whirlpool case study

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1. Reason for the merger and acquisitions in the US and European appliance industry:

Reactive reasons:
1. International competition: International competition arises when a company from one country goes for manufacturing in other country. In US the appliance industry was highly competitive because of the domestic and foreign competition. The competitors were Korean, Japanese and European appliance industries. More over the appliance industries was so competitive that no single domestic manufacturer could keep an innovation to itself for more than a year without patent. So the big five-appliance company decide to merge with European companies to cope with the international competition as well as to enlarge existing facilities.

2. Trade barriers: When companies go for globalization, the trade and tariff barrier has become an important issue. So the government regulation outside the US is also very significant because the environmental standard prevailing in the European community would become a law in the United States. To avoid the trade barrier the appliance industries of US merge with the European industry.

3. Regulation and restrictions: If the home country may have regulation and restriction upon particular product then domestic industry can merge with foreign company and sell product in other country. In US government have regulation upon appliance industry, national Appliance energy Conservation Act limited energy consumption and reducing energy uses by 25% in every 5 years. More over the ozone-depleting CFCs force the industry to redesign its refrigerators, washer and dishwasher to reduce water consumption and noise level. So US companies merges with Europe to sell their products in Europe to avoid government restriction.

4. Customer demand: Though the demand of appliance of US is unattractive but the customers of US prefer the style of European appliance because of its fashionable white-on-white look. In other hand, almost 320 million customers were in Europe for the appliance industry and the saturation level was not as Canada and the United States. Appliance demand was expected to grow 5% annually. Moreover they have a strong buying power. European customer prefer USA appliance manufacturer because European producers delivered significantly lower level of customer satisfaction.

Proactive reasons:
1. Economies of scales: If we set up a plant in any country and produce more, then the research and development cost decrease and economies of scale achieve. The life style of consumer in major industrialized countries is almost similar and have increasingly similar expectations of what customer products must do for them. As purchasing patterns are almost alike, the companies that operate on a broad global scale can leverage their strength to achieve the economies of scale. As the customer demand of appliance is unattractive in USA because of the high saturation level, company need to monitor margin, lower cost and achieve economies of scale. Merger and acquisition with European companies is the best way to utilize the strength and facilities of USA appliance industry.

2. Cost saving: To get the access of the resources of different countries Whirlpool merge with different countries companies. For example, In Italy the labor cost is relatively low compared to U.S. Built twin plants to profit for cheaper labor on Mexican border.

3. Incentives: Some country gives few benefits to the foreign investors, it can be tax reduction or other benefit. European community has a rule that if any foreign investor use 60% local content then they don’t need to give any tariffs. This local content can be European labor or resources. This incentive is also an attractive offer for the US appliance co to merge with European industry.

Some other factors
1. Offering complete line of appliance: Appliance manufacturer of Europe and us realized that they must offer a complete line of appliance, though they don’t...
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