Winning with China
An Integrated View of Philips China Strategy
David Chang, CEO Philips China
Amsterdam, June 9, 2004
Agenda
• The growing China
• Philips - A leading
multinational
company in China
• A winning strategy
2
The well-known China
•
9.6 million square kilometers
•
1.3 billion of population
•
5000 year history
•
30 provinces
•
50 ethnic groups
•
6th largest economy, per capita
GDP US$1,000 in 2003
•
4th largest trader, largest
importer in Asia
•
4th in the world by gross
volume of the manufacturing
sector
3
But, China is not “One” China
4
People enjoy the same thing but in
different way
5
Co-existence of high-tech and intensive labor
6
A flavor of modernization
7
The special characteristics of China
•
A unique way of economic development
•
Strong government orchestration
•
Non-homogeneous market
•
…
•
No one-fit-for-all solution
8
25-year evolution towards market
economy
2nd
Generation
12th CPP
Congress
THE
Cat-Theory
Structure
is
Pass
Development
waters by
Is
THE
MAINSTREAM
feeling the
“The Logic”
stones of China’s Economy
Pre-1978
End
of
Culture
Revolution
1978
1984
Openingup China
and
Starting
Reform
South China
Hybrid Ownership
Visit
1992
1994
3rd
Generation
4th
Generation
Three
Representatives
Sustainable
Growth &
Peaceful
Rise
1997
2000
2004
Accession
to
WTO
9
A fast and healthy growth
B. International Trade and Foreign Reserves
A. GDP growth
(US$ bln.)
1.600
14,2
12,6
1.200
9,2
400
(US$ bln.)
15,0
600
12,0
9,6
800
(%)
7,8 8,0 7,3
3,8
8,0
9,1
3,0
90
91
92
94
GDP
96
98
286
9,0
6,0
0
403
400
'00 '01 '02 '03
Growth %
212
200
11
21
52
105 145 154
166
0
90
93
94
96
Total Import
Foreign Reserves
98
99
'00
'01
'02
03'
Total Export
Growth of first quarter of 2004 was
over 9%
A healthy international trade balance
helps reducing trade conflict
• Now 6th largest economy in the world
• Q1 2004, trade deficit USD8.4 bln, import
• Recent Central Government’s move
growth rate 8% higher than export
• Strong Forex reserves (second to Japan)
emphasizes a healthier and sustainable
growth
Source: China Statistic Report/IMF Report
10
Agenda
• The growing China
• Philips - A leading
multinational
company in China
• A winning strategy
11
This is where we came from . . .
China, 1920’s
12
This is where we are now…
13
Philips currently holds 35 legal entities
in China, mainly focused on the East…
North Region
• 2 WOFEs and 5 JVs
Jilin
ShenYang
Beijing
Nanjing
Changshu
Shanghai
Suzhou
Shangyu
Xiamen
Songzi
East Region
• 8 WOFEs and 14 JVs
Central & West Region
• 1 WOFE
South Region
• 4 WOFE and 1 JV
1st JV established in 1985
Total 20 JVs and 15 WOFEs
South
Dongguan
Shenzhen
Zhuhai
Central & West
North
East
North East
14
13 Research & Technology Centers
Established
2 Technology R&D centers for global and China
market
• Philips Corporate Research East Asia
– DTV, Optical storage, Connectivity
•
Medical Development Center
– New calligraphic system
11 R&D centers for product and process
development for China or regional markets
• Lighting / CE/ Semiconductor/ Engineering
support
A R&D campus in Shanghai area will be established
15
Total activities(China/HK) in constant
dollar terms using 1999 as base - EUR million
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0
'98
'99
2000
'01
'02
'03
Use Dec. activity rate, including activity of LG Philips Display
16
Sales to thirds in China /HK in constant
dollar terms using 1999 as base - EUR million
4.000
3.000
2.000
1.000
0
'98
'99
2000
'01
'02
'03
Use Dec. activity rate, including activity of LG Philips Display and some businesses that have
been disentangled
17
Sales to thirds in China / Hong Kong
per sector
as % of total in 2003
Medical Miscellaneous
3%
7%
POS
1%
Lighting
9%
CE
27%
Semiconductors
49%
DAP
4%
18
Employees China / Hong Kong
FTE
25.000
20.000
15.000
10.000
5.000
0
1993 '94
'95
'96
'97
'98
'99 2000 '01
'02
'03
Include employees from Huafei
19
Employees in China / Hong Kong
per sector
as % of total in 2003
Miscellaneous
Medical
5%
3%
POS
9%
Semiconductors
26%
CO/R&D
2%
Lighting
25%
DAP
9%
CE
21%
20
Characteristics of Employees
College
8%
Education
Professional
school
56%
Bachelor
22%
Master Doctor
13%
1%
31-40
49%
Age
<30
43%
>50
1%
41-50
7%
21
Total gross assets in China/HK in constant
dollar terms using 1999 as base - EUR million
2.000
1.600
1.200
800
400
0
'98
'99
2000
'01
'02
'03
Use balance sheet rates, include assets of Huafei ‘98-’00
22
Total assets in China / Hong Kong
per sector
as % of total in 2003
Semiconductors
47%
Medical
4% Miscellaneous
4%
POS
3%
GO&S
16%
DAP
3%
CE
15%
Lighting
8%
23
China – the major outsourcing place for
Philips
Outsourced production to China 2003
as % of total outsourced per segment
Percentage outsourced production
100
75
75
%
%
100
50
25
0
50
25
TV
VCR
DVD
Outsourced 1999
Audio Monitors GSM
Outsourced 2003
