philips and matsushita

However, after 1960s, the environment changes led to the similarities in both company’s motives internationalisation, which were resource-seeking for lower labour costs, global scanning

I TABLE OF CONTENT

I TABLE OF CONTENT 1

II EXECUTIVE SUMMARY 2

III INTRODUCTION 4

IV DISCUSSIONS 5

1 Philips’ and Matsushita’s motivations of expansion 5

2 The conflicting environmental forces faced by Philips and Matsushita and the companies’ responses 7

3 Philips’ and Matsushita’s strategic objectives and their means to develop competitive advantage 10

4 Philips’ and Matsushita’s adoption of innovation models and the challenges of these models 13

5 Adoption of Philips’ and Matsushita’s various organizational models 16

6 Have both companies archived success in developing transnational organisations? 18

V CONCLUSION 20

VI REFERENCES 21

I.

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 resource-seeking 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 3 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

were greater during pre-1960s period for Philips, the other two were greater in later stage For

Matsushita, all these 3 forces were involved after 1960s, but their strength was not equal

Thirdly, global efficiency, multinational flexibility, and worldwide learning were 3 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 do 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

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 do 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

IV DISCUSSIONS

1 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

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 high-growth 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

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).

2 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

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 2 other dimensions stated below

Nevertheless, in post-1960s era, both companies experienced the strongest forces, which were related toglobal 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 low-wage 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 3 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

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,

responding to local responsiveness was promising because of over-dependence on headquarter of “OL”.

3 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 offorces 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 Inorder to do 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 after1960s.

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 5 years