The home appliance industry was characterized by strong government regulations which represented the political forces at work in this industry. The government regulations forced home appliance manufacturers to tailor the production process to the concerns of environmental preservation. At the same time the government required energy-efficient products. Therefore, this put considerable pressure on the profitability of the industry. What exacerbated the situation was that there were widely diverging international standards in terms of environment management requirements. In Western Europe, certification from international standards was prerequisite to doing business. Differences in standards eroded the cost advantage. As a result, the companies had to spend extensively in research and development activities in order to meet the requirements of governmental regulations.
Economic forces in the industry were represented by the process of consolidation. The industry was considerably fragmented in the beginning. However the high inflation and high interest rates during the 1970s squeezed profits to such an extent that the only way to save costs for the existing players was to adopt strategies of mergers and acquisitions. This process of consolidation not only led to cost savings but also facilitated international trade because the merged companies could pool their resource to a greater extent to manage logistics more efficiently. As a result, the process of consolidation enabled the companies to offer services more efficiently and effectively. However economies in Western Europe and North America were maturing. Therefore the companies had to globalize their operations in order to expand to Asian and North American markets in order to take advantage of high economic growth rates.
In terms of sociological forces, the companies had to attend to issues of demographics in order to maximize their sales. In this respect the market was mostly driven by baby boomers and generation X. Therefore existing players in the industry were tuning their messages to both segments of the market. However since the size of the segment represented by baby boomers was bigger and since this segment also demanded up-scale products, companies which were targeting this segment were performing better. The segment represented by generation X was the next biggest contributor as the source of demand. This new segment placed greater importance on new and unique products. The companies had to respond accordingly. However quality and features were becoming critical success factors and the increasing number of two-income families was driving this shift.
Technologically, the companies were moving towards greater integration with suppliers in order to enhance the quality of their services. The technological sophistication enabled the companies to expand themselves internationally. Technological sophistication was also necessary to deal with environmental regulations. Therefore technological factors could be grouped into four categories: 1) new products and services 2) process improvements 3) development of more customer-oriented features 4) development of new technologies and designs.
According to Porter’s five forces, the threat of new entrants in a particular industry is determined by the scale of entry and exit barriers. In respect of the home appliance industry, the threat was low because the industry was an oligopoly as it was dominated by four major players: Whirlpool, General Electric, Maytag and A. B. Electrolux. Therefore new entrants would not be able to compete given the size of their resources. The industry was also resource intensive in terms of close involvement on the part of the government.
The availability of substitute products was high because the existing players in the industry were competing in the same product categories. The result was brand proliferation. The availability was enhanced additionally by the entry of international brands. The companies were also implementing e-commerce business models in order to make the shopping experience more affordable. As a result, global reach became facilitated and this made the threat of substitute products high.
The threat of competitive rivalry primarily came from the four companies mentioned before. However there were also global competitors like Bosch-Siemens and Haier and niche companies like Sub-Zero and Viking Range who enhanced the threat of competitive rivalry. The level of competition was also intensified because the markets in the western economies were maturing. However this threat was lessened to some extent as a result of global diversification. Still geographical diversification was held back by the lack of common standards and therefore the existing markets were experiencing enhanced threat of competitive rivalry.
The bargaining power of customers was high because they purchased in large volumes. The biggest market segment in this respect was the segment of large builders. They were extremely cost-conscious and tended to purchase only low-end products. Therefore companies such as General Electric, Whirlpool and Frigidaire had to keep their prices in check in order to continue to cater to this market segment which contributed the largest volume of sales in the industry. National chain stores and mass merchandisers such Sears Roebuck also had considerable bargaining power as they had access to nearly two out every five sales in the industry.
The bargaining power of suppliers was limited. This was because manufacturing emphasis in the industry was shifting from quality and reliability to speed and agility. As a result, the manufacturers were building closer relations with the suppliers and this meant each supplier was dedicated to one manufacturer and therefore did not have much bargaining power. The manufacturers were also putting pressure on the suppliers to adopt cost-saving techniques.
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