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The globalization of the European white goods industry
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European Management Journal Vol. 16, No. 1, pp. 101–109, 1998 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain S0263-2373(97)00078-9 0263-2373/98 $19.00 + 0.00
The Globalization of the European White Goods Industry SUSAN SEGAL-HORN, Open University Business School, UK DAVID ASCH, Open University Business School, UK VIVEK SUNEJA, Open University Business School, UK This paper reassesses competitive strategies in the European white goods industry by revisiting the effectiveness of national, regional and global strategies. Changes to markets, manufacturing processes, cost drivers and greater sophistication in the co-ordination processes and internal learning mechanisms within global competitor firms provide an a priori for both the resurgence and the increased appropriateness of global strategies in this industry. The paper focuses on the effectiveness of national, regional and global strategies from the perspective of the historic positioning of the European competitors. 1998 Elsevier Science Ltd. All rights reserved
Introduction It is now widely accepted that the 1980s and 1990s have seen a substantial globalization of the world economy (Ohmae, 1995). This has been fuelled by a number of macro-level and micro-level factors. The important macroeconomic factors include the liberalization of world trade, the deregulation of financial flows and national currencies, the formation of new regional trading blocks, the further economic and institutional integration of existing trading blocks, and the emergence of threats and opportunities in the newly industrializing countries. The micro-level factors which operate at the levels of industry and firm chiefly relate to developments in technology and in organizational know-how. While it is indisputable that there has been a general tendency to globalize, it is equally clear that not all industries and sectors of the economy have been equally affected. Within the manufacturing sector, for European Management Journal Vol 16 No 1 February 1998
example, the international machine tool industry still remains quite fragmented, and consists mainly of small or medium-sized firms producing only in their own country (Baxter, 1995). Similarly, within the service sector, the retail industry remains largely organized along national lines. In the European retail industry for example, the share of pan-European retailing is still quite small (Samiee, 1995). This uneven impact of the forces of globalization on different industries has naturally prompted some observers to seek an explanation for this phenomenon, and to further inquire whether the globalization of the laggard sectors is inevitable. Baden-Fuller and Stopford (1991), in an investigation of the performance of white goods makers in Europe, investigated the relative merits of nationally focused versus international strategies. They concluded that certain factors specific to the white-goods industry in Europe gave national strategies a competitive edge over international strategies in the 1980s. They categorized the white goods makers into three groups: the National Players — which manufacture only at home and sell more than 90 per cent of their output locally (firms such as Hotpoint, Thorn, Lec); the Exporters who produce in a single country but export more than 30 per cent of their output (examples: Bosch-Siemens, AEG, Merloni, Candy); and the Global Players (Electrolux and Philips/Whirlpool) who manufacture and sell their product in more than one country. Baden-Fuller and Stopford (1991) provided evidence to show that in the 1980s, the National Players enjoyed a superior profit performance to the Global Players and the Exporters. They thus claim, that in the case of the white goods sector, globalization strategies have proved to be inferior to localization strategies. In their explanation of the greater appropriateness of 101
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localization strategies relative to globalization strategies in the European white goods industry, BadenFuller and Stopford discuss various demand and supply side factors. They noted consumer preferences with respect to white goods were not homogeneous across Europe. For example, in the case of washing machines, the French prefer top-loading machines while the British and West Germans prefer front-loading machines; the Germans desire washing machines with high spin-speeds while the Italians desire washing machines with lower spin-speeds. Secondly, there were no large pan-European retailers of major domestic appliances. Consequently, competitive battles between retailers were fought in the national arena and created high costs of entry. Thirdly, with the advent of flexible manufacturing technologies, economies of scale became a less important factor. Flexible manufacturing technologies enable firms to cater to the demand for variety without incurring hugely increased production costs. Fourthly, as national markets have matured, the costs of entry for potential entrants have risen. The mature nature of the industry thus militates against entry into national markets by new international players. Finally, the Global Players incurred significantly higher organizational costs associated with co-ordinating a global strategy relative to the national players who adopted localization strategies.
recent UK Monopolies and Mergers Commission Report on the UK white goods industry, is based on industry or market estimates.
However, David Whitwam, the CEO of Whirlpool, has noted ‘The only way to get lasting competitive advantage is to leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts’. (Maruca, 1994). In the same interview Whitwam also argues that despite differences in features, dimensions and configurations of white goods products, most of the technology and manufacturing processes are similar.
Changes occurring in the industry include supply-side changes e.g. new types of production technology, and demand-side changes in markets e.g. new styles of consumer preferences, leading to shifts in patterns of demand. A combination of these supply and demand characteristics is affecting the viability of historically successful strategies in this industry. Strategies which were previously considered less appropriate (i.e. regional or global strategies) for white goods, may have become increasingly viable under the changed industry conditions.
In this article, the authors wish to take a fresh look at the issue of globalization versus localization with respect to the white goods industry in Europe. It is argued that changes have occurred in Europe and in the wider global economy in the 1990s which warrant a re-evaluation of the Baden-Fuller and Stopford conclusions. First, the background to the research is considered. This includes a brief review of globalization and global strategies and the debate on standardization and adaptation. The main discussion considers developments in the industry and in internal organizational processes from which a new competitive agenda emerges. The article concludes by noting the need for European firms to take account of global developments. There is a general problem with identifying and collecting data in this industry affecting both the sources, and comparability of data, particularly in respect of assessments of profitability. Since many of the main competitors are divisions of larger corporations producing consolidated accounts, most data, including recent government reports such as the 102
The Global Industry Context In the context of the change and development in the white goods industry worldwide, Electrolux (Sweden) acquired Zanussi of Italy in 1984 as part of the development of an international strategy for Electrolux. In the years since the acquisition, Electrolux’s profitability has been volatile. Arguably more important however, is the contribution Zanussi made to the restructuring of Electrolux’s manufacturing, sales and component supply. Electrolux faced sophisticated development needs not just for scale efficiencies, but also for the co-ordination skills and other organizational capabilities to keep adapting worldwide to local market needs. Domestic appliances usually need to combine national product features with regional and global manufacturing and research efficiencies. Different strategies, such as national producers and global companies, are both visible in this industry, but the industry may now be moving from national to global.
Global Strategies Electrolux used the Zanussi acquisition to change its strategic positioning within the white goods industry worldwide. Historically in the white goods industry, competitive strategies had been based on domestic country-markets. Regional (e.g. pan-European) strategies were perceived as being less appropriate, highrisk and unprofitable. This widely-held industry recipe was supported by research on the distinct nature of the various European markets and the competitive advantage accruing to national producers, with relative disadvantage to regional producers. These views were even more pronounced for global strategies in the white goods industry (Baden-Fuller and Stopford, 1991). Local domestic manufacturers such as UK-based Hotpoint (with a pure UK domestic market strategy) were indeed more profitable than the regional, and soon-to-be global strategy of Electrolux. European Management Journal Vol 16 No 1 February 1998
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Despite these factors, during the 1980s continued concentration occurred amongst companies competing in the European and global marketplace for white goods. After Electrolux acquired Zanussi, a North American player in white goods, Whirlpool, acquired 53 per cent of the white goods business of the Dutch consumer electronics firm Philips in 1988. In 1990 it acquired the remaining 47 per cent, with an agreement that Whirlpool could piggyback its brand (which was relatively unknown in Europe at the time) jointly with the Philips brand for 10 years as part of the purchase agreement. If the industry negative factors were well-understood and part of the shared knowledge-base in the white goods industry, why were companies like Whirlpool and the Swedish firm Electrolux starting to put in place the building blocks for a global strategy in white goods?
