Philips

Philips versus Matsushita:

The Competitive Battle Continues

Throughout their long histories, N.V. Philips (Netherlands) and Matsushita Electric (Japan) had

followed very different strategies and emerged with very different organizational capabilities.

Philips built its success on a worldwide portfolio of responsive national organizations while

Matsushita based its global competitiveness on its centralized, highly efficient operations in Japan.

During the first decade of the 21st century, however, both companies experienced major

challenges to their historic competitive positions and organizational models. Implementing yet

another round of strategic initiatives and organizational restructurings, the CEOs at both companies

were taking their respective organizations in very different directions. At the end of the decade,

observers wondered how the changes would affect their long-running competitive battle.

Philips: Background

In 1892, Gerard Philips and his father opened a small light-bulb factory in Eindhoven, Holland.

When their venture almost failed, they recruited Gerard's brother, Anton, an excellent salesman and

manager. By 1900, Philips was the third largest light-bulb producer in Europe.

Technological Competence and Geographic Expansion

While larger electrical products companies were racing to diversify, Philips made only light-bulbs.

This one-product focus and Gerard's technological prowess enabled the company to create significant

innovations. Company policy was to scrap old plants and use new machines or factories whenever

advances were made in new production technology. Anton wrote down assets rapidly and set aside

substantial reserves for replacing outdated equipment. Philips also became a leader in industrial

research, creating physics and chemistry labs to address production problems as well as more

abstract scientific ones. The labs developed a tungsten metal filament bulb that was a great

commercial success and gave Philips the financial strength to compete against its giant rivals.

Holland's small size soon forced Philips to look aboard for enough volume to mass produce. In

1899, Anton hired the company's first export manager, and soon the company was selling into such

diverse markets as Japan, Australia, Canada, Brazil, and Russia. In 1912, as the electric lamp industry

began to show signs of overcapacity, Philips started building sales organizations in the United States,

Canada, and France. All other functions remained highly centralized in Eindhoven. In many foreign

countries Philips created local joint ventures to gain market acceptance.

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In 1919, Philips entered into the Principal Agreement with General Electric, giving each company

the use of the other's patents, while simultaneously dividing the world into "three spheres of

influence." After this time, Philips began evolving from a highly centralized company, whose sales

were conducted through third parties, to a decentralized sales organization with autonomous

marketing companies in 14 European countries, China, Brazil, and Australia.

During this period, the company also broadened its product line significantly. In 1918, it began

producing electronic vacuum tubes; eight years later its first radios appeared, capturing a 20% world

market share within a decade; and during the 1930s, Philips began producing X-ray tubes. The Great

Depression brought with