Case study :   Internationalisation to Whirlpool's rescue Whirlpool Corporation is an American appliance manufacturing company founded in 1911, with a 110-year history

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Internationalisation to Whirlpool's rescue
Whirlpool Corporation is an American appliance manufacturing company founded in 1911, with a 110-year history. Its headquarters are located in Benton Harbor, Michigan, USA. Whirlpool Corporation (NYSE: WHR) is the world's leading manufacturer of kitchen and laundry appliances, with annual sales of approximately $20 billion in 2019. Key factors influencing its performance include the acquisition of Maytag Corporation in 2006 and increased global demand for its innovative brands and products. Over the next few years, the company expects growth in Asia and Latin America to be significantly higher than in North America and Europe.
Whirlpool employs more than 77,000 people in over 59 manufacturing and technology research centres around the world. The company manufactures washing machines, dryers, refrigerators, dishwashers, freezers, rangers, compactors and microwave ovens in 13 countries. The company markets Whirlpool, KitchenAid, Maytag, Consul, Brastemp, Amana, Bauknecht, JennAir, Magic Chef, Kenmore, Indesit and other leading brands in almost every country in the world. Whirlpool generates almost 60% of its sales in North America, 25% in Europe, 15% in Latin America and only 2% in Asia.
A modest start
Whirlpool's beginnings were initially based on a business failure and a family vision. In 1908, Lou Upton invested his savings in a household appliance manufacturing business. When that business failed, Lou Upton was offered the opportunity to pick something of value from the failing company
 

as a return on his investment. He chose the patents for a hand washing machine that he thought could be electrified. Lou Upton took the patents and his innovative vision back to St. Joseph, Michigan. In 1911, Lou Upton and his uncle Emory patented an electric motor-driven wringer washer. With funding from Lowell Bassford and help from Lou's brother Fred, production of washers began for the Upton Machine Company (UMC).
World War II brought washer production to a halt as the factories were modified to supply components for P-40 Warhawk aircraft and military equipment. Over two million units of war material were produced, including aircraft propeller pitch controls, trailing edges for fighter wings, hydraulic steering mechanisms for tank skimmers, carburetor parts, pumps, gears and gearboxes.
In the summer of 1945, the company began producing washers again, anticipating that within three years, demand would be twice as great as in 1941. This was the beginning of a period of explosive growth from a small manufacturer of washers and ironers to a major manufacturer of a full range of major appliances, including the first fully automatic electric washer and dryer. In 1949, the company changed its name to Whirlpool Corporation to help build recognition for the flagship brand. The company became the industry leader in the United States, with sales of $48 million and annual profits of $3 million.
International expansion
As the US appliance market matured in the 1990s, Whirlpool faced intense domestic competition and more demanding buyers, resulting in lower profit margins. Meanwhile, international market barriers to trade were lowered, consumer affluence increased and capitalism flourished. Management realises that it can best deal with these threats and opportunities by undertaking a systematic programme of internationalisation. As a result, Whirlpool embarked on a series of measures over the next decade.
Whirlpool acquired Philips' European operations, 65% of Italian cooling compressor manufacturer Aspera, and bought Poland's second largest appliance manufacturer. In Eastern Europe, Whirlpool sets up subsidiaries to sell and service appliances in Bulgaria, Hungary, Romania, Russia, Slovakia and the Czech Republic.
In China, Whirlpool formed a joint venture to produce air conditioners and established a headquarters and a product and technology development centre in Shanghai. The company also opened regional offices in Hong Kong, New Delhi and Singapore. In Mexico, Whirlpool acquires Vitromatic, a former joint venture partner in Mexico.

It is also developing low-cost versions of popular models to target customers in low-income markets in Latin America, China and India.
Three factors were behind this global expansion. First, Whirlpool had sought to reduce its R&D, manufacturing and service costs by locating factories and other operations in lower-cost locations such as China, Mexico and Poland. Secondly, sales growth had been flat or declining in the US,
 

