Muhammad Setiawan Kusmulyonosetiawan_kusmulyono@yahoo.com

A G E N D ACompany ProfileCase BackgroundTheoretical ConceptAnalysisCase QuestionDiscussionTheoretical ConceptAnalysisQ & A Session

T U R K E Y P R O F I L Ewww.lexicorient.com

T U R K E Y P R O F I L EG D P 2007www.indexmundi.comhazelnut, fig, apricot, cherry, quince and pomegranate textiles and clothing tourism and banking TURKEYS BEST PERFORMANCE COMPANY ElectronicsArcelik, Vestel (Europe Top 3)ConstructionEnka, Tekfen, Ucgen Insaat (Top International Constructor)AutomotiveFiat (Tofas), Renault (Oyak), Hyundai (Ossan) (Top 6 in Europe)TURKISH NEW LIRA

AGRICULTURE8.9 %INDUSTRY30.8 %SERVICES59.3 %

C A S E B A C K G R O U N DADVANCED ECONOMIESDEVELOPING ECONOMIESEMERGING MARKETSPost-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure.USWestern EuropeJapanCanadaAustraliaNew ZealandLow-income countries that have not yet industrialized. They have low buying power, limited appeal to foreign firms, and limited participation in international business.AfricaFormer developing countries that develop their economies more dynamics. EM is transforming into market-driven by liberalizing trade and investment. More participation in international business and regional economic integration.Asia and Latin AmericaInternational Business; Strategy, Management & New Realities. p. 265

C A S E B A C K G R O U N Dwww.imf.orgTURKEY;sGDPEMERGING MARKETS

Chart1

150.225

155.61

164.171

188.029

135.543

173.195

176.571

189.416

205.539

199.154

204.888

153.523

184.829

239.822

300.087

340.263

367.33

GDP (in billion$)

Year

Sheet1

Asia Pacific34%

Western Europe24%

North America23%

Other19%

Sheet1

Sales Distribution of Household Appliances

Sheet2

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Turkeytahun19901991199219931994199519961997199819992000200120022003200420052006

GDP, current pricesgdp 150.225 155.610 164.171 188.029 135.543 173.195 176.571 189.416 205.539 199.154 204.888 153.523 184.829 239.822 300.087 340.263 367.330

YearUS dollars | Billionspercent change

1990

1991

1992

1993

1994

1995

1996tahungdp

19972000190

19982001300

1999 2000

2000 2001

2001 2002

2002 2003

2003 2004

2004 2005

2005 2006

2006

Sheet3

yearGDP (in billion$)yearGDP (in billion$)

19901990150.2251990150.225

19911991155.611991155.61

19921992164.1711992164.171

19931993188.0291993188.029

19941994135.5431994135.543

19951995173.1951995173.195

19961996176.5711996176.571

19971997189.4161997189.416

19981998205.5391998205.539

19991999199.1541999199.154

20002000204.8882000204.888

20012001153.5232001153.523

20022002184.8292002184.829

20032003239.8222003239.822

20042004300.0872004300.087

20052005340.2632005340.263

20062006367.332006367.33

year90919293949596979899^00^01^02^03^04^05^06

GDP (in billion$)150.225155.61164.171188.029135.543173.195176.571189.416205.539199.154204.888153.523184.829239.822300.087340.263367.33

Sheet3

GDP (in billion$)

Year

T U R K E Y P R O F I L ELift IronCLIP 1

C O M P A N Y P R O F I L EOriginsEstablishmentOwnershipBusiness LineProductMarket AreaSubsidiariesKOC Group [Family Business Conglomerate]Appliance Manufacturer [White Goods Business]> 100 productsAC, Dishwasher, Washing Machines, Cooking Appliances, and Refrigerator BrandsBeko, Altus, and ArcelikTurkey, Europe (UK, Italy, Czech, Spain, Germany, Romania, Hungary)Blomberg, Grundig, Elektra Bregenz, Tirolia, Leisure, Flavel, and Arctic

C O M P A N Y S U B S I D I A R I E S B R A N D S

C O M P A N Y S U B S I D I A R I E S P R O D U C T S

C A S E B A C K G R O U N D Turkey is an emerging market Relatively low saturation level Purchasing power is low (outside big 4 cities) 50% are younger population (

C A S E B A C K G R O U N D

I N D U S T R I A L P R O F I L EIn ADVANCE ECONOMIES, household appliance industry is mature and saturatedIn EMERGING MARKETS, household appliance industry is difficult to charge premium prices and increase profit margina. Innovation is costly Frequent change production methods- Regular re-training factory workersb. Low spending power of buyer

