Europe's electronics giant 'thinks lean' to fend off Japan's inroads
Eindhoven, the Netherlands
On a continent where it is used to having its own way, Philips--the Netherlands' and Europe's giant in electronics--finding a big new player in its ballpark. And the rookie is forcing the old-timer to play by some new rules.Skip to next paragraph
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Philips's almost total dominance of the Western European electronics market is being challanged by the Japanese, who have been doing to Europe in recent years what they have done to the United States for two decades.
From a rather small presence in Europe, "Japan Inc." has rapidly increased its sales of television sets, radios, video recorders, computer components, and integrated circuits. Even on Philips's own turf, store windows in Holland display a host of Japanese brands, including Sony, Panasonic, Casio, and Toshiba.
For Philips, part of the strategy for fighting the Japanese onslaught in Europe and the rest of the world is to make itself a leaner organization, consolidating plants and buying companies that have the new technology it needs, instead of trying to develop every new product itself.
Since its founding in what was the tiny town of Eindhoven in 1891 to produce light bulbs, Philips and Eindhoven have both grown considerably. Eindhoven is now the fifth-largest city in the Netherlands and Philips is the largest producer of electrical and electronic products in Europe.
Even as he was starting his light bulb company with the help of an advance from his father, Gerard Philips was trying to figure out ways to expand into other products.
Today, his company seems to be trying to disprove the notion that "you can't be all things to all people." The range of Philips products includes just about everything that runs on electricity or batteries, and includes the batteries, too.
Some observers have faulted Philips for trying to be involved in too many product lines and "reinventing the wheel"--building every appliance and component from scratch themselves, including clocks, televisions, and computers. But company officials retort that to build one product, you have to fully understand related products, so why not build them, too?
Now, however, some new realities are causing a shift in this philosophy and forcing Philips to cut back some of its endeavors. A "rationalization" plan, announced late last year, is supposed to reduce excess capacity and close several of the company's European plants. Instead of having nine European factories producing TV tubes, for instance, the plan calls for this number to be cut to two.
Starting last year, and continuing for the next two years, Philips plans to cut its European work force by about 10,000 a year.
The past year was a good time to start cutting back, because while Philips's sales around the world continued their steady increase, reaching $18.2 billion in 1980, profits have been dropping lately. Last year they slipped a lot, down 42 percent, hitting their lowest level since 1971.
While part of the blame can go to the recent recession, which hit Europe harder than the United States, and cut sales of profitable home electronics products like stereos and televisions, Philips executives acknowledge their company and extended its reach a bit.