and Global Leadership
EPGP 2009-10 - Term III- Individual Submission
Instructor: Prof. Marjorritta
Prof. Amit Karna
Rajendra Inani - #27
Table of Contents
1 What do you believe are the most important
questions facing Marco Milani? How should he
address them, respecting the legacy of Vittorio
Merloni, and whom should he involve?.................2
2 What do you think about the geographic focus of
Indesit? Should it make a significant investment in
China or India? If so, how much is required in
2007? 2008? How much do they have?..................3
2.1 Political risk and risk conflict ..............................3
2.3 Market Segmentation...........................................4
2.4 Labor cost.............................................................4
2.6 Other Considerations............................................5
2.7 Final conclusions ..................................................6
2.8 China Initial Investments .....................................7
1 What do you believe are the most important questions facing Marco Milani? How
should he address them, respecting the legacy of Vittorio Merloni, and whom
should he involve?
Vittorio Merloni, the company’s founder and chairman, had been bold and astute in building a modern,
progressive enterprise – always investing in technology, always supporting modern management, and
always pushing forward and especially moving into overseas countries. He developed a progressive
approach to labor relations, acquired modern production technology from his suppliers and
1975-1984 Low cost production from focused factories
1985-1995 Export outposts in Europe – Overseas acquisitions
1995-2005 Pan-European company – Goal to be #1 in Europe
Indesit was good at manufacturer as any competitor, and its innovation processes were providing
leadership. The challenges were (1) translating product leadership into brand recognition, (2)
translating brand recognition into higher prices and margins and (3) finding the resources to fund
continued innovation and brand development while (4) meeting profit objectives.
Milani faced the challenges of the successful. It is closing in on the leadership position. Strategic
question to be faced was whether Indesit should continue its push to become the leader in home
appliances in Europe, or whether it was important to become a global player. Was being global
strategically vital in this industry? Four of Indesit’s competitors had global positions – Bosch-Siemens
(Germany), Electrolux (Sweden), Whirlpool (US), LG (Korea), Samsung (Korea) and Haier (China)
appeared to be staking out global positions. But did that matter?
What to do about German market? How to deal with competition from the quickly rising Arcelik
(Turkey) that was moving aggressively into European markets? How to improve the marketing skills of
Indesit? After the fall of Berlin Wall, the market stretched from Lisbon to Moscow. Indesit had been a
first mover in these markets and now enjoyed remarkable market shares. There is a big question
about handling with Company’s Brands? Ariston, Hotpoint, Scholtes, Stinol, Cannon and Indesit. It is
facing weak position in Germany, Turkey and Scandinavia.
As a possible solution it may look into acquisition of a well regarded German brand for German
market. Similar approach for Scandinavia was required. Turkey requires major marketing investments
and possibly the acquisition of a local competitor with a strong brand to compete with local champion
Arcelik. Development in distant markets would challenge the company and its resources, which would
require some form of partnership locally. But overall global approach would be required. These may
be India, China or United States are better as the next strategic goal. Sourcing advantage would
diminish over time as leading competitors emulated Indesit’s systems. The advantages of scale would
play out in the critical areas supporting innovation and in marketing.
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2 What do you think about the geographic focus of Indesit? Should it make a
significant investment in China or India? If so, how much is required in 2007?
2008? How much do they have?
To identify the geographic focus of Indesit, I have analyzed a number of common issues/
considerations among the countries of choice from the given information in the case study. (India,
China, Brazil and Middle East)
2.1 Political risk and risk conflict
Planning of the country more attractive and accessible for the Internationalization of Indesit Company,
it has to look into Political Risk / conflicts associated.
• Market conditions, the availability and cost of inputs, and the tax system
• Other variables not yet considered to give more complete analysis
• Description of business of the country chosen
• Business strategy and objectives to be pursued
• Marketing budget
• Income Statement Budget to assess the return on investment to five years of RCO
After a thorough analysis on political risk and conflicts in the four countries, it was found that some
countries have more favorable conditions, but not enough to give a positive opinion about a possible
outlet of Indesit area.
