CASE STudy 8.2
Philips Lighting: screening markets in the Middle East
royal Philips Electronics of the Netherlands is one of
the world’s biggest electronics companies, as well
as the largest in Europe, with 122,000 employees in
100 countries and sales in 2011 of €22.6 billion.
In 1891, the Dutch mechanical engineer Gerard
Philips started the production of carbon-filament
lamps in a former buckskin factory in Eindhoven.
Among his first major clients were early electricity
companies who included the provision of lamps in
their power supply contracts.
Today, Philips is number one in the world market
for lighting. Their lighting products (light bulbs and
lamps) are found all around the world: not only everywhere in the home, but also in a multitude of professional applications, for example, in 30 per cent of
offices, 65 per cent of the world’s top airports, 30
per cent of hospitals, 35 per cent of cars and 55 per
cent of major football stadiums.
Competition
Philips Lighting is the world leader in lighting products manufacturing. Its market shares are 50 per cent
in Europe, 36 per cent in North America and 14 per314 PART II DECIDING WhICh MArkETS To ENTEr
cent in the rest of the world. Since the 1980s, Philips
has participated intensively in the concentration of
this industrial sector by purchasing smaller national
companies such as Companie des Lampes (France),
aEg (germany) and Polam Pila (Poland). It has also
developed joint ventures with Westinghouse Lamps,
kono Sylvania and EBT China.
GEL
general Electric Lighting (gEL) holds a 50 per cent
share of the US market but had only a 2 per cent
market share in Europe in 1988. In order to reach a
30 per cent market share in 2010, GEL acquired
several European national companies, such as Tungsram (Czechoslovakia), Thorn Emi (UK), Sivi (Italy)
and Linder Licht (germany). In 1994 gEL built a
logistics unit in France to supply France, Germany,
Benelux, Switzerland, Italy and austria. It now
intends to reduce prices in connection with supermarket chains.
osram
A 100 per cent subsidiary of the giant German holding Siemens, osram achieves an 86 per cent share
of its turnover by exporting (46 per cent in North
America, 41 per cent in the EU, 6 per cent in South
america and 6 per cent in asia). The strategy for the
coming years is to increase Asian market shares by
doubling its turnover in Asia.
other significant manufacturers are Sylvania
Lighting International and Panasonic.
Philips Lighting market screening in
the Middle East
At the beginning of the twenty-first century, Philips
needed a coherent marketing strategy for the whole
Middle East region. The first task was to select the
most attractive markets in the region. over the years
Philips has developed a model which shows a correlation between a country’s demand for lighting and
its GDP per capita. During discussions with agents/
distributors in many countries, Philips was completely dependent on its information about market
size. If Philips underestimated market size, it missed
market opportunities. That was the main reason why
this model was developed, so that the company
could cross-check market estimations of its agents/
distributors.
Figure 1 shows that lighting (demand for lamps
and bulbs) is a basic need for a country and, as soon
as a country starts developing, this basic need
increases. however, as the country’s wealth
increases, the growth in the demand slows down,
because at later stages of economic development
basic lighting needs are covered, as can be seen in
the case of Israel.
Basically, in order to find the most attractive markets Philips Lighting used the model (shown in Figure 1b and Table 1a ) in combination. The demand
for lighting per capita has to be multiplied by the
number of inhabitants in a country. Israel and kuwait
have the highest GDP/capita, but their population
size is small. On the other hand, Iraq and Iran were
(and still are) large markets for lighting, but they are
very tough to enter because of their politically chaotic situations.
however, the Philips Lighting Middle East managers did not use market size as the only market
selection criterion for priority; instead the models
were used as a starting point for discussions with
agents and distributors in the countries. If the
Philips sales in large lighting markets were very low,
this would indicate a low Philips market share
(unless the market size was also low). This would
lead to a discussion with the local agents and
Figure 1 The relationship between the wealth of
a country and the demand for lightingCHAPTER 8 ThE INTErNATIoNAL MArkET SELECTIoN ProCESS 315
distributors about how to increase the local Philips
market shares in cooperation with the local
distributor.
QuESTIONS
1. Discuss the appropriateness of the screening
model used in this case.
2. Suggest another screening model that could be
rele vant for Philips Lighting to use in the Middle
East.