philips and matsushita

I TABLE OF CONTENT I 1|Page II EXECUTIVE SUMMARY The purpose of this report was to give an analysis of the competing strategic and organisational choice of Philips and Matsushita The background of this report came from the request to review and analyse the case study “Philips versus Matsushita: Competing Strategic and Organisational Choices” in the textbook “Transnational management” by Bartlett and Beamish (2011) Besides the information given in the case study, other source of findings included primary data as theoretical information in books, journals and articles as well as secondary data from relevant internet sources The report analyses was conducted by giving a comparison to compare and contrast how Philips and Matsushita managed their competing strategic and organisational choices under two different time frames: before and after 1960s Firstly, since Philips established earlier than Matsushita, its expansion time came sooner than as well; Philips first motivation for expansion was market-seeking However, after 1960s, the environment changes led to the similarities in both company’s motives internationalisation, which were resourceseeking for lower labour costs, global scanning and learning capabilities for better offshore alternative and innovation as well as worldwide scope of activities to take advantage of scale economies and ballooning R&D Secondly, global business raised conflicting environmental forces including forces for global integration and coordination, forces for local differentiation and responsiveness as well as forces for worldwide innovation and learning These forces required suitable responses in terms of strategic objectives, innovation models and organisational models While the forces for local responsiveness 2|Page were greater during pre-1960s period for Philips, the other two were greater in later stage For Matsushita, all these forces were involved after 1960s, but their strength was not equal Thirdly, global efficiency, multinational flexibility, and worldwide learning were strategic objectives to respond to the influences of forces global integration and coordination, forces for local differentiation and responsiveness as well as forces for worldwide innovation and learning respectively These time frames of these objectives were the same as the according forces ‘ones since they were closely related These objectives were initiated to help both firms obtain competitive advantage In order to that, firms relied on these means as national differences, scale economies and scope economies as fundamental tools to exploit Fourthly, “local-to-local” innovation model of Philips and “central-for-global” of Matsushita were the result of forces for local responsiveness and forces for global integration accordingly However, under the complex environment with rapid changes that emphasised on the importance of innovation development, these firms still did not find better model to follow Fifthly, “decentralised federation organisation” was applied by Philips and “centralised hub” was implemented by Matsushita as their organisational models However, the needs to balance and simultaneously responded to mentioned forces required both companies to shift towards “transnational organisation model” to be competitive Therefore, they while Philips followed tradition approach for changing process, Matsushita followed the emerging one As Matsushita was more efficient with its changes, the outcomes were more promising than its counterpart, Philips 3|Page III INTRODUCTION Philips and Matsushita are the two famous companies in consumer electronic industries Both companies archived high profit growth and success in the domestic market in back in early days thanks to appropriate strategies However, since they started to cross-border business, they had to face different environmental forces that affect the businesses in complex ways Therefore, the need to change strategies in order to survive, compete and attain growth was recognize as top priority The report’s purposes is to analyse how these firms expanded, responded to conflicting forces through strategic objectives, what innovation and organizational models were implemented to improve their businesses 4|Page IV DISCUSSIONS Philips’ and Matsushita’s motivations of expansion Internationalisation is to geographically expand economic activities over a home country’s border and its process was an accelerated trend during the post-war era of World War II (Ruzzier et al, 2006) For expanding globally, Philips and Matsushita relied on below internationalisation’s motivations Before 1960s, an important trigger for Philips‘s expansion was market-seeking (Dunning, 1994) According to Alexander (1990), the saturation of Holland’s small market inadequately supported the volume-intensive manufacturing of electric lamp industry, which led to overcapacity and pushed the company to expand abroad for bigger market and higher profit In addition, through internationalisation, Philips could gain substantial competitive advantage in foreign economies, not only from its intrinsic advantages in terms of technology strength and brand recognition as a leader