{"id":21145,"date":"2017-11-09T21:29:24","date_gmt":"2017-11-10T02:29:24","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/samsung-america-first-and-the-washing-machine-wars\/"},"modified":"2017-11-09T21:29:24","modified_gmt":"2017-11-10T02:29:24","slug":"samsung-america-first-and-the-washing-machine-wars","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/samsung-america-first-and-the-washing-machine-wars\/","title":{"rendered":"Samsung, \u201cAmerica First\u201d and the Washing Machine Wars"},"content":{"rendered":"

Recently, the U.S. washing machine industry has become the primary battleground upon which the administration\u2019s \u201cAmerica First\u201d protectionism war against offshore manufacturing is being fought.\u00a0 Samsung, a Korean electronics conglomerate with businesses spanning mobile phones to appliances, is facing accusations of import \u201cdumping\u201d, in which a low-cost provider imports product at well below a determined \u201cmarket price\u201d, harming domestic manufacturers[1]<\/a>. \u00a0Recent accusations brought before the International Trade Commission have been catalyzed by an inflection point in domestic versus international competition in the washing machine appliance industry.\u00a0 Whirlpool, Samsung\u2019s accuser and primary American competitor, has faced several quarters of deteriorating financial performance on the back of raw material price increases coupled with increased competition from lower-cost Asian manufacturers Samsung and LG.\u00a0 In response, Whirlpool management has announced impending price increases to recover lost margin to raw material inflation\u2212 a move that is likely to significantly undermine the company\u2019s ability to compete[2]<\/a>.\u00a0 To illustrate, the price differential at Best Buy between equivalent Whirlpool and Samsung models is already $50-$100 per unit.<\/p>\n

In early October, the ITC ruled in favor of Whirlpool, and is currently determining the degree of import relief.\u00a0 The stakes for Samsung are extremely high given the extent of its overseas manufacturing base\u2212 if Whirlpool were to succeed in driving up import duties to an overwhelming level, Samsung could lose its cost advantage and be forced to fully relocate manufacturing to the U.S. to maintain market share.\u00a0 In a previous case brought before the ITC focused on Samsung\u2019s Chinese manufacturing operations, Whirlpool was successful in driving the ITC to lock in 52.5% final duties for five years.\u00a0 In response, Samsung was forced to disperse its Chinese manufacturing operations to Thailand and Vietnam to maintain its cost advantage.\u00a0 The current case is even more comprehensive; Whirlpool is seeking emergency, global safeguards in which Samsung would face import duties regardless of country of origin1<\/sup>.<\/p>\n

In the short term, Samsung is focused on mitigating Whirlpool\u2019s case.\u00a0 Management\u2019s counterarguments consist of two major threads\u2212 first, that Samsung competes mainly on technical superiority instead of price superiority, and second, that the company maintains extensive U.S. operations, including more than $27 billion in factories across Samsung\u2019s businesses.\u00a0 Furthermore, in June of this year, Samsung announced a $380 million home appliance factory in Newberry County, South Carolina, expected to create 954 jobs by 2020.\u00a0 The move brought political capital to Samsung\u2019s side in the ITC debate\u2212 the company intends to gradually migrate washing machine manufacturing to this plant while relying on imports in the interim until the domestic factory is fully ramped[3]<\/a>.\u00a0 The build-out of a U.S. manufacturing base represents a longer-term play by the Company as it grapples with increasing protectionism against its overseas manufacturing.<\/p>\n

Samsung management should proceed under the assumption that import duties recommended by the Trump administration will be at least as severe as prior historical precedent, which would effectively block imported washers from the U.S. market.\u00a0 Other industries have already witnessed the extent to which the administration is willing to counteract the offshoring of domestic manufacturing\u2212 earlier this year, the White House took aim at Toyota after it announced plans to relocate manufacturing to Mexico with continued threats of a 35% tariff on vehicles produced in Mexico and shipped to the U.S.[4]<\/a>\u00a0 As such, efforts to ramp the new South Carolina facility should be accelerated and additional capacity should be built out to ensure the factory\u2019s ability to cover the American market.<\/p>\n

As a longer-term strategy to increase penetration of the U.S. market, Samsung will need to shift its competitive advantage from cost to technical superiority, innovation and customer experience.\u00a0 As the broader industry moves towards \u201cconnected home\u201d products, Samsung should be able to leverage the extensive R&D capabilities of its broader electronics organization to drive its competitive position despite losing its cost advantage.<\/p>\n

As Samsung and other foreign competitors of U.S. manufacturers continue to face trade pressures, can they relocate to the U.S. while maintaining a cost advantage?\u00a0 Without the resources of a multinational technology company, would smaller, niche competitors in a market such as washing machines be at risk of exiting the U.S. market completely given the extensive capital costs required to relocate manufacturing operations in response to shifting trade protections?<\/p>\n

[1]<\/a> Lesley Wroughton, \u201cWhirlpool\u2019s washer battle with Samsung, LG heats up at trade hearing\u201d, Reuters, September 7, 2017 accessed November 2017<\/p>\n

[2]<\/a> Michael Rehaut, \u201cPost-Call Notes: Penalty Box Likely for 1-2 Qtrs, But Even a Fairly Conservative 2018 = Good Risk\/Reward\u201d, JP Morgan, October 25, 2017, via Thomson One, accessed November 2017<\/p>\n

[3]<\/a> Megan Cassela, \u201cBattle of the washing machine giants\u201d, Politico, September 7, 2017 accessed November 2017<\/p>\n

[4]<\/a> Micheline Maynard, \u201cTrump’s Indirect Protectionism Moves On To Toyota After GM And Ford\u201d, Forbes, January 5, 2017, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

Can Whirlpool, a domestic manufacturer of washing machines, leverage the administration’s “America First” trade policies to reverse its deteriorating competitive position relative to Samsung? A recent dispute before the International Trade Commission holds extreme consequences for Samsung’s appliance business.<\/p>\n","protected":false},"author":9715,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[2515,1915,2812],"class_list":["post-21145","hck-submission","type-hck-submission","status-publish","hentry","category-international-trade","category-samsung","category-whirlpool","hck-taxonomy-industry-manufacturing","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nSamsung, \u201cAmerica First\u201d and the Washing Machine Wars - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/samsung-america-first-and-the-washing-machine-wars\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Samsung, \u201cAmerica First\u201d and the Washing Machine Wars - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Can Whirlpool, a domestic manufacturer of washing machines, leverage the administration's "America First" trade policies to reverse its deteriorating competitive position relative to Samsung? 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