Reference no: EM131288006

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 161,500 employees in over 60 countries and sales in 2005 of a30.395 billion. In 1891 the Dutch mechanical engineer Gerard Philips starts the production of carbon-filament lamps in a former buckskin factory in Eindhoven. Among his first major clients are early electricity companies who are including the provision of lamps in their power supply contracts. Today Philips is number 1 in the world market for lighting. Philips 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 world leader in lighting products manufacturing. Its market shares are 50 per cent in Europe, 36 per cent in North America and 14 per cent in the rest of the world. Since the 80s, Philips has participated intensively to the concentration of this industrial sector by purchasing smaller national companies such as Companie des Lampes (FR), AEG (GE) or Polam Pila (Poland). It has also developed joint ventures with Westinghouse Lamps, Kono Sylvania and EBT China.

GE
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 has acquired several European national companies as Tungsram (Czechoslovakia), Thorn Emi (UK), Sivi (IT) and Linder Licht (GE). In 1994 GEL built a logistic 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 a 86 per cent share of its turnover by exporting (46 per cent in North America, 41 per cent in EU, 6 per cent in South America and 6 per cent in Asia). Strategy for the next 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 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 Philips could crosscheck market estimations of its agents/distributors. Figure 7.13 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. But 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 we can observe in the case of Israel.

Basically, in order to find the most attractive markets Philips Lighting used the model (shown in Figure 7.13 and Table 1) 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, but 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 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 relevant for Philips Lighting to use in the Middle East.