bosch-Siemens both greatly improved their efficiency, along with many of the smaller European companies. Hence competition was rising every day. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the huge competitions let the competitor having no pricing power.
Even more and more financial resources are required in running flexible pricing and promotional activities to stay in the market. Justification: The economic recession, European monetary union, high interest rates are all government policies that affect business. * Bargaining power of retailers increased The state of the retail sector also changed. Traditionally, the producers had determined price in the European appliance industry. These producers had been able to reduce their costs through greater operational efficiencies and had allowed the retailers to keep their margins constant.
However, by the 1990s, the number of retail outlets across Europe had fallen significantly, giving the larger surviving retailers more power when dealing with manufacturers. Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the financial costs rose as bargaining power lies with retailers. Justification: As the bargaining power of retailers increase they have more power and hence cost of Whirlpool to buy supplies increases. * Recession
Recession in Europe also caused consumers to become more cost-conscious, and brands such as the low-price firm Indesit won considerable market share. Whirlpool’s market research told them that consumers had reacted quickly to the economic problems. Many were afraid of job cuts in the worsening economy and were wondering whether Brazil would resort to the traditional solution of printing money to solve the economic problems. Consumers foresaw inflation and realized that they would not be able to afford to purchase Whirlpool’s appliances, especially on credit.
Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the financial costs are harmed as profit falls. Justification: The economical crisis results in the decrease of the purchasing power off their customers because their income falls down. * European Monetary Union Whirlpool’s managers blamed a number of causes—reduced consumer demand, poor economic growth, the rising Italian lira, intense competition, and even the European Monetary Union—for its poor performance in Europe but shareholders were unimpressed.
Indeed, Scott Graham, analyst at CIBC Oppenheimer, commented in 1998, “The strategy has been a failure. Whirlpool went in big [into overseas markets] and investors have paid for it. ” Information: This topic falls under the Government Policies of External Considerations of Forecasting Supply factor of the Human Resource Planning Model. This topic shows us how government had proposed rules and regulation to enter in the market. Justification: The economic recession, European monetary union, high interest rates are all government policies that affect business. Chinese government promoting to buy domestic products The Chinese government was strongly encouraging consumers to “buy Chinese. ”26 Too many producers were making similar goods and production soon outpaced demand. For example, although Whirlpool believed it would take approximately five to six years for the market to become saturated, the refrigerator and air conditioning markets were deemed saturated just two years after Whirlpool established its joint ventures in China.
Information: This topic falls under the Government Policies of External Considerations of Forecasting Supply factor of the Human Resource Planning Model. This topic shows us how government had proposed rules and regulation to enter in this huge attractive Chinese market for the foreign companies. By doing this government is also educating and giving the local companies to run business with the giants of the business world. Justification: The economic recession, European monetary union, high interest rates are all government policies that affect business. * Fierce Competition
The case shows that the market has big players who are efficient in their production processes. The big sharks are producing products according to the tastes of the customers. Although the foreign producers made significant market inroads initially in major urban areas and coastal provinces, moving inland proved daunting. The highly fragmented market, made the creation of producers costly and inefficient. Huge competitions make the companies to be so helpless in the market place. As a result Whirlpool Corporation is losing their market share to their competitors.
Information: This topic falls under the financial resources of Considerations of Forecasting demand factor of the Human Resource Planning Model. This topic shows us how the huge competitions let the competitor having no pricing power. Even more and more financial resources are required in running flexible pricing and promotional activities to stay in the market. Justification: The rise in competition results in the rise in costs of advertisements, promotions for the company to make it attractive for customers. * Lack of qualified employee in China
The Chinese labor were not qualified, skilled and neither where they educated and hence when Whirlpool located in China they faced serious problems in their factories resulting in losses of their profits. Information: This topic falls under the education of workforce of the forcasting demand of the HRPP model. Education encompasses both the teaching and learning of knowledge, proper conduct, and technical competency. It thus focuses on the cultivation of skills, trades or professions, as well as mental, moral & aesthetic development. Formal education consists of systematic instruction, teaching and training by professional teachers.
In a liberal education tradition, teachers draw on many different disciplines for their lessons. Though there are also many means to be informally educated, organizations running in the global arena and willing to ensure continued growth always long for employees who are highly educated in formal education. The Chinese labor has no interest to learn new technologies. Justification: The company faced difficulties in China as the government rules does not allow the workforce to be laid off and hence they do not want to learn. ALTERNATIVES Alternative # 1 Do Nothing
The case deals with Whirlpool Corporation (Whirlpool) and its global expansion which was driven by Whirlpool’s objective of becoming the world market leader in home appliances. Beginning with the purchase of a majority stake in an appliance company owned by Philips, the Dutch electronics firms, whirlpool purchased a majority stake in an Indian firm, established four joint ventures in China and made new investments in Latin America. By the mid 1990s serious problems emerged in Whirlpool’s international operations. Whirlpool lost 70 million in Asia in 1996 and 62 million in 1997.
