Supplier power. The suppliers did not have high bargaining power. The high tech industry in Europe and U.S. was quite developed and the number of suppliers was big.

Rivalry determinants. Those determinants refer to product differentiation, where Phillips was standing out in the industry and manufacturing costs, where Phillips was overrun by Asian counterparts. The fact that Phillips' products were easy to imitate, made its innovation advantage weaker than the Asians' cost advantage.

PEST Matsu*****a

Political factors. The political context from home helped a lot the company's evolution. The Japanese government was in favor of intensifying business activity with low wage Asian countries, such as Taiwan and offered incentives to national companies to relocate part of their activities to such countries.

Economic factors. Japan's economy was growing after the 2nd World War. The employment levels were growing, inflation and interest rates registered positive evolutions and the Yen was becoming stronger relative to other currencies in the world.

Social factors. After the war, the average Japanese's state of mind was focused on reconstruction the country. The population was mobilized for this purpose. Also, in this period, Japan witnessed an intensification of the rural migration to cities, which was synonym with an increase in the number of sophisticated consumers.

Technological factors. Japan is known as one of the most technology-intensive countries world wide. Both government and private R&D were high after the war and maintained these levels until today. The average Japanese is an individual with a high appetite for high tech products, which makes the Japanese market very competitive in this area.

PEST Phillips

Political factors. The Common Market and trade liberalization has a strong impact on European companies that had to face competition from the East, namely Asia, where labor costs were considerably lower. Besides having to cope with the price war, the European companies had to face the copycat phenomenon coming from the same competitors. Their products were copied soon after release and manufactured at lower prices under a different brand. The patent laws were inefficient in these situations.

Economic factors. Until 2000, the European economic outlook was a positive one. Of course, business cycles alternated, but that did not have a significant impact on Phillips' activity. The inflation and interest rated had positive evolutions. In the early 1990s, the Euro currency is introduced in a number of countries and later the same currency is expanded to more countries. In the late 1990s, the employment levels started to be affected by the globalization process. In the Western part of Europe more and more jobs are lost for Eastern Europe and Asia. In 2000, Europe enters a recession period, from which it will recover only a few years later. This recession is to affect the activity of a lot of companies.

Social factors. Europe, also known as "the old continent" is currently facing decreasing total population and increasing ratio of old people to young ones. The situation was different before the 1980s. Before, the population growth rate was positive and the average age was considerably lower. In the late 1980s, early 1990s, Europe witnessed the fall of the communism. Several countries opened their markets and consumption grew. Also, a lot of people migrated from the rural areas to cities for a better life.

Technological factors. Before the Common Market, Europe was a promoter in this field. However, the competition was considerably lower and it was easier for companies promote their innovations. After the Common Market, European companies were faced with a tough competition. Innovation became a necessity to survive, rather than a strategy to increase margin.

SWOT Matsu*****a

Strong Points

Weakness points proximity to low wage Asian countries;

massive off-shoring to low wage Asian countries - low liability of foreignness in these countries;

ability to create similar products to the competition's due to cash availability; strong centralization of overseas operations which implied high bureaucracy and reduced flexibility. Managers...

Managers from the European and American markets report directly to Japan and do not have much independence in their decision making process, but they are responsible for the results. The control has to be loosen to be proportional to the extent to which those are responsible for meeting corporate objectives.
The low level of innovative power should be overcome by new R&D centers, such as the one in the Silicon Valley and strategic partnerships, such as the one with the Chinese Academy of Sciences.

SWOT Phillips

Strong Points

Weakness points

Long-term research experience - high quality products;

Customer brand awareness;

Brand associated with high quality;

Good distribution network;

Considerable economies of scale.

High production costs;

Incapacity to reach maturity on the learning curve - Asian competition is forcing Phillips to bet on new products permanently and leave behind the old ones;

Opportunities

Threats

Create more production centers in the low wage areas to be able to survive the price war;

Expand the activity to new industries, such as automotive and aerospatial;

Expand the activity to new markets, such as Asia and South America.

Economic recession - companies of this size are sensitive to business cycles;

High tech industry is growing fast and any small company may develop a patent to revolutionize the market;

Existing competition developing cheap high tech products, that Phillips wouldn't have the capacity to compete with.

One solution for increased production costs is off-shoring to low wage countries.

Strategic plan for Matsu*****a and Phillips

Matsu*****a is looking at a long decentralization process. Even though it is important to maintain the contact with top management from overseas operations, the presence of Japanese "spies" abroad to report to headquarters can create pressure and stress among those. The withdrawal of these spies would reflect increased trust and confidence in the overseas managers' ability to handle operations.

Each region should have clear and attainable objectives. Retribution and penalization should be proportional to the extent to which these objectives are met or not. It is important for the people to feel accountable for their actions, but the accountability has to be proportional to the extent to which they can make decisions on their own. Thus, right and responsibilities have to be agreed upon jointly.

Phillips has 3 options to relocate production facilities: buy and existing facility in Asia, engage in a joint venture with an existing manufacturer that would produce under Phillips brand or enter with a Greenfield. Considering that the company doesn't have much internationalizing experience in the Asian markets, it would have to face high liability of foreignness. Therefore, Greenfield is a risky choice. Buying an existing company implies buying its supply network and its local market knowledge and would be the most suitable solution in the beginning. After a few years, Phillips will be more familiarized with the Asian way of doing business and would have more knowledge to have success with Greenfield production facilities.

MATSU*****a - PHILLIPS CASE STUDY