About General Electric’s Sale of their Appliances Business

One piece of recent news that I found very intriguing is that General Electric is currently considering selling its appliance business.

It’s not that I’m surprised that it’s selling the business. What I find interesting is that it took them this long. And in fact, GE’s appliance business is not really in bad shape, and makes OK profits. GE is simply focusing on the hugely profitable businesses that it has. It doesn’t seem that the appliance business is bleeding profits at all. Annual sales were 8.3 billion USD, and had 381 million USD in profit. If fact it is even growing at 1.6% CAGR since 2009.

From a marketing perspective, the appliance business appears to be the ultimate commodity. Innovation is slow and Asian companies like Samsung have been making competitive products for a long time (of course, before Samsung there were the Japanese as well). This begs the question, why haven’t low-cost Asian manufacturers disrupted the whole market? Why are high-cost Western manufacturers still in business?

If you look at the competition, it appears that US and Europe companies are doing quite well, keeping even the almighty Samsung at 10.5% U.S. market share. The brands that dominate the market are Whirlpool (USA) and General Electric (USA). Globally, Sweden-based Electrolux is the second-largest appliance maker behind Whirlpool. Amazingly, despite commoditization and international competition, the US and the Europeans still own the US and the global appliance market.

If you look at the consumer electronics business, things are very different. Hardware manufacturing is almost completely dominated by East Asia. Virtually no smartphones are produced in the US? Apple is the only successful US-based smartphone brand (now that Lenovo owns Motorola). The exact same can be said for personal computers, TV, radios and all the popular consumer electronics products.

Looking at this the other way, why is the USA still so strong in software? Why do the Japanese and the Koreans lag far behind in software? What makes the software industry more immune to disruption by the emerging east Asian companies?

There is a lot to be learned here. What is obvious is that although commoditization surely results in small profit margins, it does not follow that low-cost entrants will emerge to engulf the leaders. It is less clear what market conditions and strategies allow the leaders to prevail (albeit at low margins), and what causes them to lose out to the entrants.