The rise of Asia and aggressive Asian brands is once again changing the face of global manufacturing, and the world’s largest appliance maker Whirlpool offers a study in both the opportunities and challenges.
Whirlpool’s sales have roughly doubled in the past decade to top $18 billion last year, as fast-growing Asia and other emerging markets add customers now able to buy stoves, washers and other appliances.
But profit margins are down for the Michigan-based company, as it sells more entry-level items and faces tougher competition, especially from Korean companies fiercely marketing their own brands.
Antonio Gomez, vice president for Whirlpool Latin America, explored the global trends at WorldCity’s CEO Club on March 4 attended by executives in fields from transport to law and hotels.
“The big challenge we face is not only Asian companies coming here but how we can profit in the Asian market,” Gomez told the CEO Club.
Some cash-rich Asian manufacturers play by “different” rules, even settling for little or no profit on appliance sales to drive out their competition, said Gomez.
U.S. and European companies also face obstacles to sell in some Asian markets, partly because of complex distribution systems or government hurdles, participants said.
“The problem is that our market is very open, and theirs is not,” added Joao Claudio Guetter, president for Latin America and the Caribbean for Sweden-based Electrolux Major Appliances.
To compete, Whirlpool is looking to customize products for different markets, seeking to distinguish itself from Asian brands that often make the same or similar goods for the entire world, Gomez said.
But that strategy faces roadblocks, when goods are copied in Chinese factories, sometimes within months of their launch elsewhere and without regard for intellectual property rights, participants said.
“They don’t push the envelope. They ignore the envelope,” said attorney Gary Rosen, chair of the litigation practice at law firm Becker & Poliakoff, of Asian pirates violating copyrights and patents with knock-off goods. “They don’t respect anything, not even contracts, and they waste no time at all.”
Whirlpool also is paying closer attention to marketing and brand reputation to keep a global edge. That’s key in an era of social media, when a complaint from a single consumer can go viral online. Whirlpool learned that lesson recently when a customer with a service problem posted a Facebook video that became one of the world’s most watched videos within just days, Gomez said.
To succeed worldwide, manufacturers also must boost efficiency in transport and logistics, keeping an eye on oil prices that influence the cost of shipping goods long distances, said Romaine Seguin, president of the Americas region for transport giant UPS.
With oil prices rising, more manufacturers now are looking to move the distribution — and even some production — of their bulkier goods bound for U.S. buyers out of distant Asia and back to nearby Mexico, she said.
“Mexico is going to be a big player” in global supply chains in the years to come, said Seguin.
Within buoyant Latin America, Whirlpool is growing sales at a solid pace and highly profitable, spurred by booming Brazil, Gomez said. Sales in Latin America represented roughly 23 percent of the company’s worldwide revenues last year, up from 13 percent in 2005. Nearly every country in the region posted sales increases in 2010, with the notable exception of Venezuela, said Gomez.
Whirlpool offers a wide range of appliance brands in Latin America including Maytag, KitchenAid, Consul, Brastemp and others, some of those acquired from former rivals, Gomez said.
Multiple brands help build market share for companies, because consumers demand choices. A company usually can’t command more than 40 percent of sales in any market with only one brand, said Xavier Muffragi, president and chief executive for North America for resort chain Club Med.
But managing overlapping brands can be complicated and costly for business, participants agreed.
“That’s a big challenge for us to create a differentiator of brands,” Gomez said.
As the business evolves, what’s clear for Whirlpool short-term is that growth will depend on Latin America, Asia and other emerging markets that now are advancing at a quicker pace than the United States. The company derived 62 percent of global revenues from U.S. sales in 2005 but expects sales outside the United States to reach 50 percent by 2014, said Gomez.
The growth potential is huge. Today, nearly eight of every 10 U.S. households have all basic home appliances such as a washer, dryer, refrigerator and stove. That compares with four of 10 households in Latin America and one in 10 in India. Add just one more in each 10 households in emerging markets to that consumer base, and you double sales for the world’s $120 billion-a-year appliance industry, he said.
“It’s amazing the opportunity we have,” Gomez told the group. Yet the challenge remains: how to make appliances with the features and price that new consumers want and “still profit from it.”
The CEO Club is one of seven event series organized by WorldCity to bring together executives on international business topics. The CEO series is sponsored by the University of Miami School of Business Administration and law firm Becker & Poliakoff. The next CEO Club meeting is set for April 8.