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3.

COMPARISON OF PHILIPS VERSUS MATSUSHITA


Philips and Matsushita are among the largest consumer electronics companies in the
world. Their success was based on two contrasting strategies. It seems that Matsushita
and Philips had adopted two cultural extremes in their organizations; Matsushita with a
highly centralized operation that dictated global operations, Philips a conglomerate of
similar businesses with little central coordination. Both realized that they needed to adopt
the best practices from the other company. In a mass-market like consumer electronics,
this would mean a strong central organization that could develop standards for emerging
technologies in order to develop economies of scale for production, yet has the flexibility
to adapt the standards to fit the desires of local markets.
3.1. Value chain comparison
Philips Mashushita
Centralized
versus
Decentralized

Decentralized:
-Depend on National organizations to
respond to local market.


-Moving towards more centralized
decision to cut cost and enjoy
economies of scale.
Centralized:
- Most decision made by
headquarters and product division in
Japan; local subsidiaries are mostly
sales and marketing
- Moving towards localization to
response better to customer demand
and preference, PDCC is one of this
initiative.

Outsourcing
versus in-
house

Outsourced:
- Most manufacturing are outsourced
or offshored to low-cost regions.
Mostly retain R&D and sales and
marketing only.

In-house:
- Directly control most manufacturing
operations located in Japan, Asia
and China

As compared above, the main challenges that two company is facing significantly
show the pros and cons of different strategy they set for their company: While
Philips strategy decentralized so heavily and based on outside resource, Mashushita
appeared to be too centralized with its in-house manufacturing operations.
Philips value chain is mainly based on an aggregate of NO. They have decentralized
R&D centers and had constantly tried to shift the balance back and forth between PDs
and NO. Finally they decided to create business units responsible for profits. In essence,
these business units hold the value chain for each product. However this business unit can
probably leverage the sales organization that is spread around the globe. As a result of
decentralized structure, Philips strengths could be genereated from powerful and
autonomous national organizations (NOs). However, this also lead to a lack of company-
wide strategic cooperation among NOs and accountability in NO/PD matrix. Philips
management method, which is controlled by technical and commercial consensus makes
it slow to response to different situations in business.Besides, Philips also faced with
inefficient production due to local production centers.
On the other hand, Mashushita pursued a centralized strategy and product divisional
structure. Matsushita, for the majority of its life span, was highly focused on central
management and Japan based product divisions. The central R&D got its resources from
the product divisions. The international operations were traditionally just local
manufacturing to overcome import / export obstacles. The main components and
knowledge was always Japanese, most of the value stays in the headquarters.The highly
centralized services that Mashushita based on has limited the opportunities for product
development to be implemented freely because subsidiaries for these activities are too
dependent on parent company. In addition to that, communications between overseas
subsidiaries and parent company are also obstacles hindering the development
capabilities of Mashushita.
3.2. Comparison of the two organizations attempts to shift their strategies

