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Philips LightingCompetitive Position AnalysisGianina Maria Bumb2013 1
The Lighting IndustryLighting industry is one of the highest growing markets inthe term of technology and revenues. There aremany factors that influence this specific industrysuch as policies and legislation, technology spurs,ecology, resource effective economy, the shiftingdemographics from rural to urban, increasinghuman need of time and daylight and so forward.Though are many factors at stake, some of them areessential to this line of business, radically changingthe industry. These factors are:Technology – shifts in tech directly affect lightingLegislation – can inhibit or encourage lightingtechnologiesSocietal – socio-economic medium affects thedemand, design and attributes of artificial lightingEnvironmental - resource scarcity and pollutionare forcing manufacturers to produce safe andeco-friendly products.Lighting markets forecast(European Lamp Companies Federation)2Exhibit 1. Luminaires market forecastExhibit 2. Lamps market forecast
The Lighting Industry- Environmental Analysis -2. SocietalAs countries evolve, we are witnessing demographic shifts and ahigher degree of urbanization, which will rise the needs of indoorand outdoor lighting, whereas the need for the manufacturer todevelop a more cost and time efficient production process.The expanding middle class in growth geographies reflects in ahigher consumption rate and a investment oriented mentality whenit comes to home improvement. This can be seen as a larger clientbase for the LED appliances and lamps, opposed to incandescent.Lifestyle and leisure trends are going towards indoor facilities forsports and relaxation, opened all year round, which emphasizes theneed for indoor specialized lighting.Employee health and safety influences the technology used inlighting as to insure the safety of employees and not to damagetheir health and well-being.1. TechnologyTechnology changes and so does the market structure asmanufacturers and consumers have scrambled for technology thatis more efficient.Generally speaking, in recent years, the trends in technology havebeen based on integration and multi-tasking. These tendencieshave been adopted by the lighting industry and transposed in agreater level of integration between controls and luminaires.Solid State Lighting (SSL) is a the newest lighting technology thatoffers the advantage of reducing the consumption of energy forlighting compared to existing, conventional lighting technologies,whilst improving light quality. SSL was initially used for mobile andlarge displays.(Source: The European Lighting Industry’s Considerations Regarding the need for anEU Green Paper on Solid State Lighting, 2011)3Exhibit 3. The evolution of SSL and market projections
The Lighting Industry- Environmental Analysis -4. Environmental• During the life of a lamp 90% or more of the lampsenvironmental impact is represented by the use phase, whichis the energy consumption of a lamp. For reducing energyconsumption, lighting has to be energy efficient.• The scarcity of materials used in manufacturing luminairesand lamps is a factor that determines further research fordetermining new materials to be used in this process.• The reduction or elimination of toxic materials used in lightingis another factor that affects the lighting industry. For thatreason, incandescent bulbs relying on mercury are banned inmany countries.3. LegislationA string of new legislation mandating greater energy efficiency inbuildings has emphasized the role of lighting and high energyprices. Therefore, energy efficiency and a move towardsintelligent luminaries have become the major objectives forboth the manufacturers and end users. In the European Unionthe emphasis is on energy savings in the lighting sector and anew legislation that phases out inefficient lighting wasadopted.Similar initiatives have been made by other countries outside EUborder, in order to phase out the inefficient light bulbs.Source: ELC4Exhibit 4. Incandescent light bulbs phase outExhibit 5. Lamp life cycle