I N D U S T R I A L P R O F I L EB S HElectroluxG EHaierMerloniNationalWhirlpoolThe COMPETITOR:TODAY, Merger & Acquisition is the strategy to be Worldwide It caused: only 5 companies control >70% market in Europe (from 400 companies)ARCELIK: Acquired more than 7 companies in EUROPEDishwasherRefrigerators and Vacuum CleanersChina (Low Price)High Technology InvolvementHome LaundryNational

I N D U S T R I A L P R O F I L EStandardization the material, parts, and components1Automated manufacturing process 2Arcelik is categorized as HIGH TECHNICAL COMPLEXITY firms. It is operated in fully automated machine and programmed in advance.Joan Woodward; Organizational Design and Dynamics; p. 241 Build manufacturing plant outside original state3Arcelik: Build plant in Russia and Western Europe.Whirlpool: Build plant in China

I N D U S T R I A L P R O F I L EHome appliances are commoditiesProduct life-span is 10 15 years the lifecycle is slow Value lower prices create lower profit marginIn advance economies country, market are saturatedDifferent market, different country, different cultureAppliance manufacture & world market share reporter

Chart1

0.34

0.24

0.23

0.19

Sales Distribution of Household Appliances

Sheet1

Asia Pacific34%

Western Europe24%

North America23%

Other19%

Sheet1

Sales Distribution of Household Appliances

Sheet2

Sheet3

I N D U S T R I A L P R O F I L EDifferent market, different country, different culturein INDIA: Low Pricein CHINA + LATIN AMERICA: Ample Features but Low Spending Powerin EUROPE: Strict Environmental RulesDifficult to suit the local marketDifficult to charge average price in every countryHard Factors tooling, factory layout, procurement, and design do not provide long-term competitive edge

I N D U S T R I A L P R O F I L E

I N D U S T R I A L P R O F I L EEmphasize in Dynamic S O F T FactorsMerger and AcquisitionFind Global OpportunitiesComparative AdvantageBenefited from Regional Economic IntegrationErin 1CLIP 2

A R C E L I KSUCCESS FACTORSProduce product in lower-income countries1Modernize the operations and Double the capacity2Establish Distribution Centers throughout Europe3Cooperated with IT Companies to build World IT System4THREATSArceliks brands are largely unknown outside Europe1

A R C E L I Ks success factorsProduce product in lower-income countries1 Manufacturing plant in Turkey and Eastern Europe (Russia) Arceliks produce appliances less expensively than otherModernize the operations and Double the capacity2 Additional investment to build factory in Russia and adapt new production system technology Established sales subsidiaries in Czech, Hungary, and Italy

A R C E L I Ks success factorsEstablish Distribution Centers throughout Europe31.700 unparalleled distribution network (Beko) and 1.700 non-exclusively agents 530 authorized service shopsCooperated with IT Companies to build World IT System4CISCO builds Virtual Networked Organization OnlineEstablish after-sales service networkCOMPETITIVE ADVANTAGE

A R C E L I Ks success factorsCOMPARATIVE ADVANTAGEConcept that helps answer the question of all nations can gain and sustain national economic superiorityCOMPETITIVE ADVANTAGEConcept that helps explain how individual firms can gain and sustain distinctive competence vis--vis competitors

A R C E L I KTHREATSArceliks brands are largely unknown outside Europe1Brand becomes barrier to entry and threats for short-term successMerger and AcquisitionGlobal Distribution Network- Tailor the meet customer needs in respective country

A R C E L I KTo sustain continuous growthTo become a leading global household companyImprove operational efficiencyIncrease investment in high-growth marketsFocus in emerging market [Eastern Europe, Asia, and LA]Lowering operating manufacturing costLeveraging low-cost manufacturing platforms and ITProduce product that appeal to foreign markets

CASE QUESTIONCase QuestionOrbitalCLIP 3

CASE QUESTIONArcelik has been very active in Western Europe,Do you expect Arceliks prospect to be better in EM & DE than Advanced Economies ?1-In what ways, are EM and DE attractive to Arcelik?-How can firm reap benefits from such market in order to maximize performance?-

CASE QUESTION (number 1)Do you expect Arceliks prospect to be better in EM & DE than Advanced Economies ?-Prospect Arcelik in emerging market and developing market than advanced market

DIMENSIONAdvanced MarketEmerging MarketDeveloping MarketPopulation (% of the word)146224Approximate average per capita income (US dollars; PPP basis)33.75013.2506.450Trade volumeHighLowHigh Education levelHighModerateLowTrade barriersMinimalRapidly liberalizingModerate to highIndustryHighly developedRapidly improvingPoorInward FDIHighModerate to highLowEconomic or political systemCapitalistRapidly transitioning to capitalismAuthoritarian, socialist, or communistCountry riskLowVariableModerate to high

