Whirlpool: Maintaining a Sustainable Competition in the Industry
The U.S. appliance market was completely saturated in 1986. Increased pressure from other companies like GE who implemented a $1 billion restructuring project on its appliance division, and Electrolux, a company that just inherited WCI and hence became a huge presence within the U.S., gave the Whirlpool top management concern on how to stay competitive.
Whirlpool knew that the three main markets for home appliance were in the U.S., Europe and Japan. The U.S. market, as previously stated was saturated. Most U.S. appliance purchases were replacement purchases, which did not allow for much add-ons. This made the U.S. a battleground for intense marketing and increased pressures to cut costs dramatically. The unsaturated European market had more potential in 1986. Europe had a large market share in 1986 that analysts suspected would last well into 1993.
Europe also had more potential for innovation and add-ons as opposed to simply replacement appliances like those of the United States. One concern over Europe, however, was that it was extremely fragmented and hence not easy to achieve economies of scale. Japan, the last player was also a site for potential growth. It was a smaller market than Europe, however, and there was already a strong presence of Japanese appliance manufacturers there.
Whirlpool considered pursuing a joint venture with Phillips, an internationally established company. Phillips has an established appliance department, but Phillips wanted to concentrate its efforts on other projects like welding, energy cable and furniture. Phillips was willing to spin-off its appliance division and to give Whirlpool a certain percentage of the new company.
Based on the fact that Whirlpool wants to remain a competitive player in the appliance industry, it should pursue international expansion and clench the first mover advantage over GE while increasing pressure on Electrolux. Whirlpool should go along with the Phillips joint venture due to Phillip”s strong international presence and its strong appliance division. Whirlpool should consider concentrating on expansion in Europe. The countries may be fragmented, but there is evidence that there is increased future collaboration amongst the countries and their purchasing decisions. Furthermore, Whirlpool can cut costs by vertically integrating its components and changing only the exterior of the appliances if need be.