Should Whirlpool revise or abandon its European strategy?

By | May 1, 2014

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1. In light of the aggressive responses of Electrolux and Bosch Siemens Hausgerate, should Whirlpool revise or abandon its European strategy? Please justify your responses.

1.1 Current EU strategies adopted by Whirlpool

There are several key EU strategies adopted by the company for an ambitious EU expansion. First of all, the company through a number of key strategic acquisitions has obtained the three major well-established pan-European brands: Bauknecht which is targeting at the premium market; Whirlpool which is targeting at the middle segment of the while good market and Ignis which is targeting at the lower end market segments Secondly, the company concentrated and consolidated the product lines manufacturing by integrating the production of product lines at single factories. And the third key strategy is to extend the brand name of Whirlpool from a North American regional brand to a global one. A fourth business strategy is to encourage the technology transfer and experience sharing between the European and North American R&D fruits. Before we can say that these business strategies are appropriate for the company to continue to use facing the challenges from the major EU local competitors, if would be necessary that we probe into the current EU strategies adopted by the said competitors of Electrolux and Bosch Siemens Hausgerate.

1.2 Current EU strategies adopted by Electrolux and Bosch Siemens Hausgerate

As for Bosch Siemens Hausgerate which is the largest manufacturer of home appliances in Europe and one of the leading companies in the sector worldwide. The group stemmed from a joint venture set up in 1967 between Robert Bosch GmbH (Stuttgart) and Siemens AG (Munich) (bsh-group.com 2011), the company has adopted the strategy to pour the money into R&D activities to keep the technology innovation leadership in the industry. And obviously, as mentioned in the case study, such heavy investment in the R&D efforts has achieved fruitful results in term of cutting the water usage by 34 per cent in the dishwashers and cutting the energy usage by 62 per cent. Another key strategic decision that the German giant has approached is also technologic innovation relevant by automating the production procedures and machines and also building up new factory outside of Germany to lower the reliance on the high priced German labor. As for another major competitor, Sweden’s Electrolux is a Swedish multinational home appliance manufacturer headquartered in Stockholm, its products sell under a variety of brand names including its own and are primarily major appliances and vacuum cleaners, and the company’s major EU strategy is focusing on two major directions: the first method is to carry out a key strategic acquisition with the business of AEG Hausgerate from Daimler-Benz and the second method is the cost control through factories closing and payrolls cutting.

1.3 Impacts of Electrolux and Bosch Siemens Hausgerate’s aggressive strategies

From the revision of the major two competitors’ strategic changes implemented to strengthen their position in the competition facing the strong challenges from Whirlpool, we can conclude several major challenges faced by Whirlpool with these strategic changes. First of all, energy saving has been a key feature anticipated by the customers. This product feature could be led by Bosch Siemens Hausgerate’s innovations in water and energy consumption in its home white goods as well as the enhanced environmental protection awareness spreading in the developed economies, in particular among the European countries. The second impact that could be prevalent in the white good industry is the price competition. As mentioned above, the two major competitors have all adopted techniques to enhance the cost control and cost reduction such as payroll cutting and establishing new factories in areas where labor cost is in a lower level. And obvious, the most direct impact over the industry would be lowered profitability for all the producers of the industry.

1.4 Recommendation to Whirlpool in the EU strategies

With these anticipated impacts from the competitors’ strategic changes, looking back on the current strategies adopted in EU for Whirlpool, we will analyze the necessity whether we should recommend some changes to the current strategies in order for the company to maintain the industrial leader position and continue to penetrate into the EU markets. First of all, the company has already have Bauknecht which is targeting at the premium market; Whirlpool which is targeting at the middle segment of the while good market and Ignis which is targeting at the lower end market segments; these three brands have cover the majority of the family in EU in term of different income level, hence we will recommend that the company should stop the future large scale of acquisition to integrate the new brands into the company’s business in EU. Also large scale of acquisition would probably bring difficulties to the company’s financial situations. Secondly, regarding the strategy to consolidate the product of product lines at single factories in EU, as mentioned above the company managed to achieve the economy of scale and to obtain the advantage of marginal cost of the additional product manufacturing compared to that of the industrial average and thus contributes to the competitiveness over the competitors, hence we don’t see strong reasons for the company to make significant changes to this strategy. And in term of strategy to expand the brand into a global brand, the marketing effort should be focused on the EU market rather than on a global scale to save up cost to maintain a lower level of cost. In addition, in term of the business strategy to encourage the technology transfer and experience sharing between the European and North American R&D skills and results, this strategy should be maintained which is proved to be effective and productive for the product innovations.