CASE QUESTION (number 1)-In what ways, are EM and DE attractive to Arcelik?Emerging and developing market are attractive than advance marketReasonHigh populationFast-growing marketsUrbanization is increasing low-cost labor (ideal bases for locating manufacture)Industry rapidly increasing

CASE QUESTION (number 1)-How can firm reap benefits from such market in order to maximize performance?Reap benefits from such markets

Advance MarketEmerging and Developing MarketPopulationWell educateIncome per capita high can gain a high profit marginLow-labor costIncome per capita rapidly increase should be adjusting price and cost little gain profit margin

Industry SaturatedOpen up to be growth as the way as technology improvement

CASE QUESTIONArcelik is keen on entering EM and DE,What type of risk that they challenge in EM?2-What management do to identify the most promising market?-How should firm adapt the product?-

CASE QUESTION (number 2)-What type of risk that they challenge in EM?Political Instability Corruption, Collusion, Nepotism Week Legal FrameworkWeek Intellectual Property Protection No laws enforcement

Bureaucracy, Red Tape, and Lack or Transparency Burdensome Administrative rules Excessive requirements for licensePartner Availability and Qualifications characterized by inadequate legal & political frameworkDominance of Family Conglomerates Highly diversified Control the majority of economic activit (half the revenue in korea) government protection and support superior market knowledge Less Reliable (business env.)

CASE QUESTION (number 2)-What management do to identify the most promising market?Partnering with Family Conglomerates Reduce the risk, time, and capital requirement good relationship with government and other key local player target market opportunities more rapidly and effective overcome infrastructure-related hurdles leverage FCs resources and local contactMarketing to Governments in Emerging Market government buy enormous quantities of product usually emerging country have economic development plan (need to build or improve national infrastructure)

Skillfully Challenge Emerging Market Competitors

CASE QUESTION (number 2)-Per-Capita Income as an Indicator of Market PotentialMiddle Class as an Indicator of Market Potential

Use of a Comprehensive Index to measure market potentialGDP are indicator of purchasing power of customerSize and growth rate of middle class serve a signal of dynamic market economyMarket Size (all population)-Commercial InfrastructureMarket growth rate (GDP)-Economic FreedomMarket intensity-Market ReceptivityMarket consumption capacity-Country RiskWhat management do to identify the most promising market?

CASE QUESTION (number 2)-How should firm adapt the product?Merge and acquisition with other company in emerging marketCollaboration technology, knowledge (product and market), share distribution channels, etc.

Produce potential product base on customer wantsPurchasing power in emerging market is relative low

CASE QUESTIONArcelik may be better poised to cater economic development of EM and DE,In what ways Arcelik skillfully fulfill its CSR ?3-Suggest specific approaches of CSR-CATERING TO ECONOMIC DEVELOPMENT NEEDS OF EMERGING MARKETS AND DEVELOPING ECONOMIESLeading firms display good corporate social responsibility by engaging in activities that facilitate economic development in emerging market and developing economies.There are 2 (two) trends as form of CSR:Fostering Economic Development with Profitable ProjectMicrofinance to Facilitate Entrepreneurship

CASE QUESTION (number 3)-In what ways Arcelik skillfully fulfill its CSR?FOSTERING ECONOMIC DEVELOPMENT WITH PROFITABLE PROJECTSFirms serve low income countries with inexpensive, specifically-designed products and services and community involvement.IN OTHER WAYSFirms create jobs and contribute to development.Investments generates tax to improve living standard.Transferring technology and know howDevelop community-oriented social programs.

CASE QUESTION (number 3)-In what ways Arcelik skillfully fulfill its CSR?Microfinance to Facilitate EntrepreneurshipMicrofinance, emerging of financial institutions that serve emerging market entrepreneurs with small scale loans.By providing small loans, can help pull them out of poverty.Various organization now offer other forms of small scale financial services, including insurance and mortgage lending.

CASE QUESTION (number 3)-Suggest specific approaches of CSRARCELIKS CORPORATE SOCIAL RESPONSIBILITY IN EMERGING MARKETFOSTERING ECONOMIC DEVELOPMENT W/ PROFITABLE PROJECTSFirm creates product that meet local demand with lower price compared to its quality.Firm enter the market and establish manufacturing/assembly plant.Firm establish distribution centers throughout country.Firm boasts a strong after-sales service network with large number of authorized service shop.MICROFINANCE TO FACILITATE ENTREPRENEURSHIPFirm offer financial services that provide installment purchase for its customer.

REFERENCESREFERENCESCavusgil, et.al. International BusinessGardner, et.al. Organization Design and Dynamicswww.lexicorient.comwww.imf.org www.indexmundi.comwww.arcelik.comwww.turkivz.com

closingThank you