in industrial research but also from massive sales resulting in scale and scope economies Therefore, from 1899 to 1912, this firm exported and established sales organisations in large and booming markets as Japan, US, France, etc However, after 1960s, Philips observed difficulties in competing with rising Japanese competitors; it also faced degradation in innovative development, which lessened value maximisation from product differentiation, financial problem became problematic (Porter, 1985) Consequently, cost-competing became vital, which made Philips changed its motive to resource-seeking to take advantage of cheaper resources (Dunning and Lundan, 2008) It then shifted production to low-wage areas in Asia Pacific and low-cost countries like China, Mexico, etc in 1990s Similar to Philips, Matsushita also started its global expansion with resource-seeking for low-cost purpose During 1960s, the growing 5|Page manufacturing cost in Japan caused competitive disadvantage, so the company shifted its production to lower labour-cost regions as Central and South America or Southeast Asia These firms were also affected by the drives of scale economies and ballooning R&D, which made global structures and worldwide scope activities become a sufficient requisite for survival (Bartlett and Beamish, 2011) While Philips attempted to tile its matrix organizational structure towards production divisions (PDs) to reduce the power of national organizations (NOs), so that it could concentrate on globalizing production to build scale economies; Matsushita invested $1.3 billion on focused R&D to enhance manufacturing, developing and launching products for efficient global production in 2000s Simultaneously, emerging motives were also associated with both companies’ international business in terms of global scanning and learning capabilities (Vernon, 1980) The need for more efficient sources raised an awareness of sourcing for low-cost production offshore Therefore, when the intense competition with Japanese counterparts got serious, Philips decided to outsource to China and Japan in 2000s About Matsushita, strong Yen currency and aggressive competitors from Korea and China became rationales for shifting production to low-cost countries like Malaysia and China in late 1990s In addition, both of them scanned for required skills and technologies that could stimulate product development For Philips, it had an acquisition of several operations in lighting segment and highgrowth medical industry in order to gain the skills, knowledge and experiences About Matsushita, in 1998, it not only invested on R&D to develop innovation offshore but also established the Panasonic Digital Concepts Centre in California to get access to emerging technologies in Silicon Valley These activities indicated that these firms tried to improve scanning and learning capabilities by locating themselves to where existed essential sources or cutting-edge technologies and products 6|Page In summary, because of the difference in founding time, before 1960s Philips had market-seeking motivation while Matsushita did not However, in later stage, both companies experienced the same motivations as resource-seeking, global scanning and learning capabilities as well as ballooning R&D and scale economies (Table 1) The conflicting environmental forces faced by Philips and Matsushita and the companies’ responses In pre-1960s period, for Philips, forces for local differentiation and responsiveness were dominant; which aimed to respond to country-specific differences by creating differentiated products and local design One of these forces was indicated as cultural differences such as consumer tastes and preferences For illustration, while consumers in some countries preferred the contemporary and sleek models of TV, other countries’ buyers chose the furniture-encased type Moreover, another force was divergent approaches in business doing: establishment a rental business was the solely survival in UK 7|Page and overcoming elitist prejudice against television was crucial in richer countries Philip also faced distinctive national infrastructures like the television transmission standards (PAL, SECAM, and NTSC) Luo (2001) highlighted the essential of responding locally to host countries’ environmental forces that had vigorous impacts on firm’s characteristic Therefore, Philips founded NOs and empowered these organizations with high autonomy so that they could build their own product development and technical capabilities, which formulated advantages to sense and response to diverse market’s conditions However, during post-1960s, these forces became minimal gradually due to the rise of other dimensions stated below Nevertheless, in post-1960s era, both companies experienced the strongest forces, which were related to global integration and coordination as a result of global environmental changes; they were emphasised to create capabilities of global-scale efficiency For examples, new-transistor based technologies asked for larger production runs at scale-economies to achieve low-cost Transportation networks development, lower shipping cost, as well as European Common Market