Philips and Matsushita are two giants in the global consumer electronics market. Their international strategies and organizations are very different — while the former pursued a localization strategy, the latter pursued a global standardization strategy; while the former made use of highly self-sufficient national organizations (NOs) for strong local responsiveness, the latter adopted ”one product one division” structure for cost cutting. Nevertheless, both companies encountered their difficulties as global environment changed and have then undergone major restructuring over the years. So what are the recommendations for these companies to survive in the changing environment? Philips has developed local responsiveness through its decentralized structure of national organizations (NO). This structure has a great advantage in being able to sense and quickly respond to the differences in the local markets. As a result of product development is a function of the local market conditions. Philips had developed 8 major R&D facilities throughout the world that are highly specialized. They have been a success introducing such products as first color TV in its Canadian NO and first stereo TV in Australia.
However, these inventions were not shared with the rest of the NOs in Philips because of the lack of communication between NOs and headquarters. For example, Philips’ Beta videocassette format wasn’t shared with other divisions as the strategically valuable invention, as a result North America Philips rejected this invention outright choosing instead to outsource and sell Matsushita’s VHS tapes. In order to prevent these strategic mistakes, the main role of the headquarters should be scanning of business activities across countries and identifying resources and capabilities that might be a source of competitive advantage for other companies in the firm. In the 1980s, Philips competitive position weakened significantly. Competition from rapid technological change, emergence of global standards for electronic equipment and low cost Japanese manufactures all contributed to the overtaking of Matsushita. Past efforts to develop technological capabilities abroad have failed due to the company’s highly centralized R&D structure in Japan.
Matsushita have transferred significant resources to local R&D centers, however the delegation of many responsibilities and framework of R&D came from headquarters in Japan. This philosophy was not well accepted by engineers of the acquired local companies because of the excessive functional control from the headquarters. As the result of central R&D dictatorship overseas companies were not able to develop innovative capability and entrepreneurship. The challenge for Philips is to adopt a more flexible integrative process to balance its decentralization with controls and put in place suitable global coordination mechanisms. As NOs take over the development, manufacturing, marketing and services functions on Philips, these powers have to be reallocated to a centralized module or directly sell to other companies so as to control their powers and facilitate global integration. Yet, the technology capabilities should not be a trade-off for cost cutting purposes as it is where Philips’ core competency lies at.
Customer-focused approaches like quality after-sales service or intensive market researched should be conducted to promote the strength of its technology and branding. Moreover, an information system should be established to allow free knowledge or information exchange between NOs. The challenge for Matsushita is to enhance its local responsiveness to balance its centralization with innovation and entrepreneurship and put in place suitable localization mechanisms. First, Matsushita should establish an information system for technology and produce development for all its subsidiaries.
Global knowledge transfer is important to provide basic foundation and technical support for innovations. Second, Matsushita should form cross-functional teams to investigate the local market. By employing a diversified profile of people, they can give findings or suggestions on various parts of operations like customer-relationship management, manufacturing, marketing, rather than just produce development alone. Lastly, they should recruit more local talents to stimulate the company culture as well as gather more insightful thoughts.
Courtney from Study Moose
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