The Global Standardization/Adaptation Debate The core of the standardization/adaptation debate in international strategy is the question of how far it is appropriate to design, market and deliver standard products and services across national market boundaries, or the extent to which adaptation to local market requirements is mandatory. The debate raises important assumptions concerning the conditions for successful global strategies: that global market segments exist; that global economies of scale exist; and that a distribution infrastructure is available to realize these potential economies of scale world-wide. The creation of regional trading blocs and the extent of international consumer homogeneity are central issues affecting the economies of all industries and therefore the most viable strategies of firms competing within those industries. They affect potential economies to be derived by companies from the way they structure their activities in research and development, sourcing, design, manufacturing, distribution and many aspects of marketing, both within and across trading blocs. The range and complexity of the factors involved suggest not only the potential benefits, but also the difficulties and limitations of global strategies. Douglas and Wind (1987) were early critics of the argument for global standardization, calling it ‘naive and oversimplistic’. Since then there have been waves of research and practice supporting globalization, ‘glocalization’ and transnational management (Bartlett and Ghoshal, 1989). The arguments in favour of global standardization, as initially stated by Levitt (1983), contained three assumptions: 1. consumers’ needs and interests are becoming increasingly homogeneous world-wide; 2. people around the world are willing to sacrifice preferences for such things as product features, functions, and design, for high quality at low prices; European Management Journal Vol 16 No 1 February 1998
3. substantial economies of scale in production and marketing can be achieved through supplying global markets. There are however, a number of problems associated with these propositions. First, this belief in consumer homogeneity is controversial. There is a lack of evidence of homogenization. Little similarity exists between groups of consumers across national market boundaries and it has been argued by managers and academics alike that the differences both within and across countries are far greater than any similarities. Secondly, there has been a growth of intra-country fragmentation, leading to increased segmentation of domestic markets. Thirdly, developments in factory automation allowing flexible, lower cost, lower volume, high variety operations are challenging the standard assumptions of scale economy benefits by yielding variety at low cost. Baden-Fuller and Stopford (1991) have argued that evidence of price variance shows that Europe is not a homogeneous market and that this ‘goes far’ towards explaining why national manufacturers are more profitable in the white goods industry than manufacturers pursuing global strategies. The argument put forward here is that global strategies no longer focus simply on the benefits of standardization, and therefore do not need homogeneous markets to be effective.
Global Strategies and Strategic Intent In 1987 Ghoshal (1987) commented: ‘…in a large number of cases industries may not be born global but may have globalness thrust upon them by the entrepreneurship of a company.’ (p. 426)
Are companies such as Electrolux and Whirlpool trying to use their position to accelerate market convergence, while reorganizing themselves internally to be able to take advantage of such future convergence? The view of the industry taken by these firms (and that of GE of the USA) is the driving force behind the development of their management processes and the structuring of their worldwide activities. They are pursuing the potential advantages of global integration and national differentiation (Kogut, 1985; Chandler, 1990; Yip, 1992) to obtain the optimal benefits of each. However, the complexities of managing large worldwide organizations are no longer about simple alternatives of centralization or decentralization, or global versus multidomestic strategies. They involve complex co-ordination not just of global and local components and products within a multinational system, but also the even more complex coordination of internal flows of people, corporate cultures, technology and information. Major investments of time and resources are involved in developing such organizational capabilities. Other 103
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competitors in the white goods industry feel no such urgency. This article assesses the relative strategic logic of the different groups of competitors in the European white goods industry in terms of both industry and organizational developments.
Developments in the European Domestic Appliance Industry
tributors and brokers were forming cross-border alliances to consolidate their buying power. They took the view that distributor power will increase. Nevertheless, it is important to recognize that there are significant differences in retailing patterns across Europe. For example, Samiee (1995) observed that while Germany and the UK had about 160 inhabitants per retailer, Italy had only 64. Over the last two decades the number of supermarkets per 1000 inhabitants has declined from 2.2 to 1.0 in the UK and from 2.7 to 1.5 in France, but only from 5.7 to 4.3 in Portugal and from 3.9 to 3.1 in Spain. Samiee concluded that Belgium, France, Germany, The Netherlands and the UK still had a greater concentration of large retailers than was the case in Southern Europe, although the trend for further concentration was nevertheless clear.
There are significant differences in consumer tastes across Europe, and these differences are not expected to completely disappear in the future. However, the completion of the single market initiative is likely to make demand patterns more homogeneous. Relaxed immiCompletion of the Single Given the removal of physical gration controls are increasing population mobility and in the barriers to trade in Europe and Market initiative is likely to the harmonization of technical long-run will have a meltingpot effect on the consumer. As standards, retailers have the make demand patterns more opportunity to not only source the media industry is deregulated and harmonized, advertheir products on an intertising costs are expected to be homogeneous national basis, but also to reduced. Pan-European adverreduce their system-wide tising has been growing at 50 per cent a year in recent inventory levels while maintaining or increasing custimes, and media experts predict that European martomer service levels. Taken together this will tend to keters will eventually spend 25–50 per cent of their lead to fewer but larger transactions leading to even media budgets in pan-European media (Quelch and greater scale economics (Samiee, 1995). Furthermore, Buzzell, 1989). This will enable firms to make greater changes resulting from the removal of physical and investments in creating pan-European lifestyles and fiscal barriers, the harmonization of product stantastes. The removal of more than 100,000 technical dards and consumer protection regulations are likely barriers as a result of the completion of the single to lead to the growth of direct retailing across Eurmarket initiative is permitting greater standardizope. Catalogue retailing can eliminate cultural and ation of products and their sale on a pan-European language barriers by identifying particular segments basis. This is again promoting a homogenization of in each market. Quelch and Buzzell (1989) support consumer tastes across Europe. this view by arguing that geographic segmentation would give way to pan-European lifestyle segmenWith respect to retail distribution, the single market tation so enabling segments that were too small to be initiative is expected to have several effects on the targeted profitably within a single market to be nature of European retailing. As manufacturing served on a European basis. becomes more concentrated in Europe, retailers are also expected to consolidate in order to gain At this point, it should be noted that while increasing countervailing power (Pellegrini, 1991). The harmonEuropeanization of retailing is likely to facilitate the ization of technical, health and safety standards; the Europeanization of white goods manufacturing, the institution of EU-wide consumer protection reguformer is not a necessary condition for the latter. lations; and the removal of fiscal barriers are all likely After all, nationally focused retailers can always buy to facilitate the integration of retailing in Europe, and their products from non-domestic manufacturing to encourage the emergence of pan-European firms. There is no a priori reason why retailers should retailers. This is, of course, already happening. For discriminate against non-domestic suppliers. Furexample, Carrefour — the French hypermarket operthermore, the completion of the single market initiatator, and Marks and Spencer — the British apparel ive has made it easier for retailers to procure and to retailer, have recently significantly expanded their sell goods manufactured in various locations operations in Europe. Other non-European retailers, throughout Europe. such as the US based Toys-R-Us and Tandy, have also been expanding their European operations. This The final point to consider about changes in industry trend can be expected to emerge in other product structure concerns the potentially high costs of marareas as well, including that in the retailing of ket entry for new global competitors. However, these white goods. costs may be reduced through consolidation in the industry achieved through merger and acquisitions. Quelch and Buzzell (1989) note that retailers, disIndeed this is what has been happening in recent 104
