in early September, Gerard Kleisterlee,
President & CEO, Royal Philips Electronics, descended on
India along with his entire board of management and key members
of the Group Management Committee, it was difficult not to take
notice. After all, this wasn't just Kleisterlee's first visit to
India since taking over in April 2001, it's for the first time that
such a team of management heavyweights from the Netherlands-based
technology powerhouse was visiting the country. The 57-year-old
CEO visited Delhi, Mumbai, Bangalore, and Hyderabad during his week-long
whistle-stop visit to get a grip of the progress that Philips has
made in the Indian market, and the potential that exists. In between
he found time for this exclusive interview with BT's .
What significance should we assume from
this visit of the entire board of management of Philips?
One reason for the visit has to do with India,
another part has to do with the change in the way our board works.
India is the second largest economy in Asia, and Asia, in general,
is an area of growth for us. We grow in double digits in Asia and
we can't say that about Europe unfortunately. Later in the year
we will also visit China. It is important for us to have a collective
experience, and not just of one or a few, in order to understand
the dynamics of an economy and of a society. Therefore we have come
with the whole board. We have met with a couple of a dozen of business
leaders, both collectively and individually, we've talked with our
employees, seen our operations, we've had an opportunity to meet
with your President in Delhi and listen to his vision for the country.
We hope all this will give us a good understanding of the opportunities
for Philips in India, a better chance of capturing these opportunities,
and in the process find out what contributions Philips can make
to the development of the Indian economy and society.
lighting operations are the most competitive in the world''
So what are the learnings that you will be
The first thing we feel is that India is a country
of contrasts where you have a fairly sizable number of households
with a good income, and that prosperity compares well with Western
developed countries. So that's a part of the market we can cater
to with, you can say, our normal product range, the one we sell
in the rest of Asia, Europe and the US. And then there is another
part of India with around 120 million households that is at the
bottom of the income pyramid. They have very different needs, very
basic needs-access to healthcare, education, and communication.
And what we try to understand from some interesting insights is
how we can apply technology in a different way, in a unique way
to also address the needs of this group of people with the use of
technology, and at price levels that are affordable to them.
Accessibility and affordability...these
seem to be the buzzwords. How far has Philips reached in providing
a product or service that could meet these two objectives?
I'll give you an example: Half of the Indian
households did not have a radio. We have developed for the local
market a very basic radio function at the price point of $5. That
gives people an immediate opportunity to become a part of the connected
world, to listen to information, to listen to music. Another example:
Clean drinking water is a big problem. Purification through ultra-violet
light technology is something we are already providing to some players
in the market. Then the other problem that people in rural areas
have is little or no access to electricity. And we are into solar
energy too. We cannot produce solar panels ourselves, but we do
all the electronics and technology that can make solar energy usable
in a practical way. If we combine some of these things-solar energy
power, DC current control and UV light water treatment-we can bring
clean drinking water to many millions of people. We can link with
a number of healthcare units by working together with NGOs and the
medical profession in this country and see how we can use technology
to give people in rural areas access to basic health care. We are
doing this in other parts of the world, we can do it in India as
These are some of the insights we take and
of course, we are highly impressed by the pace at which Indian it,
software, BPO industry has developed, as we saw in Bangalore and
Hyderabad. So we learn. On one hand, you have a country that has
a partly developed economy, that is the leader in the world in software
and it, and on the other hand, a country that has a large population
whose basic needs have to be fulfilled.
How long do you think will it take for these
120-million households to be the main market for Philips?
It'll take a long time. But this is a market
that has so far been neglected. And we feel that in the interest
of economic development, and in the interest of mankind, that this
neglect should not continue.
And it makes commercial sense also?
We see these two things (development and business)
going hand in hand. Taking care of the underprivileged could be
a simple charity issue, but we've seen that charity does not work.
Yes, sometimes it may help, but what you need to do is to give people
the ability, the capacity to take their own lives into their own
hands. And that means access to basic education, and that means
very basic technologies so that they can be productive participants
in the socio-economic system.
"Both China and India
have the potential to prosper as manufacturing bases''
Philips in China, which is a $6 billion business,
has moved miles ahead of the Indian operations. Do you think Philips
India has lost out somewhere along the way?
Development in the last 10 years has been faster
in China on many fronts, particularly on the manufacturing front.