made liberalised trades and favourable conditions for international business In addition, the trend of shifting production to lowwage areas to gain comparable cost advantage became a norm Philips and Matsushita had various ways to respond to these forces Philips strengthened PDs to reduce numbers of products marketed for more concentrating production in 1970s In 1980s and 1990s, activities like downsizing by closing efficient plants, simplifying its marketing and manufacturing organizations, and remaining only main divisions (healthcare, lighting and consumer lifestyle) were to create scale economies In contrast, Matsushita’s reactions to these forces included standardizing VCR, TV, DVD plants to derive scale advantages, and offering efficient marketing and sales for consumer electronics to reach scope advantages 8|Page Besides, the harmony of “locally acting and globally thinking” was addressed by Doz and Prahalad (1991) Therefore, during 1990s, when host governments’ pressures grew, the need for Matsushita to initiate “Operation Localization” (OL) was recognized, including material, technology, personnel and capital Local subsidiaries had more choices of products being sold and sourcing was done locally Other forces for worldwide innovation and learning to build comparative advantage had moderate impacts on these firms The rocketed speed of technology blooming resulting in shortening of product life cycle, extravagant R&D cost, and competitors’ abilities to diffuse technology like Sony’s mini-disc were impetuses for both companies to fill technology gaps Hence, Philips invested on 15 new technologies, set up joint ventures with GE, Whirlpool and Lucent, and acquired several companies to get shared knowledge-base Matsushita responded through acquiring MCA, collaborating with Chinese Academy of Science, executing R&D partnerships or joint ventures and emphasising on develop innovation offshore Although Philips successfully responded to the forces for local differentiation and responsiveness before 1960s with strong national-based capacities, it was struggle to respond to the two other forces in the later stage and had poor profit in 2008 despite its mentioned efforts of restructuring, rationalising, and R&D Differently, Matsushita did effectively in responding to the forces for global integration and coordination as well as worldwide innovation and learning with successful VCR production However, 9|Page responding to local responsiveness was promising because of over-dependence on headquarter of “OL” 10 | P a g e Philips’ and Matsushita’s strategic objectives and their means to develop competitive advantage Pre-1960s was the time that Philip followed a strategic objective in terms of multinational flexibility because of influences of forces for local responsiveness, so that it could efficiently control political risks such as the Great Depression attached with high tariffs and trade barriers or the impending war In order to that, it depended on one factor of national differences (mean), which was factor endowment of land, to protect foreign sales and to transfer assets to UK and US This was a requisite to further build competitive advantage by exploiting opportunities that came from tailored output values, which was suitable to distinctive national market needs; the NOs then fulfilled this task successfully with various technologies and business approaches This objective was kept remaining with minor level after 1960s 11 | P a g e In addition, global efficiency became the main objective after 1960s, which was influenced by the forces for global integration and coordination As mentioned, cost factors appeared to be critical in the emerging global context Since Philips had determinate endeavour for cost cuttings to profit from global integration activities, it relied on scale economies to be benefit from learning effects and experiences Therefore, it restructured organization’s model, built core productions, and produced standardized products (HDTV, LCD, etc.) It also exploited diverse factor endowments of national differences to diversify its value chain to locations embracing least costs for each activity; for instance, R&D in India for skilled HR while outsourcing to China, Poland for low-wage Furthermore, Bartlett and Ghoshal (1998) noticed the importance of three strategic objectives and their connections with organizational means; consequently, worldwide learning objective was also significant during post-1960s Simultaneously, Philips captured external diversity like global stimuli through acquisitions and joint ventures, which relied on scope economies to get shared-knowledge Matsushita also leveraged internal variety through local R&D for innovations to adapt to worldwide standardised demands However, the firm faced difficulties for changes, share price fell to $13 in 2011 and net income was minus $260 million, which illustrated that global efficiency and worldwide learning were not fulfilled effectively (BB, 2011, pp318 & 323) For Matsushita, after 1960s, the most sufficient objective was global efficiency, since it also had the needs for cost reduction and downward movement on learning curve