In 1986 appliance market in US was completely saturated. Whirlpool decide to expand its market into European market. They thought that there is similarity between two markets.
Therefore, they believe that they have success in European market like in US market. Their strategy in Europe focus on brand segmentation and operational efficiency. They created a brand portfolio segmented by price. For example, Bauknecht is a high-end product while Inis is a low-end, value brand. The Philips/Whirlpool brand filled the middle range.
In 1995, Whirlpool was the most recognized appliance brand name in Europe.Moreover, they also increased their operational efficiency through reducing costs, reducing the number of suppliers, and managers were regularly rotated between Europe and the United States. To do this strategy, in Europe, Whirlpool acquired Philips’ Major Domestic Appliance Division, 47% in 1989 and the remainder in 1991. The Whirlpool strategy called for reversing the decline in European market share and improving profitability. In order to achieve this Whirlpool had to change product designs and manufacturing processes and also by switching to centralized purchasing.The successful transformation cut its list of 1,600 suppliers by 50% and it converted the national operations to regional companies.
As I mentioned before, Whirlpool also reduce cost through three actions: + Economies of scale + Reducing the number of suppliers + Using common parts in its products Initially, when intergrated with Philips, its margins doubled as predicted. However, local competitors responded by better tailoring their products and cutting costs; Whirlpool’s profits began to decline.In 1995, Whirlpool’s European profit fell by 50% and in 1996, the company reported a $13 million loss in Europe. Why did they fail? Whirlpool failed to recognize the different competitors and distribution channels in Europe countries. This type of internal factors created manufacturing inefficiencies.
One concern over Europe was that it was extremely fragmented and hence not easy to achieve economies of scale. Furthermore, customer satisfaction is also a very important factor. Customer preferences differ from market to market, and meeting these requirements is very essential to many companies.The European market consisted of more than 320 million consumers whose preferences varied by country and by region. For example, the British washed their clothes more often than the Italians did, and wanted quieter machines.
The French liked to cook on gas at high temperatures, splattering grease on cooking surfaces, and so preferred self-cleaning ovens, while the Germans liked to cook on electric stoves at lower temperatures and did not need such features Another problem is that language issues and cultural differences across Europe.The language barrier is the biggest problem with many U. S. companies that are trying to invest abroad.
It is extremely difficult to negotiate and communicate business deals between different languages. I know for a fact that sometimes it is impossible to translate the complete meaning of one language to another. Cultural difference is another factor that caused difficulties for Whirlpool.
As I mentioned earlier, in Europe refrigerators tend to be smaller than in the U. S. , have only one outside door, and have standard sizes so they can be built into the kitchen cabinet.
Another example, the green movement is a major market issue in Europe, and consumers will evaluate appliances in terms of their energy efficiency, water conservation, compact size, uses of recyclable materials, nature of packaging material used, and environmental consciousness of the manufacturer. In my opinion, the European countries may be fragmented, but there is evidence that there is increased future collaboration amongst the countries and their purchasing decisions. Because of the different preferences of consumers in different markets, a purely global strategy with standard products was not appropriate.Whirlpool would have to adapt its products to local markets, but maintain some global integration in order to realize cost benefits.
Furthermore, Whirlpool can cut costs by vertically integrating its components and changing only the exterior of the appliances if necessary. Moreover, I strongly believe that the joint venture with Phillips would benefit Whirlpool due to Phillip’s strong international presence and its strong appliance division. Integration and coordination bring great benefits if companies are sufficiently skilled to implement them effectively.Greater clarity of information will create an increasing requirement for consistency in quality, delivery, and marketing of products and services across borders.
Not all companies will be able to allocate the resources or develop the capabilities for such management of quality and responsiveness across wider and wider geographic boundaries I strongly believe that Whirlpool had extremely difficult experiences in globalizing their market because the company did not meet the customer preferences.