'Commerce is all about speed and efficiency'

After having traveled to India for the past 15 years,

Robert (Bob) Kobes is no stranger to the country. This time around he comes with

a different view of what the country hold for the growth of Philips. In an

exclusive interview with DQ Channels, Bob openly shares the times when Philips

had faltered, and the plans it has now mapped to regain its lost glory.

Customers used to buy Philips monitors simply because it

was the cheapest in the market. But since January 2006, you have increased your

prices vis-à-vis your competitors. Will this not be detrimental to your

business?



What we try to bring to the table is a very high quality product at a

reasonable price. We try not to approach the market on price. In the beginning

of the year we have adjusted our prices. This is primarily because our cost and

quality will not allow us to make any money if we just stuck to a discount

price. Even in India, the quality of our monitors has always been the best in

the industry, including Samsung and LG. 

How many system assemblers look at the quality over price

as a criterion for pushing a monitor?



If an assembler is confident about the quality of a monitor, he knows it

will not come back and that for him has tremendous value. If he sells a

low-quality product to his customer and it comes back, it will create a lot of

headaches and incremental costs to him.

Our experience with assemblers globally is that once the

relationship and trust is built, the partner understands the quality level that

we sell. He would even accept a price increases and pay an additional cost for

that quality. 

If we go by quality there is little to choose between

Samsung, Philips and LG. 90 % of the monitors that we have in our office are

either Samsung or LG. We personally haven't had any issue with regard to the

quality of these monitors.



Quality is not the final point. But a customer does appreciate it.

Ultimately, the assembler benefits most, because if he is bundling products with

a monitor of better quality, it is fewer headaches for him in the future. 

But do you feel that the product quality of your

competitors is bad?



I will not say that they are worse, but it depends on the competitor and it

also depends on the type of products we are talking about here.  

Don't you think somewhere along the line, Philips has

missed the bus in India. This is especially keeping in mind the fact that there

were several business opportunities when Samsung was going through troubled

times. Somehow Philips was unable to leverage on this situation in spite of

having an established brand name and presence in the country?



The Philips brand name is a great asset. However the brand name is more

associated with consumer electronics and lighting, than with the IT business.

Throughout the world, wherever we are present, the brand recognition that we

have in the IT business is limited.

We have not seen customers perceive the Philips brand as a

strong one and therefore they would buy an IT product, just because Philips has

great recall in the CE space. A perfect analogy here would be Nokia. Today,

Nokia has a great phone brand. But for many years they also sold televisions,

and were not as successful in that business.

But in the IT business you don't have to convince your

consumers. A customer is not buying just a Philips monitor. He is buying a

complete computer with a Philips monitor. You just have to convince the OEMs or

local assemblers to use Philips monitors with the PCs, rather than the consumer

at large.



The assembler market is a fiercely competitive one. And Philips is not the

only brand competing out there. It very much depends on several other factors

like when you enter the market, the nature of distribution in place, having the

right product and giving the right pricing. These are very basic issues.

But this could still not have stopped you when in trying

to build your brand when Samsung was floundering?



Last year when Samsung was in disarray, we recognized that and opened up the

doors to our distribution channel. Up until that point, our distribution

partners were small organizations. As a latecomer it is hard to break in to the

first rank of the distribution that the competition already had control over.

That allowed us to open up our own distribution channels, which is why we

partnered with Redington and Ingram Micro.

But once you have a new partner it takes time for them to

understand the product line up. They need to be trained and they need to

understand that we do not want to do everything exactly like the competition is

doing, because that defeats the entire purpose of having another brand. So we

are now under the process of consolidating our positions with our key partners

in the distribution and step by step building that up and making it more

interesting for us as well as our partners.

But what were the reasons for your late entry into the

Indian market?



One of the issues we faced in the mid-nineties to late-nineties was how to

go to market in India. Yet another confusion was whether we should adopt an

offshore approach, where we would not actually do business in India, but do

business from outside buying from Singapore.



This deliberation saw us lose five years. This offshore approach was very
successful for our consumer electronics business, particularly in televisions.

In this case, we flooded the market. As a result, even today, we have strong

brand recognition, because of this tactic.

We thought we could adopt a similar way of working with the

IT industry. Not until 2000-01, did we realize that this was not a sustainable

strategy. Also having seen that Samsung has invested in local product

facilities, it was just not sensible to bring products or manage business from

offshore.

As a result, we were three to five years late in starting up

our IT business in India. When we finally started in 2001-02, we already had a

four to five year delay in establishing business. 

What about the presence of your competitors in the market

at that time? How big a threat were they?



Two giants, LG and Samsung, had built up a position for themselves around

the time we entered the Indian market. Both had established manufacturing

facilities in the country, which gave them great advantages with respect to duty

structure and countervailing duties. This allowed them to be able to position

their products very competitively and also disallow newcomers trying to take

away part of the business. 

What new technologies are coming up in the future display

market?



There are two new technologies, which is actively getting developed. One is

the Organic Light emitting diodes (OLED) and surface-conduction electron-emitter

display (SED). SED panels are based on the cathode ray tube (CRT) technology and

it is more meant for TV than monitors. OLED will be used in small amplification.