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Table 1 UK Market for White Goods in 1995
Washing machines and dryers Total value of UK retail sales Number of suppliers with market share of 1 per cent or more Market share of GDA (supplier of Hotpoint and Creda brands) Market share of Emaco (supplier of Electrolux, Zanussi, AEG and Tricity Bendix brands) Aggregate market share of top four suppliers
Tumble dryers
Dishwashers
Fridges and freezers
627
93
145
627
8
7
8
12
31.8
44.1
21.6
22.1
20.7
16.2
27.6
21.4
80
86
78
61
Source: Monopolies and Mergers Commission (Report on Domestic Electrical Goods, 1997)
times. Concentration in all product-groups of the white goods industry in Europe has risen sharply. In 1982, there were about 350 producers of major household appliances in Europe; by 1992 this number was reduced to 100 (Weiss and Gross, 1995). Now 15 firms control more than 80 per cent of the European market. Whirlpool acquired the home appliance business of Philips, Electrolux acquired Zanussi and AEG, Maytag bought Hoover (which it subsequently sold to Candy), and General Electric formed a joint venture with GEC. Table 1 indicates that the top four suppliers in the UK account for more than threequarters of the sales of washing machines, tumble dryers and dishwashers, and over 60 per cent of sales of refrigeration appliances. UK sales of washing machines did not show substantial growth in the decade to 1995, but were very volatile as Figure 1 indicates. Table 2 and Table 3 would
tend to indicate that, for the UK market in washing machines, while concentration of manufacturers has not increased markedly in the decade to 1995, retailers have tended to concentrate more.
Developments in Organizational Processes While the advent of flexible manufacturing methods does imply a reduction in the significance of economies of scale in this industry, global firms can, like national firms, exploit this development by producing a wide variety of products that are tailored to local tastes. Thus, changes in manufacturing technology do not necessarily militate against the use of global strategies. Many more models of the same pro-
Figure 1 UK Sales of Washing Machines: 1985–1995
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Table 2 Leading Producers’ Shares of UK Market for Washing Machines (per cent)
GDA Emaco Merloni Candy Whirlpool/Philips Aggregate market share of top four suppliers
1984a
1995b
25 16 11 23 6 75
31.8 20.7 14.2 13.5 4 80
Source: aBaden-Fuller and Stopford (1991); bMonopolies and Mergers Commissions (1997)
Table 3 Leading Retailers’ Shares of UK Market for Washing Machines
Total sales
Dixons Comet RECS Department stores Mail order Other
1990a £605.4 m 18 12 22 6 6 36
1995b £626.7 m 18 10 27 11 8 25
Source: aMonopolies and Mergers Commissions (May, 1990); b Monopolies and Mergers Commissions (July, 1997)
duct can be produced without substantially increasing manufacturing costs. Also, some firms, such as Whirlpool, have been investing in redesigning their products — simplifying them for ease of standardization — so that a wider variety of models can be built on the same basic platform, thereby helping to simultaneously achieve scale economies and product variety (Weiss and Gross, 1995; Marsh, 1996). Of course, scale economies still remain very important in functional areas other than manufacturing — such as those of R&D, marketing and finance. In fact, as R& D becomes increasingly more expensive, scale economies are becoming more rather than less important. One must also bear in mind that the white goods industry is characterized by very substantial economies of scope with respect to product technologies and manufacturing processes (Maruca, 1994). This again favours the use of international rather than national strategies. The relatively high organizational cost of administering a global strategy compared to administering a national strategy was a further factor identified by Baden-Fuller and Stopford (1991). However, there is an experience curve attached to the implementation of global strategies which firms appear to be getting better at employing. Indeed, the simple distinction between global and local strategies may itself no longer be tenable. Bartlett and Ghoshal (1989) have advocated the transnational solution to reconcile the conflicting demands of globalization and localization. 106
They assert that firms can no longer afford to concentrate either on global or on localization strategies. In order to survive in today’s highly competitive environment and respond to both industry and consumer shifts, firms must simultaneously globalize and localize. To do so they must develop assets on a global basis and link them together through flows of information, personnel and goods. In a further development of their ideas on more responsive structures for multi-national corporations, Bartlett and Ghoshal (1993) also show that firms are now beginning to apply the transnational model, and are thereby significantly reducing the costs involved in global coordination. Such firms are also now beginning to benefit from the experience that they have gained in trying to simultaneously cater to global and local needs. Some support for such lower co-ordination costs in the case of the white goods industry comes from the CEO of Whirlpool, David Whitwam, who claims that his company has consistently improved it’s ability to co-ordinate a global strategy since it bought the Philips European Appliance Business in 1989 (Maruca, 1994). Whitwam also emphasizes the role that recent advances in information and communication technologies are playing in improving the efficiency of the networked global organization. As a consequence of the new information technologies, people no longer need to be located in the same place in order to work together on a project. Whirlpool increasingly makes use of ‘virtual teams’, such as the one that was employed recently to design a super-efficient refrigerator, which involved drawing upon expertise in insulation technology from the European business, compressor technology from Brazilian affiliates, and manufacturing and design expertise from US operations. A former CEO of the Honda Motor Company, Hideo Sugiura, reaffirms the role played by corporate learning and experience in managing such local–global paradoxes (Sugiura, 1990). Some of the early attempts of Honda at globalization, such as the one in 1962 when Honda established manufacturing operations in Belgium to produce mopeds, were besieged by problems due to the failure of Honda to understand and to respond to national differences in history, culture and values. Honda’s plant in Belgium was in the red for 10 years. But the Belgian experience gave Honda valuable know-how essential for launching Honda’s subsequent overseas activities. Today, Honda manufactures in more than 40 countries, and markets it’s products in over 100 countries. Honda claims that while it is a global firm, it excels at localization — adapting the firm’s activities to the practices of the host countries.
The Emerging Competitive Agenda The global and regional shifts in the structure of this industry both in terms of markets and of competitors European Management Journal Vol 16 No 1 February 1998
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have been described. Asia and South America are of increased significance as world markets as well as sources of supply. The ability to build and sustain a presence in regions other than Europe or the North American markets necessitates a review of the viability of national strategies. This includes the emerging directions and increased significance of competitive rivalry between global players such as Whirlpool, Electrolux and GE and the increased level of competitive rivalry from Asian (specifically Korean) competitors. Modest levels of market share within each European domestic market are likely to be of less significance than the capability to create linkages and to benefit from their integration across those markets (Kogut, 1985; Bartlett and Ghoshal, 1993).
