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1、TEXT Introduction The environment of Philips Industries may well be called competitive.The situation in which we are doing business is difficult and we use terms such as targeting and strategy to describe attack and defence.We regularly take many far reaching and important decisions,which do not onl
2、y affect the cash flow and profitability,but also the well-being of our employees,the integrity of the physical environment,the prosperity of the countries in which we are operating and many factors which contribute to the quality of life.I will concentrate on the strategy we adopted to maintain our
3、 position vis-vis our competitors,and I will not dwell on the many applications of information technology we are using today and which we consider an operational necessity in all our business sectors.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,The Company
4、In case you are not familiar with Philips Industries the following will introduce this electronics company.Philips Industries is a diversified electronics company operating in about 60 countries in the world.It had a turnover in 1987 of circa 53 billion Dutch guilders or 26 billion Dollars,which too
5、k Philips to the 22nd place on Fortunes list of the worlds largest companies.On the same list it is the 7th largest electronic company,operating 370 factories and employing 330,000 people,24,000 of them in R&D.The company is based in Europe,where about 62 per cent of the total turnover is generated
6、in 170 factories.Philips was established a hundred years ago,when manufacturing of bulbs started in Eindhoven.Philips still is prominent in the business of lightingthe world leaderand the company hopes to maintain that position.,Unit SixteenMultinationals in a Competitive Environment:The Case of Phi
7、lips Industries,Other product sectors include consumer electronics,where Philips is the second largest in the world,telecommunication and data systems.This last sector includes a broad scope of products and services in computers and business communication in the widest sense of the word.Philips prof
8、essional products and systems include medical equipment and a wide range of test and measuring equipments of all kinds for laboratories and industries,as well as machines and tools for industrial production.Furthermore in the field of domestic and personal appliances the company produces nearly ever
9、y product that has to do with home care and food preparation.Finally,the components activities:this year the estimated production will reach some 35 billion components.Philips is one of the largest producers of TV tubes and it ranks 7th in ICs(integrated circuits).Although many of these components a
10、re used for its own products,the largest part is sold to other users.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,The Competitors This is what Philips does;what about the competitors?Let us once again start with lighting.In this field Philips has a comforta
11、ble position,it is one of the worlds leading suppliers:number one in Europe,third in the USA and a steady position in the Far East.For consumer electronics the story is different.The Far Eastern countries are competing for the world market.The following is not a systematic review,but only a selectio
12、n of recent data.It does however give a good impression of the competitive environment.In video cassette recorders,South Korea is rapidly becoming a large supplier.These recorders are sold below cost price in Europe.In August 1988 the European Community installed dumping percentages for Samsung,Gold
13、star and Daewoo,and has permitted France to ban the import of 300,000 TV sets,manufactured by Japanese companies in other countries of the EC.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,These TV sets are assembled from components produced in the Far East s
14、o they do not satisfy European requirements that at least 45 per cent of the value added should be of European origin.Four Japanese companies manufacture compact disc players for the European market in France and one in the UK.Recently,Matsushita and Bosch started producing CD players in Germany.Fou
15、r other companies are ready to assemble CD players in Europe.In these examples,the EC is cited as protecting the European electronics industry.Far Eastern manufacturers are eagerly seeking a foothold within Europe,and they will come and make life difficult for Philips in its own territory.This is qu
16、ite permissible in an sic situation of free competition,but this situation presupposes reciprocity.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,The question therefore is:does Europe have access to the markets in Japan and Korea?Mr Andries van Agt has put th
17、is as follows:is there any political,legal or moral obligation for Europeans to just open all the gates to the 1992 gold mine of opportunities that they so laboriously dug without asking any fee for the entry ticket?Let there be no misunderstanding,the preference of Philips Industries is not protect
18、ion,but the rules of fair play have to be respected on both sides,and that excludes dumping.Let us now turn to the field of telecommunications.The market for small computers is volatile,with new names and systems springing up almost overnight.The big companies,however,are still American,like IBM,but
19、 Japan and other Far Eastern countries are coming up rapidly.Many a personal computer comes from the,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,Pacific to America and Europe.These computers are known as clones.As soon as IBM has introduced a new model,its
20、Far Eastern competitors buy it in order to imitate and sell it for half the price.In telecommunications most European governments abide by their national champions.Developing a modern digital telephone exchange,however,will cost no less than one billion dollars.To make up for these costs the produce
21、rs need a free and international market in Europe,not a restricted one.We have already seen the first steps towards a free market and European directives will further promote this development.If we take a brief glance at the domestic appliances sector,we notice that these products are marketed regio
22、nally.Europe,the US and Japan are supplied by their local manufacturers,with production on the largest possible scale for competitive prices.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,Finally we turn to the production of components.This is the basic activ
23、ity of the electronics industry.The Japanese industries supply about 45 per cent of all electronic components in the world.Of these components the ICs are the most important.In this field Japan has 48 per cent,the US 39 per cent and Europe a mere 11 per cent of the total market.In memory ICs Japans
24、share is 80 per cent to 90 per cent.American computer manufacturers and their European counterparts are painfully dependent on Japanese supplies;even the manufacturing of strategic defence equipment is no longer possible without them.Another area in the production of components consists of TV tubes.
