Table of Contents

Executive summary2Introduction2Motivations for International Expansion3Conflicting Environmental Forces5Strategic Objectives9Innovation Models10Organisational Models12Degree of success in developing transnational organisations14Conclusion15References16

Executive summary

The findings in this report suggest the restructuring of strategies and approaches implemented by the Dutch company Philips and Japanese Matsushita and their behavioural patterns in the worldwide consumer electronics market. The evolution of these companies are observed and analysed from pre-World War (WW) to 2000s. During this period, the organisational and innovation models are closely examined and how the companies are affected internally and externally. The effect on the comparative advantage from these various strategies are implemented is also shown. The set of conflicting environmental forces are considered, considering how two companies react to them in different manners, in the same market. Therefore, the global competitiveness is a response to their external environment.It has been established that Philips and Matsushita both have gone through a long way in achieving their current position as multinationals to the road of transnational companies. They are therefore changing core competencies and organisational structures to a more global-local manner, as that of a transnational.Introduction

It is no doubt that Philips and Matsushita have earned a reputable position in todays rapidly changing world of electronics. Rivals for decades now, each firm had approached different strategies and tactics that allowed them certain capabilities and competencies as well as downfalls that came along the way. Dutch company, Philips, built its success story by means of a portfolio consisting of responsive national organisations. Conversely, Japans Matsushita tackled a planned, centralised system. However, as they formed and redeveloped their international strategy, both were forced to each undertake their strategic posture and restructure where its competitive position was at risk.In the race to lead the market through maximising various aspects of the value chain, the two firms strived to offer increased customer satisfaction, coupled with constant innovation and high quality goods. Although their across-the-border presence is commendable, this also brought about various challenges on the path to achieving leadership status, through business structure, market threats and any other conflicting environmental forces or objectives that hampered growth. From the turn of the century, the change of leadership brought about more complicated initiatives that would force it to reorganise.Motivations for International Expansion

By 1900, Philips was the third largest bulb producer in Europe. It was also a leader in industrial research, where the tungsten filament bulb was developed in their physics and chemistry labs. This was a great success and enabled Philips the financial strength that gave an edge over its giant rivals.There are push and pull factors for firms to internationalise. The constrained local market size pushed Philips to enter new foreign markets, where it had the opportunity to mass produce. This market-seeking motive could create more intrinsic value to the company as it could enjoy a competitive advantage abroad (BB, 2011). The new technologies generated, in the individual countries, stirred more innovation in product development through R&D that enlarged its product line drastically (electronic vacuum tubes, radios and X-ray tubes). This allowed Philips worldwide market expansion that catered towards the growing demand of new inventions to its international consumers.

On the other hand, resource-seeking that drives down the cost of factors of production is another driver to internationalise for companies. Matsushita was induced to shift its production base towards lower-wage countries as the cost of Japanese manufacturing rose. Government pressure in the 1960s led to shifting its production-cost to Southeast Asia, Central and South America where these plants could help regain its competitive advantage.However, priorities change over time and so do company objectives as seen from pre-war to post-war. Strategic resources like high levels of technology, particularly core competencies like the employees, knowledge and skills also change. Emerging motivations, like strategic-asset seeking enabled Matsushita to continuously enhance its products and engage in emerging technologies. This is where the two rivals first overlapped. Matsushita made sure it was fast to market through an exchange of technology, R&D partnerships and licensing. Bartlett (2009) indicates that these alliances proved beneficial with the exchange of other firms technical know-how, given the copycat reputation that gave a competitive edge in the consumer electronic market.

Conflicting Environmental Forces

Conflicting Environmental Forces

Forces for global/ cross-border integration and co-ordination Forces for local/national differentiation and responsivenessForces for worldwide innovation and learningComments

Philips133Innovation and local differentiation are top priority

Matsushita312Global integration is the of highest importance

1= least important, 2=important, 3= very important important 2= important 3= very importantimportant 2= important 3= very important

