Philip Vs Mitsushita: A New Century, A New Round

Case background:

This case is about two giants in the global consumer electronics market, namely Philips and Matsushita. Their international strategies and organizations are very different ÐŽV while the former pursued a localization strategy, the latter pursued a global standardization strategy; while the former made use of highly self-sufficient national organizations (NOs) for strong local responsiveness, the latter adopted ÐŽ§1 product 1 divisionЎЁ structure for cost cutting. Nevertheless, both companies encountered their difficulties as the global environment changed and have then undergone major restructuring over the years.

1. Aspiring to create significant product innovations at the beginning, Philips later became a leader in industrial research and was selling into diverse markets in the world. Also, by anticipating the war during the late 1930s, Philips transferred its overseas assets and research laboratories abroad and decided to build the postwar organization on the strengths of the NOs. Their greatly increased self-sufficiency during the war had allowed most to become adept at responding to country-specific market conditions and build the respective technical capabilities. In short, their technology-driven innovations and national responsiveness earned them the leading position as a consumer electronics manufacturer after WWII.

PhilipsÐŽ¦ competencies:

„« A long track record of innovations at local subsidiaries, which have developed strong research capabilities in different areas

„« Self-sufficiency of NOs allowed them to become adept at responding to country-specific market conditions, for example: local TV transmission standards, consumer preferences, and economic conditions.

„« Technological and research labs all supported by continued strong funding.

PhilipsÐŽ¦ incompetencies:

„« Creation of the Common market eroded trade barriers and made NOs less important

„« Ability to bring products to market began to falter

„« Company fragmentation presented by the miscommunication between NOs on product introduction and research. Unnecessary overlapping R&D projects were being conducted and Philips was once forced to abandon its superior technical product.

2. In the 1980s, Philips' competitive position weakened significantly. Competition from rapid technological change, emergence of global standards for electronic equipment and low cost Japanese manufacturers all contributed to the overtaking of Matsushita.

MatsushitaÐŽ¦s competencies:

„« Adaptive operational structure, e.g. quick adaptation to VHS technology

„« Flood of market-driven new products and outlets

„« Low cost as a result of global scale efficiency

MatsushitaÐŽ¦s incompetencies:

„« Highly centralized operations heavily relying on domestic technical support

„« Lack of leading technological edge and global learning makes it vulnerable to rapidly-changing market conditions and demand in the future.

3. Changes Philips have made today:

„« Close down least efficient plants and converting the best into International Production Centers to take advantage of the economy of scale

„« Replace dual leadership by single management to simplify company structure

„« Identify companyÐŽ¦s core business and sell off the rest

„« Cost cut in labor and R&D.

„« Spin off joint ventures with large company to share knowledge

Nevertheless, the changes have been made ineffective and difficult because (1) political and economic environment do not allow massive lay-off or close-down of plants and factories; (2) management has been short-sighted at resolving the problems listed in question 2 and hit the staff morale and the innovative spirit low; and (3) its technological edge is forgone in exchange for short-term cost reduction, resulted in the decline of its own competitiveness.

Changes Matsushita have made today:

„« Adopting ÐŽ§operation localizationЎЁ to help overseas company develop the innovative capability and entrepreneurial initiatives as Philips

„« Relocate major regional headquarters functions from Japan to other continents to decentralize operation control nearer to local markets

„« Invest in innovative and high-potential business with its huge capital reserve