to react to global integration Firstly, it operated scale-manufacturing plants so that it eliminated a half price of VCRs in years through scale economies (1980 to 1985) Secondly, thanks to the product diversification of scope economies, Matsushita could adopt common distribution channels for multitudinous products 12 | P a g e Over time, multinational flexibility objective to respond to forces for local responsiveness raised its significance since volatile environment brought macroeconomic risks as pressures from host countries, high centralisation somehow slashed flexibility As a result, “Operation Localization” (OL) was born with local nationals in top managements for better communications and business understandings; Matsushita applied national differences mean through flexibly modifying designs and features to meet the local needs However, subsidiaries of “OL” were still too dependent to parent company, which illustrated inefficiency In the last two decades of the century, Matsushita also tried to reach worldwide learning objective through exploiting the same mean with Philips It invested on not only technical exchanges and R&D partnerships but also local innovation capabilities with estimation of 2750 scientists to reach potential sources of competitive advantage Therefore, in spite of the imperfection of multinational flexibility objective with “OL” plan, Matsushita attained the other objectives quite impressively with profits $3.6 billion in 2006 (BB, 2011, pp330) 13 | P a g e Philips’ and Matsushita’s adoption of innovation models and the challenges of these models The battlefields of competing for survival have altered towards developing and diffusing innovations In order to erect competitive advantage, firms should satisfy these worldwide innovative capabilities, which are sensing for development of technologies or new trends in multiple markets (S), responding by being able to attract talented expertise (R) and implementing the new products regardless of origins of creations (I) These capabilities are the basic components of several innovation models of which firms can apply 14 | P a g e For Philips, its innovation model was “local-for-local” classic process due to the isolation of local organizations caused by World War II’s impacts (Figure 1) The mentioned NOs were given great power to develop their own subsidiary-based knowledge, so that they could sense the unique national needs (S); use local resources, capabilities and assets to create innovative responses (R) and finally implement proper products for their local markets (I) For illustration, Canada’s unit created the first colour TV while Australia’s invented stereo TV and so did UK’s with teletext-TV In pre-1960s, this model was applied practically: firstly, this model helped empower local management because the foundation of autonomous NOs was motivated by the underdeveloped transportations and communications as well as protectionism and the War Secondly, it linked experienced local expatriate managers, who had strong linkages with one another, with corporate decision-making process so that they could transfer their national-oriented viewpoints Thirdly, it enhanced a stable cross functional integration in terms of an “article team” consists of managers from technical and commercial functions However, this model also perceived the risks of duplication and reinventing In addition, the fluctuations of environmental context after 1960s caused Philips’s drop in bringing new technologies; 15 | P a g e therefore, loads of efforts to restructure, change, and reduce cost towards centralisation and standardisation gradually weakened this national-based model Contradictorily, Matsushita followed the “central-for-global” model from the very beginning (Figure 2) When Japanese parent-company sensed VCR’s opportunities in mass-market (S), it responded by letting R&D for basic technology be developed in central research laboratory with centralised resources (which were funded back by product divisions) (R), then products were developed in PDs and outputs were finally implemented in headquarters ‘plant first then passed to local units’ productions (I) Moreover, Matsushita did some valuable attempts to reinforce this model For example, by relying on linkages, the firm still could gain inputs like opportunities, and needs from local plants and vice versa; subsidiaries’ managers were more engaged in the centralised decision-making process Roth and Morrison (1991) and Birkinshaw and Hood (2001) noticed that the responses to diverse consumers’ preferences of innovation demands were crucial; therefore, PDs that accomplished this duty could get more R&D budget through the “market mechanism” of competing internally This purpose was to promote innovation capabilities However, the personnel transferring mechanism could cause complexity since operational managers whose origins were engineers may not understand how to operate well In addition, subsidiaries’ lack of commitments and risking of market insensitivity were some problems 16 | P a g e Adoption of Philips’ and Matsushita’s various organizational models The effects of the conflicting environmental forces, the