Top philips executive not only seeks profits
and a bigger market but also respect from customers
The
business model and management experience of overseas companies was introduced
to China a long time ago as a way of expanding the domestic market, but now the
trend is being reversed.
Royal
Dutch Philips Electronics Ltd, a diversified health and well-being company that
focuses on improving people's lives, will explore its "Chinese model"
and spread it elsewhere in the world.
"The
new emerging markets have a 30 percent share of Philips' business and China is
the leading market among them," says Patrick S. Kung, who joined the
company in 2008 as executive vice-president and CEO of Philips Greater China.
"China is one of the most profitable markets (for Philips), so it has a
big influence on the company."
In
July, Kung was appointed as member of the executive committee, which is
composed of 10 high-ranking executives in the company. The appointment was
symbolic of the importance of the Chinese market in the company's global
strategy.
"The
'Chinese model' is gradually influencing Philips' global decision-making. This
will have an impact on the company's future development direction," Kung
says.
In
addition to Kung, the directors of the marketing and supply chains of Greater
China are both members of the company's highest management team.
The
latest move by Philips in China is an investment of more than 25 million euros
by the end of 2015 in a light-emitting diode professional lighting program in
Chengdu High-tech Industrial Zone, in Sichuan province.
The
company is also working on establishing a second regional headquarters in
Chengdu, a central city in western China, aimed at expanding its businesses in
second- and third-tier cities.
At the
beginning of last year, the company announced that it will make China its third
"local market" in addition to the Netherlands and the United States,
which means that Philips Greater China will get more resources and its
executives will have greater power in regional decision-making as well as more
direct communication with the global leadership.
The new
headquarters in Chengdu occupies an area of 35,000 square meters, mainly for
designing and producing LED products and with a LED experience center for
customers.
"We
will seek a business model closer to the local market, especially for central
and western China, which will help the company achieve greater success
nationally," Kung says.
He adds
many important social topics proposed by the Chinese government's 12th
Five-Year Plan (2011-15) will help Philips expand its businesses and further
deepen its participation in the Chinese market, such as improving medical
services and saving energy.
In the
next 10 to 20 years, China's population will face a severe aging problem. By
the end of 2020, more than 20 percent of the population will be more than 60
years old. Kung believes the consequent added pressures on health and medical
services will bring opportunities to Philips with its advanced healthcare
sections and high-tech medical equipment.
"The
size of China's middle-class population is increasing. They have stronger
buying power and demand better product quality," he says. "According
to our analysis, the three departments of the company, namely healthcare,
lighting and consumer lifestyle, all fit the long-term development of China and
its people."
As a
member of the executive committee, Kung communicates with the global management
team directly about the challenges and opportunities in the Chinese market and
shares his experiences in China with other market leaders.
He says
China is "super important" for the company's global marketing.
Philips
started reorganizing in China in 2009 before it announced China's role as its
third local market. That year it invested $54 million (41 million euros) in
building a medical equipment basement in Suzhou, Jiangsu province, targeting
medium-sized clients.
At the
beginning of 2011, the company moved the global headquarters of its home
appliances department to Shanghai. In addition, its Asia-Pacific headquarters
for professional lighting and home lighting were moved to Shanghai and
Shenzhen.
"More
resources are flowing into China. Moving the LED headquarters to Chengdu, in
cooperation with the local government, was decided in a relatively short time
thanks to the strategy of China's local market role," Kung says.
However,
the cost of LED is still high, and most of the products are bought by local
governments for city lighting projects in China. Many industrial insiders are
of the opinion that overseas companies don't have advantages in the LED
business compared with domestic ones because of limited connections with local
governments.
"Local
governments play important roles in the LED businesses because the central
government encourages it," says Tommy Leong, vice-president and area
marketing officer for Philips Greater China. "It is true that we need more
interaction with policymakers.
"Unlike
in many European countries, China's government has given strong support to the
LED industry, which has a positive effect on the development of the LED
business, especially for LED street lighting," Leong says.
He adds
that, in general, sales of the lighting sector make up 40 percent of its
business as a whole and the lighting business in China accounted for 10 percent
of the company's global lighting sales in 2011.
Obviously,
China is a market that cannot be ignored by Philips.
The
company released its 2011 fourth-quarter fiscal report in January, saying that
the company realized 3 percent year-on-year growth in sales in all of its
businesses. The biggest contributor of growth came from the lighting business,
which increased 7 percent year-on-year.
Within
the lighting arm, sales of the LED business had a growth of 37 percent
year-on-year, accounting for 18 percent of the entire lighting business.
Frans
van Houten, global president and chief executive officer of Philips, said the
company's performance in the fourth quarter was affected by uncertainty over
the European economy. He predicted the company's business will be influenced
similarly this year but the company is still expecting an increase in profits
in the latter half of 2012.
In
2010, China overtook Germany, becoming the second-biggest market for Philips
after the US. Among its businesses in the Chinese market, LED had the fastest
growth.
In
early November, China's National Development and Reform Commission announced
that the country will gradually stop importing and selling electric
incandescent lamps, a move seen as an incentive for the LED industry.
According
to analysis by the Topology Research Institute, China's domestic LED market
will boom this year. The market scale will rapidly grow from $2.8 billion in
2011 to $8 billion, an annual increase of 185 percent.
Leong
says Philips will not compete with thousands of domestic LED companies on low
prices. Rather, it will work on providing clients with the most advanced and
customer-oriented entire LED "solution services".
"We
have to react fast in the LED industry even though we have a long history of
research and production," he says. "We need to be more creative on
lowering the costs and meeting the demand, which is also the key reason that we
increased investment in western China."
According
to Philips, there are about 5,000 traditional lighting companies and 4,000 LED
makers in China.
As the
CEO of Philips Greater China, Kung's ambition is far more than just growing the
market and increasing profits. He wants to win respect for Philips in China.
"The
continuous increasing of sales and profits in China is one part of our
goals," he says. "I want to build Philips into a brand that is loved
and respected by the Chinese. Let me give an example: I hope that one day, once
a young person gets the chance to work at Philips, his or her parents will be
proud of him or her. Once the customers think about Philips, they will have
strong trust in its qualities."
Having
worked at Motorola for 27 years in various executive level roles in the US and
Asia, Kung has extensive experience in managing multinational corporations. He
is also very familiar with the Chinese market.
He says
he found a freer and bigger stage at Philips where he can fully use all his
former experience in his new job.
"The
global board encourages me to try to explore. When we achieve something, we can
try even more. That way we will keep trying and achieving," he says.
Du Juan
China
Daily European Edition
Business & Investment Opportunities
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