It also found itself a victim of spiraling interest rates. With all these complexities it is better for whirlpool to do nothing. Advantages: Better Competitor Analysis Doing nothing doesn’t mean that Whirlpool takes no step at all, rather if they sit back and watch its competitor’s strategy then they will have a better understanding of the actions taken by the competitors. It might help them to weigh the strength of their existing strategy with the actions taken by the competitors and if possible make some small important changes. Save new expenses
Implementing new strategy means adding new costs to the income statement. This is one thing which Whirlpool cannot afford to do right at this point as their profitability is showing low figures. New strategy needs lots of money and man power would be needed, may be new promotional activities should be implied this will fuel the burning expenses of the organization and their loss or profit will not be compensated. Save time and effort Any types of new strategy need a huge amount of time and effort. Giving effort to design new strategy Whirlpool should spend more time to check their current strategy.
Talking about effort this will be an unnecessary diversion for Whirlpool existing workload. They were present in the foreign market for a long time and their experience is nothing less than any other brands thus they should not waste their time and effort in designing new strategy. Risk of losing benefits of the current strategy is lowered Applying a new a strategy is always risky. It might happen that Whirlpool might lose their one of the stronghold if they try to diverse their strategy too much. If they try to come up with a new strategy, they might end up even losing the benefits off the previous strategies.
Therefore, doing nothing would enable Whirlpool not to lose the benefits they were enjoying from their previous strategies. Focus on previous strategies Whirlpool has just been through joint ventures and has been having their previous strategies underway. Therefore, with the change in ownership just taking place, frequent changes in strategy could be detrimental. So doing nothing would allow Whirlpool to stay focused on their previous strategies. Disadvantages: Inflow of funds would not be taking place Whirlpool has been through a joint venture from being a single owned firm.
Upon joining hands and the firm being more open, they would now require much more funds to finance their Capital Structure plan which includes more acquisitions or joint ventures. Therefore, if Whirlpool is doing nothing, then the inflow of funds that would have taken place due to some other strategy, would not be taking place. Future acquisitions and joint ventures may NOT PROFIT Whirlpool has just been having a change in its ownership. The new management requires having a strategy that would provide them with enough funds to initiate their certain activities in the future.
The activities are such as going for acquisitions and joint ventures. Therefore, if Whirlpool is doing nothing, they would not have the fund to initiate their joint ventures and acquisitions. Thus they would be falling much more behind what they wanted to achieve. Problem if competitors go for acquisition/joint venture before whirlpool Whirlpool after doing joint ventures is planning to have funds for future acquisitions or joint ventures in other parts of the world. However, if their strategy is of doing nothing, then they might lose out.
That is, if Whirlpool is doing nothing to have the fund for future acquisition or joint venture, then it might happen such that their competitors may go for acquisitions or joint ventures which Whirlpool may have previously planned to. Financial crisis may further deepen Whirlpool has been through joint ventures from being a one entity. Upon venturing and the firm being more open, they would now require much more funds to finance them so if it is doing nothing, then the inflow of funds that would have taken place due to some other strategy, would not be taking place.
Furthermore, the financial crisis Whirlpool is having might further aggravate due to lack of finance. No precaution against economic downturn After global joint ventures, Whirlpool as a company is now more open to the economy and is not protected by the government. Furthermore, it is being expected that there would be an economic downturn in Latin America. Therefore, if Whirlpool is not having sufficient fund resulting from their strategy of doing nothing, they would be more prone to economic fluctuations. That is they do not have any precaution against the economic downturn that is likely to take place.
Alternative #2 Form strategic alliances and establish assembly plants in global locations. The case deals with Whirlpool Corporation (Whirlpool) and its global expansion which was driven by Whirlpool’s objective of becoming the world market leader in home appliances. Beginning with the purchase of a majority stake in an appliance company owned by Philips, the Dutch electronics firms, whirlpool purchased a majority stake in an Indian firm, established four joint ventures in China and made new investments in Latin America. By the mid 1990s serious problems emerged in Whirlpool’s international operations.
Whirlpool lost 70 million in Asia in 1996 and 62 million in 1997. It also found itself a victim of spiraling interest rates. With all these complexities it is better for whirlpool to do nothing. The organization went through a lot of joint ventures not realizing that intensive investments to build end-to-end and wholly-owned manufacturing facilities in all markets might not be the effective strategy. Instead, the company should move into more strategic alliances and less foreign direct investment especially in global locations where local market knowledge is crucial for success such as the Asian market.
The company can build assembly plants for its products’ crucial components which will be in sourced globally through joint ventures and wholly-owned subsidiaries, intermediate components can be outsourced through OEMs or strategic alliances across the globe, and finally, owned or even outsourced assembly plants can be placed in strategic global locations for regional exports. Multinationals aiming to establish a long-term market development, especially when local knowledge, sourcing constrains and high degrees of uncertainty exist should think to form more strategic alliances.
The strategy can be less risky than foreign direct investment or joint ventures. Advantages: Get instant market access and speedy entry into the new market: Multinationals aiming to establish a long-term market development, especially when local knowledge, sourcing constrains and high degrees of uncertainty exist should think to form more strategic alliances. As the organization it is going to ally with has more local knowledge and strategies to penetrate the market Whirlpool will be able to get more market shares as soon as possible.