0
TV*
VCR
DVD
Audio Monitors GSM
of which in China
24
Philips has extremely high brand
awareness
Tier 1 cities in China
100
66
100
46
22
20
Philips
Haier
100
Tier 2 cities in China
Total aided
awareness
99
86
98
46
36
35
40
13
8
6
6
Sony
Total unaided
awareness
Motorola Panasonic Samsung
Top of mind
awareness
100
100
98
100
94
99
34
32
31
29
6
37
8
8
5
Haier
Sony
63
49
11
Philips
Motorola Panasonic Samsung
Brand Strategy – Primary Research
25
Leading market positions in China in 2003
Lighting
#1
DAP
#1
MDS
#1
LCD Monitors
in top 2
Medical Systems in top 3
Semiconductors
#3
26
A milestone in 2002: Largest FIC in China
# of JVs /
WOFE*s
Headcount
Philips
32
18,000
Samsung
24
38,000
Motorola
10
13,000
Siemens
40
21,000
9
3,000
GE
30
8,000
Matsushita
42
30,000
8
5,500
IBM
Nokia
*WOFE : Wholly Owned Foreign Enterprises
2002 Total
activity (US$ B)
Contracted
investment (US$ B)
6.7
2.5
6.0
2.3
3.4
5.7
3.6
3.0
2.5
2.3
1.8
0.6
1.5
1.5
0.8
1.7
Note : Philips not include 18 H.K. companies
Source : McKinsey, Bain and respective company websites
27
Strategic partnership with China leadership
Meeting with Premier Mr Wen Jiabo,
Bejing, September 24, 2003
Meeting with Vice Premier Mr Huang Ju,
Beijing, November 25, 2003
•
Firm and closer relationship with new leadership
•
Strong commitment to Philips’ operations in China
•
Strong support to peaceful integration of China into global economic
community
•
A clear win-win partnership
28
Agenda
• The growing China
• Philips - A leading
multinational
company in China
• A winning strategy
29
Long-term opportunity for everyone
Project
Nominal
GDP
(US$ B)
40,000
Average 2000-2050
GDP growth rate
30,000
• Nominal: 7.7%
• Real: 4.8%
2041 China ($28,003 Bn)
2041 US ($27,229 Bn)
20,000
2016 Japan
10,000
2004
France
Car indicates when China
GDP would Exceed GDP of
the G6 country
2007
Germany
2005 UK
0
2000
2010
2020
2030
2040
2050
Source: Goldman Sachs Global Economics report, October 2003; Projections verified with other economic and govt. sources
30
High-income urban consumers are
prospering
Private Consumption
US$2,000 bil
23%
China high income household income @ PPP
• 79 mil
• US$11k per capita @ PPP
• 16.6% growth
18%
Growth Rate
13%
China high income household income @ market FX
China Total
8%
Canada
Australia Spain Korea
USA
3%
UK GR
-2%
0
50
Japan
100
150
200
250
300
350
1.3 billion
Population Size (mil)
Source: Asia Demographics
31
Philips is participating in the top-5
emerging IT markets in China
3G
Communications
(CAGR > 30%)
Digital TV
(TAM>US$50B)
Medical
Electronics
(CAGR > 20%)
Source: China SDRC and MII
Automotive
Electronics
(CAGR > 40%)
Digital Content
Service
(CAGR > 80%)
32
An integrated view of Philips China
strategy
Licenses
CE
Semiconductors
DAP
Lighting
Medical
Individual PD growth strategy to deliver the China vision:
Supported by integrated cross-PD functional strategies
– HR/Talent management, GR/PR, Branding
Supported by effective organization and infrastructure
33
Strategic initiatives
• Step up R&D activities, expand number of technology
competence centers
• Increase business management presence
• Continue exploring local partnership
• Further align with government agenda
• Broaden talent base, invest in employer brand
• Widen cross-company marketing initiatives, drive for
brand preference
Towards One Philips in China
34
An integrated view of Philips China
strategy
Overall aspiration
of Philips in China
Individual PD growth strategy to deliver the China vision:
CE
Licenses
Semiconductors
DAP
Develop integrated Philips policy
and actions on China related issues
to safeguard long-term global
interest
Lighting
Medical
China Policy Board
China
Management
Team strategies
Supported by
integrated
cross-PD functional
– HR/Talent management, GR/PR, Branding
Monitor and implement
China strategy
Supported by effective organization and infrastructure
35
Medium-term aspiration for Philips in
China
Deliver profitable growth for the
Group
Become one of the most admired
multinational companies in China
•
•
To be ranked among TOP 3 most
admired foreign companies by
Fortune China
•
To be ranked as one of the TOP
10 best employers in China by
BEA survey1
•
To become the most preferred
electronics brand in China by
DDB brand capital measure
Double total activities from
2002 to 2007
2002
2007
EUR 6 B
EUR 12 B
1
Best Employer Asia. The most authoritative HR survey in Asia
36
In summary
• China is one of the most important markets in Philips
growth strategy
• Philips is well positioned in terms of:
–
–
–
–
Market leadership
Strategic partnership with government and other stakeholders
Strong brand awareness
Competent organization
• Philips has full confidence in this market and will
continue to strengthen its presence in China to achieve
our goals
37