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Arcelik: International Business Strategy

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Arcelik: International Business Strategy
Table of Contents
  1. Executive Summary
  2. The Global Industry
  3. Associated Risks
  4. Corporate Social Responsibility
  5. Conclusion
  6. References

Executive Summary

Arcelik, a household appliances manufacturer based in Turkey has a presence in over 100 countries. Arcelik has focused its investments in various emerging world markets or developing countries as they are called for e.g. China. Since the Turkish market is relatively small in size, the company depends upon the colossal world markets for a major proportion of its revenues since demand is on the rise for household products. The following text discusses the various opportunities available for Arcelik in emerging or developing markets, the risks associated with the strategies to combat these risks, and Arcelik’s corporate social responsibility. Trade barriers declined in the 1980s which brought in increased competition for Arcelik. This meant that the company had to focus on its strategy to maintain its market share within Turkey and expand globally (Daily News and Economic Review, 2010).

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The Global Industry

There is no doubt that the prospects for Arcelik are immense in emerging and developing markets. The advanced economies or the developed markets have seen a converse picture. The markets of developed countries such as some Western European countries, the United States, Canada, etc have saturated thus growth prospects for companies such as Arcelik remain slim. Global competition in these markets is fierce and is characterized by mergers and acquisitions.

Emerging markets provide a more warm welcome. Due to the diverse cultural, technical, legal, and economic variables and conditions, it is easy for companies to target individual markets and cater to their specific needs for e.g. Indian consumers prefer low priced washing machines whereas, in China and Latin America, consumers focus on more features and extensive quality.

Developing markets, characterized by high levels of population growth, income per capita, and rapid industrialization provide immense growth opportunities for companies such as Arcelik. Demand is always on the rise and Arcelik has also attributed 34% of its sales to the Asia/Pacific region which supports our claim further.

Latin America, East European countries, Middle East, and the African regions are ideal markets for Arcelik to tap due to rapid industrialization and growth through urbanization. Demand in these regions is growing at a steady pace and sales are guaranteed (Emerging Market Series, 2006).

The general idea remains that these developing and emerging markets are a safe haven for companies such as Arcelik due to the following two main reasons; firstly, the markets are characterized by continuous growth. As stated earlier, developing markets are distinguished by high growth levels, population levels, industrialization, and urbanization which inevitably give rise to the demand. The GDP of countries such as China, India, Brazil, etc are increasing and since the amount of consumer debt is low there is room for further growth. Secondly, compared to developed countries, developing and emerging markets provide lower costs of operation and management for companies. Labor is relatively cheap and certain countries such as China specialize in technology which for e.g. Turkey does not specialize in, therefore, Arcelik can utilize Chinese labor and technology to produce more efficiently. Arcelik can also set up plants in these countries to reap the maximum benefits (Emerging Market Series, 2006).

Given these two major characteristics of developing and emerging markets, it is imperative for Arcelik to reap benefits through an increased presence in these markets. How can Arcelik reap the benefits in order to maximize company performance? There are various ways.

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Firstly, due to the fact that Arcelik knows how to develop products for low-income countries, it has a cost advantage over competitors in that it can produce more efficiently and at a lower cost, thus, drive out competition. Arcelik can utilize the low-labor costs that prevail in certain markets especially in India to its advantage. Moreover, as the per capita incomes rise in these emerging markets, Arcelik can adjust its prices and costs and make a profit through profit margins. Secondly, Arcelik can combine various technological expertise available in various different countries to produce a higher quality of products at lower prices (Annual Report, 2008).

Associated Risks

It may seem that emerging markets are safe havens for companies such as Arcelik; however, this is not always the case. There are certain risks that exist which Arcelik must combat effectively. Many emerging/developing markets are faced with political instability which hampers growth potential considerably. Corruption, conspiracies, and preferential treatment to certain companies over others is a common aspect in these regions which makes it less reliable and highly risky for companies such as Arcelik to operate efficiently and effectively. There exist no laws against the intellectual property rights of organizations.

Then there is also a lack of transparency, red-tapism, and bureaucratic structures also exist in certain developing/emerging markets. The administrative legislation and regulation are complicated and extensive and extensive requirements for license acquisition also exist in order to safeguard the domestic producers and manufacturers against foreign competition.

Another risk associated with venturing into emerging markets is the presence and dominance of family conglomerates that reign in the region for e.g. in Korea, more than 50% of the revenue is generated by Korean companies such as Hyundai, LG, and Samsung. These companies control a majority of economic activity backed by government protection and support (Annual Report, 2008).

