COMPETING IN GLOBAL MARKETS

CASE SUBMISSION: ARCELIK HOME

APPLIANCES

GROUP 7
ANAND J S-1501066
ANAND K-1501067
PREM PRAKASH-1501092
RUSHIN P-1501098
ULKRISHT SIDDHARTHAN-1501112
VIGNESHWAR P-1501114
AKHIL SHAN-1501063

1. Given the demographics trends visible in Western Europe, Eastern

Europe, North Africa, Middle East and South America, which
international markets should Arcelik target?
Dimensions

Western
Europe
Unfavourab
le

Eastern
Europe
Favourabl
e

North
Africa
Favourabl
e

Middle
East
Favourabl
e

South
America
Unfavourab
le

Favourable

Neutral

Competitive
Environment

Unfavourab
le

Favourabl
e

Favourabl
e
Favourabl
e

Favourabl
e
Favourabl
e

Unfavourab
le
Neutral

Government
Regulations

Unfavourab
le

Favourabl
e

Neutral

Neutral

Unfavourab
le

Cultural
Similarity

Unfavourab
le

Favourabl
e

Favourabl
e

Favourabl
e

Unfavourab
le

Compensation
Costs

Unfavourab
le

Favourabl
e

Favourabl
e

Favourabl
e

Favourable

Market size

Favourable

Favourabl
e
YES

Favourabl
e
YES

Favourabl
e
YES

Unfavourab
le
NO

Long
term
growth
prospects
Country Risk

Should Arcelik NO
enter?
Comparison of various factors on choosing international locations to enter
Analysis

In advanced economies like Western Europe, the household industry is matured

and saturated. The cost factors are unfavourable with very less differentiating
opportunities due to high regulatory standards. The national brands are highly
acknowledged. Large scale buyers and multinational buying groups have high
bargaining power in these markets.
In Emerging economies like Eastern Europe, North Africa and Middle East, the
competitive environment is favourable. Arcelik is able to capture the market with
customised product needs. The cultural and location similarity is highly
favourable for adapting to the local environment. The low compensation scenario
favours localised production and distribution. It is difficult to charge premium
prices but can be compensated with economies of scale in production.
In South America, the competitive environment is unfavourable. The government
regulations and import taxes makes huge barrier for Arcelik to have a favourable
market there. There is a low spending power trend among the consumers which
decreases the willingness-to-pay. Also, the current opportunities they enjoy in
these markets are short living as the local players can easily move to customised
product needs as Arcelik is delivering now.

2. How should Arcelik look to grow in these markets (i.e. pursue

organic growth or inorganic growth)? Should it access these markets
through the Arcelik/Beko/Blomberg brands or should it enter these
markets through contract manufacturing for OEMs? What should be
their product mix?
The best strategy to follow outside Europe (North Africa & Middle East, South
America) would be through mergers and acquisitions, i.e. inorganic growth.
Because Arcelik as a brand is relatively unknown to outside Europe market which
creates a huge barrier for entry into that markets. Through M&A, the company
can capitalise on the locally established brand and then use its expertise to
improve upon it. Also, most of domestic markets rely on increased customisation
for use in their countries, for example, people of developing countries might
have a low spending power but expect appliances that are high in features. In
these similar cases, establishing a new brand would be a much difficult job than
acquiring local brands. Its advantage of standardised manufacturing process can
be used to expand its operations here through contract manufacturing for OEMs.
In a later stage, it can focus on acquisitions. Also, the product mix has to be
highly customised for domestic use to compete with local brands.
Within Europe, the strategy would be an organic growth. Because, Western
Europe markets are pretty much saturated and the margins are decreasing with
the trend set to continue. So the growth aspect should focus on competitive
prices and innovations. Arceliks knowledge of manufacturing at low cost from
Turkey would be a great value for its growth in WE.
For Eastern Europe where the potential for growth is higher, Arcelik can use the
similar strategy it used for tapping the Western Europe in its growth stage. A mix
of both organic growth and acquisitions would help Arcelik to expand this high
growth market of EE. Its proximity to low cost facility of Turkey would help them
capture the growth prospects of this market. A major advantage is to access this
market through its established brands and build then on.

3. Evaluate the options available for Arcelik to pursue diversification in

Turkey. Which business should they diversify into?
Arcelik has a dominant position in the Turkish home appliances market where it
benefits from strong brand recognition and wide distribution network. Around
54% of the sales come from outside Turkey (Exhibit 9). The international
expansion, however, pose risk in the form of intense rivalry from domestic
players, difference in brand positioning due to variegated nature of product
demand across locations, segmentation of many foreign markets in to niche
markets where economies of scale could not be achieved.
Though Arcelik enjoyed highly regarded brand name together with exclusive
retail distribution systems, the home appliance business was cyclical and the
future demand growth potential in Turkey was limited. Household income levels
were estimated to have exceeded the thresholds that prompt sudden increase in
demand for specific products. Hence, there is a strong case for the company to
diversify into new business. The best available option is related diversification by
leveraging the existing strong distribution network for selling goods other than
home appliances. By 2004, Arcelik offered various types cellular phones and was
already getting into arrangement with various Japanese firms to act as
distributors of various electronic products. The company will be able to create
value by building upon its resources, capabilities and core competencies and can
lead to cost savings. Value is created from economies of scope through
operational relatedness in sharing activities.
With average domestic appliance in use for twelve years, the quality and
availability of after sales service was important to Turkish customers and
influenced other brand purchase decisions. The company could forward integrate
into the after sales service support using its retail outlets, since there was little
joint ownership of sales outlet and service provision.