Second, sales growth, which had been flat or declining in the US, had prompted management to target sales in new markets abroad. Third, Whirlpool had realised that the company's manufacturing and assembly operations would benefit from a more global approach. Management had redesigned products with more standardised parts and thus intensified marketing to make Whirlpool a reorganised global brand. The company had integrated the operations of its regional subsidiaries so that Whirlpool's most advanced skills in appliance technology, production and distribution could be shared with the company's divisions around the world.
Innovation
Whirlpool conducted a critical internal assessment in the late 1990s. It was found that a consumer walking into any appliance shop anywhere in the world would witness a "sea of white" appliances with little differentiation, even between manufacturers. The industry became known as the "white goods trade"; consumers perceived products as commodities, offering little differential advantage and commanding ever lower prices due to increasing competition.
In 1999, Whirlpool management launched a major campaign to differentiate the company's offerings by focusing on innovative and value-added products. In early 2000, Whirlpool recruited 75 employees from nearly every occupational category and divided them into groups in Benton Harbor, Italy and Brazil. The training lasted almost a year and was conducted by a group of external consultants.
The next step was to engage the rest of the global workforce. Whirlpool created an intranet site and set up a DIY innovation course. In 2001 and 2002, Whirlpool's "knowledge management" intranet site had up to 300,000 visits per month. The company set up a rating system to identify innovative ideas with high potential. Since 2003, sales have quadrupled each year. Whirlpool estimates that new appliances in system development, once commercialised, could generate $3 billion in annual sales, up from $1.3 billion in 2003. Whirlpool has developed microwave ovens that can grill steaks, cook pizzas or come in a drawer that slides out for easy access to large dishes. The company has invented a washer with a built-in sensor that detects the size of the load and automatically raises the water level, spin speed and type of wash cycle, essentially making all the decisions for the user.

Local preferences
Cross-regional R&D teams also collaborate on innovations to adapt offerings to local demands in various international environments. For example, due to the wide range of climates, Italians often line dry their clothes, while Danes have to spin them. The capacity requirements of refrigerators vary greatly. The Spanish are concerned about meat production capacity, the British want well-built units, and the French are more concerned about the ability to keep fruit and vegetables fresh. The Germans are particularly concerned about environmental features, while the Italians place great importance on child safety features. In India, Whirlpool has developed a washing machine that provides a higher level of cleanliness for children.
 

In India, Whirlpool has developed a washing machine that offers a higher level of cleanliness to consumers who believe that white clothes express purity. The soft hand clothes of the washer express purity. The washer's gentle hand rubbing motion and unique "hot wash technology" maximise the effectiveness of the washing detergent.
Whirlpool has benefited enormously from international trade. The company is a prime example of how internationalisation can accommodate declining sales and optimise cost structures. It has developed international distribution that reduces expenses, resulting in higher profits, and has positioned itself to challenge its competitors on a global scale.

The company has thrived on its sensitivity and commitment to consumers in diverse cultural and economic contexts around the world.

A growing competitive threat from abroad
Yet not everything is rosy and sparkling on Whirlpool's horizon. Haier, China's largest appliance manufacturer, has established a production base and distribution centre in South Carolina, USA. The company has also purchased a six-story structure in New York City, called the Haier Building, to house its US headquarters. The world's fifth largest kitchen appliance manufacturer, Haier has captured nearly 20% and 50% of the window air conditioner and small refrigerator markets, respectively. It is now expanding into large refrigerators. Haier's move is all the more troubling given that Whirlpool makes a very small share of its sales in Asia, the world's most populous region, where Haier already has a strong presence.
Ironically, Haier's South Carolina plant is creating new jobs in a state that is experiencing a massive exodus of textile jobs to Chinese factories. South Carolina is receiving foreign direct investment from various countries and is home to Japanese and European factories. These trends show that globalisation benefits Whirlpool's international ambitions, but also poses new threats.
As it struggles to remain a world-class player in a key industry, Whirlpool faces new challenges. Management wants to expand sales in emerging markets while defending the domestic market against global competitors, both Chinese and others. The company seeks to continue to leverage and benefit from the advantages of international trade.
In 2014, Whirlpool acquired 60.4% of the Italian company Indesit. In 2018, it divested some of its Embraco branded compressor business from Nidec (Japanese electric motor manufacturer). In 2017 in France, Whirlpool announced that it would give itself 18 months to stop manufacturing tumble dryers in its Amiens factory. The factory will be closed and relocated to Poland. Whirlpool explains the closure of the plant by French manufacturing prices that are 7.5% higher than in Poland.
Committed to being the best kitchen and laundry company
2020, global pandemic, US action plan equality pledge, promoting women's leadership, Whirlpool has launched a new CSR strategy with the "House + Home World Tour".

 

Question :

1. From the theories of foreign trade learned, which theories can justify the value of Whirlpool's international trade in the United States to other countries in the world? What types of benefits does the company obtain from international trade?
2. Whirpool is a company, which theory of foreign trade justifies the value of its international development in foreign markets? Explain your answer.
3. Define the nature of the competition that Whirlpool faces? How effectively can Whirlpool respond in the US market to new competitors from low-cost countries, such as Haier from China? Can this response be applied to foreign markets? If so, how? If not, why not?