The US Refrigerator Industry Analysis - Case Study Example

Refrigerator Industry Analysis Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive summary The primary aim of this study was to take a critical view of the refrigerator industry in the United States in order to inform the World Whitegoods Industry Association (WTA) accordingly. WTA is a UK-company that is specialized in repairing domestic appliances like washing machines, dishwashers and refrigerators. As a result of this study, the findings reveal that the refrigerator industry in the United States is widely grown and headed to its maturity after almost every household has owned a refrigerator. However, like in many other developed countries, the manufacturing industry in the country has been one of the casualties of global economic recession of which many people are yet to recover from. On the other hand, with environmental challenge, the government policies that are being aligned with the Montreal Protocol in 1990, as resulted into high cost of production. This is after the government has imposed taxes on all imported components that have (CFCs). Finally, with the prevailing culture where Americans give preference to their own first before any other, it is emerging that it is not easy for the Americans to accept products and services from outside especially when they have their own. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Purpose of the report 4 Effects of globalization in the industry 5 Economic trends and forecasts 6 Ecological and environmental challenges facing the industry 7 Political, government and legal factors 7 Technological advances influencing the Industry 8 Elements of culture and society 9 Conclusion 9 Reference 10 Appendices 11 Introduction Throughout the history of the development of the refrigerator industry in the world, use in household for food preservation has been the force behind. Food preservation in the world dates as back as 1,000 B.C when ice was being used in China for preservation purpose. The idea of using ice to preserve food was then taken into other world countries such as Egypt, England and the United States. However, following the shortage of natural ice in the United States between 1889 and 1890 stimulated the use of mechanical refrigeration to freeze and store fish as well as use in brewing, dairy and beef industries. These refrigerators could also be used in grocery and manufacturing industries. The first home refrigerators were unveiled in the United States in 1911 by the General Electric Company. However, it could not take long before the two home model refrigerators namely Kelvinator and Servel model s were introduced in the country in the 1920. The two could be driven by the motors fixed in basements or in adjoining rooms as shown in appendix one below. Since then the refrigerator industry in the country has grown with over 99.5% of the residents in the United States, owns as atleast one refrigerator (AEO2012). Purpose of the report This report is purposed to taking a critical view of the refrigerator industry in the United States by paying attention to various factors that have continued to impact on the industry which includes: 1. Effect of globalization on the industry 2. Economic trends and forecasts 3. Ecological and environmental challenges facing the industry 4. Political, government and legal factors 5. Technological advances influencing the Industry 6. Elements of culture and society Effects of globalization in the industry Globalization according to Samuelson (2004) is the process through a proportion of a given economic, social and cultural activities are moved across borders. Globalization has very significant effect on the economy, business and social life. This is because economic, cultural and social practices tend to interact and lead into change in way people do business, interact and socialize. The refrigerator industry is a global industry and with globalization, it is easy to say that supply and demand of refrigerators in the world over can be manufactured and sold anywhere. With globalization, despite America being among the first countries in the world to have manufactured the first refrigerators, it is facing very stiff competition from other manufacturers from other countries like German. With globalization which is a result of trade liberalization, imitation of different models is also easy. At the same time, with free trade, innovation in the industry has been very fast and higher wages in the industry are also common in order attract and retain special skills. The effect of globalization in the American Refrigerator industry is that with increased cost of production, the trend in future is that most companies are looking forward to relocating their production activities to those countries where labor is relatively affordable in order to be able to compete favorably (Glass and Kamal 2001). Economic trends and forecasts With the global economic recession, the United States has been one of the major causalities as many companies collapsed with increased debts and escalated unemployment rates. The country’s GDP also shrunk significantly. However, according to the recent survey by Grant Thorntorn in 2011, many businesses are very optimistic with the country’s recovery in economy. Further, 21% of the manufacturers say that they are likely to expand their hiring. Manufacturing has been the one of the brightest industries in the economy and since the end of the recession, it has managed to create over 300,000 jobs and this is according the National American Association of Manufacturers. What this means for the economy and the refrigerator industry is that revenues will increase as more people will have more disposable to spend on purchasing refrigerators. Further, the US debt has continued to ease even though it remains relatively high at 115 % of the disposable income. On the other hand, the income spent on interests has also declined sharply since 1980s even though it increased sharply during the financial crisis (BEA 2012). However, with the onset of recovery from the financial crisis, the industry is set to bounce back with the dollar strengthening and with government subsidy increased which further will attract more manufacturers into the industry. Refer to appendix 2, 3 and 4 below. Ecological and environmental challenges facing the industry The environment sustainability is likely to be more difficult with inequitable production and consumption processes which have been accelerated with additional 81 million people to the world each year. According to the United Nations Conference on Environment and Development in Rio in 1992, people and natural environment are in constant collision. With this regard, human activities have continued to cause irreversible destruction to the environment and more especially on those resources that are very critical like air and water. It is therefore