2. Question 5 (10 marks. 1,000 words)
Critically examine whether it is possible to design and sell the same basic appliance around the World.

First of all, we have to know what it means by “basic appliance”, in my understanding there would be two major kind of definition about this term. On one hand, it could mean the basic appliance which is not the final product that customers; on the other hand it could also refer to the home white goods which customer receive as the final products without further adaptations. For the convenience of the discussion, here we assume that the term basic appliance refers to the white goods which meet the majority of family’s needs; these basic appliances could include usual refrigerators, dishwashers and other kitchen and laundry home appliances. Therefore, the problem would whether it is good to design and promote the same basic appliance in the form of the final goods received by the end customers.

In my understanding, it is not advisable that home compliance companies design and sell the same basic appliance around the world; this is based on my understanding that different countries tend to have different cultural systems which have significant implications over the customer demands over the basic home appliances.

In 1967, IBM Corporation hired Professor Greet Hofstede, a Dutch writer internationally recognized for his studies of national cultures. From 1967 to 1973, Hofstede collected data from employees in seventy countries and developed the Greet-Hofstede scale to show how cultural values affect workplace dynamics. It score countries in five different areas, including tolerance for ambiguity, gender differentiation, individualism, distribution of power, and long term orientation (Kling 2010). The five areas are also known as five cultural dimensions which include Power Distance Index (PDI), Individualism (IDV), Masculinity (MAS), Uncertainty Avoidance Index (UAI) and Long-Term Orientation (LTO) cultural dimensions. These five dimensions are use the measure the cultural features of a particular country. Geert Hofstede’s dimensions analysis can assist the business person or traveler in better understanding the intercultural differences within regions and between counties. As Geert Hofstede commented, “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster” (cyborlink.com 2009), therefore, in the perspective of the professor Geert Hofstede, companies should pay attention to the cultural differences in the various markets that they operate and in particular for the product design which directly influences whether the final products could meet the needs of the end customers or not.

Below let us create a scenario, if a company produces identical basic home appliances to be marked in China and the United States, let’s say, the product is dishwasher, here we will discuss whether there is distinctive demand for product designs for the customers from these two countries.

Figure 3 China VS the United States in the five cultural dimensions
Source: geert-hofstede.com 2012

There are three major differences in term of cultural dimensions that we can identify from the above figure. First of all, in term of the power distance index, with 80 China sits in the higher rankings of PDI – i.e. a society that believes that inequalities amongst people are acceptable. The subordinate-superior relationship tends to be polarized and there is no defense against power abuse by superiors. Individuals are influenced by formal authority and sanctions and are in general optimistic about people’s capacity for leadership and initiative. People should not have aspirations beyond their rank (geert-hofstede.com 2012). And in contrast, for the customers in the United States, they are allowed and will challenge the authority if they are treated unfairly. Secondly, in term of the Individualism (IDV) which focuses on the degree to which the society reinforces individual or collective achievement and the Individualism (IDV) Dimension for China was scored at just 20 (the Asian average is 24). By comparison, the U.S. score for IDV is 91. This means that the Chinese customers would tend to focus on the group needs (family need for instance) rather than the individual needs. While relatively small differences could be seen in the dimensions of Masculinity (MAS) and Uncertainty Avoidance Index (UAI), we can say that there is similar degree of gender differentiation and level of tolerance for uncertainty and ambiguity within a society. And in the last dimension out of the five cultural dimensions, Long-Term Orientation (LTO), again we observe another obvious difference. This refers to how much society values long-standing – as opposed to short term – traditions and values. While the Chinese customers score a record high 118 points and the dimension is only recorded in 29 points in case of the US customers, we will say that these two groups of people are having distinct ideas over the value of long term orientation.

Let’s come back to the case of the production of home appliance to satisfy the needs of the customers from these two large countries, if the products are designed and marked in the same way, there would be some conflicts: first of all, since the US consumers show a high preference of individualism while the Chinese consumers favor the collectivism, they would have different requirements for the same product. We can expect that the Chinese consumers may buy the dishwashers for their parents to use while the US consumers would buy for their own use, and taking into considerations that the Chinese families are include several generations, therefore, the design of dishwasher should be simple and easy to be operated if they are to be sold in the Chinese market because the final users would become the old parents which is very possible and happen all the times. The second conflicts could happen in the duration and warranty of the products. Since we have concluded that the Chinese people are highly favoring the long term orientation thinking, this would mean that they will favor products that are more durable and provide longer warranty. But in contrast, the US consumers would not focus too much on the durability of the products like their Chinese counterparts. Therefore, it is not possible to design and sell the same basic appliance around the world because people from different cultural background would tend to prefer different product features.  
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