Country Political Risk Conflict Risk
Brazil Politically stable Very low, almost zero
China Is not a concern Very low
India Politically stable Rather low
Middle East Appears unstable and conflictual Definitely high
From risk comes a clear conflict suggest them offense by eliminating: we believe that the Middle East
is not an' area sufficiently stable to allow significant investment in the short to medium term.
China India Brazil
• Demand growing strongly • Middle class 300 million • Middle class is more
• Produces 25% of people (increasing the predisposed to
refrigerators and washing percentage of citizens consumption
machines and over 40% of willing to consumption). • Be the first purchases that
world production of • Expenditure items: air replacement
microwave ovens. conditioners, kitchen • Domestic market limited
• Manufacture of appliances appliances and washing only to major centers and
you have had to relocate machines most industrialized cities
production or to have • Strongly increasing
recourse to outsourcing in demand for appliances • Export platform for
China. • Sales increase in visibly the Latin America and the
• 14% of the weight of the • Be the first purchases that rest of the world, with a
global export with increases replacement total of more than 40
of 60% per year • No. refrigerators per capita countries.
• Dominates the market for grows rapidly
U.S. imports • Potentially huge market
• Local production is carried
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out by Chinese factories and
several joint ventures • Possible outlet: Southeast
• The Chinese bought 120 Asia, eastern Europe and
million of 170 million the United States
refrigerators and washing (although to a lesser
• Replacing a sharp increase
in the next two years, 4
million refrigerators and 5
million washing machines per
year to be replaced.
2.3 Market Segmentation
China India Brazil
• All the biggest companies of • Major competitors in the • Leading company in the
household appliances are market are: world and has the largest
present. o Americans GE and market share among
• Philips is able to locate some Whirlpool, which has businesses in competition
of the best products on the the largest market and therefore represents
Chinese market at share the most difficult
competitive prices even o Follow Electrolux competitor.
compared to local brands, (cookers and washing • For two years in
offering value for money machines), collaboration with the
rather than beneficial. o LG, Siemens and Artesia Investments
• Siemens rather than on low Samsung (with a wide Metalfrio Solutions (market
cost, has focused on quality range of products), leader with more than 50%
and robustness of its o GAL (Indian market share in the
products while offering company). refrigeration business and
assistance from a service 29% of market share in
waiting times really enviable. the freezers at the
counter). The group
currently holds Bosch &
Siemens ca. 15% of the
Brazilian market of home
2.4 Labor cost
It pays a very important role in choosing the country where to relocate their business. For a low cost
of labor saves money on a certain part of activities and then maybe invest elsewhere (R & D for
In all three countries to which it addresses the analysis we can see very low cost with regard to India
and China (the lowest in the world), while for Brazil the cost is slightly higher, but These values still far
below the average.
China India Brazil
• Shortages of electricity and • Excellent availability of raw • Can count on many
raw materials (except iron, materials natural resources: bauxite,
which is a world leader) • 3rd country in the world for gold, iron, other minerals,
• Coal accounts for 30%, 25% iron and coal petroleum, timber,
aluminum and copper • Heavy investment in Steel hydropower, natural gas
products in the world Industries • Steel: 8th world rankings
• Glsiasi willing to pay the • Petroleum accounts for and is more than 50% of
price for iron consumes and 30% of national production all South America
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produces one quarter of the of electrical energy • Oil industry is one of the
world steel (consumption in most important industrial
• Copper and aluminum continuous and sectors in terms of trade
demand solid progressive growth) • Electricity is out for the
• Shortage of water is no • spending on electricity is electricity tariffs,
problem but excluding the very low (even more than particularly low
major centers China) but the level is
• Level of water extremely
poor, including major cities
Brazil and India are two countries rich in raw materials, which is a great strength, while China to keep
pace in the first two makes use of imports, given the shortage of materials and the strong use.
To make the decision to remove the country, following table of scoring for each variable is used, so
that one can then make an overall assessment. More precisely matched to every variable we have a
coefficient of importance, we then multiplied the score (from 1 to 10) assigned to each variable for
each country, considering the analysis set out above.