5 Forces AnalysisIndustry competitorsConsidering the fact that the lighting market has no more then 5top competitors whom earnings comprise 65% of the marketthere are few incentives to engage in aggressive pricing.Between many competitors there is a collaboration in respects ofluminaires components, licenses or patents.There is a high industry growth due to LED lighting.SubstitutesConsidering the variety of lighting products made by Philips, there are noother substitutes except the same kind of products made bydifferent competitors.The only substitute to artificial lighting is sunlight.SuppliersThere are few alternative suppliers. The cost of switching are highconsidering the fact there are different additional costs liketransport, fees or custom component lines.The quality of the finished product greatly depends on the quality of thecomponents given by the supplier.BuyersBuyers have the power to choose between a large variety of lamps andluminaires produced by competitors, there are no switching costs tohedge that from happening. There are many alternative buyers.Buyers segmentation applies at the product level, more specific, thereare products with different prices depending on their capabilities andperformance, and products customized for different areas: home,hospital or street lighting.Potential entrantsBarriers: Incumbents have a competitive advantage given by:- patents and licenses for lighting components.- top lighting manufacturers are economies of scale,- there are steep learning curves in the lighting industry,considering the importance of R&D and the advances in technology.Entrants face high sunk costs considering the investment in R&D,licensing and other costs hard to recover.5Exhibit 6. 5 Forces Analysis
Competitive Life CycleEmergentphaseGrowth phaseMaturephaseLED lightingOLED lightingIncandescent lightingFluorescent lightingPhilips Lighting produces lamps andluminaires for incandescent, fluorescent,LED (light emitting diode) and OLED(organic light emitting diode) lighting.Considering the banning of low-efficiency lighting, incandescenttechnology is heading to the end of themature phase.Fluorescent lighting is a substitute forhouseholds, being in a growth phase closeto the mature phase. Is very profitable fornow.LED lighting is just entering the growthphase, in the latest couple of years it hasgrown very much due to the rising sales inB2B sector. It is forecasted to rise heavilyin the B2C sector.OLED lighting is the newest lightingtechnology, more efficient than LED, stillin the emergent phase, heading towardthe annealing step.6Exhibit 7. Competitive life cycle
Competitor AnalysisHere are the top worldwide manufacturersof lamps and luminaires:1. Philips Lighting2. Siemens3. GE Lighting4. Nichia5. Cree6. Toyoda Gosei7. Acuity Brands8. Cooper Industries9. Aixtron10. Epistar11. Fagerhult12. Hubbell13. Seoul Semiconductors14. Veeco15. ZumtobelExhibit 8. Competitor information spreadsheetManufacturer StrategyKey competitivefactorsSales evolutionPhilips LightingNumber one positionsin fluorescent, CFL-I,HID and incandescencelighting.The broadest portfolioof LED chips, modules,Applications andcontrols through todesigner luminaires.Holds important IPRs.Sales € 8.4bnSiemens / OsramNumber 2 lightingsupplier. Focuses onretrofit bulbs, OLED.Holds important IPRs.Sales € 4bnG E LightingIntegrated LED basedsolutions. Cooperationpartnerships.Brand awareness.Financial andtechnologicalresources.Sales € 1.7bnNichitaFocused on inorganicluminescent materials.Specialized in nitride-based LEDsin different colors. Keypatent holder forhigh brightness blueLED.Sales $ 2.3bn (in 2003)CreeFocused primarily onLED components forcommercial, street andresidential lighting.Performance vs. Price,strength ofIntellectual propertyrights.Sales 2010: $ 386.6 milToyota GoseiCross-licenseagreements withvarious competitors.Focused on nitrideLEDs.Strength ofintellectual propertyrights over blue, green,purple and white LEDs.Sales $ 4,6 milAccording to The future of lighting, New Street Research report, 20107
Philips LightingCapabilitiesAnalysisCapabilities SupplyactivitiesResearch &developmentProductionoperationsSales anddistributionService andsupportProcesses Initial audit toasses the risk ofnot compiling tothe standards itneeds.Involvingconsumers intoR&D program,helps designproducts fitted toconsumer needs.