Indesit Case Essay

Length: 5 pages Sources: 5 Subject: Business Type: Essay Paper: #20902446 Related Topics: Porters Five Forces, Export Business Plan, Multinational Companies, The Time Machine
Excerpt from Essay :

Indesit has a number of sources of competitive advantage. It has a brand that is widely recognized in Europe, and with that strong distribution channels and a good reputation among consumers. The company has a good executive team that was able to run the company without incident when CEO Milani was in a motorcycle accident. The company's products are generally popular, for example the Aqualtis washing machine that challenged the company's factories to keep up with demand. Indesit, by virtue of its manufacturing and supply chain strategies, has also been able to undercut the industry leaders, which gives it the ability to succeed in the markets around the periphery of Europe, where consumer significantly less likely to afford premium brands relative to those in Europe's most developed economies.

Some of these advantages are transferrable to a global context, but some are not. Brand recognition and distribution networks are local advantages that can help Indesit ward off competition from Arcelik, Haier and other new entrants, but not having distributors or brand recognition outside of Europe will make it more difficult for Indesit to compete against established players in those markets. Globalization was providing strong growth opportunities for many of Indesit's competitors, and Indesit was at a competitive disadvantage by not focusing on global growth as well. There was a trend towards smaller European companies exporting early in their existence, before they had fully exploited their domestic markets (Moen, 2002).

Thus, leaders need to understand what advantages in the local market are going to translate to the global market, and Indesit has several that should work. There are a number of strategies to help firms globalize, including have a globalized production network, even when that results in some knowledge transfer. For Indesit, knowledge is not necessarily its strength anyway, so allowing for some knowledge diffusion in order to lower the cost of production and generating opportunities to enter new markets is a strategy that should hold some appeal (Ernst & Kim, 2001).

2.

The issues on the first page of the case are the choice between pushing for market leadership in Europe or going global, which management seems to have framed as mutually exclusive options; the German market issue; a new competitor from Turkey and what to do about the company's marketing skills.

In a sense many of these issues are related and it may be fallacy to prioritize them, because they are not mutually exclusive. Improving marketing will support whatever the company chooses to do about the Europe vs. Global question. Any incremental success that the company has in Germany will be specifically tied to whether it not it wants to pursue more growth in Europe, given that Germany is the biggest market in Europe and Indesit is underrepresented there. Milani has also identified the brands as an area on which to focus, but again this will support whatever strategy he chooses to take the company on. Lastly, the Turkish company Arcelik is threatening Indesit by entering Europe and whether Indesit cares or not will depend on how much importance in places on Europe.

Thus, it is that overarching decision between regional and global that is the key to all of the other strategic questions. Milani needs to answer that question and when that happens all of the other issues will fall into place for the company. That makes this overarching strategic question the most important one of the company. Many firms have become very large with regional strategies, so there is something to be said for playing to one's strengths and sticking the region (Rugman & Verbeke, 2004). If the company chooses to focus on Europe, it will need to address both the German market and the threat posed by new entrants seeking to gain share in Europe. Defending Europe will never be easy, but it might be easier for Indesit than seeking to build itself into a multinational company.

3.

There are several different strategic alternatives. One of the best ways to come up with strategy is to understand how companies make money. Porter's five forces is one such tool, because it analyzes whether the industry is favorable or not. In household appliances, the bargaining...

...

Indesit has good command of its supply chain, so it taking advantage of its strength in this area. The bargaining power of buyers is high. While they can be persuaded by brand recognition, price is a major factor, and that allows new entrants access to the industry. It is clear that the threat of new entrants is intense, because Europe is one of the largest markets in the world. The threat of substitutes, thankfully, is low. Most household appliances are difficult to replace with anything other than old-fashioned manual tools, which would be a non-starter for most people given the choice The intensity of rivalry within the industry is high, however, especially in Europe where the market is not growing very fast, but continues to attract new entrants. Globally, the intensity is a little bit lower because foreign markets are often fast-growing and less dense with competitors. Bargaining power of buyers is often lower where competition is lower, and none of the brands have an especially strong name.

Thus the global strategy is the first alternative for Indesit to consider. The advantages of this strategy include the fact that this alternative is more favorable that strengthening the company's presence in the European market, according to the five forces framework. There is a lot of growth potential in Asia in particular, though one has to wonder if you can really sell things like washing machines in a country like China that is headed for serious restrictions on water use. All of the best markets will be subject to intense competition, even if their growth rates make them attractive. So this option has a lot of upside.

The disadvantages of pursuing the global option are that Indesit does not have much global experience, only around the fringes of Europe. The learning curve is going to be significant in these other cultures, and Indesit is starting from behind with respect to building out its distribution networks and share. The global strategy is very much a long run strategy. There is also the issue of opportunity cost, since the global strategy is viewed as mutually exclusive to strengthening Europe -- thereby leaving the company's strong position in Europe exposed.

The other alternative is to focus on being a regional player. It is important to remember that the European market is huge, and Indesit has a strong market share. But there is still growth in Europe, as Indesit is not even a household name in the UK, and has room to grow in Germany. There are still opportunities around the fringe of the continent as well. That many of the world's largest companies are regional rather than multinational (Rugman & Verbeke, 2004) highlights the fact that the company does not need to be global in order to survive. Its management is in Europe, it knows how to succeed in Europe, so staying in Europe is not only safe but clearly it might succeed as well.

The disadvantage is that Europe is not as favorable an option for Indesit, and there are new competitors entering the market. The issue, however, is not that Europe is free from challenges, but that Indesit is well-equipped to handle those challenges. It is believed that Indesit is better-positioned to strengthen its presence in Europe, and should focus on that. There is no need for Indesit to focus on going global just because everybody else is doing it, and it would be quite difficult for the company to build a business in Asia given that it has no competency in such things.

4.

The strategic alternative begins now, with Indesit examining in order the threat posed by Arcelik, building its brand recognition and solving the problems in the German market. The company should seek to address all of these three simultaneously, and should begin immediately. In keeping with the fundamental principles of goal-setting, Indesit should firm understand its key resources, and then seek to exploit these in order to reinforce its business (Houston et al., 2010). The way that the company allocates its resources will be critical, but there should be money made available for the marketing department right away to begin to develop a program to build its share in key European companies.

Milani will also have to examine Arcelik's offerings. If they are entering based on price, Indesit will need to shore up its supply chain in order to ensure that it can meet Arcelik on price. Consumes, given the choice, will opt for the name they know over the name they do not, if price is the same. Thus, Milani needs to strengthen its two main advantages in price/supply chain and in marketing in order to successfully build out the company's presence in Europe.

Marketing will also play a strong role…

Sources Used in Documents:

References

Ernst, D. & Kim, L. (2001). Global production networks, knowledge diffusion, and local capability formation: A conceptual framework. Nelson & Winter Conference, Aalborg, Denmark. Retrieved November 13, 2014 from http://www.druid.dk/conferences/nw/paper1/Ernst_and_Kim.pdf

Houston, M., Ratneshwar, S., Ricci, L, & Malter, A. (2010). Dynamic strategic goal-setting: Theory and initial evidence. Review of Marketing Research. ISSN: 1548-6435.

Moen, O. (2002). The born globals: A new generation of small European exporters. International Marketing Review. Vol. 19 (2/3) 156-172.

Porter, M. (2008). The five competitive forces that shape strategy. Harvard Business Review. Retrieved November 13, 2014 from https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy


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