Industry Developments and Organization Process Developments Our argument is simply captured by Figure 2 which locates the white goods industry at the bottom right of Bartlett and Ghoshal’s (1989) ‘integration/ responsiveness’ grid (position A) until the late 1980s. Subsequently, reflecting the developments already discussed, the industry may be located top right (position B). This indicates an industry in which features are adapted for local consumer preferences, yet in which simultaneously it is critical for competitors to achieve lowest-cost/highest variety positions. They must also have developed the internal capabilities to benefit from the economies of scope from internal system learning e.g. from R&D and marketing. We are, therefore, dealing with an industry which is becoming more complex and in which returns to size are not necessarily those of scale but are increasingly those of scope. It is especially noteworthy that, as is already the case in the world car industry, proliferation of product features has occurred at the same time as standardization of product design and most especially, of standardization of manufacturing process. It is from this industry
framework that the new competitive emerges. This includes the following.
agenda
1. Changes in international industry structure such as concentration, international merger and acquisition activity, and the commercial, financial and strategic logic behind such concentration. 2. There is a need for more sophisticated market data for this industry. In particular the issue of market fragmentation requires further evidence. The assumption of continuing variety of demand within each country market combined with continuing differences between countries would lend support to a different type of international strategy to the alternative scenario of continuing fragmentation within, but increasing homogeneity across, international market segments. 3. The direction of international strategy in the white goods industry (multidomestic, regional, global or glocal/transnational) can be demonstrated by the acquisition of 50 per cent of the UK market leaders by GE of the USA and by the integration of Zanussi into Electrolux. Evidence for global competitive positioning within the industry is emerging. 4. Changes in organizational processes such as the ability to manage complexity, and the costs of coordination of a global strategy. The costs of administration and co-ordination of a global strategy are assumed to be falling as global competitors begin to benefit from a learning curve effect in the costs of integration. Learning may remain continuous; however, the costs of such learning should reduce over time and constitute a scope of economic benefit to global firms. Furthermore, as Bartlett and Ghoshal (1993) noted in their research, slowing market growth, accelerating technological change, and transforming organizational process shifts the focus of many firms from the allocation of capital to the management of knowledge and learning as the key strategic task. Therefore, an increasing dependence on knowledge and expertise is likely to mean that the ability to attract and retain the best people is increasingly becoming a key organizational process issue for more complex organizations.
The Emerging Competitive Threat
Figure 2 The International White Goods Industry: From Nation to “Global” (Adapted from Bartlett and Ghoshal, 1989)
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This article has sought to map out the terrain and the complex of issues amongst which future competition in domestic appliances will take place. A number of key elements affecting the development of the industry and of individual firms competing within it have been identified. In seeking to identify such trends, the poor quality and on occasion complete lack of data should be noted. However, our main concern has been to identify the emerging competitive agenda. 107
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Firms operating in Europe must take account of developments outside Europe. In particular the rapidly growing countries in the East- and South-Asian regions provide very significant opportunities and threats. Labour costs in many of these countries are a small fraction of European wage rates and this has significant implications for a mass production industry such as that of white goods. Korean manufacturers have already captured a huge share of the microwave ovens market in Europe, and now other Korean firms such as Daewoo are set to invade other white goods segments (Tieman and Cunningham, 1996). Daewoo Electronics also have five plants in Europe that employ 4000 staff. It aims to capture market share from it’s competitors on the basis of a low-price, high-quality strategy. In response to such developments, many of the large white-good firms such as Whirlpool and Electrolux are enlarging their marketing and manufacturing operations in Asia (McGrath, 1996). The domestic appliance market in China and India is growing by up to 15 per cent a year as opposed to the 3 per cent growth in the West (Marsh, 1996). Whirlpool is currently building a plant in India to manufacture refrigerators, and it expects to export more than 30 per cent of the output produced (Financial Express, 1996). The operations of GE have been growing at a rate of 12 per cent in Asia (Grant, 1997). Currently over 20 per cent of Electrolux’s sales of domestic appliances are in the developing regions of South America, Asia and Eastern Europe, and Electrolux expects that this proportion will rise to 40 per cent early next century (Marsh, 1996). It is becoming clearer that the major appliance industry is becoming increasingly global in character. The three largest companies control 45 per cent of the global market, and the seven largest control over 70 per cent. Some industry analysts see the emergence of five or six major players in the future, with smaller firms connected to the giants through licensing, alliances and joint ventures (Weiss and Gross, 1995). The time is thus ripe for a reassessment of the competitive efficacy of national, regional and global strategies of European white goods makers. An understanding of such issues is critical to ensure the future competitiveness of the European white goods industry.
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SUSAN SEGAL-HORN, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. Susan Segal-Horn is Head of the Centre of Strategy and Policy at the Open University Business School. She has been Visiting Professor at the E´cole Nationale des Ponts et Chaussee´s, Paris, and at the Graduate School, University of Notre Dame, USA. Her research focuses on strategy in international service industries. Susan is the author of The Challenge of International Business (Kogan Page, 1994) and The Strategy Reader (Blackwell, 1998).
DAVID ASCH, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. David Asch is Dean of the Open University Business School. He has written or contributed to four books including two best sellers Strategic Management, and Managing Strategy (both with Cliff Bowman). His current research interests include strategic change and competitive strategy. David is an advisor to a number of UK and international organizations and has provided evidence to the Office for Fair Trading and the Monopolies and Mergers Commission on Competition Policy.
VIVEK SUNEJA, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. Vivek Suneja worked as Lecturer in Economics in the University of Salford and is currently a Research Fellow at the Open University Business School. His research interests lie primarily in the areas of the economics of strategy, international business economics and marketing economies. He has contributed papers to international conferences and journals in these research areas.
