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How Has Arcelik's Home Country Location Influenced Its Internationalization Strategy?

Essay by   •  April 15, 2012  •  Research Paper  •  1,857 Words (8 Pages)  •  2,809 Views

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How has Arcelik's home country location influenced its internationalization strategy?

Turkey is located in a geostrategic position where it lies in the cross roads of Europe and Asia. It is bordered by 8 countries and has access to Europe (close proximity to Western Europe), Central Asia, Middle East and North Africa. The proximity to large key markets reduced the geographical distance costs and allows Arcelik to supply goods to these key market from a central location (Turkey). Using the porter's diamond model, the following items provide a better understanding of how Arcelik's home country, Turkey, contributed to Arcelik's competitive advantage:

* Input Factor Condition: Given Arcelik was part of Turkey's large conglomerate, it had access to internal capital markets to fund its growth. In addition, Arcelik also had access to low cost talent pool (sourced within Turkey and Koc Group) and resources which provided the costs advantage to operate in Turkey.

* Demand Conditions: With rapidly urbanizing and young population (i.e. over 50% of 70 million population of Turkey is under the age of 25), the customers will demand more innovative and higher quality goods. In addition, as this segment starts to get married and establishing a household, the demand for household goods will increase. Arcelik suffered from the perception that products from Turkey are of inferior quality among European customers. Therefore, in order to access large foreign markets, Arcelik had to export refrigerators and dishwashers through OEM agreements with US Sears (under Kenmore brand) and Whirlpool Europe, respectively. This allowed Arcelik to gain access to large market share and build its economies of scale to compete with European competitors.

* Related and Supporting industries: Arcelik is vertically integrated than most appliance companies partly because of shortage of competent local suppliers. Given weak supplier industries, Arcelik had to look in more developed countries as a source of upgrading its production process and innovation capabilities.

* Firm Strategy, Structure and Rivalry: The competition in Turkey was limited and Arcelik had dominant market share. The rivalry increased with entrance of European competitors increased competition which forced Arcelik to look at its internalization strategy in order to gain access to larger international market and maintain economies of scale. The increased competition also allowed Arcelik to learn its competitors strategy and better prepare Arcelik for competing in the international arena. The firm's flat structure and quick decision making at the business unit level was a competitive advantage which could be leveraged in business units operating in international markets.

* Government: The Turkish government initially provided protection from foreign competition until it started lowering its trade barriers in 1980s. As such, the competition has increase from the European competitors.

Although Turkey provided some location advantage, it was clear that Turkey did not have the infrastructure and clusters that allowed Arcelik to build and improve process (i.e. quality, reliability and efficiency) and innovation capabilities. In order to upgrade its capabilities, Arcelik needed to access markets such as Europe where the clusters of supplier and competitors including sophisticated fragmented customer demand factors require companies to have efficient processes and innovative products. Through strategic acquisitions (Blomberg, Elektra Bregenz, Tirolia and Leisure & Flavel) and partnerships (i.e. OEM agreements where Arcelik was the supplier and was required to produce high quality low cost products to large customers), Arcelik was able to upgrade its production process capabilities (i.e. total quality control systems and 6 Sigma process in all of its plants). Since, Arcelik was a supplier to some of the well known brands like Grundig, Arcelik was able to upgrade its production processes to meet quality and efficiency standards required by such customers. This allowed easier transition to acquire and sell its products using Grundig brand. In addition, Arcelik also established R&D center which increased innovation and reached 101st position on the international ranking of corporate innovators. The large scale gained through accessing international market allowed Arcelik to fund high R&D budgets. The location Given Arcelik had built and enhanced these capabilities including the less hierarchical culture (which enhanced the speed of decision making at the foreign subsidiary level), Arcelik's was able to penetrate international markets through acquiring different brands or using its capabilities to improve production processes where the form decided to co-locate (i.e. production process in Artic factories were upgraded to make it more efficient).

What is Arcelik's RAT at this point in time?

Arcelik has the following capabilities that are relevant, appropriate and transferrable:

* High Quality and Efficient Production Processes: By being supplier to major customers like Sears and Whirlpool, Arcelik invested lots of capital in upgrading its production process capabilities and instituted programs such as total quality control systems and 6 Sigma. As a result, Arcelik was above to upgrade Artic's production processes to double capacity and quality of products. Given the products exported by Turkey is normally perceived as low quality products, Arcelik can use its production process capabilities to provide product guarantee underscoring the firms confidence in the reliability of its processes. This enhanced capability will allow Arcelik to enter the international market and overcome the perception of low quality goods. In addition, Arcelik can also use its capaibilities to upgrade existing processes of a foreign company that is acquired to gain access to the local market. The transferability of this capability was demonstrated in the turn-around of Artic factories.

* Innovation capability: Arcelik achieved 101st position on the international ranking of corporate innovators. Given wide spread operations across Europe, Arcelik has introduced products that have won major product awards throughout Europe. It demonstrates

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