several strategic objectives in different time frames, and the selections of diverse innovation models resulted in Philips’ and Matsushita’s various organizational models, of which contributed to their prosperities in splendid expansion times About Philips, the application of decentralised federation organisation in the pre-war period was a survival in an environment existing high barriers to trade, increasing tariffs, underdeveloped communication networks and high legislations Therefore, Philips followed multinational strategies of constructing reinforced and vigorous NOs to sensitively respond to specific markets’ needs and conditions and to exploit opportunities by developing their own adaptive strategies and products’ features Otherwise, Matsushita built its “centralised hub organization” based on global strategies After 1960s, the company’s expansion time comprised an environment with loosening trade barriers as well as better transportation and communication networks, which boosted the parent-company’s tight controls over 17 | P a g e subsidiaries in terms of manufacturing, quality and productivity: expatriate managers were sent from parent-company to transfer organization’s philosophy and culture, and they had to visit headquarter semi-annually to report In addition, centralised organizational model based on practices of global scale economies would enhance competitive advantage through learning effects; VCR production was a practical outcome of this model adaption As mentioned, the upsurge of environmental forces demanded both companies to pliably respond so that they could obtain higher positions in the market, It required to simultaneously manage responsiveness, innovation and efficiency and shifting corporates towards transnational strategies Therefore, in order to archive that, both companies implemented the process of changes For Philips, it followed the traditional path by starting with altering of responsibilities and formal structure, which attempted to eliminate the NOs/PDs matrix and to centralise power However, the next step to change processes and interpersonal relationships were troublesome because NOs’ managers and employees protested against company’s eliminations and cuttings Only until Boonstra shockingly shifted headquarters to Amsterdam with only 400 employees left, the changes finished with new shaped attitudes Matsushita, in contrast, stressed on the emerging process by trying to modify individual attitudes to be consistent with company’s philosophy, the reason was that Japanese culture highlights the socialization of employees to match organizations’ cultures (Chen, 2004) Consequently, Matsushita could improve company’s processes and interpersonal relationships, later motivated effective structural changes For illustration, Nakamura, CEO of Matsushita, tried to create a harmonious environment that avoids negative effects of internal competiveness by grouping businesses into linked dimensions: Digital Networks, Home Appliances and Components; this resulted in impressive profits of $1.9 billion in 2004 (BB, 2011, pp329) 18 | P a g e Have both companies archived success in developing transnational organisations? From the above discussions, Philips’ and Matsushita’s attempts of moving towards transnational organisations were recognized However, they were still struggling to fully archive this strategic task Firstly, both companies are influenced by main characteristics of a transnational industry, which were worldwide innovation and learning, local differences and global efficiency; however, they did not balance their responses appropriately For Philips, its over-minimisation of NOs’ power led to lack of sensitivity to new emerging market demands In addition, its efforts in building global productivity brought inverse effects; over-cost cutting caused minimal R&D expertise understanding new marketoriented technologies, which resulted in not only the inability to overcome “tech wreck” recession but also profit loss On the contrary, although Matsushita did better in global operating and innovation development; the national management of local units was still under expectation Secondly, not only these strategic objectives could not be managed without trading off, these companies also faced dilemmas in improving their innovation models to sufficiently minimize challenges Hence, both companies should translate their models into transnational innovation model, in order to be benefit from the interdependent relationships between parent-company and the subsidiaries to get shared resources and capabilities (Kogut and Zander, 1993) Although the decentralised federation and centralised hub models adequately contributed to past success of both companies, sophisticated new internal and external environment requires transnational organisations to configure a new integrated network rather than old organisational models Therefore, Philips and Matsushita should comprehend multi-internal perspectives, flexible integrative progress as well as distributed and interdependent capabilities (Bartlett and Beamish, 2011) Despite facing obstacles to find their path of transforming into transitional