Mabe Case Analysis

Internal Analysis

Strengths of MABE’s Company:

·   Strong global leader and brand in appliance manufacturing and sales (Latin America, Mexico, U.S.)

·   Numerous acquisitions and strategic partnerships (i.e., GE [knowledge; capital to penetrate new markets], Camco [dryers, dishwashers], Bosch)

·   Achieved economies of scale due to foreign + domestic operations à key driver of success in the appliance industry

·   San Luis Potosi 1.5 million square ft. stove plant + high-end refrigerator plant in Celaya, Mexico = significant cost saving facilities to better serve domestic/international demand

·   MABE manufactures >1/3 of all gas/electric refrigerators sold in U.S. (1/4 Americans homes)

·   MABE has a keen eye for cultural integration

·  Hiring highly educated engineering grads provides new set of skills/competencies

Weaknesses of MABE’s Company:

·   Possible conflict between seasoned MABE leaders and new university recruits on certain matters (i.e., Tech development, R&D, business objectives, strategies, etc.)

·   Overdependence on 3rd parties (GE) for raw materials, R&D

·   Action learning teams decide what they perceive products demanded are instead of using a market analysis approach à thought that Russia needed a broad product line strategy

·  Too much focus on helping GE grow

External Analysis

Opportunities Internationally and in Russia:

·   Massively increasing appliance market sizes in developing economies (BRIC nations) à rising middle-class incomes in Russia (highest discretionary income of BRIC countries)

·   Huge appliance market in Russia:  US$3 billion

·   Brazil: $1billion market; Mexico: $650 million market

·   Mexican R&D centre opportunity to develop technical skills + proprietary knowledge

·   Representation offices provide opportunity to import appliances from abroad and learn new markets before committing all resources (important in Russia)

·   Skolkovo centre for innovation

·   Russian government’s $10 billion foreign investment fund

·   Huge abundance of land + natural resources in Russia

·   Biggest opportunities in emerging countries with strong demographics, low % of appliance ownership, and ability to resist economic shocks à Latin America, China, India, Egypt, Turkey all strong target economies

·   Young Russians in their late twenties seeking wealth + luxury are a good target market for expensive appliances

·   Demand for affordable appliances that address market-specific needs (i.e., energy/water efficiency) in emerging economies à emerging economies expected to grow 7-10%, including Latin America, Turkey, Egypt, China, India

·    Regional distributors as opposed to wholesalers to more effectively target end-consumers

Global as well as Russian Market Threats:

·   Declining net profits ($81.4K in 2006 vs $11.4k in 2008)

·   2008/09 recession bleeding over into Russia affecting profits and lowering sales volumes à creates need for new product market strategies

·   U.S. energy department regulation to cut consumption by 30% significant barrier to operations in the America

·   Decreasing population coupled with deterioration of human capital in Russia (cardiovascular disease, violence causing death)

·   Low levels of health/knowledge in Russia

·   56% state share of the economy (communist country) à more risky/less profitable than in China, India, Southeast Asia

·   Weak legislation, law enforcement, corruption, bribery are all prevalent in Russia

·   Political interference in business, weak laws, complex tax system, unskilled staff, little IPR rights

·   Russia has low levels of trust with foreign partners

·   Russian managers oriented to short-term – little regard for long-term strategic goals and financial planning

·   Russia has no modern banks compared to Europe (financial system dominated by one central bank)

·   Minimal domestic investment making loans very difficult to acquire

·   Virtually non-existent mortgage market (only 3% GDP)

·   Negative $9.5bill net foreign direct investment (huge outflow of private capital)

·   Uncertain economic development in Russia with Putin as President à last major emerging economy to recover from recession; foreign investors discouraged with Putin in charge

·   Chinese market too large/complex to enter from a FDI standpoint

·   Russia is one of the least densely populated countries in the world (only 5 cities with high enough incomes to attract global brands)

·   2 most populated cities in Russia (Moscow & Saint Petersburg) consumption patterns differ from average Russian citizen à can be a major threat if overlooked and consumer preferences are generalized

·   Hostile environment for foreign investors (i.e., AIDS test)

·   Heavy competition from local manufactures (producing locally is a key to low cost in Russia) à Indesit, Bosch-Siemens, LG already doing this à being competitive in Russia means having access to local manufacturing

·   Forced adaptation to Russia’s culture to succeed in business (huge learning curve)

·   Strong sense of distrust toward private enterprise in Russia, especially foreign businesses (due to Communism and low unemployment)

·   Large divide between younger and Soviet era Russians’ ways of thinking/style à potential for conflict among employees in Russia

·   Significant growth in consumption of fresh food + demand for ready-to-eat meals in Russia à leads to major decrease in Mabe’s freezer sales here as well as other appliances

·   Samsung gaining ground in Eastern Europe (1st non-Korean appliance factory)

·   Fall in demand in Western Europe (Spain and Italy) causing more industry competition in promising markets (Russia) substantially lowering profit margins