Access to customer base: The greatest advantage of forming a strategic alliance with another organization is that the customer base of the related organization will be a benefit to Whirlpool. As a result the foreign company will have no problems initially to attract customers and these loyal customers will help to get more. Enlarge Whirlpool’s Distribution Channel: Forming strategic alliance will allow Whirlpool to get hold of the distribution channel of the ally and thus they will be facing fewer problems.
Whirlpool has difficulties in accessing distributors in global locations as the case suggests and hence this strategy will allow them to solve their problems. Get greater knowledge and information of the foreign countries culture, customs and as well as the market: If they go by this strategy then Whirlpool will get quick information about the market and about the consumers from them. Whirlpool even can watch over their strategy and take steps depending on those small suppliers strategy. It will be a coalition but as Whirlpool is a bigger one it has to show its bossy attitudes. It will come gradually.
The cost of strategic alliance will be less than joint ventures: The organization went through a lot of joint ventures not realizing that intensive investments to build end-to-end and wholly-owned manufacturing facilities in all markets might not be the effective strategy. Instead, the company should move into more strategic alliances and less foreign direct investment especially in global locations where local market knowledge is crucial for success such as the Asian market. Disadvantage: Weaker management: If Whirlpool relies on another organization than it will be difficult for them to manage everything.
All decisions will be on either the one with the higher equity holder and hence things will be complicated. Loss of control over product quality, employee etc: As Whirlpool has no direct control over anything they might suffer from giving the customers poor quality products, lose control over their employees and much more complicated issues. Less efficient communication: Communication is a very important thing in an organization for efficient functioning of it overall. However Whirlpool will lose its control over their communication system when they will form this strategic alliance. Poor resource allocation:
Resource allocation is the distribution of resources – usually financial – among competing groups of people or programs. When we talk about allocation of funds for healthcare, we need to consider three distinct levels of decision-making. As decisions will be on the strategic partner as well so there are chances of poor resource allocation. Fear of market insulation due to local partner’s presence: Whirlpool might suffer more if the local partner takes advantage of the situation and the agreement, thus taking over the market with their product while using the knowledge, technology and expertise of Whirlpool.
As a result this alliance might act as a back stabber instead of profit making. Alternative #3 Adapt more concentric and conglomerate strategies. One of the problems Whirlpool faced in global locations is that almost every market they tapped was saturated. In terms of product and marketing strategies; in saturated markets such as in the US and Europe, companies should adopt more concentric and conglomerate diversification strategies marketing the same products to new buyers such as; house contractors, hotels, and hospitals.
The company can also offer new and unrelated products and services to its customers such as appliance maintenance services and consumer electronics for new product lines. The company can also encourage replacement sales through pulling demand from new product innovation, high-tech features, environmental engineering, and design differentiations. Advantages: More Profit: The biggest potential advantage is the increase in revenue. It should adopt more concentric and conglomerate diversification strategies marketing the same products to new buyers such as; house contractors, hotels, and hospitals.
The company can also offer new and unrelated products and services to its customers such as appliance maintenance services and consumer electronics for new product lines. The company can also encourage replacement sales through pulling demand from new product innovation, high-tech features, environmental engineering, and design differentiations and increase revenue. Whirlpool is open to new opportunities: Whirlpool is open to new opportunities because this is allowing them to grow further in future. The conglomerate diversification will allow them to expand and gain profits.
Economies of scale achieved: As Whirlpool will be producing goods in a bulk and so they will receive a cost advantage and larger return on production. The tasks would be done at a faster rate and so they will benefit from it. Easy access to the more customers: The moment they take this strategy Whirlpool gets the authority to reach any market customers. So, they will promote their product in such a way so that consumers are attracted to them. Whirlpool is reaching at the customers silently with their good promotion, attractive packaging, lower price, as well as competitive legalization.
So, it would be a tortoise vs. rabbit race but definitely after a certain time tortoise would win the race. A Strategic fit is achieved: Whirlpool will achieve operating benefits if they can apply this strategy. It can achieve a synergy in operations by using it efficiently. Disadvantage: It can lose its strategic focus: One major drawback to this kind of strategies is that they might lose their focus and hence suffer huge loss from such strategy. As a result Whirlpool might suffer more loss than the current situation. Increase in diverse risk:
Spreading is the amount of risk that a business venture is exposed to through diversification is an important consideration once the initial start up has some measures of success. Risk is an inherent part of starting a new business, more so in situations is of an unstable market. Investing corporate funds into bad projects: There are chances that Whirlpool might come up with a product line that is not much attractive and they might suffer huge loss. This will hurt Whirlpool’s profit margin more and they might go out of business. Creates less value than what theory says: The value created by these strategies in textbooks is more of records.
In reality the value that Whirlpool will receive will be much less than this. Acquiring too quickly than developing internally: In reality, it is very difficult for managers to have a perfect overview over a wide range of markets. Central planning might look good in theory, but in reality it seldom leads to good investment decisions. The whole process is furthermore complicated by intra-company politics and the bargaining power of each division/company with the group in such a way that some mature divisions attract more resources than smaller divisions with better growth opportunities.