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European Management Journal Vol. 16, No. 1, pp. 101–109, 1998 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain S0263-2373(97)00078-9 0263-2373/98 $19.00 + 0.00
The Globalization of the European White Goods Industry SUSAN SEGAL-HORN, Open University Business School, UK DAVID ASCH, Open University Business School, UK VIVEK SUNEJA, Open University Business School, UK This paper reassesses competitive strategies in the European white goods industry by revisiting the effectiveness of national, regional and global strategies. Changes to markets, manufacturing processes, cost drivers and greater sophistication in the co-ordination processes and internal learning mechanisms within global competitor firms provide an a priori for both the resurgence and the increased appropriateness of global strategies in this industry. The paper focuses on the effectiveness of national, regional and global strategies from the perspective of the historic positioning of the European competitors. 1998 Elsevier Science Ltd. All rights reserved
Introduction It is now widely accepted that the 1980s and 1990s have seen a substantial globalization of the world economy (Ohmae, 1995). This has been fuelled by a number of macro-level and micro-level factors. The important macroeconomic factors include the liberalization of world trade, the deregulation of financial flows and national currencies, the formation of new regional trading blocks, the further economic and institutional integration of existing trading blocks, and the emergence of threats and opportunities in the newly industrializing countries. The micro-level factors which operate at the levels of industry and firm chiefly relate to developments in technology and in organizational know-how. While it is indisputable that there has been a general tendency to globalize, it is equally clear that not all industries and sectors of the economy have been equally affected. Within the manufacturing sector, for European Management Journal Vol 16 No 1 February 1998
example, the international machine tool industry still remains quite fragmented, and consists mainly of small or medium-sized firms producing only in their own country (Baxter, 1995). Similarly, within the service sector, the retail industry remains largely organized along national lines. In the European retail industry for example, the share of pan-European retailing is still quite small (Samiee, 1995). This uneven impact of the forces of globalization on different industries has naturally prompted some observers to seek an explanation for this phenomenon, and to further inquire whether the globalization of the laggard sectors is inevitable. Baden-Fuller and Stopford (1991), in an investigation of the performance of white goods makers in Europe, investigated the relative merits of nationally focused versus international strategies. They concluded that certain factors specific to the white-goods industry in Europe gave national strategies a competitive edge over international strategies in the 1980s. They categorized the white goods makers into three groups: the National Players — which manufacture only at home and sell more than 90 per cent of their output locally (firms such as Hotpoint, Thorn, Lec); the Exporters who produce in a single country but export more than 30 per cent of their output (examples: Bosch-Siemens, AEG, Merloni, Candy); and the Global Players (Electrolux and Philips/Whirlpool) who manufacture and sell their product in more than one country. Baden-Fuller and Stopford (1991) provided evidence to show that in the 1980s, the National Players enjoyed a superior profit performance to the Global Players and the Exporters. They thus claim, that in the case of the white goods sector, globalization strategies have proved to be inferior to localization strategies. In their explanation of the greater appropriateness of 101
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localization strategies relative to globalization strategies in the European white goods industry, BadenFuller and Stopford discuss various demand and supply side factors. They noted consumer preferences with respect to white goods were not homogeneous across Europe. For example, in the case of washing machines, the French prefer top-loading machines while the British and West Germans prefer front-loading machines; the Germans desire washing machines with high spin-speeds while the Italians desire washing machines with lower spin-speeds. Secondly, there were no large pan-European retailers of major domestic appliances. Consequently, competitive battles between retailers were fought in the national arena and created high costs of entry. Thirdly, with the advent of flexible manufacturing technologies, economies of scale became a less important factor. Flexible manufacturing technologies enable firms to cater to the demand for variety without incurring hugely increased production costs. Fourthly, as national markets have matured, the costs of entry for potential entrants have risen. The mature nature of the industry thus militates against entry into national markets by new international players. Finally, the Global Players incurred significantly higher organizational costs associated with co-ordinating a global strategy relative to the national players who adopted localization strategies.
recent UK Monopolies and Mergers Commission Report on the UK white goods industry, is based on industry or market estimates.
However, David Whitwam, the CEO of Whirlpool, has noted ‘The only way to get lasting competitive advantage is to leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts’. (Maruca, 1994). In the same interview Whitwam also argues that despite differences in features, dimensions and configurations of white goods products, most of the technology and manufacturing processes are similar.
Changes occurring in the industry include supply-side changes e.g. new types of production technology, and demand-side changes in markets e.g. new styles of consumer preferences, leading to shifts in patterns of demand. A combination of these supply and demand characteristics is affecting the viability of historically successful strategies in this industry. Strategies which were previously considered less appropriate (i.e. regional or global strategies) for white goods, may have become increasingly viable under the changed industry conditions.
In this article, the authors wish to take a fresh look at the issue of globalization versus localization with respect to the white goods industry in Europe. It is argued that changes have occurred in Europe and in the wider global economy in the 1990s which warrant a re-evaluation of the Baden-Fuller and Stopford conclusions. First, the background to the research is considered. This includes a brief review of globalization and global strategies and the debate on standardization and adaptation. The main discussion considers developments in the industry and in internal organizational processes from which a new competitive agenda emerges. The article concludes by noting the need for European firms to take account of global developments. There is a general problem with identifying and collecting data in this industry affecting both the sources, and comparability of data, particularly in respect of assessments of profitability. Since many of the main competitors are divisions of larger corporations producing consolidated accounts, most data, including recent government reports such as the 102
The Global Industry Context In the context of the change and development in the white goods industry worldwide, Electrolux (Sweden) acquired Zanussi of Italy in 1984 as part of the development of an international strategy for Electrolux. In the years since the acquisition, Electrolux’s profitability has been volatile. Arguably more important however, is the contribution Zanussi made to the restructuring of Electrolux’s manufacturing, sales and component supply. Electrolux faced sophisticated development needs not just for scale efficiencies, but also for the co-ordination skills and other organizational capabilities to keep adapting worldwide to local market needs. Domestic appliances usually need to combine national product features with regional and global manufacturing and research efficiencies. Different strategies, such as national producers and global companies, are both visible in this industry, but the industry may now be moving from national to global.
Global Strategies Electrolux used the Zanussi acquisition to change its strategic positioning within the white goods industry worldwide. Historically in the white goods industry, competitive strategies had been based on domestic country-markets. Regional (e.g. pan-European) strategies were perceived as being less appropriate, highrisk and unprofitable. This widely-held industry recipe was supported by research on the distinct nature of the various European markets and the competitive advantage accruing to national producers, with relative disadvantage to regional producers. These views were even more pronounced for global strategies in the white goods industry (Baden-Fuller and Stopford, 1991). Local domestic manufacturers such as UK-based Hotpoint (with a pure UK domestic market strategy) were indeed more profitable than the regional, and soon-to-be global strategy of Electrolux. European Management Journal Vol 16 No 1 February 1998
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Despite these factors, during the 1980s continued concentration occurred amongst companies competing in the European and global marketplace for white goods. After Electrolux acquired Zanussi, a North American player in white goods, Whirlpool, acquired 53 per cent of the white goods business of the Dutch consumer electronics firm Philips in 1988. In 1990 it acquired the remaining 47 per cent, with an agreement that Whirlpool could piggyback its brand (which was relatively unknown in Europe at the time) jointly with the Philips brand for 10 years as part of the purchase agreement. If the industry negative factors were well-understood and part of the shared knowledge-base in the white goods industry, why were companies like Whirlpool and the Swedish firm Electrolux starting to put in place the building blocks for a global strategy in white goods?
