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Philips Electronics was established in Eindhoven, the Netherlands, to meet the demand of light bulbs in the age of commercialization of electricity. Its foundation was laid in 1891 by Anton and Gerard Philips as Philips & Co. In 1920, the company took the name Philips, the name we recognize today. Initially it began manufacturing carbon-filament lamps and by the turn of the century, it became one of the largest producers in Europe. Now Philips is the, “Dutch manufacturer of consumer electronics, electronic components, medical imaging equipment, household appliances, lighting equipment, and computer and telecommunications equipment” (Deckmyn, 2009). After the industrial revolution, Philips first laboratory introduced its first innovations X-ray and radio technology. In the course of time Philips came with a lot of breakthroughs to improve and enrich men's lives in the modern era. Philips operates in number of sectors like Philips consumer lifestyles, Philips domestic appliances, personal care, Philips lighting and Philips healthcare. The company operates in Europe, North Korea and Asia pacific. Its headquarters is in Amsterdam. With sales and service outlets in over 100 countries worldwide, Philips employs approximately 118,000 employees and with sales of thirty-three billion dollars it is a market leader in medical diagnostic imaging and patient monitoring systems, energy efficient lighting solutions, and lifestyle solutions (Koninklijke Philips, 2009). Philips focuses on the health and well being of the people and aims to serve the people through three main areas which are Healthcare, lighting and consumer style. It encompasses the consumers' insights and gives the people new technology that would improve their life style. Philips' key innovations include Carbon filament bulb introduced in 1915, Medical x-ray tube introduced in 1918, First television and electric shaver introduced in 1925 and 1939 respectively, Compact audio cassette in 1965, Compact disc in 1983, DVD in 1997. Radio technology is the latest breakthrough the Philips has offered for the 21th century. The company has focused in pioneering innovations in medical imaging, television, lighting, optical technology and many more to simplify and enhance people's lives (Koninklijke Philips, 2007).
With its vision to be the good brand in the market, Philips started the brand promise ‘sense and simplicity' in 2004, which highlights the company's promise to provide the consumer driven service in the market place. The sense and simplicity is the company's commitment to offer the solutions that are “advanced, easy to use, and designed around the need of all the users” (www.philips.com) Its “Vision 10”strategy focuses on the people and the markets and promises to counter the issues that challenges people's life and tries to ease the life of people in the times to come. The vision 10 strategy is meant to implement in the three core areas: Healthcare, Lighting and Consumer Lifestyle. About the Vision 10 strategy Gerard Kleisterlee, president and CEO of Royal Philips Electronics said,“With Vision 2010, we are putting people right at the center of things, with Health and Well-being as our overarching theme. We are thereby putting into practice our mission: improving the quality of life through the introduction of meaningful innovations.” (www.philips.com)
2. SWOT Analysis
Swot analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. Swot stands for Strengths, weaknesses, opportunities, and threats. Strengths, weaknesses are internal factors. Opportunities and threats are external factors. Swot analysis of Philips Electronics can be done as follow.
Philips is the good brand name “with a brand value of $8.1 billion.” (Royal Philips Electronics, 2009). It is number one producer in home healthcare, lamps, electric shavers, cardiac ultrasound, cardiovascular X-ray, patient monitoring systems, professional luminaries, lighting electronics, automotive lighting, electric male grooming and automated external defibrillators (Koninklijke Philips, 2009). Philips is the leader in the both in home and commercial LED use. It offers the technology for a variety of uses, including general home, deck, party and even commercial restaurant and hotel operation.Philips has introduced a wide assortment of technological products to supplement the income provided by lighting. After a major restructuring of the company in the 1990s, it re-settled as a major supplier of everything from televisions to lighting and electric shavers. Optical pickup units and chipsets which are the standard key components are the key strengths of Philips. Philips has begun a joint venture named PBDS to accelerate product development. Philips has strength in research and innovation of new optical storage technology. Philips invests in high-growth and profitable businesses and emerging geographies to achieve market leadership positions (Koninklijke Philips, 2007). Philips has joined forces in IP telephony together with NEC Corporation which is ranked as one of the world's top patent-producing companies and world's leading providers of Internet, broadband network and enterprise business solutions (Khan et. al., n.d.).
Although Philips has clearly grasped the potential of LED lighting, it does not appear to offer the same selection of general-purpose uses for other, more traditional lighting. Philips may have selected its consumer by concentrating on radical new technology, and as a result it may be leaving the average consumer (without the tools to incorporate new technology) left unattended. Thus it might be more difficult for a low-income lighting consumer to find the product they need when browsing Philips' wares. Philips made a strategy to build a simpler, market focused company by the end of 2010 in their Vision 2010 strategy. However, the financial targets are not expected to be met by the end of 2010 as originally planned due to the global recession and economic slowdown (Koninklijke Philips, 2009).
