Case 3 :Maytag Corporation 2002:Focus on North America Questions: Does Maytag Corporation have what it takes to succeed in this increasingly competitive industry? Is this a good time to buy or to sell Maytag stock? Answer: I would like to start the answer of this question through a small summary which will show how and why these questions are appeared? nd since, giving precise answer to the questions need a detailed environmental analysis ,so I try to explain internal and external factors , and through analyzing the current strategy I aim to recommend some strategies for Maytag company to succeed in his increasingly competitive industry and finally as a result of mentioned analysis I answer the first and second questions. Part1)How and why these questions are appeared? As I read in the Maytag Corporation case ,In the beginning, Maytag was extremely competitive and popular.The company made its mark as the high quality, high price home laundry appliance maker. It was successful with making it self leader in washing machines. As time passed, Maytag began to lose its competitive advantages.
Maytag was slow to develop new innovations and models which cost the company to lose its leadership of the industry. This loss was very hard to recover from due to new competitors beginning to arise in this industry. That is why the situation caused above mentioned questions in share holders minds. nd These doubts were created due to the fluctuating profits, market share, and stock prices over the past years. Stock prices was at a high of $70 in mid 1999 but dropped to under $30 during the fourth quarter of 2000. Currently the stock was selling at $46. 07.
This fluctuation had the shareholder worried. These changes over the years were due to many things: 1-Maytag tried to become an international competitor, but it was not as successful as they had hoped. 2- Maytag had acquired many companies during its acquisition of companies such as Amana, Magic Chef, and etc.These companies had to be converted to be a Maytag company. 3- Some changes, renovations, and improvements had to be made with the companies which cost money. For example, when Maytag acquired Hoover, the U.
K. facilities needed to be modernized. Top management of Maytag committed millions of dollars to renovate the laundry and dishwasher plant. 4-By having to pay for the acquisition of Hoover, management had increased long term debt to its highest level and had to increase the sell of stock.
This then caused lower corporate profits and decreasing earnings per share.These kinds of decisions had shareholders concerned and put doubts in their minds about management. Part2)What Maytag should Analysis to succeed in this increasingly competitive industry? External Analysis Porter’s five forces Porter’s five forces are used to determine the competitive intensity and attractiveness of a market.
These are close forces that affect a company’s ability to make a profit and serve customers. First, the threat of substitute products is low. Many of the appliances have substitutes, but because those substitutes are so old and outdated there is not a threat from them.Second, the threat of entry of new competitors is high. Globalization will be a major issue that Maytag must deal with if they are to remain competitive. The third force is the intensity of competitive rivalry which is high. There is a great deal of rivalry in the appliance industry with Whirlpool, AB Electrolux, and GE. These companies all have a great deal of money and power.
But, now with globalization there even more companies in the industry but the same number of consumers. So, rivalry is high between all of these groups. Fourth, the bargaining power of customers like retail is high.These stores buy a large quantity of appliances and therefore they are able to receive quantity discounts. Smaller appliance outlets who do not buy as many appliances will no be able to buy the appliances as cheaply as the major retailers. Finally, the fifth force is the bargaining power of suppliers which is low.
With globalization and outsourcing growing rapidly during the time frame of this case, Maytag has the ability to buy its supplies from all over the world. It can also set up parts plants all over the world. So, there is low bargaining power among suppliers.
Competitor’s Analysis There are four major home appliance manufacturers controlled 99% of the market share in 2001. They include Whirlpool (39. 2%), GE (23.
2%), Maytag (21. 6%), and A. B. Electrolux (15%). External Opportunities and Threats.
1)Some of the opportunities Maytag faced were increased sales through overseas intervention and increased awareness of product into a new market. (O) 2) They also acquired diversification of product line to reflect different quality and price points and the ability to expand sales through leverage buyouts. (O) )In response to some of these opportunities, Maytag faced a number of threats. For example, because they increased sales through uncontrolled marketing strategies of subsidiaries, the decisions were not controlled by the corporation, resulting in overspending as well as criminal exposure and charges of deception. The media also greatly publicized the weaknesses of the company which threatened their number of future consumers. (T) 3)Also, the inability to research foreign markets before acquiring through leveraged buyouts posed as a threat because they paid too much for CPC and acquired too much debt.
