Ronald de Jong, Senior Vice-President and CEO for emerging markets, Philips Healthcare (Pic by Tribhuwan Sharma)

How important are emerging markets to Philips’ global strategy?
Emerging economies are important for Philips not only because they are big markets in their own right — as 85 per cent of the global population lives in emerging markets — but also because many new business models and new products find their origin in these markets. The five acquisitions that we have done in emerging markets in the past two years gave us access not only to local distribution networks, but also to an excellent work force, R&D and to a supply base.

In terms of revenues, what share would the emerging markets represent?
For the corporation at large, around 30 per cent of the revenues are generated in emerging markets. We expect this share to grow further. Our healthcare business in India grew by 21 per cent in 2007, faster than the industry. We are shifting resources to emerging markets because we expect that a big part of our future will take place in those markets. So we are actively also working towards that.

Today, are the company’s revenues growing faster in emerging markets than in the US and Europe, and have you reallocated some resources from there to emerging markets?
Yes.

Where does India stand in this strategy?
We have very strong ties with India. We started operations in India at Kolkata in 1930 under the name Philips Electrical (it was renamed Philips India in 1957), with a staff of about 75 people. It was a sales outlet for Philips lamps imported from overseas. In 1938, the company set up its first Indian lamp-manufacturing factory in Kolkata. After the Second World War in 1948, we started manufacturing radios. A second radio factory was established later near Pune. India is important to us. It is a market with a huge population — that in size should pass that of China in 2030, and the Indian healthcare technology market could be worth more than $254 million by 2012. India is also a strong base of know-how, a strong base of resources. Our innovation campus in Bangalore (set up in 1996) where we have more than 1,000 engineers, services our global businesses.

What was the rationale behind the acquisition of Alpha X-ray Technologies and Meditronics?
There are a couple of reasons. Philips Healthcare has traditionally been strong in the high-end premium range of the market. We wanted to complement our product offering in India with products that are more value-priced and we wanted to do it inorganically. Today, we import a lot of products to India. In India, in the cardiovascular segment, for instance, the demand is very different than that of the West. It is for products with more basic functionality and that are value for money. For X-ray machines, about 20-22 per cent are imported, so if you do it locally, it is a great advantage. We are trying to capture that value. Over time these products will be marketed under the Philips brand. On the other hand, for the acquisition of Alpha in the cardiovascular market segment, the clear plan and ambition is also to export products from that company first to other emerging economies, and probably in the longer term to mature economies as well.

Have you disclosed any figures about the price of the acquisition? Or the size of the two companies?
No, not in terms of revenues. However, what I can say is that Meditronics employs 150 people and Alpha about 60. So with these two acquisitions, we have added 210 people to our workforce in India.

What are the company’s expansion plans in India?
We have big ambitions. We are planning to increase our workforce to reach out to tier-II and tier-III cities in a bigger way, to step up marketing efforts and strengthen our customer support services. We have a clear game plan to grow our business in India considerably over the next two years, and we expect revenues for our healthcare business to reach 100 million euros beyond 2010.

How many people are you planning to add to the workforce to achieve this?
As already stated, we are adding 210 with the two acquisitions.

Are you looking at new acquisitions in India?
Yes, we are constantly looking at companies that could complement our portfolio.

How is the financial crisis affecting the company’s growth strategy?
There is a lot of uncertainty in the global market and we are not the only company that is affected. We have a strong balance sheet and a portfolio of activities across several industries, many of which have been less impacted by the economic downturn such as, for example, the semiconductor sector. We have and we are focused very much on margin control, pricing and cash flow. In that sense it is a nuanced shift of priorities. It does not affect our basic strategy.

What concrete steps has Philips taken to cut costs and optimise margins? What about global operations?
If you are referring to lay-offs, no, in India, we aren’t laying off anybody. We are a very big international corporation and we need to manage our cost base, and sometimes we also need to reduce workforce in some businesses. There is nothing new in that.

(Businessworld Issue 13-19 Jan 2009)