It is important to identify external forces that any MNE faces, in order to understand the organisations internal dynamics and thought-process. Pressures of global integration, in manufacturing, are expected to have shared strategic objectives in order to facilitate global integration. When a company responds to a set of external demands, it comes into conflict with another. It means that if the company expands to accomplish cross-border integration and then to gain economies of scale, it conflicts with the company when responding to local needs, making it loose to compete globally (Prescott et al, 2003).With the economic crisis during the Great Depression (1930s) and anticipation of the forthcoming war, Philips immediately transferred its overseas assets to trusts in British Philips and North American Corporation. To strengthen research, most of its labs relocated to England and top management shifted to America. At this point, the forces for global integration and was of importance. However, the change in time periods led to a change in the environment and conflicts.It is observed that that the forces for local differentiation and responsiveness are of great importance to Philips, particularly with the World War II. These led to changing consumer preferences and macroeconomic factors that varied national standards for their products. Philips responded to these changes by creating strong and resourceful national organisations (NO) that were self-sufficient and built up-to-date technical abilities through the local market. Concurrently, NOs could capitalise on the local market opportunities as openings. For instance, three different standards for TV transmissions were adopted. Additionally, many European countries had varied technical standards so based on the assumption that particular consumers rejected global standardised products, due to homogeneity of product design and performance. Growing pressures for localisation persuaded products to be globally innovative and locally relevant to fulfil these country-specific customer needs. For example, Philips of Australia created the first stereo-TV, and Philips of UK created the first teletext-TV (BB, 2011). To respond to consumers high switching costs, the need for fast-moving innovation became necessary to satisfy new demand, indicating a different set of conflicting forces. The 1990s saw Philips connect to newer market trends that dealt with forces for worldwide innovation and learning. This factor now compelled the company to work with national markets alongside the associated opportunities in the subsidiary markets, which was responded by a Philips revolution in consumer electronics and market trends by being first to innovate (cellular phones, digital and web TVs). With this digital revolution, Philips further expanded its scope by entering into join ventures, where its knowledge capacity was limited. At this stage, the company objective was to capture first-mover advantages to keep its mark on global standards and amplify market share.Matsushita, on the other hand, exposed itself to the international market after WW II and so responded to a different set of conflicting environmental forces than that of Philips. Therefore, the forces for global integration and coordination placed the most significant importance, post-war. Malnight, (1995) refers to this force as the control of individual business functions across borders and is crucial with globalisation occurring at the same level as the function (Prescott et al, 2003). The rise of post-war globalisation brought about more technological-innovation that pursued Matsushita to integrate global operations and benefit from economies-of-scale. They standardised, instead of localising the products that enhanced customer preferences with its new global products/brands on offer. Matsushita, as an integrated MNC, maintained its competitive advantage with differences in national resource endowments. For this reason, it shifted basic production and assembly operations to low wage countries, of Europe and South America. Standardising TVs and VCRs, through a globally integrated channel, allow global efficiency (Chen, 2006).Conforming to the Japanese business system, control of Matsushita was strictly centred upon the parent operations. Their overseas subsidiaries had a centralised operating control on the parent division, to whom they reported. All manufacturing procedures, plant design and equipment were directed by the centre and all used materials from the domestic plants (BB, 2001). Moreover, 700 expatriate employees were sent to overlook operations in these subsidiaries, so that they would report back, truthfully. As a result, the innovative thinking in the international subsidiaries was stammering. This led to shifts in operational control by integrating national and international operations closer to each other. So headquarter functions relocated from America to Southeast Asia and promoted R&D The force for worldwide innovation and learning gained more importance towards the end of the 1990s. As Matsushita realised the need for innovation and development in technologies, they started engaging in R&D partnerships and technical fields, primarily in upcoming fields. Establishment of incubation centres for innovative thinking and emerging technologies were formed to recuperate the firms conceptions of slow innovation, as well as reorientation of a high-tech business. Licensing agreements with Microsoft, in 1998, were also used to overcome a technology gap, accompanied by strategic alliances that allowed innovation of combined PCs and digital audio-visuals. Despite the difficulties associated with recession of 2001 for venturing were complicated, Matsushita, by 2010, still managed to establish a title as a leader in various product outputs, like Plasma TV manufacturing.