Therefore it is far more suitable for mobile handsets and laptops.

OLED will be competition against LCDs and SED will be

competing with the plasma technology. Both these technologies are expected to

become very popular over time. 

Recently, we have been seeing CRT monitors that are

slimmer by 30% to 40%. Will this new technology put CRT business back in the

limelight?



CRT has inherent negatives as well. As the volume goes down, the product

efficiency of CRTs will become lesser. And the trend is indisputably going that

way.

The advantage of the slim part is limited. We believe LCD

technology is much better and much slimmer. Maybe these slim CRTs will be used

more in the TV segment, which uses bigger picture tubes.  

What is the current balance between LCD and CRT desktop

monitors worldwide and in India? What is driving this difference in the India

market?



Worldwide the percentage ratio of LCD versus CRT monitors is around 78:22.

In Asia Pacific it is around 57% for LCD and 43% for CRT. In India, the ratio

LCD is very low compared to CRT but changing very fast. Maybe by 2009 we can

hope to see a lot of changes.

Incidentally, Philips' marketing spend on the IT

business is pretty low. It is not a sustained marketing promotion. Does this

have any effect on your branding strategies?



There is only so much money we have. But we ensure that there is dealer

involvement in our programs. This is why we develop and devise various channel

partner schemes. Our approach is to do it a couple of times yearly.

What changes have you seen in the way business is being

conducted in the country?



There is a tremendous change from the way things were 10 years ago.

Especially with the VAT implementation. The simplification of the whole

government involvement is still not there yet. We always have lot of debate and

discussion all the time about how easy it is to do business in India and it is

still not that easy. If I compare to lot of other developing market like China,

New Eastern European countries, it is easier to do business there.

From the government's side, because India is a democratic

country, there is lot of involvement of various states and there is lot of

opposition. This creates lot of difficulties in the development process.

If you have to run business efficiently, you should have one

norm and not 12 or 15 norms, which can hinder growth. This is where China gains

because of the communist background, which forces a lot of uniformity in the

country.

The infrastructure of India is still very challenging,

particularly an efficient transport system for transferring goods from one state

border to another. It all adds to the cost if the infrastructure is not good.

Commerce is all about speed and efficiency. So these are absolute critical

elements that government needs to address so that it helps companies like

Philips. 

Despite all the issues, many companies have prospered in

India. Philips could have done a lot better that what it has done until now. Do

you really think all these have impacted Philips?



Yes, it is has impacted us from the cost and speed point of view, primarily

because Philips is an established company in India with a lot of history.

Therefore we carry the baggage of history with us and for us to change is also

difficult.

If you are a newcomer - a company that doesn't know India,

and doesn't have all of those historic impediments - it is easier to get

started. It is not only Philips that has this issue; all the companies that do

commerce in India face this problem, including Indian companies.

The latter may be a little bit more adept in finding ways

around the system, which is an advantage that they can use. But as a western

company we prefer to play on an even playing field. We would rather not be at a

disadvantage because of local insight or knowledge of getting around some issue

that allows them to do things more efficiently. But at the same time this might

not be entirely legal and we would not like to get involved in such activities.

You will agree that every country in the world is

different and every country has a different way of doing business. It is how the

company concerned adapts to the local way or culture of doing business. Why is

it that Philips has not been able to do that, despite being one of the older

players in India?



I think there is a difference here. One issue is with regard to the

efficiency of commerce and the other issue is with regard to the customer

requirements and preferences. I totally agree that individual approach to

different countries is required.

But when it comes to straightforward import export of

products, or transporting good from point A to B, for me it is no different

whether you go from Beijing to Shanghai or Mumbai to Chennai. That is just

transport. You can do it at a very low cost and efficient way of working with

very little problems. Or you have to go through hoops and it takes three times

the time. That's what I mean by saying that there are certain elements of

infrastructure that needs to be improved.

Philips has been doing its business on its own everywhere.

It could have partners with some other local company to kick-start its Indian

business, couldn't it?



Initially, we had Packo, which was a local company before Philips was able

to utilize its brand name. And we employed primarily Indian nationals in our

business in India. It is not that we employ lot of foreigners to run our

business in India.

It is very much that Philips always had the approach to use

and employ people from the countries that Philips is working and not bring in

many foreigners like other companies from Japan, China or Korea does.

In Korean companies we see that at the CEO level there are

Koreans. But Indian people do all other key functions. That is why they have

been able to handle things better. Do you agree?



As far as I understand many Korean companies will employ lot of local

people. But next to the local people they will put another Korean as a kind of

minder.

They have been far more successful!



They bring in a whole group of people at the managerial level, which allows

them to be disciplinarian because they all think the same way. But, on the other

hand there is a drawback that they do not use the local people of the country

and opportunity to grow in their corporation to higher levels. In the case of

our Japanese or Korean competitors, it is very rare that you will see

non-Japanese or non-Korean people in the higher elements or the higher grades.

Asim Raina &

Nelson Johny