A boy receiving a Philips energy-saving lamp at a community green-energy promotion activity sponsored by the company in Beijing. [Photo / Provided to China Daily]

 

Top local executive not only seeks profits and a bigger market but also respect from customers

The business model and management experience of overseas companies was introduced to China a long time ago as a way of expanding the domestic market but now the trend is being reversed.

Royal Philips Electronics of the Netherlands, a diversified health and well-being company that focuses on improving people's lives, will explore its "China model" and spread it elsewhere in the world.

"The new emerging markets have a 30 percent share of Philips' business and China is the leading market among them," said Patrick S. Kung, who joined the company in 2008 as executive vice-president and CEO of Philips Greater China. "China is one of the most profitable markets (for Philips), so it has a big influence on the company."

In July last year Kung was appointed as a member of the executive committee, which is composed of 10 high-ranking leaders in the company. The appointment was symbolic of the importance of the Chinese market to the company's global strategy.

"The China model is gradually influencing Philips' global decision-making. This will have an impact on the company's future development direction," said Kung.

Philips' moves in China

The latest move by Philips in China is an investment of more than 25 million euros ($32.93 million) by the end of 2015 in a light-emitting diode professional lighting project in Chengdu High-tech Industrial Zone.

The company is also working on establishing a second regional headquarters in Chengdu, a major city in western China, aimed at expanding its businesses in China's second- and third-tier cities.

At the beginning of last year, the company announced that it will make China its third "home market" in addition to the Netherlands and the United States, which means that Philips Greater China will get more resources and its leaders will have greater power in regional decision-making as well as more direct communication rights with the global leaders.

The new professional lighting project in Chengdu occupy an area of 35,000 square meters, mainly for designing and producing LED products and with an LED experience center for customers.

"We will seek a business model closer to the local market, especially for central and western China, which will help the company achieve greater success nationally," Kung said.

He added many important social topics proposed by the Chinese government's 12th Five-Year Plan (2011-15) will help Philips expand its businesses and further deepen its participation in the Chinese market, such as improving medical services and saving energy.

In the next 10 to 20 years, China will face a severe aging problem. By the end of 2020, more than 20 percent of the population will be more than 60 years old. Kung believes the consequent added pressures on health and medical services will bring opportunities to Philips with its advanced healthcare sections and high-tech medical equipment.

"The size of China's middle-class population is increasing. They have stronger buying power and demand better product quality," he said. "According to our analysis, the three business sectors of the company, namely healthcare, lighting and consumer lifestyle, all fit the long-term development of China and its people."

As a member of the executive committee, Kung communicates with the global management team directly about the challenges and opportunities in the Chinese market and shares his experiences in China with other market leaders.

He said China is "super important" for the company's global marketing.

Philips started reorganizing in China in 2009 before it announced the country as its third home market. That year it invested $54 million in building a medical equipment base in Suzhou, targeting medium-sized clients.

At the beginning of 2011, the company moved the global headquarters of its home appliances business group to Shanghai. In addition, its Asia-Pacific headquarters for professional lighting and home lighting were moved to Shanghai and Shenzhen.

"More resources are flowing into China. The investment of professional LED project in Chengdu, in cooperation with the local government, was decided in a relatively short time thanks to the strategic role of China as a home market," Kung said.

However, the cost of light emitting diodes is still high, and most of the products are bought by local governments for city lighting projects in China. Many industrial insiders have the opinion that overseas companies don't have advantages in the LED business compared with domestic ones because of limited connections with local governments.

"The government plays an important role in pushing LED business' growth in China," said Tommy Leong, president of Philips Lighting, Greater China. "It is true that we need more interaction with policymakers."