The company is suffering from maturity and is also under threat from the growing influence of private label products. Many private label consumer lives cares, consumer electronics and personal cares are improving in quality and attracting growing number of consumers, who are keen to get value for money. The arrival of local electronic industries as in Pakistan poses a serious threat to its market (Khan et. al., n.d.).This is particularly acute in markets where consumers are suffering the crush of an economic downturn. Expansion of competitors into new sectors like General electric and Sylvania and the other factors like currency conversion - Unfavorable currency rates, especially with regards to the strength of the euro- could negatively impact company sales. Looking forward, the difficult economic conditions appear likely to reduce the company's growth capability. Although signs of recovery are becoming gradually apparent, the current global economic malaise looks set to continue in many countries for few years. Minimal growth in the populations in Philips main sales region, Western Europe, means that there is little opportunity for any great expansion of the company's consumer base.
Growing presence in emerging markets - Philips should pursue the expansion of its activities in emerging areas such as Africa and the Middle East, Asia-Pacific and Latin America, where growth in electrics, toiletries and life cares sales is generally expected to outstrip that of global sales. The company has placed itself in a stronger position to achieve this by expanding its retail presence through its brand. A good thing for Philips if from Nokia, as 70% of the material from IC to screens in Nokia mobile phones are from the Philips, it has a great opportunity to start a mobile business (Khan et. al., 2009).
3. PEST Analysis of Philip
PEST is a strategic planning tool; it helps the managers see the landscape beyond their own market. This is important because as they are seeing in the stock markets, as what is happening in the U.K., and its government policies do affect the business of a company. The PESTEL is great for ensuring managers don't think themselves in a vacuum. When an organization thinks itself too internally and forgets to understand the power of the outside forces, the business is not likely to flourish. PEST helps to remind people, there are forces out there, directly and indirectly, impacting how a business performs.A PEST can be used with other tools such as a SWOT analysis, helping you understand in some cases, why a particular service or product is performing the way it is. For example, say you have a product that has seen significant decline in the past few years in terms of sales volume in your traditional markets. A SWOT analysis may reveal that the market has matured and their tastes have changed to the point they are out growing your product.
A PEST may indicate that external forces that created the change in your traditional market have created opportunities in new markets outside your traditional market. Economic growth and legislative changes may have created an opening in new geographic areas that now give you access to new markets that do want your product.A PEST can be used in Scenario based forecasting. The managers take the PEST data and forecast future trends and develop a more global and typically better forecasting model for the business.
Pest analysis examines the changes in the marketplace caused by political, economic, social and technological factors. Political factors changes involve one party to another who are in control. For example rises in private healthcare and home privatizations, which is under the conservative government. Economic factors include recession, the rate of interest, depressing businesses causing lower spending levels. Social factors changes include changing lifestyles and attitudes, and the increase in the number of women leaving work. Technological factors involve changes as the public see it. This creates opportunities for the new products and product improvements and marketing techniques such as the Internet, e-commerce.
Greater political integration in Europe allows the Philips' business to thrive in the region, for Europe is the big market for it. Gerard Kleisterlee, Philips' global chief executive, welcomed recent steps towards the implementation of the Lisbon Treaty, a step towards to political integration of Europe .( Online Sky News,Nov,2009 Quoted in www.philips.com.). Philips, which employs 2,500 people in the UK, said Britain remained central to its trade and investment plans with a number of interesting opportunities but because Britain has a relatively high personal debt level, real estate and mortgage issues which will make the slow recovery from recession thereby decreasing the Philips business in Britain. Healthcare for Philips is very important, not only for the healthcare sector but also for our lifestyle business, and the UK in that respect is a fascinating country to do business. At the same time, due to unfavorable political factors, including unexpected legal or regulatory changes such as foreign exchange import or export controls, nationalization of assets or restrictions on the repartition of returns from foreign investments, the company may encounter difficulty in planning and managing operations (Koninklijke Philips, 2009).
China, India and other Asian countries are economically growing economy; therefore Philips can boost its business in this region. The current downturn in the world economy causes the Philips business to dwindle. The global recession and economic downturn particularly in consumer markets has reduced its sales predominantly felt within Consumer Lifestyle category which reported 8% decline in comparable sales, led by a 12% sales decrease at Television, as well as lower sales in Audio & Video Multimedia and Peripherals & Accessories (Koninklijke Philips, 2009).Growing trend in privatization and globalization will help Philips positively, for Philips can extend its business far and wide. Besides this, the growing trend of globalization will break the trade barrier for the expansion of Philips market in the world.
