Arçelik Aggressively Expands Beko Outside of Europe
Analyst Insight by Thidathip Tawichai – Consumer Appliances Analyst
In early 2015, Arçelik AS, the Turkish home appliances company, announced that it would commence production of major appliances in Thailand for the domestic market as well as to cater to neighbouring markets such as Vietnam, Indonesia, Myanmar and the Philippines. Thailand will be the sixth plant for Arçelik, after Turkey, Romania, Russia, China and South Africa. More recently, Arçelik also announced intentions to bring Beko to the US market. It is clear that Arçelik is seeking to expand to markets outside its strong foothold in Western Europe, due to market saturation and to reduce reliance on just one core region. With these plans, Arçelik will not only gain cost-effectiveness through its Thai production, but also reap advantages from the ASEAN Economic Community (AEC), a cooperation among 10 nations in Southeast Asia looking to transform ASEAN into a region that promotes the free movement of goods and services, skilled labour, and capital.
Arçelik’s strength lies in Europe
Arçelik is the leading manufacturer in consumer appliances in Turkey, where it is based, with 23% of volume sales. The company has traditionally focused on the European market, with its Beko brand ranked third in Western Europe in major appliances in 2014. Notably, Beko has a strong presence in Turkey and the UK, where it is ranked second in major appliances in 2014 in both countries. Beko competes primarily in the lower-end to mid-priced segments and focuses heavily on energy-efficient appliances.
Apart from the market saturation mentioned above, Arçelik faces increased competition in Western Europe due to the increasing strength of Asian manufacturers such as Samsung, LG, Panasonic and Haier.
Source: Euromonitor International
What makes Southeast Asia attractive?
Euromonitor International’s consumer appliances data show Indonesia as being ranked third highest globally in terms of absolute volume growth of major appliances over 2014-2019, with Vietnam and Thailand at 11th and 12th, respectively. The growth of major appliances in the region is being driven by both rural and urban sales. For example, in Vietnam, Thailand and Indonesia, volume sales growth is fuelled by new purchases, notably in rural areas, where households are buying fridge-freezers and washing machines for the first time. Concurrently, growth is also being driven by product replacement by higher-income households that are willing to pay higher prices for premium models that offer improved efficacy, electricity costs and time savings. This product trading up also generates higher value growth, with CAGRs of 8%, 5% and 4% forecast for Indonesia, Vietnam and Thailand, respectively. Therefore, it is a timely opportunity for Arçelik to leverage on the advantages that the AEC offers, along with the surge in demand for consumer appliances in Southeast Asian markets due to increased disposable incomes and improved economic conditions.
Absolute Volume Growth of Major Appliances in the Top 5 South East Asia Markets, 2014-2019
Source: Euromonitor International
Market entry to Southeast Asia as means of production
Arçelik is looking to leverage on the production of fridge-freezers and washing machines in Thailand as a means of entering Southeast Asia, with some 90% of its production planned for export to neighbouring countries such as Vietnam, Indonesia, Myanmar and the Philippines. Besides proximity to new markets, there are numerous reasons why Thailand was chosen as a production hub. Firstly, there is a readily available pool of skilled labour in Thailand. Secondly, in terms of market geography, Thailand has a number of deep-water ports on the eastern side, like Laem Chabang, Chonburi and Rayong, which are considered centrally located for the region’s fast-growing export markets. Additionally, the Thai government provides both tax and non-tax incentives for foreign investors. Last but not least, with the AEC starting by the end of 2015, this will allow for expanded trade movement for goods and skilled labour among Southeast Asian markets.
Beko can be successful but further product localisation is required
It will take time for Arçelik to build up its brand awareness in a region where competition among existing brands is intense. To increase its chances of success, Arçelik should focus on a product line-up that caters to local and regional demands and preferences. For example, Arçelik should consider expanding washing machines to top-loading format in the Thai market, since more than 70% of automatic washing machines in the Southeast Asian region are top-loading models. Arçelik should also look to include inverter technology in its washing machines, which is a popular feature in the region, since it allows for energy and water efficiency for consumers who do washes at different load sizes on a regular basis.
In terms of fridge-freezers, only high-end Beko models priced above US$1,500 per unit are currently available in the Thai market, all of which have three doors or more. To generate volumes, Beko should launch more lines of mass models, such as single- and double-door fridge-freezers at lower prices, to cater to those living in small apartments and those with smaller budgets.