Arcelik Home Appliances:

International Expansion Strategy

ASSIGNMENT- 8
GROUP-B05
1. Given the demographic trends visible in Western Europe, Eastern
Europe, North Africa, Middle East and South America, which
international markets should Arçelik target? Why?

Motive behind international expansion was to maintain economies of scale which implies capture
the market with high scope of market development, low CAGE distance and low/moderate product
variations.

All 4 parameters play significant role

for home appliance market.

Poland, Russia and Latvia have least

CAGE distance respectively.
Market Potential Index

Country MPI
Latvia 32.07%
Russia Microsoft Excel
33.93%
Worksheet
Poland 33.99%

Latvia(Eastern Europe) must be targeted for international expansion.

Reasons to enter Latvia compared to Russia and Poland :

• Huge scope for market development for first purchasers
• Consumers spending relevant income level for first purchases
• Consumer adopting to Western-style and demand is function of western culture
• Moderate variability in the products served does not hamper benefits of economies of
scale
2. How should Arçelik look to grow in the selected markets? Should it
pursue organic growth (greenfield) or grow through acquisitions?
Particularly, where should it carry out its production activities?
CDBI Framework

Relative Production Cost : Relative cost of goods, sales, marketing and distribution,R &D is
found to be least for China(84%) followed by Eastern Europe(91%). While administrative
and cultural factors in China impose greater barriers.

Relational Hazard: Going for Greenfield would impose nil relation costs While going for
acquisition incur one time trust building cost.

Managing Operation from distance: Internal training costs would be high in case of
Greenfield than for Acquisition

Liability of Foreignness: Customers are indifferent to brand hence it is low.

As we are focussing to establish economies of scale, the relative production cost is the most
significant factor to consider. So the production must take place in Eastern Europe.
To achieve the economies of scale, reduction of cost remains the major concern.
Greenfield would impose additional manufacturing costs and operating costs.

Acquiring the firm would be relative less costly.