The Global Standardization/Adaptation Debate The core of the standardization/adaptation debate in international strategy is the question of how far it is appropriate to design, market and deliver standard products and services across national market boundaries, or the extent to which adaptation to local market requirements is mandatory. The debate raises important assumptions concerning the conditions for successful global strategies: that global market segments exist; that global economies of scale exist; and that a distribution infrastructure is available to realize these potential economies of scale world-wide. The creation of regional trading blocs and the extent of international consumer homogeneity are central issues affecting the economies of all industries and therefore the most viable strategies of firms competing within those industries. They affect potential economies to be derived by companies from the way they structure their activities in research and development, sourcing, design, manufacturing, distribution and many aspects of marketing, both within and across trading blocs. The range and complexity of the factors involved suggest not only the potential benefits, but also the difficulties and limitations of global strategies. Douglas and Wind (1987) were early critics of the argument for global standardization, calling it ‘naive and oversimplistic’. Since then there have been waves of research and practice supporting globalization, ‘glocalization’ and transnational management (Bartlett and Ghoshal, 1989). The arguments in favour of global standardization, as initially stated by Levitt (1983), contained three assumptions: 1. consumers’ needs and interests are becoming increasingly homogeneous world-wide; 2. people around the world are willing to sacrifice preferences for such things as product features, functions, and design, for high quality at low prices; European Management Journal Vol 16 No 1 February 1998
3. substantial economies of scale in production and marketing can be achieved through supplying global markets. There are however, a number of problems associated with these propositions. First, this belief in consumer homogeneity is controversial. There is a lack of evidence of homogenization. Little similarity exists between groups of consumers across national market boundaries and it has been argued by managers and academics alike that the differences both within and across countries are far greater than any similarities. Secondly, there has been a growth of intra-country fragmentation, leading to increased segmentation of domestic markets. Thirdly, developments in factory automation allowing flexible, lower cost, lower volume, high variety operations are challenging the standard assumptions of scale economy benefits by yielding variety at low cost. Baden-Fuller and Stopford (1991) have argued that evidence of price variance shows that Europe is not a homogeneous market and that this ‘goes far’ towards explaining why national manufacturers are more profitable in the white goods industry than manufacturers pursuing global strategies. The argument put forward here is that global strategies no longer focus simply on the benefits of standardization, and therefore do not need homogeneous markets to be effective.
Global Strategies and Strategic Intent In 1987 Ghoshal (1987) commented: ‘…in a large number of cases industries may not be born global but may have globalness thrust upon them by the entrepreneurship of a company.’ (p. 426)
Are companies such as Electrolux and Whirlpool trying to use their position to accelerate market convergence, while reorganizing themselves internally to be able to take advantage of such future convergence? The view of the industry taken by these firms (and that of GE of the USA) is the driving force behind the development of their management processes and the structuring of their worldwide activities. They are pursuing the potential advantages of global integration and national differentiation (Kogut, 1985; Chandler, 1990; Yip, 1992) to obtain the optimal benefits of each. However, the complexities of managing large worldwide organizations are no longer about simple alternatives of centralization or decentralization, or global versus multidomestic strategies. They involve complex co-ordination not just of global and local components and products within a multinational system, but also the even more complex coordination of internal flows of people, corporate cultures, technology and information. Major investments of time and resources are involved in developing such organizational capabilities. Other 103
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competitors in the white goods industry feel no such urgency. This article assesses the relative strategic logic of the different groups of competitors in the European white goods industry in terms of both industry and organizational developments.
Developments in the European Domestic Appliance Industry
tributors and brokers were forming cross-border alliances to consolidate their buying power. They took the view that distributor power will increase. Nevertheless, it is important to recognize that there are significant differences in retailing patterns across Europe. For example, Samiee (1995) observed that while Germany and the UK had about 160 inhabitants per retailer, Italy had only 64. Over the last two decades the number of supermarkets per 1000 inhabitants has declined from 2.2 to 1.0 in the UK and from 2.7 to 1.5 in France, but only from 5.7 to 4.3 in Portugal and from 3.9 to 3.1 in Spain. Samiee concluded that Belgium, France, Germany, The Netherlands and the UK still had a greater concentration of large retailers than was the case in Southern Europe, although the trend for further concentration was nevertheless clear.
There are significant differences in consumer tastes across Europe, and these differences are not expected to completely disappear in the future. However, the completion of the single market initiative is likely to make demand patterns more homogeneous. Relaxed immiCompletion of the Single Given the removal of physical gration controls are increasing population mobility and in the barriers to trade in Europe and Market initiative is likely to the harmonization of technical long-run will have a meltingpot effect on the consumer. As standards, retailers have the make demand patterns more opportunity to not only source the media industry is deregulated and harmonized, advertheir products on an intertising costs are expected to be homogeneous national basis, but also to reduced. Pan-European adverreduce their system-wide tising has been growing at 50 per cent a year in recent inventory levels while maintaining or increasing custimes, and media experts predict that European martomer service levels. Taken together this will tend to keters will eventually spend 25–50 per cent of their lead to fewer but larger transactions leading to even media budgets in pan-European media (Quelch and greater scale economics (Samiee, 1995). Furthermore, Buzzell, 1989). This will enable firms to make greater changes resulting from the removal of physical and investments in creating pan-European lifestyles and fiscal barriers, the harmonization of product stantastes. The removal of more than 100,000 technical dards and consumer protection regulations are likely barriers as a result of the completion of the single to lead to the growth of direct retailing across Eurmarket initiative is permitting greater standardizope. Catalogue retailing can eliminate cultural and ation of products and their sale on a pan-European language barriers by identifying particular segments basis. This is again promoting a homogenization of in each market. Quelch and Buzzell (1989) support consumer tastes across Europe. this view by arguing that geographic segmentation would give way to pan-European lifestyle segmenWith respect to retail distribution, the single market tation so enabling segments that were too small to be initiative is expected to have several effects on the targeted profitably within a single market to be nature of European retailing. As manufacturing served on a European basis. becomes more concentrated in Europe, retailers are also expected to consolidate in order to gain At this point, it should be noted that while increasing countervailing power (Pellegrini, 1991). The harmonEuropeanization of retailing is likely to facilitate the ization of technical, health and safety standards; the Europeanization of white goods manufacturing, the institution of EU-wide consumer protection reguformer is not a necessary condition for the latter. lations; and the removal of fiscal barriers are all likely After all, nationally focused retailers can always buy to facilitate the integration of retailing in Europe, and their products from non-domestic manufacturing to encourage the emergence of pan-European firms. There is no a priori reason why retailers should retailers. This is, of course, already happening. For discriminate against non-domestic suppliers. Furexample, Carrefour — the French hypermarket operthermore, the completion of the single market initiatator, and Marks and Spencer — the British apparel ive has made it easier for retailers to procure and to retailer, have recently significantly expanded their sell goods manufactured in various locations operations in Europe. Other non-European retailers, throughout Europe. such as the US based Toys-R-Us and Tandy, have also been expanding their European operations. This The final point to consider about changes in industry trend can be expected to emerge in other product structure concerns the potentially high costs of marareas as well, including that in the retailing of ket entry for new global competitors. However, these white goods. costs may be reduced through consolidation in the industry achieved through merger and acquisitions. Quelch and Buzzell (1989) note that retailers, disIndeed this is what has been happening in recent 104
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Table 1 UK Market for White Goods in 1995
Washing machines and dryers Total value of UK retail sales Number of suppliers with market share of 1 per cent or more Market share of GDA (supplier of Hotpoint and Creda brands) Market share of Emaco (supplier of Electrolux, Zanussi, AEG and Tricity Bendix brands) Aggregate market share of top four suppliers
Tumble dryers
Dishwashers
Fridges and freezers
627
93
145
627
8
7
8
12
31.8
44.1
21.6
22.1
20.7
16.2
27.6
21.4
80
86
78
61
Source: Monopolies and Mergers Commission (Report on Domestic Electrical Goods, 1997)
times. Concentration in all product-groups of the white goods industry in Europe has risen sharply. In 1982, there were about 350 producers of major household appliances in Europe; by 1992 this number was reduced to 100 (Weiss and Gross, 1995). Now 15 firms control more than 80 per cent of the European market. Whirlpool acquired the home appliance business of Philips, Electrolux acquired Zanussi and AEG, Maytag bought Hoover (which it subsequently sold to Candy), and General Electric formed a joint venture with GEC. Table 1 indicates that the top four suppliers in the UK account for more than threequarters of the sales of washing machines, tumble dryers and dishwashers, and over 60 per cent of sales of refrigeration appliances. UK sales of washing machines did not show substantial growth in the decade to 1995, but were very volatile as Figure 1 indicates. Table 2 and Table 3 would
tend to indicate that, for the UK market in washing machines, while concentration of manufacturers has not increased markedly in the decade to 1995, retailers have tended to concentrate more.