India has a better position in software services, its engineers
and scientists are as good, as educated, as brilliant as the Chinese,
the supply of University graduates is as good as in China. But I
think China at an earlier stage focused on becoming a manufacturing
powerhouse. The creation of export zones and special economic zones
has helped China advance rapidly, as a result of which a good deal
of the world's electronic goods are manufactured in China. I've
seen some very interesting developments in India as well. For example,
our lighting and lamp-manufacturing operations, after their recent
transformation, are the most competitive in the world, and they
are as cost-effective as some of the best plants we have in China
or Indonesia. And therefore, we've challenged them (Philips India)
to step up their efforts and become an exporter of manufactured
products. So yes, in many manufacturing areas, India may be lagging
behind China, but there is no reason not to see a future with the
right focus and the right determination.
What are the chances of India becoming a
genuine outsourcing hub for Philips?
Well, already 25 per cent of Philips' total
software is produced in India, and it's not simple coding work but
embedded software that comes out of India-it's a creative task of
making competitive software for product and functional design. We're
investigating the possibility of bringing more of our back-office
activity into India. We've paid visits to a number of companies
that have large BPOs here.
But what about manufacturing?
Well, I gave an example of lighting where our
Indian lighting factories are competitive. I see also other areas
where this can be the case. What we have assigned as a task to our
local organisation is a particular focus of creating a product range
for emerging markets. The first goal is to have an adaptive product
range and have a better coverage of the Indian market. If that proves
to be successful, those products will be used to penetrate other
emerging markets. That is the second plan of thought that we have
How long would it take for this adaptive
product range to begin rolling out?
Oh, pretty soon, because in such cases we need
just minor modifications to the stuff we already have. A simple
example is that in the Indian markets, people want more sound in
their TVs than in the average western markets, so we have to crank
up the power of sound system. These are modifications the local
team was previously not allowed to do because we had global product
concepts. But we now realise that we need to localise more, and
these are quick localisations which, if successful, can open up
more markets for us.
In consumer electronics (CE) you've been
around in India for quite a long time now, and you still haven't
been able to crack the market...
You cannot say that generally. The CE market
covers a wide spectrum of products and on the audio side, we have,
by far, a leading marketshare. Also, as far as new products go,
we have the highest market share in DVD players, which is a product
of recent years. So in new CE products, we can have leading market
shares. Yes, in colour TVs we missed a number of opportunities as
the market took off. That is where at the moment the focus of the
team is, and that is where the product adaptations to local specifications
will help make a difference.
Even globally, I don't think consumer electronics
contribute much to your profits...
Everyone has a problem globally with CE. It's
fiercely competitive, and even the No. 1 player has to struggle
to make a profit. We are No. 3 globally. You have a choice: Do you
want to play in this industry or not. I see a number of trends that
augur for the better in the western world. There's a consolidation
going on in the industry, and globally you have the top three to
four players gaining an increasing share of the market. Yes, there
are new entrants, predominantly from China, that will create new
competition, but there are also new categories of products emerging
that will throw up new opportunities. Also, you have to look beyond
just our market position, or our products, or the profits or the
lack of profits. Our presence in CE also allows us to generate a
lot of patents in our research because we use our application know-how
to generate new unique technologies and concepts for the CE domain.
Every year we file about 3,000 patents, we use those patents with
others to create standards. That's why our licence income is rapidly
At one point in time, were you seriously
considering closing down the CE business?
I had said that we could not go on throwing
good money after bad money for ever which we were doing in particular.
I said that with reference to our position in the US, which is the
most competitive market in CE where we are now doing a good job
and our market position is improving considerably. Our distribution
coverage has improved considerably month by month, so I'm very confident
that we'll get into a position that's similar to the one we enjoy
in European markets, where we are well placed. We've also done a
lot to change our business model in CE. At one point, we had $3
billion (Rs 13,800 crore) capital tied up, and we were doing $10
billion (Rs 46,000 crore) worth of business with $3 billion of capital
tied up. Today, we still do $9-9.5 billion (Rs 41,400-43,700 crore),
and we have only $300 million (Rs 1,380 crore) as operating capital.
So we are getting fairly good returns on a much lower capital.
What is the vision you've set for the Indian
Well, like I think , in line with the vision
of Philips globally, we want to establish ourselves as the prime
leading healthcare lifestyle technology company. We want to grow
above average, we want to outgrow the market and we've challenged
the Indian operations that in the coming years-say in the next three
to five years-we want to double the revenue, increase the profitability
and establish a position in the order of $200-300 million (Rs 920-1,380
crore) in export supplies. That may sound very challenging, but
we need to use China as a reference-where at this point we have
a $6 billion (Rs 27,600 crore) activity, with $2.5 billion (Rs 15,000
crore) sales in the local market and $3.5 billion (Rs 16,100 crore)
of exports. In China and India, we see a good model of complementarity
and potential to prosper as manufacturing bases.