People have the increasing concern with health and beauty. People are becoming sophisticated and are crazy about its sales using modern means. So; Philips has increasing important in its business. People are always looking for quality product that will benefit the Philips if addressed appropriately. The growing number of women employment worldwide increases the family income thereby increasing the business of Philips if it can focus these people with right product in the right time. Philips brand is good and People have positive attitude towards Philips products. Philips is highly influenced by Social and demographic trends such as growing demand for better healthcare at lower cost, consumer empowerment, the rise of emerging markets and the need for energy efficiency (Koninklijke Philips, 2007). Philips has also got slap from public for violating the labor rights at Jabil Circuit de Chihuahua and Sanmina SCI systems de Mexico, and recruitment practices at Philips plant in Ciudad Juarez, Mexico (Weyzig and Schipper, 2008).
It is the era of technology and technology is being used everywhere, and Philips technology reaches everywhere. Philips system is working in medical systems, lighting and semi conductor. It has leading position in medical diagnostic imaging and patient monitoring, colour television sets, electric shavers, lighting and silicon system solutions. These are the ages of CDs, DVDS, flat televisions and entertainment where Philips product has the stronghold. The ability of Philips Research and Development team to create innovative technological advances and solutions for costumers is a major factor of Philips' competitiveness in its markets.There is growing tendency in people using technological instruments to serve their needs, and whenever a product addresses the need of people, a product will achieve a wider market. The rise of e-commerce is rendering the businesses like Philips to receive the orders online and deliver the products tothe customer easily. Philips constantly invests on technological advancement to reduce energy consumption, weight and hazardous substances. It invested approximately EUR 282 million in Green Innovations-- the Research & Development spend related to the development of new generations of Green Products and breakthrough Green technologies (Koninklijke Philips, 2009).
2. Business Strategies:
Business strategies are the key to the success of a business. The away a company chooses to operate in the globally competitive market determines the future of a company. About the business strategies, Kotler says that companies must plan and re-plan marketing strategies for each product several times during a product's life cycle. This is to overcome the changing conditions, assaults launched by competitors, changing interests and new requirement of buyers. A marketing strategy helps a company to extend the product's life and profitability (Kotler, 2000).Business strategies guideline a company to choose the better ways to achieve the profitability and market expansions. In its ways of strategic planning a company may adopt different ways.
In the divestment strategy a business completely shuts down a plant or product not profitable. Divestment refers to the sale of an asset for financial, legal or personal reasons. For the company, it refers to the sale of portions of its assets or plants, product line in order to focus the business on its core competencies. A company decides to divest its products which are out of its core competencies in order to focus on what it can do best. Divestments help a company to obtain funds. Divestment of several non-core businesses in recent years has benefited Philips with several million EUR. It can also take place when liquidation value of a company is greater than the value of running a particular product line. Similarly, another motive for divestment is to create the stability of the product market. For example Philips electronics divested its chip division called NXP as it finds the chip market unpredictable. Philips Electronics divests several consumer-electronics plants as part of a cost reduction plan. Philips Electronics N.V. sold its three percent stake in Vivendi Universal S.A. to concentrate on core businesses in 2001, which is the divestment. Philips divested Optical Storage, set-top boxes to PACE, Speech Recognition to Nuance, the JV on Business Communications with NEC, the outsourcing of TASS (embedded software) to a private investor, the BPO of pay rolling to Randstad, Philips' administrative back office to Infosys, and Philips High Tech Campus Eindhoven.
A corporate action in which a companybuysmost, if not all, ofthe target company's ownership stakes in order to assume control of the target firm.Acquisitions are often made as part of a company's growth strategy whereby it is morebeneficial to take over an existing firm's operations compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both. In order to make Philips a global leader in coffee machines, Philips acquired Saeco International Group S.P.A. of Italy, one of the world's leading espresso machine makers, which is acquisition strategy. Philips Electronics in order to move into the medical equipment industry through acquisitions competing in its expansion with giants competitors like General Electric and Siemens is being often warned of overpaying for the companies it acquires due to the current trend in high valuations of medical equipment firms. Philips expanded its product range after 1945 and launched its record label in 1951 acquiring Mercury Records in 1960. It continued to invest in record labels such as Deutsche Grammophon, Decca, and Motown through its PolyGram subsidiary which it sold in 1998 (Deckmyn, 2009). However, Philips was much less successful in entering the computer business (Deckmyn, 2009).