Significant attempts of Philips includes: giving PDs product management responsibilities,
shifting power from NOs to PDs; closing inefficient options and focusing on the 4 core:
components, consumer electronics, lighting, & telecommunications, shifting focus to
efficient, specialized, multi-market production facilities to get economy of scale in
product and try to compete on price advantage, reducing basic research budget to 10% of
R&D to get R&D to be more market oriented. During the process of shifting its
strategies, Philips had to deal with NOs resistance because they dont want to lose their
power. Besides, while focusing too heavily on standardization, Philips had ignored
market demands for segmented products, higher consumer service. Company also had to
pay an expensive price for cutting 37% officers in R&D, leaving few technical staff who
understood high technology.
Changing a company culture is incredibly difficult, and changing that of an international
company is even harder. It seems that Philips is finally turning the tide and just beginning
to get the cooperation necessary to get the scale from their investments in research and
manufacturing. Unfortunately, because of all the cost-cutting they needed to do while
they tried to get there, they seem to have lost much of their competence in R&D. Success
in consumer electronics requires constant innovation and efficient manufacturing, and
while manufacturing is beginning to improve, their innovation is now lacking.
For Mashushita, their main strategic activities consist of investing in R&D partnership
and technical exchanges off shore, transferring international headquarters to overseas
regional offices, disbanding product division structure (closed 30 out of 133 factories in
Japan), establishing Panasonic Digital Concept Center in Palo Alto. The only problem
they had to struggle with is their strong hierarchal structure making its transition to
localization difficult. Matsushita was trying to give more power to its overseas
subsidiaries, such as 1982sOperation Localization, what gave local managers more
choice over the products they sold and authorization to use more local parts.
(Importantly, however, product divisions could overrule a local subsidiary if a particular
product was of strategic importance). In 1986, Matsushita relocated several major
regional headquarters to North America, Europe and SE Asia from Japan. In the early
90s, the Japanese market for consumer electronics collapsed, leaving Matsushita with a
glut of capacity as prices collapsed. While they shifted some production off-shore,
Matsushita was unwilling to restructure its increasingly inefficient domestic production
facilities in Japan.
By 2000, only 250 of the companys 3,000 R&D scientists were located outside of Japan,
and their latest CEO finally decided to consolidate manufacturing facilities. They were
slightly profitable (0.4% in consumer electronics), but losing money on one-time cash
cows TVs & VCRs. Matsushita never really developed a competence in innovation of
new products, and their innovation in production seemed to remain largely on the
mainland. They were slow to react to the protracted recession in Japan, and as a result
lost their edge in manufacturing to other low-cost competitors.
While the two strategies are very different, each company experienced great success
using their chosen strategy but they also contributed to the precarious positions in which
the companies eventually found themselves.
3.3. Other minor criterias to be compared between Philips vs Mashushita
As specified above are the two main different factors significantly describing how Philips
and Mashushita operate their company following different strategies and its
consequences. For other minor factors which should also be considered when compare
the strategies of Philips and Mashushita, the following table has obtained in-depth
comparisons:
Philips Matsushita
Factor Condition
- Initial tradition of bolstering education
- Creation of the Common Market in
1968 altered factor s of production (land,
labor, and capital)
- Not a multi-domestic market anymore
Small country, immersed in the
European eco-system and constantly
exposed to other forces.
- Small local work force.
- When Philips become international they
have the potential and try to utilize the
strength of the different Geographies
they operate in. (Manufacture where its
- Domestic throughout 20
th
century
- Since 1998, investing in R&D
partnerships and technical exchanges
abroad
- Need to broader sources of innovation
- Substantial local market, in a country
that isolated from the rest of the world.
- Local highly skilled and disciplined
work force with life dedication to the
company
- Japanese norm make it hard to change
the HR structure of the org (Lifetime
employment)
cheap, R&D where they have talent etc.)
- However, European regulations require
expensive HR
- Japanese Yen making it hard to export
from Japan and creating a need to open
factories in cheaper places
Demand Conditions
- A single market
- New Transistor and circuit-based
technologies
- Unmet demand.Demand has to come
from other parts of the world.
- Exposed to all market forces and
competition in every single segment.

- Growth through post-war boom
- Shift to export markets
- Earlier picture of emerging foreign
demand
- Substantial local demand with high
rewards as well as losses when there is a
slowdown.
- Until 2000 centralized strategy with
strong product divisions located in
Japan.
- At first, hard to compete in international
markets because lack of brand. Later
becoming the OEM for other brands
(video
Related and supporting industries
- Principal agreement with GE in 1919 >
World split into 3 spheres of influence
- By 1998, JV with Lucent to target
digital revolution
- Improved performance
- A technology exchange and licensing
agreement with Philips
- Licensing of the VHS format to other
local manufacturers
- VCR segment ~ 45% of profits
Key restructuring steps
- Rein in NOs
- Centralize production
- Empower regional operations
- Local customization of production
- Focus on core businesses
- Empower global product development
- Combine product divisions
- Remove historical organizational
structure
- Combine single product divisions
- Tap overseas/external innovation
- Remove historical organizational
structure
- Name change to Panasonic
Outcome and difficulties faced
- Outcome
Continuing low profit margins
Competitiveness impacted
- Difficulties
Conflicted local loyalties
Restructuring for tomorrow using
todays parameters
Cost-cutting in key aspects, e.g.
R&D
- Outcome
Low profit margins
Competitiveness impacted
- Difficulties
Culture of lifetime employment
Organizational resistance
Difficult Japanese economic
conditions in 1990s

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