Brazil China India Considerations
Demand 5.5 7.5 6.5 China has very high potential on the domestic
(coefficient 5) market is export. India: high potential but not yet on
the levels of China. Brazil: Good for export.
Market 6 5.5 6 In India and Brazil are not present any direct
Segmentation (3) competitors like China.
Manpower (4) 7 8.5 8.5 India-China: labor costs among the lowest in the
world. Brazil is not on these levels.
Materials (3.5) 7.5 6 8 China lacks, Brazil and India and smart
Fees and charges 6 7 5 Chinese systems proves to be the most open to
(3) foreign investment, while the Brazilian system, is
instead the most difficult along with that of India.
Total 117.75 130 127.5
After reviewing the resulting scores, we can say that the three countries studied, Brazil has some
less favorable for the internationalization of Indesit Company.
2.6 Other Considerations
Labor standards • Critical social dumping in the last • Legislation richer than China,
decade, workers' rights are largely • Pay cheaper in China.
increased due to several laws that
have put at least on paper, sticks to
the savage capitalism.
Availability capital • Financial situation is the opposite of • Very difficult to access the
that of India. credit market, the companies
• High savings propensity of the listed are trying to collect
Chinese and the intense flow of foreign money by issuing a
direct investment low cost of financing substantial number of
for businesses. shares.
• High availability of capital at low cost. • 3rd place as a basis for
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investors in the world after
the USA and Japan.
Repatriation of • Foreign companies without • Profits, dividends and other
capital establishments or centers fixed capital can be repatriated
activities in China are subject to a freely.
deduction of 10% gross income from •
interest, fees, royalties and other
income originating in China.
Distribution • Online sales (not very common but • Specialty retailers are
channels growing). growing but have a weight
• Franchise Operations considerably less.
• GDO: Department Stores and Malls • GDO: Department stores and
2.7 Final conclusions
China India Considerations
Demand (coefficient 7.5 6.5 China has very high potential on the domestic market is
5) export. India: high potential but not yet on the levels of
Market 5.5 6 In India there are not any direct competitors like China.
Manpower (4) 8.5 8.5 India-China: labor costs among the lowest in the world.
Materials (3.5) 6 8 China lacks, India and smart appearance.
Fees and charges 7 5 China has a significantly lower income tax.
Language (2) 6 7 In both English for economic activities, India is second
Distribution 7.5 6.5 China good organization. India being improved, try to adapt
channels (3) to growth.
Read return capital 6.5 7.5 Several detained in China for the repatriation of income
(2) from interest and royalties.
Telecommunications 7 7 Are already available good telecommunications networks in
(2.5) the future are bound to increase in both countries.
Connections with 6 6 Discrete choice in both cases.
Labor standards (3) 7 6 The Chinese law is much less restrictive.
Capital (2.5) 8 6.5 China will attract large amounts of capital thanks to
the 'trend of its currency”.
Total 248 239.75
As shown in the table above, our analysis led us to the conclusion that investing in China is the
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2.8 China Initial Investments
I could not find much detail in the given exhibits about the company’s revenue and percentage of it to
be invested overseas as investment plan. From other sources, I gathered following information.
Indesit initiated a process of industrial development in China, looking at as the one of the biggest
markets for household appliances. The the beginning of 2005 it signed an agreement with WLS (Wuxi
Little Swan Company), china’s biggest producer in the washing segment. In Jan 2005, following the
signature of this agreement and after obtaining the necessary authorizations, a new company called
WUXI Indesit Home Appliances Co. Ltd was formed in which Indesit Company holds a 70%
investments (WLS, 30%). The operation involved an initial investment of $10m to start up
dishwasher production at the existing Wuxi plant, mainly for export in the opening phase of the
project, by the end of the second half of 2005. Drawing in part on the experience of associated
company Merloni Progetti, which has built twenty five industrial plants in China over the last twenty
years, including the Wuxi plant itself, Indesit Company has won a solid reputation in the country, so
much so that “Ariston” in China is a synonym for refrigerator.
Latest Information on the Indesit’s website, a note of CEO dated 15th Dec 2009 making
announcement of closer of its factory in China as the company is trying to revive itself due to crises
it has undergone during the past few years.
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