ARSELIK HOME APPLIANCES: INTERNATIONAL EXPANSION STRATEGYSECTION A GROUP 9

COMPANY FACTS

Arcelik is flagship firm of Koc holding corporation founded by Vebhi Koc in 1926 (contributing 25% revenues to Koc)

Corporate headquarters in Istanbul International slaes and marketing offices in Austria, France, Germany, Pland, Romania, Spain and the U.K

Production plats in Turkey and Romania 10,000 employees worldwide

Established in 1955 to produce metal office furniture Moved shortly afterwards to production of appliances First to introduce washing machines & refrigerators to Turkish households Then started manufacturing vacuum cleaners, dishwashers, Acs & sourced applianxes like ovens, TVs,

water heaters & space heaters fro mother Koc firms

COMPANY FACTS

Arcelik was Europe’s fifth largest producer of domestic home appliances Arcelik and Beko held 50% market share together in Turkish market Owned Leisure and Flavel cooker brands in UK Marketed products in more than 100 countries

Acquired German firm Bloomberg and Romanian firm Arctic (2002) Transformed from licensed technology (1970) to leading firms in manufacture

R&D(1990)

INDUSTRY FACTS

Geographic diversity in demand Western Europe was mainly replacement demand driven (over 95% demand for washing machines an refrigerators) Eastern Europe was first purchase driven demand Low demand because of instability in markets in North Africa and Middle East Also varied with demographic trends and income levels Different consumers needed different utilities from the product (eg. French preferred top-loading whereas Germans and British preferred front

loading machines) Diversity in brand preference

People in Western Europe favoured national brands Brand premium also varied with across products (eg. Hotpoint was well-known for washing machines and dryers and not for cookers)

Turkish demand for households increased with an annual growth 8% during 1999-2000 due to rise in disposable income and also inflation

EU regulated the lower bound on level of service and environmental standards for consumers Led to some extent of commoditization and hence start of price-wars

Industry leaders were Electrolux and Whirlpool followed by Merloni Elettrodomestici and Haier (2002)

BEST PRACTICES Internationalization Strategy: Organic growth through exports and targeted acquisitions of new

companies to enter or consolidate the company’s position in foreign markets and complete its product range.

Building technological capabilities: Invested heavily in R&D Upgraded its manufacturing quality and and

productivity to world class standards 290 patent applications Developing international marketing capabilities and distribution networks:

The company used the Beko brand on international markets as it was already known in major markets in Europe. Arctic brand helped by a 2003 marketing campaign that increased sales by 250% in Romania Blomberg was launched with a new image Arçelik had a control over Turkey’s largest distribution and after-sales service network. Having its exclusive retailer, branded stores and reliable after-sa;es service network had made it a leader in Turkey

BEST PRACTICES (CONTINUED)

Leveraging on business group resources: Basic strategies of Arcelik are naturally shaped by Koç’s overall strategic intent

Internal process of assessing: Contribution by SKU Sourced products from other Koc/non Koc members to increase its product lines

QUESTIONS

For continued long term growth as a major player in the European markets what strategy should Arselik follow?

Are they too dependent on their volatile domestic demand? Should they go international aggressively and create an identity outside Turkey? Should they go for the private label market which is on a rise in Western Europe?

SOME DATA FROM EXHIBITS

From exhibit 1 it is clear that Microwave ovens market and refrigerators & freezers market have a growth rate of almost 100% and 53% respectively

From exhibit 4 it is seen that in Eastern Europe, freezers were still not a domestic appliance in many households and with time this market would grow

From exhibit 8 we can see that revenues (unit sales) from domestic market and exports had increased by almost 93% and 140% respectively

SOLUTIONS

Arselik’s branded retail stores and exclusive distribution network was their core competency in Turkey Hence diversify to household furniture Fitted kitchens were gaining popularity in Turkey and Western Europe Agreement with Sony for variety of consumer electronics Also it makes sense to enter into home entertainment segment

Continue with private label sales and OEM contracts 30% of total production In 2004 contributed to private label sales and 10% in OEM contracts Market share of private labels were on a rise In Western Europe Take more contracts and leverage on their world class production and quality levels Also from exhibit 7 there inventory was on a rise and this may help

SOLUTIONS (CONTINUED)

Continue with international acquisitions 28% of total sales in 2003 were from acquired brands Good acquisition criteria-production capacity, complementing brands, turnover levels and

projections of future revenues A lot of its production was exported to Europe and hence acquisition of a well known brand would

be profitable 55% of Artic’s production was exported to European countries 73% of Elecktra Bregenz production was exported to European countries