Selling Appliances to the WorldPublished: July 23, 1999 in Knowledge@Wharton
After nearly a decade, the promise of globalization appears to remain beyond the grasp of many international corporations. The appliance industry, for example, seems to still be pursuing the economies of scale and scope predicted in the 1980s. Continental leaders in the industry instead consistently outperform their global counterparts.
"Global players are experiencing significant implementation difficulties and local players are dominating emerging markets," write Ian C. MacMillan director of the Sol C. Snider Entrepreneurial Research Center at Wharton School and Paola Dubini of SDA-Bocconi in Milan, Italy. In a paper titled "Getting There by Lurches: The Rugged Road to Globalization," they identify the appliance industry's unique features, costs and obstacles to worldwide integration.
The appliance industry has many of the features of a mature industry undergoing globalization. Refrigerators, ranges stoves, dishwashers, clothes washing machines and other products have a relatively stable technology; they enjoy economies of scale and scope and meet a relatively basic common need for consumers. History and consumer tastes have dictated the purchasing habits and design dominance in each major market of the world over the past 50 years. Yet unique and idiosyncratic factors in each geographic market that have hobbled the efforts of global companies to achieve true multinational efficiency.
For example, 20% of Asian households had a dishwasher in 1994, compared with 75% in North America and 82% in Europe. National boundaries, consumer preferences, government regulation, manufacturing and production practices, sales channels, climate, eating habits and financing are just some of the obstacles facing the appliance industry. Bedrooms in the U.S., for instance, are often located one floor above the kitchen or laundry appliances. In Europe, most people live in apartments so compact size and quiet operation is more highly prized than in other areas. Refrigerators in China must be no-frost, silent, small and cheap - very different standards than for models built for North America.
Starting in the mid-1980s, the industry underwent an intercontinental consolidation as Whirlpool acquired Philips in the Netherlands; Electrolux acquired Italy's Zanussi and White Consolidated in the United States. Maytag then acquired Hoover in the United Kingdom. Emerging new markets in Eastern Europe, Latin America and Asia led to a pursuit of advantaged positions and global reach.
Only Electrolux, Whirlpool and Samsung pledged to pursue globalization. Six other companies such as Sanyo, General Electric, Merloni and Daewoo, chose to be significant players in a single continent. Others, including Maytag and Toshiba, chose to lead a few key markets and have limited presence outside their main stronghold. Remaining companies have pursued targeted industries worldwide or local markets, such as Miele in the dishwasher segment. Whirlpool and Electrolux took multimillion-dollar charges in 1997 to pay for restructuring projects. GE and Samsung have found that competition for resources and profits within each conglomerate posed a challenge to competing aggressively in China.
Economic reversals in Asia and Brazil, a plan for global standards on refrigerant chemicals have caused other lurches in the pursuit of globalization. Macmillan describes the likelihood of a company accurately predicting the local, regional, global, economic and industry events as being comparable to all the planets aligning. When the desired outcome does not result, companies must adjust their global strategy by buying competitors, building or cutting production, transfering resources or deferring action.
Macmillan points to the comments of SGS-Thomsen Chairman Pasquale Pistorio, who emphasized regionalization in 1997 as a reason why his company succeeded in the semiconductor business. He said a carefully crafted regional strategy was the underpinning of a global vision. This will be instructive to the appliance industry and to other globalizing fields ranging from electronics to automobiles. "We have understood the trend toward globalization better and earlier than the competition," Pistorio said. "But we have also understood that globalization coexists with the underlying phenomenon of regionalization, which in our view is still going to go on for many years and maybe even for decades. As a logical consequence of this analysis, we decided that the best way for globalization was that of aiming at an integrated presence in all the major macroeconomic systems where we operate."
Achieving the proper fit at both the local, regional and global levels depends largely on whether a company's competencies and value propositions can be translated at each level or adapted to function in a new environment. Scale and scope may not be as important as flexibility in meeting the specific demands of the unique landscape of each market or territory.