organisations, the emerging approach 19 | P a g e towards changing process of Matsushita have brought a more promising future for this company in comparison with the traditional approach of Philips 20 | P a g e V CONCLUSION In conclusion, as Philips’ expansion period was earlier than Matsushita; due to the constraints of preliberalisation, the company had different motive in comparison with its rival before 1960s However, post-1960s era, both companies experienced similarities in terms of motivations and environment conflicting forces such as global integration, local responsiveness and worldwide innovation Hence, both companies had to respond with suitable approaches accordingly, which included setting strategic objectives, innovation models and organisational models The success in new century is characterised by how organisations become “transnational” In order to that, the need to implement a transnational organisational model that have an integrated network between headquarters and subsidiaries and among national units themselves becomes rational In addition, worldwide innovation and learning is rising up to be survival weapons for companies in electronics sectors like Philips and Matsushita, without being able to forestall best new technologies and produce market-oriented products; companies shall lag behind in this global intense battle Therefore, firms need to revise innovation models and being flexible to change in a way that manages interdependent capabilities, flexible integration, and multidimensional perspective effectively From 2008, when Matsushita changed its brand to Panasonic, have archive substantial success thanks to better strategic change compared with Philips (as mentioned before), the company now is ranked at 83 in top 500 most profitable company while Philips is only ranked at 347 in the list (CNN, 2014a and CNN, 2014b) 21 | P a g e VI REFERENCES Alexander, N (1995), "Internationalisation: interpreting the motives" in McGoldrick, P., Davies, G (Eds) International Retailing – Trends and Strategies London: Pitman, pp.77-98 Bartlett C A & Beamish P W (2011) Transnational management: Text, Case, and Readings in Cross-Border Management (6th edition) NY: McGraw-Hill Bartlett, C.A and Ghoshal, S (1998).Managing across borders: the transnational solution (2nd edition) Boston: HBS Press Birkinshaw, J and Hood, N (2001) “Unleash innovation in foreign subsidiaries.” Havard Business Review, pp.131-138 Chen,M (2004).Asian Management Systems: Chinese, Japanese and Korean Styles of Business (2nd edition) International Thomson Business Press CNN (2014a) " Fortune Global 500 - Panasonic" [online] CNN Money [WWW]Available from: http://money.cnn.com/magazines/fortune/global500/2013/snapshots/6630.html [Accessed :April 20th, 2014] CNN (2014b) " Fortune Global 500 – Royal Philips" [online] CNN Money [WWW]Available from: http://money.cnn.com/magazines/fortune/global500/2013/snapshots/6645.html [Accessed :April 20th, 2014] Doz, Y., & Prahalad, C K (1991) “Managing MNCs: a search for a new paradigm” Strategic Management Journal, Vol.12 (special issue), pp.145–164 Dunning, H J., & Lundan, M S (2008) Multinational Enterprises and The Global Economy (2nd eddition) UK: Edward Elgar Publishing 10 Dunning, J H (1994) Multinational Enterprises and the Global Economy Workingham: AddisonWeslay 11 Kogut, B and Zander, U (1993) “Knowledge of the firm and the evolutionary theory of the multinational corporation”, Journal of International Business Studies, Vol.24(4), pp.516-529 12 Luo, Y (2001)."Determinants of local responsiveness: perspectives fromforeign subsidiaries in an emerging market" Journal of Management Vol.27, pp.451-477 22 | P a g e 13 Porter, M.E (1985) Competitive advantage: creating and sustaining superior performance New York: Free Press 14 Roth, K., & Morrison, A J (1991) “An empirical analysis of the integration-responsiveness framework in global industries” Journal of International Business Studies, Vol.21 (4), pp.541– 564 15 Ruzzier, M.; Hisrich, R.D and Antoncic, B (2006)."SME internationalization research: past, present, and future" Journal of Small Business and Enterprise Development Vol.13(4), pp.476497 16 Unless otherwise indicated, the reference for Philips and Matsushita refers to Case 4-1 from Bartlett, C and Beamish, P.W (2011) Transnational Management: Text, Case, and Readings in Cross-Border Management (6th edition) McGraw-Hill International Edition (Here in after refers to BB, 2011) 17 Vernon, R (1980) “Gone are the cash cows of yesteryear.” Harvard Business Review.pp150-55 23 | P a g e ... strategic and organisational choice of Philips and Matsushita The background of this report came from the request to review and analyse the case study Philips versus Matsushita: Competing Strategic and. .. to compare and contrast how Philips and Matsushita managed their competing strategic and organisational choices under two different time frames: before and after 1960s Firstly, since Philips established... well as ballooning R&D and scale economies (Table 1) The conflicting environmental forces faced by Philips and Matsushita and the companies’ responses In pre-1960s period, for Philips, forces for