- Optimized forenergy and timeefficiency.Worldwidedistributionthrough dealers,agents anddistributors.Gathering andusinginformationprovided by theconsumer todesign betterproducts.People(skills)Philips expertshelp improveworker-managementdialogue forsuppliers.Philips has topexperts in techresearch,marketing, andproduct design.53,168productionemployeesworldwide.Every factoryhas acomplianceofficer to ensurethe GBP.Distributors andagents arecarefullyselected tocomply with theDue DiligenceProcess.Employees areoffered in-housetraining and freecourses forpersonal andprofessionaldevelopment.Systems /techAssuring thecompliancewith the Conflictmineralsprovisions andcarbonfootprinting.9 researchlaboratories and3 incubators inEU, NorthAmerica andAsia.124 productionsites worldwide.100 countrieswith sales andservice outlets.CMR softwareand call-centersworldwide.Alignment &sustainabilityPhilips SupplierSustainabilityInvolvementProgramimprovessustainabilityperformance ofits suppliers.Accelerateprogram.GeneralBusinessPrinciples (GBP).Over €400 milinvested in R&Din 2011.Accelerateprogram andGBP.Sustainablethrough thesteep learningcurve.Ongoingalignment withDue DiligenceProcess (DDP)anti-corruptionprogram.Accelerateprogram, GBPPhilips core capability is to createconsumer oriented products.Product must be easy to use andefficient and their design mustillustrate this as well. This starts bychoosing the suppliers who canprovide custom components, at agood quality. Then, it is up to theR&D department to build aprototype of the product thatmeets the criteria of sense andsimplicity, functional and designwise. After the prototype is ready,it is going to be large scaleproduced. Afterwards, the salesdepartment must place theproduct on the market in order tobe bought. Finally, the service andsupport department will fix anyproblems that arise from the useof it and resolve customerscomplaints.According to the data provided by Philips Annual Reports 2011 and 2012, Philips Lighting Strategy - Van Houten8Exhibit 9. Capabilities Analysis
Philips Lighting PositionSource: The Future of Lighting, 2011Exhibit 10. Philips market positionLooking at the competitors analysis we can easily observe thatPhilips is the global market leader in lighting, with thehighest sales of € 8.4 bn in 2012, a growth rate of 3.8 and50,200 employees.Philips has a strong presence on the lighting market due to itsall-level integration in the digital value chain, bymanufacturing LED components, modules, luminaires andcontrols. The company manufactures around 80,000products and holds number one positions in fluorescent,CFL-I (compact fluorescent lighting), HID (high-intensitydischarge) and incandescent lighting.2. Another problematic area is sales personnel and forthis reason, Philips implemented a Due DiligenceProcess to prevent corruption, allowing it to controlhow the products are being sold.3. Another competitive advantage is the product itself.Products are designed by a R&D team and thecustomer direct and indirect feed-back (gatheredfrom customer service and support).9From the capabilities analysis we can see that:1. The investments made by Philips in imparting its visioninside the company and with its partners consists in acompetitive advantage. It gives Philips power over theemployees, the suppliers and the partners, by buildingtheir loyalty.Because of the great power of suppliers in this industry,Philips programs and regulations bring the power to thecompany.
RecommendationsMy primarily recommendation is to maintain market leadership, and to do that, thecompany must be very adaptable, considering that radical changes willhappen all together with the phasing out of incandescent lighting in themature economies (see Environment analysis - legislation page 4).Because Philips is leader in incandescent lighting, it will have a fall in sales in themonths post phasing out. The company will have to gain back its customersby promoting the more energy-efficient fluorescent, LED and OLED lamps andluminaires.LED and OLED technology is in a growth/emergent phase, considering its energyefficiency and its growth will be boosted by the phase-out of incandescentlighting in many countries worldwide, which will determine consumers tobuy fluorescent or LED products. Customers must buy Philips fluorescent, LEDand OLED products, that is why a greater presence on the LED and OLEDmarket, in both B2B and B2C is recommended.Marketing actions must be taken in order to promote LED and OLED lighting.10
Bibliography• http://www.faqs.org/sec-filings/111024/VEECO-INSTRUMENTS-INC_8-K/a11-28425_1ex99d2.htm• The European Lighting Industry’s Considerations Regarding the need for an EU Green Paper on Solid State Lighting, Brussels, 2011• The future of lighting, New Street Research report, 2010• Lighting the way, Perspectives on the global lighting market, second edition, McKinsey and Co., 2012• Philips Annual Report, 2011• Philips Annual Report, 2012• Philips Lighting Strategy, Van Houten, 2011• http://www.lighting.philips.ro/11