Strategic Objectives

Strategy comprises of an integrated set of choices, and how the firms plans to engage the environment (Hambrick et al, 2001). In order to develop this competitive advantage, strategic objectives such as global scale efficiency, multinational flexibility and worldwide learning. For this reason, Philips had different objectives throughout its time, experiencing WW II, changing CEOs and economic conditions that altered strategies. Multinational Flexibility entails companies to scan its broader environment to detect changes and respond to new settings. Philips aimed to seek this objective via hedging macroeconomic risks against the upcoming war and its aftershocks by shifting the centre of technological innovations, its research laboratories, to England. In spite of the high cost of relocating, it safeguarded the key assets, temporarily, in a politically-neutral nation against additional external threats. Matsushita acquired its multinational flexibility by upgrading on mass-production techniques to more up-to-date manufacturing systems worldwide. This entailed fast and cheaper switching of product-lines. The market demands of consumer electronics could now be met and simultaneously expand on its products. The rise of globalisation gave way to Japanese competitors, which captured the mass market of audiocassettes and microwave-ovens. Philips changed its strategy to achieve global scale efficiency as a value based system, by increasing the value of inputs and outputs. When they tried to reach this objective, product activities were expanded outside Holland and exported to diverse markets, to benefit from economies of scale.Matsushita also began to seek global scale efficiency, due to the post-war Japanese market saturation. By expanding into low-cost countries, national differences could be exploited and could simultaneously offer superior quality with lower costs (Porter, 1996). Also, the appreciation of the yen in the 1990s compelled Matsushita to locate more offshore production facilities. They imagined the world to be a single market, to offer standardized products.Further, worldwide learning incorporates developing distinct capabilities and capitalizing on broader learning prospects. Success in this competitive world is creating differentiators as a weapon in the fight for customers, revenues and profits (Hambrick et al, 2001). Philips managed risks associated with diversifying product types and standards, coupled with consumer preferences. Some consumers wanted rich, furniture- encased TV sets while others preferred sleek and modern designs. NOs responded to these changes by individually catering to local preferences and thereby diversifying its portfolio to mitigate its risk.Similarly, Matsushita pursued to attain strategic objective of worldwide learning. Through the establishment of three closely linked domains (Digital Networks, Home Appliances and Components) and eliminating internal competition, they tried to boost learning throughout the MNC.Innovation Models

It is critical for a firm to sustain a competitive advantage when in competition with others. Therefore, the firm must wisely abide by innovation models, along with facing the challenges that arise. Following the subsidiary-based knowledge development, it can be implied from the local-for-local model that Philips advanced through competitive innovation. Three fundamental capabilities of sensing, responding, and implementing cater to this model (BB, 2011). The decentralised and independent NOs of Philips quickly sense and respond to local customer preferences to position them in proximity to the markets and respond to these differences. By closely examining the local target market made it easier to adjust to these local pressures and could now customise its product-offerings in collaboration with marketing and distribution strategies fit for every market. Decentralised sales and production subsidiaries were implemented in collaboration with other subsidiaries to take advantage of the new resultant products internationally.Unfortunately, decentralising impaired the coordination between the NOs and independent product-divisions. The lack of effective communication between Philips subsidiaries bared the risk of duplicating these products, especially in critical areas like R&D, where communication is integral. If there are repetition of ideas and no consistency, it can create unnecessary costs. Since decentralisation made the synchronisation of ideas/projects and coordination more complicated, the innovation process was affected.Thus, Philips towards the 1970s, attempted to adopt a globally linked innovation model. The matrix structure was adjusted to enable the Eindhoven based product divisions higher authority from the International Production Centres. This provided more inputs to NOs while handling with product designs while ensuring efficiency in the implementation of products and procedures. North American Phillips Corp, for example, managed greater control of NOs.Contrarily, Matsushitas good repute of worldwide innovators in consumer electronics inclined them to centre its headquarters as an arena for international opportunities at the home-based level. Resources and capabilities were centralised to invent new technological advances, as the core R&D centre to respond. It was then globally implemented using subsidiaries to cater the local markets. However, this extremely centralised structure resulted inflexibility and slowed down the fast-moving trends and innovation in the industry. Eventually, Marsushita incurred much financial loss, in the late response of changes in the external environment and losing its competitive edge.This model appeared to insulate local market and concerns of lack of market knowledge from the centre, which led to Matsushitas integrated, globally linked model. During the reign of Yamashita (1990), the amount of local people in key positions drastically rose. Additionally, these foreign subsidiaries were permitted to source their equipment locally and modify designs to better suit local elements (BB, 2001).Further, each year that the merchandising show and product planning meeting took place, these subsidiary managers were able to negotiate for changes in attributes, price and materials. Since the product divisions yet had more authority, as did the centre, they could override the sales subsidiaries, need be for new products. However, the limitations of this model resulted in a lack of innovation, than that expected by Yamashita.Organisational Models

Organisations vary in their structure, how they are built and in virtue. They are a product of present external demands as well as its unique history and structure (Barlett and Ghoshal, 2002). Organisational models impact the strategic objectives and innovation models to respond to global and domestic activity. Therefore, each player in the market will have a different organisational structure that that of its competition, which can be seen in the case of Philips and Matsushita.In the midst of the Great Depression (1930s), Philips strategically sought to protect its foreign markets by shifting operations abroad. Henceforth, the bombings of WW II, that caused destruction of its industrial plants, led to the establishment of NOs, who acted in a self-reliant manner, had fully adapted to local market conditions. At this point, Philips acted upon a decentralised model, by transferring managers and researchers to the subsidiaries that acted autonomously, in a decentralised manner.