Arcelik must, therefore, devise a plan to combat these various risks that exist in emerging markets. The key to success would be to build healthy relationships with these family conglomerates and win them over. Through this tactic, Arcelik will be able to reduce the associated risks that prevail and enter the market more effectively. It will also be able to overcome infrastructural obstructions and leverage its resources.

Another way is to market to the government because, in many developing/emerging markets, the governments are the major buyers for e.g. government demand for products for national infrastructural improvement is on the rise in these markets for e.g. governments working on infrastructural improvements in state-owned residential and educational areas require appliances to support their activities (Bonaglia, Goldstein & Mathers, 2006).

Lastly, Arcelik will have to chalk out a strategy to challenge local competitors. Arcelik’s grand strategy must be to focus on continuous development and innovation in for e.g. information technology. Arcelik’s brands are not very popular outside Europe, therefore, it must cooperate with IT companies to promote and market its products. It should also look into engaging in mergers and acquisitions to obtain market share, drive out competition and establish a foothold in the emerging markets. Other opportunities can also rise through comparative advantage in terms of technology and labor.

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Lastly, Arcelik must analyze its markets before actually diving into them. A comprehensive index measure with market size, market growth rate, market intensity, market concentration, market consumption capacity, commercial infrastructure, economic and legal infrastructure, market receptivity, and country risk must all be analyzed carefully so that accurate predictions regarding certain markets are made and an informed decision is undertaken (Bonaglia, Goldstein & Mathers, 2006).

Corporate Social Responsibility

Due to its origination from an emerging market itself i.e. Turkey, Arcelik is better positioned to cater to the various economic development needs of emerging and developing markets. Arcelik can accomplish its corporate social responsibility goals in various ways.

It is important for organizations to indulge in activities that are for the facilitation of economic development in emerging markets. This enables companies to gain customer loyalty and improve their position in the market in the form of a caring organization (Barry L. Bayus, 1992).

Arcelik can help create jobs in developing countries through investing in plants for e.g. Arcelik has a cooling appliances plant in Romania; refrigerator, washing machine, and electronic appliances plants in Russia, and a washing machine plant in Guangzhou, China. This has created numerous jobs for local residents. This way Arcelik contributes to the overall development of these markets. These investments along with various others such as subsidies help generate tax revenue for the government which is then used to uplift the living standards and quality of life in the form of infrastructure and social development projects.

Arcelik, through its extensive know-how and intellect regarding emerging markets, helps transfer technological and various other forms of expertise to these developing nations. Moreover, Arcelik can also engage in community-oriented development programs such as hospitals, educational institutes, volunteer work, infrastructure, and social development in various forms (Stuart & Bronwen, 2004).

Another way in which Arcelik can pursue its corporate social responsibility is by engaging in microfinance to facilitate entrepreneurship. Emerging or developing markets are characterized by a huge pool of talented entrepreneurs but they fail to start up businesses due to a lack of capital. Arcelik could for e.g. in India provide small short-to-medium term loans to these entrepreneurs so that they can start up their businesses. This will reduce poverty and improve the overall standard of living. It can also provide other forms of small-scale financial lending in the form of mortgages and insurance (Barry L. Bayus, 1992).

Arcelik, thus, can create jobs, reduce poverty and create products that meet consumer requirements at lower costs with high levels of quality. It can establish manufacturing or assembly plants which will not only generate jobs but also provide business to various other organizations.

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Conclusion

In previous times, Arcelik had to struggle hard to create a market for its electricity based appliances. Arcelik, today, is on track to become a leading manufacturer in global household appliances through its strategies and continuous improvement. To achieve its goal, the management must work on operational efficiency, information technology and promotion. At the same time it should use its comparative advantage to reduce costs and prices without compromising on quality standards. Today, most of the technologies accepted as innovations around the world bear Arcelik signatures. Its success depends on its presence and smooth operation in emerging markets of Asia/Pacific, Western Europe, Africa, Middle East and Latin America (Annual Report, 2008).

References

Annual Report. (2008). Arcelik. Web.

Barry L. Bayus. (1992). Brand Loyalty and Marketing Strategy: An Application to Home Appliances, Marketing Science, Vol 11: 21 – 38.

Bonaglia, F., Goldstein A., Mathers J. (2006). Accelerated Internationalisation by Emerging Multinationals. Journal of World Business, Vol 42, pp 369-383.

Daily News and Economic Review. (2010). Arcelik forecasts rise in home appliance sales. 

Emerging Market Series. (2006). Emerging Turkey. Oxford Business Group.

Stuart Wall, Bronwen Rees. (2004). International Business. 2nd Edition. Financial Times/Prentice Hall.

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