Whirlpool Case Study

1.0 Will Whirlpool Clean Up in Europe? (See appendix 1)

1.1 What are the advantages of consolidating production of product lines at single factories in the EU? What are the disadvantages?

With the effect of the Single European Act on 1st July 1987, the emergence of European Union (EU) as a common market has essentially been created. The benefits of this act are substantial to European firms, economies, and workers. It eliminates conflicting national regulations and trade barriers, as well as offering firms opportunity to sell their goods to all other EU members (Griffin & Pustay 2005).

In light of conflicting national regulations and trade barriers to pan-European business disappearing, Whirlpool, the worldÐŽ¦s largest white goods manufacturer, adopted the ЎҐacquisition strategyÐŽ¦ (Griffin & Pustay 2005) as an entry mode to participate in international business. Furthermore, Whirlpool also adopted the ЎҐglobal strategic rivalry theoryÐŽ¦ (Krugman 1981 & Lancaster 1980) as its corporate strategy in order to build a ЎҐsustainable competitive advantageÐŽ¦ (Porter 1980) for itself in achieving the fundamental goals of expanding market share, revenues and profits. The strategy deployed by Whirlpool included:

- Purchasing of Philips Industries based in Netherlands, to gain control over Philips European white-goods production facilities and distribution systems.

- Acquiring Polar SA, an appliance manufacturer in Poland, to offer itself a low-cost production platform.

- Reorganising its manufacturing capacity; such as concentrate its production of automatic washers for its European customers in Schondorf of Germany, and that of refrigerators in Trento of Italy.

- Upgrading and modernising its European factories.

According to the actions being taken by Whirlpool, since the firm has deployed the ЎҐoverall cost leadership strategyÐŽ¦ (Porter 1980) as its business level strategy, Whirlpool has consolidated its production of product lines at single factories in the EU to gain the advantages including:

- Increase control over its international business operations, as well as increased profit potential (Griffin & Pustay 2005).

- Achieve significant manufacturing ЎҐeconomies of scaleÐŽ¦ and exploiting the ЎҐ experience curveÐŽ¦ (Krugman 1981 & Lancaster 1980), that is, each factory is able to focus on achieving highly efficient operating procedures to increase the number of units produced so that its average production costs are lower than its competitorsÐŽ¦.

- Fully exploit the economic potential of proprietary technology, manufacturing expertise, and some other intellectual property rights (Griffin & Pustay 2005).

- Easy to coordinate the activities of the factories to accomplish strategic synergies so that Whirlpool is able to reduce its marketing and distribution costs, thus achieving a significant ЎҐeconomies of scopeÐŽ¦ (Krugman 1981 & Lancaster 1980).

Conversely, there are also several disadvantages after Whirlpool consolidating production of production lines at single factories in the EU including:

- The challenges of managing, operating, and financing its foreign subsidiary. For instance, if one of the factories has poor labour relations, unfounded pension obligations, or hidden environmental cleanup liabilities, Whirlpool becomes financially responsible for solving the problems.

- Facing the additional obstacle in political, legal, and cultural milieus different from its own (Griffin & Pustay 2005).

- Expose to greater economic and political risks, and operating complexity. For example, the presence of civil war, official corruption, or unstable governments may cause negative impacts to the production of the factories, leading to reduce in generating revenues (Griffin & Pustay 2005).

- The potential erosion of the value of its foreign investments if exchange rates change adversely.

- Increase in logistical costs, including warehousing, packaging, transporting, and distributing its goods, that finally increased WhirlpoolÐŽ¦s product retail price (Dilworth 2000).

- Reduce its competitive levels of service for foreign customers because of longer supply lines, as well as increased difficulties in communication (Dilworth 2000).

1.2 Should Whirlpool continue to produce and market in Europe its three product lines (Bauknecht, Whirlpool, and Ignis), which span the entire white-goods market, or should it focus on one market niche? Discuss.

According to the case study, Whirlpool produces and markets three well-established pan-European brands: Bauknecht, a premium upscale production; Whirlpool, for the broad middle segment of the white-goods markets; Ignis, its low-price ÐŽ§valueЎЁ brand aimed at price-sensitive consumers. Although this comprehensive product strategy allows Whirlpool to fully utilise its European production facilities and distribution systems, and markets its good to Europeans at all income levels, however, with the earning of $81 million in profits on sales of $2.2 billion in 2002, it only represented a profit margin of 3.68% by operating three product lines in Europe. Although Whirlpool established itself as the number-three white-goods manufacturer in Europe, however, with such a poor profit margin, it is necessary for Whirlpool to review its market situation and international business strategy.

By analysing the EU market situation, there are two prime competitors of Whirlpool being identified, that is, GermanyÐŽ¦s Bosch Siemens Hauqerate and SwedenÐŽ¦s Electrolux. For Bosch Siemens Hauqerate, it specialises in product innovation which targeting to the premium-quality market niche. For Electrolux, it competes with Whirlpool for the title of the worldÐŽ¦s largest white-goods manufacturer, and its products targeting to low-cost market niche. With the presence of both competitors, it is believed that the business performance of WhirlpoolÐŽ¦s two product lines (Bauknecht and Ignis) is badly affected.

For international business strategy, Hill and Jones (2004) suggested that there is four basic components of strategy development need to be addressed by a firm in order to succeed in foreign markets. These components are: ЎҐdistinctive competenceÐŽ¦,