Why is General Electric’s Appliances Business a Sexy Acquisition Target?
In December 2015, General Electric Co (GE) walked away from the deal to sell its appliances business to Electrolux AB, and GE Appliances CEO Chip Blankenship announced that the appliances business will be put up for sale again. Leading appliances manufacturers, including LG Corp, Samsung Corp, Arçelik AS and Haier Group have expressed interest in the last two rounds of sales discussion since 2008. On 15th Jan 2016, Haier group reached agreement with GE to purchase GE appliances for 5.4 billion USD. In this article, we will look at the attraction of bidding for GE appliances, with a focus on the growth opportunities and possible challenges.
Stunning Opportunities for Growth
Ranked second in volume share terms in the US major appliances market in 2015, GE’s share is attractive to any appliance manufacturer seeking to gain a strong position through acquisition. Its customer base and established distribution channels in the US will give the potential buyer a competitive edge. Accounting for more than 10% of the world’s volume sales of major appliances, the US is one of the leading markets in the global consumer appliances industry and is commonly the first choice for many appliances firms when unveiling their latest products to the world. The GE appliances sale provides a rare opportunity for foreign rivals to grab home-ground advantage for making product launches, including at the annual CES trade show.
Source: General Electric Co (GE)
In addition to the customer base and distribution channels, GE’s well-established brand name is also an invaluable asset. With more than 100 years of history, GE has established its umbrella brand name in several industries, including consumer appliances. With its strategy of production reshoring, starting in 2012, more than 80% of GE’s appliances were made in the US in 2015. Since then, GE appliances has been leveraging “Made-in-America” to strengthen its premium positioning, in order to differentiate it from its Asian competitors and Western rivals looking to compete on price through offshoring of production to lower-cost emerging markets.
GE’s over-reliance on the US market is a disadvantage to the company, but a growth opportunity for any potential new owner, since the acquirer will have an opportunity to divest market risk and leverage growth in emerging markets via geographical expansion. The two fastest-growing regional markets projected for consumer appliances over 2015-2020 are Middle East and Africa and Asia Pacific. There is plenty of room for growth in these markets, as only 1.1% of GE’s appliances sales volume comes from Asia Pacific and 0.5% from Middle East and Africa.
General Electric Co (GE)’s Consumer Appliances Sales Volume Regional Split
Source: Euromonitor International
In addition, GE is ranked fifth in dishwashers globally by retail volume in 2015 – its strengths will give an edge to any new owner to ride on the potential growth in dishwashers, which is projected to be the fastest-growing major appliances category in 2015-2020.
Challenges lie in market expansion and brand portfolio management
Opportunities aside, the potential owner will have to address and overcome difficulties in global expansion and brand portfolio management. For example, a key challenge in expanding GE appliances in Asia Pacific is the inherent current intense market competition. The gap left by Japanese firms with declining sales and financial problems is being filled by aggressive South Korean and Chinese rivals – and this rivalry does not seem likely to cool any time soon. The slowdown in domestic demand for appliances due to the weakening Chinese economy has forced Chinese firms to hunt for overseas growth prospects, especially in other parts of the Asia Pacific region. In addition, the intensifying competition is driving Chinese firms to ramp up their low-price strategy in a bid to increase market share. Hence, it will be challenging for GE appliances to compete on price with its Asian rivals.
It will be also a challenge for the potential new owner in terms of brand portfolio management. Firstly, GE brand is currently more associated globally with its business products and services in areas such as oil and gas, aviation and healthcare, the potential new owner has to strengthen the brand’s reputation within consumer appliances through marketing and promotional activities as well as through new product launches aligned with geographical market expansion. Secondly, any new owner will have to also manage the potential sales cannibalisation between GE brands and its own brands in the same price range. However, there is a way to mitigate brand cannibalisation, which is to limit the number of brands in the same price range for sale in a given market, if the acquirer identifies a high likelihood of consumer turnover across its basket of brands through market research.
We conclude that, although there are the challenges ahead, if the risks can be minimised through thorough market research and strategic planning, the acquisition of GE appliances will still offer excellent opportunities to the potential new owner in inheriting a century-old brand asset and could, potentially, change the global major appliances market landscape.