Developments in Organizational Processes While the advent of flexible manufacturing methods does imply a reduction in the significance of economies of scale in this industry, global firms can, like national firms, exploit this development by producing a wide variety of products that are tailored to local tastes. Thus, changes in manufacturing technology do not necessarily militate against the use of global strategies. Many more models of the same pro-
Figure 1 UK Sales of Washing Machines: 1985–1995
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Table 2 Leading Producers’ Shares of UK Market for Washing Machines (per cent)
GDA Emaco Merloni Candy Whirlpool/Philips Aggregate market share of top four suppliers
1984a
1995b
25 16 11 23 6 75
31.8 20.7 14.2 13.5 4 80
Source: aBaden-Fuller and Stopford (1991); bMonopolies and Mergers Commissions (1997)
Table 3 Leading Retailers’ Shares of UK Market for Washing Machines
Total sales
Dixons Comet RECS Department stores Mail order Other
1990a £605.4 m 18 12 22 6 6 36
1995b £626.7 m 18 10 27 11 8 25
Source: aMonopolies and Mergers Commissions (May, 1990); b Monopolies and Mergers Commissions (July, 1997)
duct can be produced without substantially increasing manufacturing costs. Also, some firms, such as Whirlpool, have been investing in redesigning their products — simplifying them for ease of standardization — so that a wider variety of models can be built on the same basic platform, thereby helping to simultaneously achieve scale economies and product variety (Weiss and Gross, 1995; Marsh, 1996). Of course, scale economies still remain very important in functional areas other than manufacturing — such as those of R&D, marketing and finance. In fact, as R& D becomes increasingly more expensive, scale economies are becoming more rather than less important. One must also bear in mind that the white goods industry is characterized by very substantial economies of scope with respect to product technologies and manufacturing processes (Maruca, 1994). This again favours the use of international rather than national strategies. The relatively high organizational cost of administering a global strategy compared to administering a national strategy was a further factor identified by Baden-Fuller and Stopford (1991). However, there is an experience curve attached to the implementation of global strategies which firms appear to be getting better at employing. Indeed, the simple distinction between global and local strategies may itself no longer be tenable. Bartlett and Ghoshal (1989) have advocated the transnational solution to reconcile the conflicting demands of globalization and localization. 106
They assert that firms can no longer afford to concentrate either on global or on localization strategies. In order to survive in today’s highly competitive environment and respond to both industry and consumer shifts, firms must simultaneously globalize and localize. To do so they must develop assets on a global basis and link them together through flows of information, personnel and goods. In a further development of their ideas on more responsive structures for multi-national corporations, Bartlett and Ghoshal (1993) also show that firms are now beginning to apply the transnational model, and are thereby significantly reducing the costs involved in global coordination. Such firms are also now beginning to benefit from the experience that they have gained in trying to simultaneously cater to global and local needs. Some support for such lower co-ordination costs in the case of the white goods industry comes from the CEO of Whirlpool, David Whitwam, who claims that his company has consistently improved it’s ability to co-ordinate a global strategy since it bought the Philips European Appliance Business in 1989 (Maruca, 1994). Whitwam also emphasizes the role that recent advances in information and communication technologies are playing in improving the efficiency of the networked global organization. As a consequence of the new information technologies, people no longer need to be located in the same place in order to work together on a project. Whirlpool increasingly makes use of ‘virtual teams’, such as the one that was employed recently to design a super-efficient refrigerator, which involved drawing upon expertise in insulation technology from the European business, compressor technology from Brazilian affiliates, and manufacturing and design expertise from US operations. A former CEO of the Honda Motor Company, Hideo Sugiura, reaffirms the role played by corporate learning and experience in managing such local–global paradoxes (Sugiura, 1990). Some of the early attempts of Honda at globalization, such as the one in 1962 when Honda established manufacturing operations in Belgium to produce mopeds, were besieged by problems due to the failure of Honda to understand and to respond to national differences in history, culture and values. Honda’s plant in Belgium was in the red for 10 years. But the Belgian experience gave Honda valuable know-how essential for launching Honda’s subsequent overseas activities. Today, Honda manufactures in more than 40 countries, and markets it’s products in over 100 countries. Honda claims that while it is a global firm, it excels at localization — adapting the firm’s activities to the practices of the host countries.
The Emerging Competitive Agenda The global and regional shifts in the structure of this industry both in terms of markets and of competitors European Management Journal Vol 16 No 1 February 1998
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have been described. Asia and South America are of increased significance as world markets as well as sources of supply. The ability to build and sustain a presence in regions other than Europe or the North American markets necessitates a review of the viability of national strategies. This includes the emerging directions and increased significance of competitive rivalry between global players such as Whirlpool, Electrolux and GE and the increased level of competitive rivalry from Asian (specifically Korean) competitors. Modest levels of market share within each European domestic market are likely to be of less significance than the capability to create linkages and to benefit from their integration across those markets (Kogut, 1985; Bartlett and Ghoshal, 1993).
Industry Developments and Organization Process Developments Our argument is simply captured by Figure 2 which locates the white goods industry at the bottom right of Bartlett and Ghoshal’s (1989) ‘integration/ responsiveness’ grid (position A) until the late 1980s. Subsequently, reflecting the developments already discussed, the industry may be located top right (position B). This indicates an industry in which features are adapted for local consumer preferences, yet in which simultaneously it is critical for competitors to achieve lowest-cost/highest variety positions. They must also have developed the internal capabilities to benefit from the economies of scope from internal system learning e.g. from R&D and marketing. We are, therefore, dealing with an industry which is becoming more complex and in which returns to size are not necessarily those of scale but are increasingly those of scope. It is especially noteworthy that, as is already the case in the world car industry, proliferation of product features has occurred at the same time as standardization of product design and most especially, of standardization of manufacturing process. It is from this industry
framework that the new competitive emerges. This includes the following.
agenda
1. Changes in international industry structure such as concentration, international merger and acquisition activity, and the commercial, financial and strategic logic behind such concentration. 2. There is a need for more sophisticated market data for this industry. In particular the issue of market fragmentation requires further evidence. The assumption of continuing variety of demand within each country market combined with continuing differences between countries would lend support to a different type of international strategy to the alternative scenario of continuing fragmentation within, but increasing homogeneity across, international market segments. 3. The direction of international strategy in the white goods industry (multidomestic, regional, global or glocal/transnational) can be demonstrated by the acquisition of 50 per cent of the UK market leaders by GE of the USA and by the integration of Zanussi into Electrolux. Evidence for global competitive positioning within the industry is emerging. 4. Changes in organizational processes such as the ability to manage complexity, and the costs of coordination of a global strategy. The costs of administration and co-ordination of a global strategy are assumed to be falling as global competitors begin to benefit from a learning curve effect in the costs of integration. Learning may remain continuous; however, the costs of such learning should reduce over time and constitute a scope of economic benefit to global firms. Furthermore, as Bartlett and Ghoshal (1993) noted in their research, slowing market growth, accelerating technological change, and transforming organizational process shifts the focus of many firms from the allocation of capital to the management of knowledge and learning as the key strategic task. Therefore, an increasing dependence on knowledge and expertise is likely to mean that the ability to attract and retain the best people is increasingly becoming a key organizational process issue for more complex organizations.