with the humble concern by the United Nations (UN) that fundamental changes be initiated in order to avoid collision between human beings and environment. In the United States alone over 60,000 people die each year as a result of air pollution. According to EPA American Industrial activities contribute about 20% of the global pollution. With the requirement by the government for the engineers to work on energy efficient technologies, the cost of production is likely to increase for various manufacturers and more companies cannot be able to sustain themselves (MEB 2004). Political, government and legal factors Like many other world countries, in the United States, the political, government and legal factors have played a major role in ensuring that all activities that are related to Refrigerator manufacturing are energy efficient and environmental friendly. For instance, the government of the United States has been on the forefront to implementing the Montreal Protocol which is an international agreement to ensuring significant reduction and phasing out of chlorofluorocarbons (CFCs) by the world’s refrigerators’ manufacturers. The United States is a member of the Montreal Protocol and it was initially aimed at ensuring that CFCs were to be banned by 2000. This protocol has been enacted and implemented through the Clean Air Act of 1990. To help fasten the process of phasing out CFCs, the federal excise taxes have also been imposed on the Ozonedepleting and any other imported products that contain the same products. Generally, the government has been charging certain amount on these products and this caused escalation in the cost of production. What this means, is that small companies that do not enjoy economies of scale are likely not to survive and thus encouraging capitalism in the industry (Schmidt 2005). Technological advances influencing the Industry The technology that has been used in manufacturing refrigerators in the United States has continued to change over years. The process of production like in many other automobile production, it follows specific steps which include stamping, casting, machining, assembling ad finishing. Automated and flexible systems of production in the United States have always followed common processes. In the refrigerator manufacturing industry, attention has been paid on how technology should be applied in areas such as compressors, heating elements to ensure that they are energy efficient and belts and valves (Jones and Roy 2008). In eight to ten years a new product of refrigerator is being developed and for every one development and retooling, over $100 million is spent. This is a very high cost to sustain especially for small manufacturing company. If no government subsidy is available in future, then it is expected that quality may be compromised with since very emphasis will be put on technology (Ruffin and Jones 2007). Elements of culture and society What is important and very common among the American citizens is the way people do interact and socialize. Despite the fact that in the United States, culture is mixed up as a result of large number of immigrants, it is still very notable that the culture there mostly is one where people love their own more than anyone else’s in terms of product and service. This has made it very difficult for the American market to accommodate and accept those products that are imported from foreign markets. This is the refrigerator industry implies that those manufacturers that are not local, do not stand a better chance to gain substantial market locally. Further, the issue of socialization where most people like holding social events like parties and other ceremonies at homes has continued to press on the need to have means to preserve food and other drinks within the households. This is one factor that has continued to push many citizens to own refrigerators in their homes for preservation purpose and consequently creating lucrative market for the market according to Kwintessential (2012). Conclusion This analysis of the refrigerator industry in the United States, has established that the production of refrigerators started as earlier as 1920s when the Kelvinator and Servel models were introduced in the country. Since then the industry has grown with very many manufactures whereas household use has reached more than 99.5%. The industry in the United States is affected by a number of factors which include globalization, economic trends and forecasts, ecology and environment, political, government and legal factors, technology advancement and elements of culture and society. All these factors affect both the consumption and production activities of refrigerators in the country. Reference Annual Energy Outlook. (2012). (AEO 2012), Early Release Review: factors that shape U.S. energy markets in the long term, retrieved on 30th September 2012, available at: http://www.eia.gov/forecasts/aeo/er/pdf/0383er%282012%29.pdf Bureau of Economic Analysis. (2012). (BEA 2012), National Economic Trends (Consumer Price Index), Federal Reserve Bank of St. Louis. Glass, A., and Kamal S. (2001). “Innovation and wage effects of international outsourcing,” European Economic Review, 45, pp. 67-86. Jones, R., and Roy, R. (2008). “The Technology Transfer Paradox,” Journal of International Economics, 75, pp. 321—328 Kwintessential. (2012). USA-Language, culture, customs and etiquette, retrieved on 29th September 2012, available at: http://www.kwintessential.co.uk/resources/global- etiquette/usa.html Management Institute for Environment and Business (MEB). (2004). Competitive implications of environmental regulation in the refrigerator industry. Montreal, Canada. Ruffin, R. J. and Jones, R. W. (2007). “International technology transfer: who gains and who loses?” Review of International Economics, 15, p. 209-222. Samuelson, P. A. (2004). “Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization,” Journal of Economic Perspectives 18, 135-46. Schmidt, S.M. (2005). "Think It's a Breeze Moving Goods Between the U.S. and Mexico? Think Againegulatory Regimes Are the Hidden Pitfalls in NAFTA and Other Free Trade Agreements." World Trade, January 2005, 52. Appendices Appendix 1 Appendix 2: Economic growth Recovery from the 2008-2009 recession is expected to show the slowest growth of any recovery since 1960. Table compares average annual growth rates over a five-year period following U.S. recessions that have occurred since 1960. Average annual growth rates over a five-year period following post-1960 recessions Recession ending Real GDP Real consumption Real investment Nonfarm employment Unemployment rate 1975 3.7% 3.2% 7.3% 3.3% -3.3% 1982 4.5% 4.7% 7.5% 2.6% -8.6% 1991 3.3% 3.4% 8.5% 2.0% -4.6% 2009 2.5% 2.1% 9.4% 1.0% -3.5% Appendix 3: American GDP adjusted Gross Domestic Product (GDP) Graph Appendix 4: Appendix 5: Federal spending and tax receipts from various industries Read More