4.3 Strategic alliances:
A strategic alliance is a partnership in which businesses combine efforts in projects ranging from getting a better price for supplies by buying in bulk together to building a product together with each of partners providing part of its production. The goal of alliances is to minimize risk while maximizing the leverage and profit. Alliances are often confused with mergers, acquisitions, and outsourcing. While there are similarities in the circumstances in which a business might consider one these solutions, they are far from being the same. Mergers and acquisitions are permanent, structural changes in how the company exists. Outsourcing is simply a way of purchasing a functional service for the company. An alliance is simply a business-to-business collaboration. Alliances are formed for joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing, and research and development. Alliances often are established formally in a joint venture or partnership. Businesses use strategic alliances to achieve advantages of scale, scope and speed, increase market penetration, enhance competitiveness in domestic and/or global markets, enhance product development, develop new business opportunities through new products and services, expand market development etc. Strategic alliances are becoming a more and more common tool for expanding the reach of any company without committing expensive internal expansions beyond company's core business. Strategic alliances are an important part of business at Philips. Philips partners with more than 30 leading global companies to introduce products that have revolutionized the offerings on the market.(Koninklijke Philips, 2009). Some of the products made with alliances are Philips moisturizing shaving system with integrated Nivea for Men lotion, Senseo coffee pod system developed with Sara Lee, and Active Crystals sound accessories and USB devices developed in alliance with Swarovski crystals (Koninklijke Philips, 2009). Similarly, Philips collaborated with In Bev, a leading global company in the brewing industry in the production of draft beer. Perfect Draftbrings the great taste of draft beer into the homes, developed in collaboration with In Bev, a leading global company in the brewing industry.
Participation is another business strategy of Philips electronics. Actually the participation as a business strategy is getting significance these days as companies venture to collaborate in the production of goods and services. In participation a company holds a certain components of a product in which it has competitive advantage. For instance, Philips and Neusoft medical systems Co.Ltd. Jointly develop and manufacture computed tomography (ct), MR, ultrasound and X-ray equipment, on Neusoft Digital systems using previous production capabilities and product design. Philips holds 51% of the share in it.
4.4. Increased Product Development.
In the globally interlinked economy, product development capabilities are the basis for successful competition. Successful product development requires fundamentally improved approaches to organizing the development process, reducing cost, reducing waste, and providing the goods to meet the customer's needs in order to respond the global competition. IPD orients product design to customer needs and the company's production capabilities. It enhances integration of product and process design with strategic objectives, improves organizational effectiveness, and provides a framework for effectively implementing design technology
The global market these days is very competitive. There is a cut-throat competition among the competitors in which each producer tries to excel the other competitors. A company, however large it is, cannot always hold the global markets on its own resources. It cannot achieve competitive advantages in everything it produces. Due to this reason, the company has to adopt the cost effective approach in the production and distribution process. Because of these facts emerged the different approaches of strategies like acquisition, divestments, collaboration, product development, product variation, strategic alliances and collaborations. In the context of globalization of market, a company better flourishes if collaborates in certain productions to make the best products and efficiently and effectively distribute them worldwide. Philips company with its varied products and global prospects of its business should strike the strategic alliances to cater its products and increase its global market share. It is a good thing that Philips monitors its performance on a geographical axis and focuses on following market clusters: Key emerging markets, including China, India and Latin America; other emerging markets which includes emerging markets in Central and Eastern Europe, Russia, Ukraine and Central Asia, the Middle East and Africa, Turkey and ASEAN zone; and Mature markets which includes Western Europe, North America, Japan, Korea, Israel, Australia, and New Zealand (Koninklijke Philips, 2009).
Philips can go for joint venture with some companies and focus more for its own core competencies. It can collaborate for production or for the distribution purposes as well. The strategic alliances and collaborative projects Philips has adopted so are appropriate from the Business point of view. However they are not sufficient to acquire the broader spectrum of global market. The emerging markets are habitat to a fast-growing middle class group and Philips has great marketing opportunities in these geographical locations. However, majority of the world population who live on less than $2 a day also live in these areas (Koninklijke Philips, 2009). So, Philips should be able to make affordable yet durable and efficient products to meet the needs of the costumers specific to a particular geographical location. Besides these, the economically emerging market of Asia offers great opportunity for Philips where it can leverage its businesses by striking alliances with others in the distribution of its products.
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