Questions: Does Maytag Corporation have what it takes to succeed in this increasingly competitive industry? Is this a good time to buy or to sell Maytag stock?
I would like to start the answer of this question through a small summary which will show how and why these questions are appeared? and since, giving precise answer to the questions need a detailed environmental analysis ,so I try to explain internal and external factors , and through analyzing the current strategy I aim to recommend some strategies for Maytag company to succeed in his increasingly competitive industry and finally as a result of mentioned analysis I answer the first and second questions.
Part1)How and why these questions are appeared?
As I read in the Maytag Corporation case ,In the beginning, Maytag was extremely competitive and popular. The company made its mark as the high quality, high price home laundry appliance maker. It was successful with making it self leader in washing machines. As time passed, Maytag began to lose its competitive advantages. Maytag was slow to develop new innovations and models which cost the company to lose its leadership of the industry. This loss was very hard to recover from due to new competitors beginning to arise in this industry. That is why the situation caused above mentioned questions in share holders minds. and These doubts were created due to the fluctuating profits, market share, and stock prices over the past years. Stock prices was at a high of $70 in mid 1999 but dropped to under $30 during the fourth quarter of 2000. Currently the stock was selling at $46.07. This fluctuation had the shareholder worried.
These changes over the years were due to many things:
1-Maytag tried to become an international competitor, but it was not as successful as they had hoped.
2- Maytag had acquired many companies during its acquisition of companies such as Amana, Magic Chef, and etc. These companies had to be converted to be a Maytag company.
3- Some changes, renovations, and improvements had to be made with the companies which cost money. For example, when Maytag acquired Hoover, the U.K. facilities needed to be modernized. Top management of Maytag committed millions of dollars to renovate the laundry and dishwasher plant.
4-By having to pay for the acquisition of Hoover, management had increased long term debt to its highest level and had to increase the sell of stock. This then caused lower corporate profits and decreasing earnings per share. These kinds of decisions had shareholders concerned and put doubts in their minds about management.
Part2)What Maytag should Analysis to succeed in this increasingly competitive industry?
Porter’s five forces
Porter’s five forces are used to determine the competitive intensity and attractiveness of a market. These are close forces that affect a company’s ability to make a profit and serve customers.
First, the threat of substitute products is low. Many of the appliances have substitutes, but because those substitutes are so old and outdated there is not a threat from them.
Second, the threat of entry of new competitors is high. Globalization will be a major issue that Maytag must deal with if they are to remain competitive.
The third force is the intensity of competitive rivalry which is high. There is a great deal of rivalry in the appliance industry with Whirlpool, AB Electrolux, and GE. These companies all have a great deal of money and power. But, now with globalization there even more companies in the industry but the same number of consumers. So, rivalry is high between all of these groups.
Fourth, the bargaining power of customers like retail is high. These stores buy a large quantity of appliances and therefore they are able to receive quantity discounts. Smaller appliance outlets who do not buy as many...