Koc Holding: Arcelik White Goods
Group: 10B
The International Expansion of Arcelik started in 1980s and the export department was established. With the reduction in tariffs on trade between Turkey and The European Community, the interest in exports increased significantly. After the study of the market reach, Arcelik decided upon Western Europe as being the most appropriate to start international business. An added dimension was to learn from a healthy competition from the joint venture of the German giants Bosch & Siemens. Since the Turkish Government has already reduced the import tariff interest to nil, Arcelik’s domestic market was vulnerable to competition from Bosch & Siemens-the largest household appliance makers in Western Europe and Germany. Arcelik’s most successful European market-United Kingdom- was established in 1989. This was chosen keeping in mind that UK was a price sensitive market with no domestic domination, thus empowering Arcelik with the opportunity to capture market share through volatile consumer purchasing power. The lack of domestic brand dominance provided a chance for Arcelik to establish customer-base and loyalty by providing good quality appliances at cheaper prices. Two-thirds of the refrigerator sales attributed to table-top refrigerators. The retail prices (including taxes) for these were £150, and on sales in 1997 of approximately 200,000 units would yield revenue around 30mn. After an expenditure on advertising 0.6mn, Arcelik is expected to gain deeper penetration than the current 8% in 1996.
Turkey
By 1996 Arcelik, in Turkey, had already established a fair share in the market of white goods. In 1992-96, there was a 21% increase in demand irrespective of a high level of inflation which was at 80%. Also, in 1994, there was an increase in export levels which contributed to the increased profit levels. In the 1990’s, it invested a sustainable amount in R&D and manufacturing technology which enabled it to produce at low costs. Arcelik, invested in after sale services which account for 40% in service revenue. Therefore it is evident that Arcelik has a good customer base in both Turkey and foreign markets. During the period 1992-96, there was a decrease in the import tariff from 40-55% to 0%. As a result, the competition increased and companies gained the freedom to enter the Turkish market hence threatening Arcelik’s market standing. Also in 1996, manufacturers in Europe had 65% of unutilized white goods. Another issue that Arcelik is facing is the market sensitivity. The factors that affect the market equilibrium are interest rates and Gross National Product (GNP). However, fortunately in 1996, there was an increase in the GNP which consequently increased the sales of Arcelik. Also at the same time, there were interest rate increases which negatively impacted the revenues and profits. The market volatility has a major impact on the revenue and profits of Arcelik. Arcelik has not invested in new technology in dishwashers which has posed a threat from its competitors like Profilo. The normal consumer trend is that the first-time purchasers considered the dishwashers to be of high risk. Also, Profilo has strong advertising base and it imports from Bosch-Siemens which have low cost plants and its refrigerators are more up to date. In spite of all the problems and threats, Arcelik have potential to expand and improve its revenue and sales. Analysts expect a 2.5% increase in households. Consumers living in apartments and large families have strong demand for appliances so Arcelik should tap this market segment. With increasing competition, the pricing policy of Arcelik should be revamped from the current one. They should reduce their price in order to attract more customers along with a resultant decrease in operating profit. By volume, the sale of dishwashers contributes to only 10% of Arcelik’s revenues. The market demand for dishwashers is strong and thus it can increase this percentage by another 10-15%. Beko’s products has captured a different market segment altogether and it has a 30% sale contribution in Turkey. Since Beko is highly sought after for its high quality and cost efficient products, Arcelik could market and sell its products under Beko brand. This will ensure an increased market share and also challenge competitors. This can be done by increasing the advertisement investments by 1-2% for Beko products. Another field that Arcelik could consider is penetrating more into the export markets.
GERMANY
Arcelik had opened a German sales office in 1994 within an existing company known as Interburcke GmbH. About 60% market share of white goods was captured by Premium priced brands of Germany like Bosch, Siemens, AEG, and Miele. The remaining 40% of the market was shared by lower priced manufacturers of Italy and Eastern Europe of whom, none of the manufacturer had a market share of more than 4%. The total combined sales of refrigerators and washing machines in Germany for the year 1996 were 3,600,000 and 2,600,000 respectively which generated an approximate revenue of DM 15,960,000 at DM 399 per unit while Bosch and Siemens have prices of DM499 and DM599 per unit. But Beko just had 0.8% market share in the year 1996. Also, forecasts for the year 1997 predict the total sales of Beko to be 100,000 units distributed between refrigerators and washing machines in the ratio 7:3. Consumers and distributors in Germany are price sensitive that too especially in East Germany. This will make Arcelik products affordable. Also, Germany has been Turkey's largest trading partner. The goods which were imported from Turkey were stored in a warehouse which was rented. They only have sufficient resources for advertising in a retailer's catalog. Also, Germany's economy wasn't that strong with population growth almost flat. There were more retailers scrambling to sell their products which reduced the margins. One of the biggest challenges faced by Arcelik was to develop good relationships with big customers and persuade these customers to switch to Beko. Also a major challenge was to improve their market share in Germany which was just 0.8% in 1996. Since Arcelik has insufficient funds, they can supply OEM products to make money so that they could start their advertisement campaigns and also develop technology to cut short production prices as people are price sensitive so as to increase sales and earn customers trust in long run.
FRANCE
A French sales office was opened by Arcelik in 1993. But they predicted that the French market was undergoing recession and also the market was filled with competitors which will make it difficult for Arcelik to break into new accounts. One of the good things about the French market was that there was no dominant Domestic brand present in the country. But, there were many competitors entering the market. Also, Arcelik could not sell its products in departmental stores or mail order accounts. The only advertisement of Arcelik was in the catalog to LeClerc. Beko brand contributed to 25% sales in France and the total market covered by the Arcelik was 1.82%. Arcelik was following a two brand strategy under which Beko was not priced low. Beko was instead priced similar to Candy brand from Italy. The other Koc and OEM were priced lower than the price of Beko so that volume orders could be attracted. As the French market is without any domestic dominance, it can be easily captured with new and innovative products from Arcelik like water and energy efficient washing machines and refrigerators which are made of 80% recyclable products with insulation panels. Also, more focus on advertising and promotion in department stores or mail order accounts can be done.
MIDDLE EAST, AFRICA and CENTRAL ASIA
Since, these are developing nations, there is limited competition thereby providing an opportunity for Arcelik to expand its market in these countries. Currently, 20% market share of Tunisia has been captured and there is a large scope of working on expansion in the Middle East and Central Asia. Middle East being in close proximity, the products manufactured in Turkey can be easily transported via sea route. Thus, manufacturing in Turkey and exporting to Africa would be cost-effective. Turkey and Middle East, being Islamic nations could coherently work together for such kind of business treaties. Also Arcelik could target the North African market which is easily reachable through sea and places like Tunisia etc in which they already have a market presence could be targeted as well so as to increase the market share.