This weakens the company and makes it vulnerable to other foreign . (T) 4) Furthermore, it could have exposed their company to foreign competition because they didn’t have enough of a presence in Europe, whereas its competitors-Germany’s Bosch-Siemens and Italy’s Merloni Group dominated the market. (T) Internal Analysis Maytag is facing several large financial problems.
The net profit margin, gross profit margin, and return on sales are all decreasing. Also, the quick ratio is low. Maytag’s financial position has been damaged by all the debt the company has had to take on to finance acquisitions.Maytag Financial Analysis Liquidity Ratios 20012000199919981997 Current Assets 1. 2751. 1081. 1981. 2251.
650 Quick Ratio 0. 8580. 7730. 7240. 7401. 032 Inventory to Net 1.
5183. 1022. 3982. 1540. 951 Working Capital Cash Ratio 0.
1020. 0060. 0340. 0360. 049 Profitability Ratios Net Profit Margin0. 0110. 0500.
0810. 0690. 053 Gross Profit Margin0. 2320. 2730. 2920. 2900.
275 Return on Inv 0. 0150. 0750. 1250.
1080. 072 Return on Sales0. 0670. 1100. 1410. 1280. 105 Return on Equity2. 0279.
2710. 7690. 5530. 293Activity Ratios Inventory Turnover9.
65412. 28010. 03010. 6049. 731 Days of Inventory 534. 251488. 683 822.
206 780. 768712. 521 Net Working Capital14. 65438. 09324. 05622. 8409. 259 Turnover Asset Turnover 1.
4471. 4741. 3971.
3971. 397 Fixed Asset Turnover 2. 6832. 7972. 5242. 5242.
524 Average Collection Period0. 8140. 6820. 4110. 4090.
488 Leverage Ratios Debt to Asset Ratio 12. 73714. 16315.
34814. 45213. 189 Debt to Equity Ratio 133. 042122. 1285. 1694. 0983.
083 Long-term Debt to Capital83. 15554. 2292.
3082. 971. 880 Structure Times Interest Earned 1006. 500 1072. 094298. 556 298. 556 298.
556 Current Liabilities to Equity 45. 63444. 8281.
9961. 5580. 920 Maytag’s value chain analyzing In analyzing Maytag’s value chain, the company’s largest profit margin is from services with no future like repair parts, portable washers and dryers, and wringer washing machines.
Maytag’s biggest value chain issue is the mass merchandisers that will continue to push for lower prices for products. The strength of this value chain the quality of the manufacturing is well known.Internal Firm Strengths and Weaknesses. 1)Maytag Corporation had achieved easy success of great market share in its ability to create the image of top quality products . This image and company goodwill will be very useful as the company begins to launch new appliances. (S) 2)However, as most companies look to expand sales they divest in external markets through subsidiaries. The idea of expanding sales was a good decision but they achieved weaknesses in such divestures due to the inability of Maytag Corporate to control management decisions in these external markets(W) ) Poor decisions such as failing to use a cost benefit analysis and failing to consider the worst case scenario also deteriorated the company.
4)Other bad decisions were its acquisitions of Magic Chef and Admiral. These lower priced appliances cheapened the reputation of Maytag while its competitors were going after top end product lines. (W) 5) Even after the long decline of profits in 1989, Maytag never even showed strong concern or took corrective action and this one was another poor decision. (W) 6)The principal weakness of Maytag is that they do not have enough capital to take on more debt.More money will be needed for the company to keep up with its global competitors.
It will be hard for the company to finance new projects with bad financial ratios like 133. 042 debt to equity ratio. (W) Evaluation of Current Strategy Maytag is currently using an acquisition strategy to buy companies in countries where Maytag does not have presence. Yet, the acquisitions are not as profitable as Maytag had hoped. And when Maytag tries to sell goods it makes in the United States to the global community but other countries like different sizes and shapes of appliances.The acquired companies are fitting in line with Maytag’s strategic mission very well.
Maytag has effectively developed a brand that is known for quality. The research and development department focuses on building quality into products. The manufacturing department also has quality as its number one priority.
While quality is important, it is also important that Maytag invest in developing new products that might be demanded in the new global economy. To remain competitive, the company must release new products and features. Identify Central ProblemGlobalization has allowed competitors from all over the world to enter the United States marketplace. Global competitors are selling different styles and features are on their appliances that Maytag does not have. The company must learn what new features the consumers will like and adapt their product lines. For example, commercial grade appliances are becoming very popular at this time as Baby Boomers begin to have more personal disposable income.
