WHIRLPOOL: THE FIRST VENTURE INTO INDIA
I. CASE ABSTRACT
Management at Whirlpool concluded that if the company were to be a major player in the developing global major home appliance industry, it needed a presence in Asia to compete with the Japanese and Korean manufacturers. Industry projections suggested that Asia would surpass North American and Europe and represent 40% of world demand for home appliances by 2004. In 1987, Whirlpool managers thought that rising incomes and aspirations among India's middle class would generate substantial demand for home appliances over the next few decades. That same year, Whirlpool met and signed a joint venture agreement with India's TVS group, for the purpose of manufacturing automatic washing machines and eventually other appliances. TVS had begun as a bus service and diversified into auto component manufacturing and other auto-related businesses. Its most recent (and least successful) diversification into computer components was also its first into non-automotive consumer goods. TVS then joined with Whirlpool in forming TWL because it also wanted to take advantage of future growth in consumer products in India.
Under the terms of the joint venture agreement, TVS provided day-to-day operational management, with Whirlpool providing the technical expertise in automatic washing machines. Unfortunately, TVS knew nothing of either making or marketing major home appliances, and Whirlpool ignored the fact that the Indian market had no interest at the time in automatic washing machines! People purchased either manual washers or semi-automatic twin-tub washers. Fully automatic machines were affordable only to a tiny segment of the population. TVS' and Whirlpool's investment of time and money into the development of their first washer meant that the venture had to sell 5,000 high-priced units per month to reach break-even. TWL was established as an assembly operation, dependent on components that were 80-90% externally sourced. TVS' lack of experience with appropriate suppliers, plus the marginal ability of suppliers to deliver quality parts on time, caused huge problems in production. TVS also had few connections with appliance retail distribution outlets. Dealers were not interested in buying products from single-product firms like TWL when they could deal with companies making a full range of consumer durables, like Videocom. Even after two years of operations, only 2,000 to 2,500 units were coming off TWL's assembly line. By 1993, TWL's equity was reduced to zero, cash flow was weak, and losses were accumulating. Whirlpool purchased TVS' stock in the joint venture and implemented a turnaround strategy under the new name of Whirlpool Washers Manufacturing Limited (WWML).
Copyright Ó 1999 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the 7th Editions of Strategic Management and Business Policy and Cases in Strategic Management. Whirlpool initiated its Worldwide Excellence Program in the Pondicherry plant to raise the level of quality and reduce costs. It worked to develop better relations with its suppliers. Whirlpool replaced TVS managers with its own from the United States but still had to deal with the TVS corporate culture in the workplace. The reorganized venture reduced its losses and became profitable. Whirlpool's market share rose from 12.9% in 1994 to 17% by the end of 1995. WWML finally made a book profit in 1995 but still had to pay off its accumulated losses of US$50 million. Increasing competition and price wars were making the targeted 1996 market share of 20.6% difficult to achieve.
Also in 1995, Whirlpool purchased a 51% interest in Delhi-based Kelvinator of India (KOI), one of India's leading refrigerator makers. Even though KOI had 30% market share in India, its refrigerators were outdated and the company was unprofitable....