Philips focuses on innovation, new markets

  • Business
  • Thursday, 29 Sep 2005

STRONG emphasis on innovation and increased focus on emerging markets have been identified by Royal Philips Electronics president and CEO Gerard Kleisterlee as two key ingredients for the company’s success. 

With the acceleration of the innovation-to-commoditisation cycle, companies that are already investing heavily in research and development (R&D) now even have to work harder before copycat producers, called “fast-followers”, catch up. In his speech at a Kuala Lumpur seminar yesterday, he cited various examples for this. 

One of them is Philips’ Distance Healthcare Advancement project in India, which has been bringing high-quality and low-cost healthcare to the rural poor using advanced technologies like satellite communications, telemedicine and diagnostic equipment all in a custom-built van. New categories, described as of having huge market potential, also need to be created.  

Kleisterlee, who is credited for turning Philips around financially in the last couple of years, said that while companies were focusing more on minor modifications and improvements to existing products, the best performers in the business were those that generate 48% of sales and 49% of profits from new products. One example is Philips working with Sara Lee to develop the Senseo coffee maker, which has sold 10 million units.  

Kleisterlee also illustrated the need to blend products and services. While Asia has been quickly taking to this, like Singapore’s Connected Home Project, the Europeans are still slow in the uptake in adopting integrated products and services. Unique blends like these can be a boon to the medical industry.  

Gerard Kleisterlee

Kleisterlee said that in the US, the Philips Motiva is a healthcare system that connects patients in the comfort of their own homes to care providers that are monitoring their condition, thus improving the quality of life for the chronically ill while driving down costs of managing chronic disease.  

In the light of shifting markets, Kleisterlee said: “We (in developed nations) are a temporary ‘digital glut’ caused in part by the collapse of the dotcom boom. Consumers are increasingly dissatisfied with what is on offer.” However, Philips has identified that consumers in the developing nations are eager for items that are easy to access and afford.  

“We can see enormous potential in both developed and emerging markets, and we believe continuous innovation is the key to unlocking this potential,” he said, adding that the company is reinventing the business from top to bottom to support this.  

Philips is expanding its outsourcing and partnership network, partnering with brands to supply components like optical drives and semiconductor chipsets.  

In Asia, Kleisterlee gave examples of collaborations between brands that are traditional competitors. Sony, LG and TSMC currently have alliances with Philips. Joint ventures that are set up, like the one with Neusoft in China, are enabling Philips to serve the low- and mid-end medical equipment market in China. 

Asia, as a centre of innovation, has not been forgotten. Philips began setting up R&D centres in the region four years ago, and now, Asian researchers have filed over 800 patents. Currently, it employs some 1,000 staff in China and Hong Kong, 1,200 in Singapore and 1,300 in Bangalore for R&D purposes.  

Every year, it spends US$2.5bil on R&D and currently has over 115,000 products in its patent portfolio. 

Kleisterlee, in concluding, reiterated the importance of innovation as the way ahead, not only in topping the competition but in pioneering new categories of products and services that help to generate value in emerging economies in the long-term. 

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