25、Here Philips is the market leader,but Japanese manufacturers are close second and third and have built a number of plants in Europe.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,All in all,competitors in the field are the Far Eastern countries.What happens o
26、ver there?These East Asian nations,Japan and Korea;to what do they owe their spectacular success?How have the Japanese managed to get the highest per capita GDP after the Swiss?Japan emerged from the Second World War in a poverty stricken state.Hard work was the only way to survive.There was a perma
27、nent shortage of rice and in winter the Japanese kept their overcoats on in the house.They started to work and rebuild their economy.Today,the average Japanese production worker works 44 hours a week.Until recently only one out of four Saturdays was a day off.Koreans even work 60 hours per week.In H
28、olland production workers have twice(or more)as many holidays as people in the Far East and Dutch trade unions want further reduction of working hours.In Germany they want a 35 hour working week with no loss of wages.This gives you an impression of the relative competitiveness.,Unit SixteenMultinati
29、onals in a Competitive Environment:The Case of Philips Industries,Wage costs are also illustrative.For every guilder a Dutch production worker costs,his Belgian and German counterpart cost slightly more.However,his counterpart in Japan costs 84 cents,in Korea 15 cents and in the Philipines sic only
30、just about 5 cents.It is mainly in the expensive European countries that Philips has large production units.In reducing the cost of production,outstanding results have been achieved with automation and streamlining.For example,the assembly time for a TV receiver was once 12.5 hours,today between 30
31、and 50 minutes.The same techniques,however,are known on the other side of the world,so that the difference between one guilder in Europe and 15 cents in the Pacific cannot be offset.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,In terms of economic decision-
32、making the problem seems rather simple and straightforward.One of the fundamental laws of economics states that production will take place where costs are lowest.Do we Europeans want to see the electronics industry disappear to the Far East?This time it must be a decision not just by the industry in
33、volved,but by the entire community in which governments and trade unions have their part as well.The laws of economics are sometimes merciful.For years the Japanese kept their exchange rate low,an appropriate thing to do for a developing country,but economic laws cannot be forced forever.Finally the
34、 system exploded and the Japanese yen rose by 100 per cent with respect to the dollar and 15 per cent to the mark and the guilder.It remains to be seen if the latter adjustment improves the current economic relationship.If not,further adjustments will be inevitable and this will help to restore Euro
35、pes competitiveness.,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,The discipline and dedication shown by factory workers in Japan and Asian countries is remarkable.The same dedication could once be found in Europe too.Back in 1891 after a long working day th
36、e labourers walked back to their homes in Woensel.When there was a large order they were prepared to work long hours and sometimes slept on the factory floor.This shows dedication.The high quality standards in the Japanese industries were purposely built up over many years.The same is happening in s
37、ome fields in Europe today.Strategies The Japanese work towards well defined goals.Once a new industry is established in the home market,they start exporting,as happened with cameras,motorbikes,cars,video products,and ICs.Their target then is a large share of the world market.In order to acquire thi
38、s market share,they offer their products temporarily at,Unit SixteenMultinationals in a Competitive Environment:The Case of Philips Industries,very low prices.In this way video products appeared on the targeting list in the 60s and 70s.When the American industries saw their margins fall,they turned
39、to low wage countries for production.Japans next move was to supply ready made products,radios sic and TV sets,under the name of well-known American manufacturers.This had two major strategic consequences.First,the erosion of US production,as there was no support for product development.For new prod
40、ucts like CD players and video recorders,there was no base in the US for American standards and American design.Secondly,the Japanese obtained free access to the US market.Normally,the creation of ones own network in a country like the US would require an enormous investment.,Unit SixteenMultination
41、als in a Competitive Environment:The Case of Philips Industries,Is Europe going the same way too?What will the European electronics industry look like in a hundred years?Will the major European companies be bought up,like American brands such as RCA,Magnavox,etc.?What is Philips answer to this,and h
42、ow is it to face the challenge?To face the challenge of the Japanese electronics industries,considerable changes are needed,sic These changes within Philips Industries will concern in the first place its strategy in selecting products and markets.Secondly,its structure,organization and costs will be
43、 affected.Lastly,its culture,attitude and internal behaviour will have to change too!With regard to strategy a distinction has to be made between strategic alliances,or cooperation,the product strategy and the geographical market strategy.The first two belong together.For some of Philips activities
44、it would be an advantage to enter into strategic alliances or joint ventures,as it already did in the case of public switching and transmission(together with AT&T),optical media(together with Dupont de Nemours),and,recently,major,Unit SixteenMultinationals in a Competitive Environment:The Case of Ph
45、ilips Industries,domestic appliances in a joint venture to be set up with Whirlpool.So with R&D cost shared and the scale of operation increased,the continuity will best be safeguarded.Lighting,though,presents a special case.Being the first in numbers and technology,a greater independence of this di
46、vision with the task of maintaining its position,is called for.Interlinked activities,however,will be carried out in the field of components,consumer products,information technology and communication,all of which represent technologies basic to the company.Philips cannot experience healthy growth wi
47、thout an independent position in these fields.With digital techniques entering more and more into the consumer products field,interlinkage becomes more apparent.To make better use of the possibilities of interlinkage,the divisions involved are represented at the highest management level.,Unit Sixtee
48、nMultinationals in a Competitive Environment:The Case of Philips Industries,As far as geographical market strategy is concerned,trends towards global markets and global production are clearly visible.Three markets are prominent:USA,Far East and Europe.Philips Industries decided to integrate America
49、in its global market and therefore tightened its grip on the US market.In 1986 the company dissolved the US Philips Trust.An offer was made for the outstanding shares to turn the Philips group into a wholly-owned susidiary sic in the US.In the Far East Philips is continuously expanding its productio
50、n base.It has joint ventures with Matsushita,Marantz and Nippon steel in Japan.These important changes in the organizational structure will affect working relations with product divisions and national organizations.Philips has opted for global control via the product axis.The final reponsibility sic
