1.1What are the advantages of consolidating production of product lines at single factories in the EU? What are the disadvantages? With the effect of the Single European Act on 1st July 1987, the emergence of European Union (EU) as a common market has essentially been created. The benefits of this act are substantial to European firms, economies, and workers. It eliminates conflicting national regulations and trade barriers, as well as offering firms opportunity to sell their goods to all other EU members (Griffin & Pustay 2005).
In light of conflicting national regulations and trade barriers to pan-European business disappearing, Whirlpool, the world¡¦s largest white goods manufacturer, adopted the ¡¥acquisition strategy¡¦ (Griffin & Pustay 2005) as an entry mode to participate in international business. Furthermore, Whirlpool also adopted the ¡¥global strategic rivalry theory¡¦ (Krugman 1981 & Lancaster 1980) as its corporate strategy in order to build a ¡¥sustainable competitive advantage¡¦ (Porter 1980) for itself in achieving the fundamental goals of expanding market share, revenues and profits. The strategy deployed by Whirlpool included:
-Purchasing of Philips Industries based in Netherlands, to gain control over Philips European white-goods production facilities and distribution systems.
-Acquiring Polar SA, an appliance manufacturer in Poland, to offer itself a low-cost production platform.
-Reorganising its manufacturing capacity; such as concentrate its production of automatic washers for its European customers in Schondorf of Germany, and that of refrigerators in Trento of Italy.
-Upgrading and modernising its European factories.
According to the actions being taken by Whirlpool, since the firm has deployed the ¡¥overall cost leadership strategy¡¦ (Porter 1980) as its business level strategy, Whirlpool has consolidated its production of product lines at single factories in the EU to gain the advantages including:
-Increase control over its international business operations, as well as increased profit potential (Griffin & Pustay 2005).
-Achieve significant manufacturing ¡¥economies of scale¡¦ and exploiting the ¡¥ experience curve¡¦ (Krugman 1981 & Lancaster 1980), that is, each factory is able to focus on achieving highly efficient operating procedures to increase the number of units produced so that its average production costs are lower than its competitors¡¦.
-Fully exploit the economic potential of proprietary technology, manufacturing expertise, and some other intellectual property rights (Griffin & Pustay 2005).
-Easy to coordinate the activities of the factories to accomplish strategic synergies so that Whirlpool is able to reduce its marketing and distribution costs, thus achieving a significant ¡¥economies of scope¡¦ (Krugman 1981 & Lancaster 1980).
Conversely, there are also several disadvantages after Whirlpool consolidating production of production lines at single factories in the EU including:
-The challenges of managing, operating, and financing its foreign subsidiary. For instance, if one of the factories has poor labour relations, unfounded pension obligations, or hidden environmental cleanup liabilities, Whirlpool becomes financially responsible for solving the problems.
-Facing the additional obstacle in political, legal, and cultural milieus different from its own (Griffin & Pustay 2005).
-Expose to greater economic and political risks, and operating complexity. For example, the presence of civil war, official corruption, or unstable governments may cause negative impacts to the production of the factories, leading to reduce in generating revenues (Griffin & Pustay 2005). -The potential erosion of the value of its foreign investments if exchange rates change adversely.
-Increase in logistical costs, including warehousing, packaging, transporting, and distributing its goods,...