However, the integration of European Common Market in 1960s brought about problems of its own, which in turn also changed the organisational structure, as depicted with the range of CEOs at Philips. This meant that the organisation altered itself as a coordinated federation, particularly in 1970s when CEO Klugts strategy was to concentrate on four core divisions. He linked the PDs to the market; giving them more say and further decentralising the matrix.When the marketing was taken care of, Kleisteree (2001) again reorganised the business to reinvent Philips as a lifestyle company. Alternatively, Matsushita was the first Japanese firm to adopt a divisional structure in 1933. This meant that each product was treated as a different function, which created internal competition to drive each product for better profits. With the process of internationalisation in 1970s, Matsushita implemented a centralised-hub organisation, as the weakening Yen forced production in low-wage areas. The headquarters imposed a rigid cost control to these subsidiaries by sending valuable Japanese expatriates, as technical managers, to oversee plus report quality and technology transfers. All its main assets, materials and manufacturing activity were fixated at the centre, emphasizing the centralised structure to which their global competitiveness was based.

Lacking on innovation, Matsushita restructured to a more decentralised arrangement, by 1980s as decentralised decision making, reinforced by a formal organisational structure, enhances the ability to innovate (Cosh, 2010). President Yamashitas Operation Localisation was expected to enhance creativity and flexibility in the entrepreneurial spirit, of foreign subsidiaries through increasing involvement of locals, with knowledge. Introducing local expertise in management improved the overall management of the subsidiaries for a quicker response to local market fluctuations and preferences.

Degree of success in developing transnational organisations

A transnational organisation develops and establishes various internal perspectives, with a dispersion of physical assets/capabilities while employing a flexible integrative process. A successful transnational organisation functions worldwide as an integration of thinking globally but acting locally, to counter competition in the market.

Being capable of flexibility and integration of transnational organisations should be noticed, with the internationalisation process, as the business matures and faces all obstacles that come with foreign subsidiaries. Both from different backgrounds and settings, Philips and Matsushita enabled portfolio diversification, along with shifting production functions, were seen to characterise a transnational. Philips created and managed strong national subsidiaries, meaning that through the establishment of NOs and PDs, its configuration of assets and capabilities were dispersed, interdependent and specialised. Matsushita also showed these functions by opening production plants to low-cost locations, and set up subsidiaries to cater locally to each market.The two firms facilitated distribution and interdependency in their abilities towards the role of their overseas expansion. There were differentiated contributions by national units to integrated worldwide operations. Each positioned themselves in foreign operations that would translate in economies of scale via specialising, in each market. At Philips, the most efficient plants were converted to International Production Centres that enabled managers to globally view each national unit, as an instrument, as a defence-mechanism to the ever-changing global demand.This development and diffusion of knowledge developed jointly and shared worldwide. Matsushita, being the leader of plasma TVs wanted to expedite the flatscreen market by spurring investment towards each R&D centre to achieve more efficient global production.Conclusion

With a great deal of history and the struggle for leadership, Philips and Matsushita have tackled the consumer electronics industry through various means. The competing strategic and organisational choices have moulded the face of rivalry in the market. The strategies they adopted were a result of various conflicting environmental forces, from pre-war, post-war to the world of globalisation we live in today. These strategies were changing in line with the strategic objectives, innovation models and organisational models. However, with success also comes failure. There were various situations where the wrong strategy was adopted and was problemsome to the entire organisation. Many restructuring errors were borne by the two companies that resulted in major losses. Nevertheless, their innovative ability to develop new products and approach to the market managed to elevate their effect, thereby creating more competition locally and globally. Thus it can be concluded that Philips and Matsushita are observed to be headed towards a transnational organisation to maintain their competitive advantage in line with maximising operational efficiency. In the local-global mix, imitation will be harder, yet in order to achieve this, Philips and Matsushita both need to work on their internal structure. Effective communication, at the right time, between the headquarters and subsidiaries is vital in order to succeed in the cut-throat consumer electronics industry.3,204 words

References

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