Philips plugs in for sustainable growth in Asia

Electrical product manufacturers from around the world are all competing to expand their presence and share the market in the growing Asia Pacific region. The 120-year-old company Royal Philips Electronics is no exception.

LED lighting by Philips is featured at public sites throughout Asia, including the Srinakarin Dam in Kanchanaburi.

Despite having been in the region for around 60 years, the Dutch-based company sees new challenges ahead. As Asia’s consumers and businesses grow more prosperous, demand emerges for new types and categories of products, from small home appliances and lighting to high-end medical devices. Understanding the region’s diverse markets and consumers’ needs is paramount for Philips, which is well known for innovation in high-technology electrical home appliances and lighting.

Innovation is becoming more important for well-established European brands such as Philips, which are facing stiff competition from emerging brands in China and South Korea, which can offer similar product ranges at cheaper prices.

Philips has refocused its strategy by creating three clear categories for its marketing: lighting equipment, healthcare, and home electrical appliances, which it calls “consumer lifestyle products”.

The company’s consumer lifestyle segment sales in Asia Pacific grew at a double-digit rate in the second quarter of this year, compared with 9% growth globally, according to Bjorn Sprengers, senior director of marketing for Asean of Philips Consumer Lifestyle. The key drivers have been urbanisation, the rise of the middle-class population, and the growing number of young consumers who are more open to innovative products.

“Philips aims to create products that meet the requirements and suit the lifestyles of Asian people. The challenge is how to understand the needs of consumers and eventually create such products,” said Mr Sprengers. “The company has to do a lot of work before products are launched in order to ensure that they will be successful in the commercial market.”

High prices, however, raise doubts about whether most Asian people can afford some of the company’s innovations. For example, an air fryer, which fries food without oil, is priced at US$242, or about 7,400 baht.

Despite the high-end market segmentation, Mr Sprengers believes Philips will do well in countries such as Singapore, Thailand and South Korea, and keep its double-digit growth rate.

He acknowledges that Philips has to continue building brand recognition, but not through aggressive marketing campaigns, as some competitors do, to win consumers quickly. Instead, he says, Philips chooses to grow gradually but sustainably in the region in its own way.

Harjit Gill, CEO of Philips Asean & Pacific and chairman of Philips Singapore, said that around 34% of Philips’ global sales, which totalled 23 billion euros in 2011, now come from emerging markets, and Asia has some of the highest-potential emerging markets in the world.

In Asia Pacific, ageing societies, urbanisation and the demand for good health are key trends the company keeps in mind when developing its products for Asian people.

Around 60% of people in Asia Pacific are expected to be over age 65 by 2050. Economic development is driving people to live in big cities. Currently, 11 out of the world’s 20 largest cities are in Asia. And tens of millions of people are moving into the middle class every year.

A key to Philips’ marketing and brand-building is its + Project, which involves working with people in communities in each country. The project began in Indonesia late last year, followed by Thailand, and reached Singapore last month.

Ms Gill said the concept of the + Project was to listen to customers about what they would like to happen in order to improve the quality of lives. This enables Philips, a European company, to get closer to customers in Asia Pacific.

In Indonesia and Thailand, the company invited people to submit ideas in three categories: access to healthcare, livable cities, and healthy living. In Singapore, five categories were chosen. People can vote for the ideas they like and the winning ideas will be translated into concrete projects.

“In terms of business, I don’t know whether this strategy will be better than those of other rivals,” said Ms Gill. “But we do this because we aim to improve the quality of lives of 3 billion people in this region by 2025. We want to grow and we will grow sustainably in this region.”

Lighting equipment, from households to highways and huge public spaces, is a major strength of Philips. Urbanisation will help expand sales of this segment in Asia Pacific strongly.

Laura Ashton, head of marketing and vice-president, Philips Lighting Growth Geographies (Asia Pacific and Latin America), said LED (light-emitting diode) technology is the future of lighting and will drive demand in the next few years. With superior energy-saving qualities, albeit with high prices that will fall as demand grows, LED products are expected to account for around 45% of the total market by 2015.

She said Philips worked with local administrations such as municipalities in providing energy-saving lighting and setting up lighting control networks. Its products can be found on many city streets or illuminating iconic public buildings or historic sites throughout Asia Pacific.

The company also works with other businesses to share its expertise in energy saving and lighting. For example, it recently partnered with the global real estate management and services firm Jones Lang LaSalle (JLL) to offer energy-saving and high-technology lighting systems for JLL’s clients. Initially it will work with 35 large JLL clients in the hotel, office, retail and commercial sectors in Asia-Pacific, replacing their lighting equipment with more efficient Philips systems. The programme is expected to be expanded to other parts of the world later.

Michael Raphael, head of supply chain management and procurement for JLL Asia Pacific, said the partnership would help reduce energy consumption costs by up to $100 million a year for the company’s clients in Asia Pacific. At the properties it manages for 150 corporate clients in the region, JLL estimates there are a total of 70 million lighting points.

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Writer: Nalin Viboonchart