NZ consumer electronics division pleases Philips

By MICHAEL FOREMAN

When Frans van Houten was appointed Asia Pacific managing director of Philips consumer electronics a year ago, he reckoned he could take his time before visiting New Zealand.

"Coming here wasn't my first priority," he said, during his first trip to meet local staff and customers last week.

But that comment was more of a compliment to Philips New Zealand than a snub.

Philips' consumer electronics division accounts for almost 30 per cent of the Dutch manufacturing conglomerate's worldwide sales of close to $US30 billion ($62.5 billion).

Based in Singapore, Mr van Houten's turf covers 15 countries spanning the Middle East and Africa as well as Asia Pacific. Within this empire, New Zealand is one of Philips' best-performing territories.

The local slice of the company's $US1.5 billion ($3.25 billion) regional consumer electronics revenue is relatively small at 4 per cent, or about $125 million, but its market share is impressive.

"In the big markets we typically have a 6 per cent market share. Here we have 25 per cent. I've come here partly to understand why we are successful here and re-export that success."

Mr van Houten said this might occur through the export of its young talent - a New Zealander was recently sent to South Africa to help shore up a gap in marketing strength - or by communicating the "best practices" developed here.

Philips is aiming for a far more consistent average of 10 to 15 per cent market share across the region.

"As a global brand with a huge technology base, we should be able to achieve that. Asia is still quite scattered and that is not the way to run a global brand. We have to raise the bar."

"Raising the bar" will partly involve getting the latest technology to the market in the shortest possible time.

On the manufacturing side, this means reducing the number of factories. Philips is establishing a "global supply footprint," with perhaps two "mega-factories" in each region.

"You benefit from economies of scale and far better supply chain management - not only downstream to distributors and resellers but upstream as well. It's easier to persuade your suppliers to set up next door."

Cutting down manufacturing cycle times and delivery times to the customer is critical in an industry where goods are subject to price erosion of up to 10 per cent a month.

"Every day that a product is in shipping it loses value."

Consumer electronics is at an extremely dynamic stage.

"Phones and computing and entertainment will all merge. It's really happening now; it just took a bit longer than we thought. Our 100Hz Matchline TV, for example, already includes more processing power than four Pentiums. Digital technology is taking over in every product."

In the United States, Philips has already sold one million set-top boxes offering high-speed internet access through ordinary television sets. Another recent launch there is a personal TV that includes a hard disk that can store up to 30 hours of programming. Artificial intelligence software builds up a profile of your viewing tastes and, along with your preferences, automatically saves programmes while you are out.

From next year, the TV can be linked to a DVD recordable player. The idea is that the hard disk is used for temporary storage and DVD disks for longer-term archives.

"DVD recordable will give you the opportunity to stack the disks in your bookcase and feel good about your collection."

Mr van Houten said the internet experience on a TV would not be the same as that on a computer.

"You won't have to log on, do this, do that ... the interface will be much simpler."

Instead of browsing for MP3 music files, for example, users may prefer to tune in to a personalised MP3 "radio station."

Judging by Philips' early experience with set-top boxes, chat rooms and e-mail are applications that people like to run from the couch as well as the desk.

Home shopping or participating in TV quiz shows also look promising areas for development.

Mr van Houten could not say when the personal TV would be launched in New Zealand.

The overall business model has to be right before new technology is introduced. For example, Philips delayed the launch of CD-R (recordable CDs) for several years until the price of the blank disks, which originally cost $100 each, became affordable.

"We take things country by country, with the big economies first."

In this region, China is the "big economy" which Philips believes is destined to become the world's largest market for consumer electronics within five to 10 years.

"In quantity, it is already as large [for Philips] as the US, with 25 million units sold [of all product types], but at a lower value."

Philips has established itself as the biggest foreign consumer electronics brand in China and competes aggressively with local manufacturers.

"They want to replicate what Japan did in the 1960s ... and we certainly don't want to see that repeated."