Aggregation is about creating economiesofscaleor scopeas a way of dealing with differences (see Figure 3.1). The objective is to exploit similarities among geographies rather than adapting to differences but stopping short of complete standardization, which would destroy concurrent adaptation approaches. The key is to identify ways of introducing economies of scale and scope into the global business model without compromising local responsiveness.
Adopting a regionalapproach to globalizing the business model—as Toyota has so effectively done—is probably the most widely used aggregation strategy. As discussed in the previous chapter, regionalization or semiglobalization applies to many aspects of globalization, from investment and communication patterns to trade. And even when companies do have a significant presence in more than one region, competitive interactions are often regionally focused.
Examples of different geographic aggregation approaches are not hard to find. Xerox centralized its purchasing, first regionally, later globally, to create a substantial cost advantage. Dutch electronics giant Philips created a global competitive advantage for its Norelco shaver product line by centralizing global production in a few strategically located plants. And the increased use of global (corporate) branding over product branding is a powerful example of creating economies of scale and scope. As these examples show, geographic aggregation strategies have potential application to every major business model component.
Geographic aggregation is not the only avenue for generating economies of scale or scope. The other, nongeographic dimensions of the CAGE framework introduced in Competing in a Global World —cultural, administrative, geographic, and economic—also lend themselves to aggregation strategies. Major book publishers, for example, publish their best sellers in but a few languages, counting on the fact that readers are willing to accept a book in their second language (cultural aggregation). Pharmaceutical companies seeking to market new drugs in Europe must satisfy the regulatory requirements of a few selected countries to qualify for a license to distribute throughout the EU (administrative aggregation). As for economic aggregation, the most obvious examples are provided by companies that distinguish between developed and emerging markets and, at the extreme, focus on just one or the other.
Minicase: Globalization at Whirlpool Corporation
The history of globalization at the Whirlpool Corporation—a leading company in the $100-billion global home-appliance industry—illustrates the multitude of challenges associated with globalizing a business model. Whirlpool manufactures appliances across all major categories—including fabric care, cooking, refrigeration, dishwashing, countertop appliances, garage organization, and water filtration—and has a market presence in every major country in the world. It markets some of the world’s most recognized appliance brands, including Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Bauknecht, Brastemp, and Consul. Of these, the Whirlpool brand is the world’s top-rated global appliance brand and ranks among the world’s most valuable brands. In 2008, Whirlpool realized annual sales of approximately $19 billion, had 70,000 employees, and maintained 67 manufacturing and technology research centers around the world. 1
In the late 1980s, Whirlpool Corporation set out on a course of growth that would eventually transform the company into the leading global manufacturer of major home appliances, with operations based in every region of the world. At the time, Dave Whitwam, Whirlpool’s chairman and CEO, had recognized the need to look for growth beyond the mature and highly competitive U.S. market. Under Mr. Whitwam’s leadership, Whirlpool began a series of acquisitions that would give the company the scale and resources to participate in global markets. In the process, Whirlpool would establish new relationships with millions of customers in countries and cultures far removed from the U.S. market and the company’s roots in rural Benton Harbor, Michigan.
Whirlpool’s global initiative focused on establishing or expanding its presence in North America, Latin America, Europe, and Asia. In 1989, Whirlpool acquired the appliance business of Philips Electronics N.V., which immediately gave the company a solid European operations base. In the western hemisphere, Whirlpool expanded its longtime involvement in the Latin America market and established a presence inMexico as an appliance joint-venture partner. By the mid-1990s, Whirlpool had strengthened its position in Latin America and Europe and was building a solid manufacturing and marketing base in Asia.
In 2006, Whirlpool acquired Maytag Corporation, resulting in an aligned organization able to offer more to consumers in the increasingly competitive global marketplace. The transaction created additional economies of scale. At the same time, it expanded Whirlpool’s portfolio of innovative, high-quality branded products and services to consumers.
Executives knew that the company’s new scale, or global platform, that emerged from the acquisitions offered a significant competitive advantage, but only if the individual operations and resources were working in concert with each other. In other words, the challenge is not in buying the individual businesses—the real challenge is to effectively integrate all the businesses together in a meaningful way that creates the leverage and competitive advantage.
Some of the advantages were easily identified. By linking the regional organizations through Whirlpool’s common systems and global processes, the company could speed product development, make purchasing increasingly more efficient and cost-effective, and improve manufacturing utilization through the use of common platforms and cross-regional exports.
Whirlpool successfully refocused a number of its key functions to its global approach. Procurement was the first function to go global, followed by technology and product development. The two functions shared much in common and have already led to significant savings from efficiencies. More important, the global focus has helped reduce the number of regional manufacturing platforms worldwide. The work of these two functions, combined with the company’s manufacturing footprints in each region, has led to the development of truly global platforms—products that share common parts and technologies but offer unique and innovative features and designs that appeal to regional consumer preferences.
Global branding was next. Today, Whirlpool’s portfolio ranges from global brands to regional and country-specific brands of appliances. In North America, key brands include Whirlpool, KitchenAid, Roper by Whirlpool Corporation, and Estate. Acquired with the company’s 2002 purchase of Vitromatic S.A., brands Acros and Supermatic are leading names in Mexico’s domestic market. In addition, Whirlpool is a major supplier for the Sears, Roebuck and Co. Kenmore brand. In Europe, the company’s key brands are Whirlpool and Bauknecht. Polar, the latest addition to Europe’s portfolio, is the leading brand in Poland. In Latin America, the brands include Brastemp and Consul. Whirlpool’s Latin American operations include Embraco, the world’s leading compressor manufacturer. In Asia, Whirlpool is the company’s primary brand and the top-rated refrigerator and washer manufacturer in India.
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