Maytag must gain the financial position to develop new products and features that will appeal to consumers. Strategy RecommendationFirst, Maytag must find a way to get a grip on all its international operations. None of the international companies seem to be on the same page as Maytag. The company should review its current acquisitions and analyze them to make sure each company is in line with the corporate strategy. Some of the acquired companies may need to be sold off.
Maytag should not acquire any new companies until it can properly manage the companies that it currently has. Second, Maytag needs capital. The company may be able to get this money from selling off international operations that are not successful.Money is needed because a great deal of money must be invested in research and development to help keep Maytag competitive with global competitors. Maytag could also look for a company to buy them and take over their debt.
MY FINAL recommendations would include creating a board of directors chaired by U. S. as well as foreign officers. This Board will approve all expenditures as they relate to foreign acquisitions, operations, and costs. It will approve all oversea market acquisitions based on extensive market analysis.Finally, it will also approve all promotional campaigns of overseas subsidiaries as they relate to using loss leaders. This must be evaluated in terms of potential down sided risks. Lastly, they will impose cost constraints through the implementation of a cost-benefit analysis.
If the benefits exceed the cost then the board will give an approval. Strategy Implementation 1-HP had a policy during this time frame that they must acquire a board member one from each country one year before they seek to buy an operation in foreign country. This strategy would help Maytag.
By putting a person with international experience on the board of directors, that director can help guide the company through the purchase of the company. The director can also advise on products that sell well in their home country and those that do not. 2-Maytag has no other option at this point than to invest more money in its research and development. 3-The company should do a customer survey to see what people want and then design products that meet those needs.
The new stainless steal appliances and energy efficient appliances should be top items for the company to develop.Change is the only thing in the world that is constant, and Maytag must continue to adapt to the changing environment to continue to be successful. Questions 1: Does Maytag Corporation have what it takes to succeed in this increasingly competitive industry? Yes Maytag has what it takes to succeed in this increasingly competitive industry because of the following reasons: If the company continues to follow its three key initiative, quality, product development, and cost reduction, then it will be able to better reposition itself in the industry.The industry is dominated by a few major players and Maytag continues to be one of them.
Maytag is considered to be the brand most desired by consumers and the most reliable. In 2001, the company’s market share in dishwashers, dryers, and washers allowed them to be ranked the number two choice of consumers. This is a great motivation for the company to strive to be the best and to grow. New products for floor care and refrigeration are being introduced to gain more market share. The key point shareholders have to remember is that they are in a “wear out” industry.People wait until their appliance wears completely out to get a replacement. Maytag is trying to change the industry to be considered a “want in” industry.
This can be made possible by continuous research development, but they would have to continue to focus on their quality. Maytag’s quality has always been considered the best and most desired. Maytag needs to focus on developing the products they already have and enhancing them. Technology is constantly changing making new opportunities available. Maytag was a pioneer in the industry they operate in.There were problems with top management, but the company was that much powerful which took care of that problem. If the company and its top management stay aware of their changing environment in the industry and with the employees, Maytag will be successful. Maytag is at a point where the companies they have acquired and they can work together with ease.
Time had to be spent on renovation, company structure, and relocation of plants to get the company in position to focus on growth. With that time and expenses behind them, company will gain more market share and stock prices will raise.Question 2 : Is this a good time to buy or to sell Maytag stock? I think the shareholders should support Maytag by buying Maytag stock, because growth is to come and because money is essential for this growth. and the necessity of the money for its growth is because: 1-As the company has tried to establish itself in the developing global marketplace, it has had difficulties. Not only were consumers taste and preferences changing in the domestic market, but the company needed to develop products that would appeal to the new global markets. Maytag will need a great deal of money to make these large changes. -The current strategy that Maytag has used was to buy small companies in countries where the company wished to compete. Yet, these companies are not falling in line with Maytag’s strategic mission and values.
So, the company must decide how to better handle its international expansion. 3-Maytag has spent a great deal of money to develop global operations. Then, these new global companies are not adding enough to the bottom line to cover their costs.
So, Maytag is currently must find a way to make more money and to operate its new international operations more effectively. shiva hashemi