The Emerging Competitive Threat
Figure 2 The International White Goods Industry: From Nation to “Global” (Adapted from Bartlett and Ghoshal, 1989)
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This article has sought to map out the terrain and the complex of issues amongst which future competition in domestic appliances will take place. A number of key elements affecting the development of the industry and of individual firms competing within it have been identified. In seeking to identify such trends, the poor quality and on occasion complete lack of data should be noted. However, our main concern has been to identify the emerging competitive agenda. 107
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Firms operating in Europe must take account of developments outside Europe. In particular the rapidly growing countries in the East- and South-Asian regions provide very significant opportunities and threats. Labour costs in many of these countries are a small fraction of European wage rates and this has significant implications for a mass production industry such as that of white goods. Korean manufacturers have already captured a huge share of the microwave ovens market in Europe, and now other Korean firms such as Daewoo are set to invade other white goods segments (Tieman and Cunningham, 1996). Daewoo Electronics also have five plants in Europe that employ 4000 staff. It aims to capture market share from it’s competitors on the basis of a low-price, high-quality strategy. In response to such developments, many of the large white-good firms such as Whirlpool and Electrolux are enlarging their marketing and manufacturing operations in Asia (McGrath, 1996). The domestic appliance market in China and India is growing by up to 15 per cent a year as opposed to the 3 per cent growth in the West (Marsh, 1996). Whirlpool is currently building a plant in India to manufacture refrigerators, and it expects to export more than 30 per cent of the output produced (Financial Express, 1996). The operations of GE have been growing at a rate of 12 per cent in Asia (Grant, 1997). Currently over 20 per cent of Electrolux’s sales of domestic appliances are in the developing regions of South America, Asia and Eastern Europe, and Electrolux expects that this proportion will rise to 40 per cent early next century (Marsh, 1996). It is becoming clearer that the major appliance industry is becoming increasingly global in character. The three largest companies control 45 per cent of the global market, and the seven largest control over 70 per cent. Some industry analysts see the emergence of five or six major players in the future, with smaller firms connected to the giants through licensing, alliances and joint ventures (Weiss and Gross, 1995). The time is thus ripe for a reassessment of the competitive efficacy of national, regional and global strategies of European white goods makers. An understanding of such issues is critical to ensure the future competitiveness of the European white goods industry.
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References Baden-Fuller, C. W. and Stopford, J. M. (1991) Globalisation frustrated: The case of white goods. Strategic Management Journal 12, 493–507. Bartlett, C.A. and Ghoshal, S. (1989) Managing Across Borders: The Transnational Solution. Hutchinson, London. Bartlett, C. A. and Ghoshal, S. (1993) Beyond the M-form: Towards a managerial theory of the firm. Strategic Management Journal 14, 23–46. Baxter, A. (1995) Industry is powering ahead. The Financial Times, 6 October, p. 18. Chandler, A. D. (1990) The Enduring Logic of Industrial Success. Harvard Business Review March–April, 130–140. De Koning, A., Verdin, P. and Williamson, P. (1997) So you want to integrate Europe: How do you manage the process?. European Management Journal 15, 252–265. Douglas, S. P. and Wind, Y. (1987) The myth of globalization. Columbia Journal of World Business Winter, 19–29. Financial Express (1996) Whirlpool likely to export 30 per cent of it’s output, 23 October, p. 12. Ghoshal, S. (1987) Global strategy: An organising framework. Strategic Management Journal 8, 425–440. Grant, L. (1997) GE’s smart bomb strategy. Fortune 136, 109– 110. Kogut, B. (1985) Designing global strategies: Profiting from operational flexibility. Sloan Management Review Fall, 27–38. Levitt, T. (1983) The globalization of markets. Harvard Business Review May–June, 92–102. Marsh, P. (1996) This week: White goods prophet warning, Financial Times, 7 October. Maruca, R. F. (1994) The right way to go global: An interview with Whirlpool CEO David Whitwam. Harvard Business Review March–April, 135–145. McGrath, N. (1996) New broom sweeps into Asia. Asian Business (Hong Kong) 32, 22. Monopolies and Mergers Commissions (1997) Domestic Electrical Goods Volume I and II, LM 3676-I and CM 3676II, HMSO. Monopolies and Mergers Commissions (1990) Kingfisher plc and Dixons Group plc, HMSO. Ohmae, K. (1995) Putting global logic first. Harvard Business Review January–February, 119–125. Pellegrini, L. (1991) The internationalisation of retailing and 1992 Europe. Journal of Marketing Channels 2, 3–27. Quelch, J. A. and Buzzell, R. D. (1989) Marketing Moves through EC Crossroads. Sloan Management Review Fall, 63–74. Samiee, S. (1995) Strategic Considerations in European Retailing. Journal of International Marketing 3, 49–76. Sugiura, H. (1990) How Honda localises its global strategy. Sloan Management Review Fall, 77–82. Tieman, R, and Cunningham, S. (1996) White goods sector faces a chill wind from the east. The Times, 13 March, p. 29. Weiss, D. C. and Gross, A. C. (1995) Industry corner: Major household appliances in Western Europe. Business Economics 30, 67–71. Yip, G.S. (1992) Total Global Strategy. Prentice-Hall, Englewood Cliffs, NJ.
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SUSAN SEGAL-HORN, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. Susan Segal-Horn is Head of the Centre of Strategy and Policy at the Open University Business School. She has been Visiting Professor at the E´cole Nationale des Ponts et Chaussee´s, Paris, and at the Graduate School, University of Notre Dame, USA. Her research focuses on strategy in international service industries. Susan is the author of The Challenge of International Business (Kogan Page, 1994) and The Strategy Reader (Blackwell, 1998).
DAVID ASCH, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. David Asch is Dean of the Open University Business School. He has written or contributed to four books including two best sellers Strategic Management, and Managing Strategy (both with Cliff Bowman). His current research interests include strategic change and competitive strategy. David is an advisor to a number of UK and international organizations and has provided evidence to the Office for Fair Trading and the Monopolies and Mergers Commission on Competition Policy.
VIVEK SUNEJA, The Open University Business School, Walton Hall, Milton Keynes MK7 6AA, UK. Vivek Suneja worked as Lecturer in Economics in the University of Salford and is currently a Research Fellow at the Open University Business School. His research interests lie primarily in the areas of the economics of strategy, international business economics and marketing economies. He has contributed papers to international conferences and journals in these research areas.
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