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Ellen Moore Case
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International and Cross-cultural

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management
12/30/2009

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Deepika Raj (172/45)

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Contents

1. Case Background
………………………………………………………………... 3

2. Major and Minor Issues Identified

……………………………………...... 4

3. Analysis: Philips and Matsushita

a. Internationalization motives
………………………………………. 6
b. Global strategy
………………………………………………………….... 7

c. Analysis of Reorganization
attempts…………………………….. 9

d. Architecture, Routines & Culture (ARC) analysis

…………. 11

e. SWOT
…………………………………………………………………
……... 14

4. Solution & Recommendations

……………………………………………... 15

5. Current status of Philips and Matsushita

……………………………... 16

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ELLEN MOORE (A)

1.Case Background
The case deals with two companies well recognized in worldwide
consumer electronics market- Philips based in Amsterdam, Netherlands
and Matsushita, now called Panasonic based in Osaka, Japan. By 2001,
both companies were getting ready to launch a set of strategic initiatives
and organizational restructuring that was aimed at regaining their
competitive edge. However, these two firms had arrived at this juncture
by following vastly different paths. Philips built its success on a worldwide
portfolio of highly autonomous national organizations while Matsushita
based its global competitiveness on its centralized, highly efficient
operations in Japan. Philips and Matsushita had followed very different
strategies and emerged with different organizational capabilities.

Philips was founded in Eindhoven, Holland in 1892 as a family run

business and by 1900 was the third largest bulb manufacturer in Europe.
Philips differentiated itself from other firms in developing a tradition of
caring for its workers through education, good pay, profit sharing and
other benefits. In 1899 Philips ventured outside Holland and Europe to
Brazil, Australia Japan, Canada and the U.S.

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While all functions remained centralized in Eindhoven, Phillips created

local ventures to gain entry into local markets. So in the late 1890’s and
early 1900s Philips was a single product company that made light bulbs.
By the 1920’s Philips departed from its highly centralized past and rapidly
transformed itself into a multinational, decentralized company with a
broad product line in the electrical and electronic industries. Philips had
evolved from a highly centralized company whose sales were conducted
through third parties to a decentralized sales organization with
autonomous marketing companies in 14 European countries, China, Brazil
and Australia.

Matsushita was founded in 1918 as an electrical socket manufacturer. It

evolved rapidly into a multi-product electrical company. In the postwar
boom, Matsushita thrived in the electronics industry and grew rapidly
using a one-product-one –division structure that encouraged self-
sufficiency.

In the 1950’s and 60’s Matsushita grew into a multinational company with
plants all around the world. The VCR propelled Matsushita into leadership
of the consumer electronics industry in the1980’. By then its overseas
companies were either wholly owned single product plants or companies
with abroad product line for local markets. At this time Matsushita had
over 700 expatriate Japanese on foreign assignment for 4-8 years. Tight
central control was possible because these expatriates had strong
network connections in Japan.

2.Major and Minor Issues Identified

Philips
Major Issues

1.) Power struggle between NOs and PDs

A major problematic area for Philips has been the struggle to balance the
respective roles and power of the National Organizations (NOs) and the
Product Divisions (PDs). While on paper the organizational structure was
a geographic/product matrix one, the NOs enjoyed the real power,
resulting in an ever existing conflict in terms of power and responsibilities.
NO’s control of assets gave it more influence on the top management. The
PDs as a result found it difficult to get their voices heard. The lack of

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clarity with respect to the two meant that Philips was unable to function
efficiently, and thus has been unable to build either into a capability.

2.) Late to market

Due to highly decentralized organizational structure and autonomous

national organizations, Philips failed to bring new products to market on
time and in a cost efficient manner. Referring to the incident when the
North American Philips decided to “outsource, brand and sell a VHS
product” despite developing the technologically superior (to Sony’s Beta
or Matsushita’s VHS) V2000 videocassette format. The V2000 failed to
capture market for the following reasons:

a. Its late entrance to market (slowed by problems in the development

of its DTF system, that made it the technologically superior product)

b. VHS and Beta already had established market share and ample pre-
recorded video libraries

c. Beta camcorders arrived at market first

d. VHS and Beta enjoyed worldwide distribution

Its late entry meant it was incompatible with machines and its unreliability
seemingly left it destined to fail.

3.) Closure of inefficient plants – huge loss of manpower

In a span of 1975-2000, Philips had laid off 178,000 of its employees

worldwide.

The closure of the least efficient plants has also been undertaken by a
number of CEO’s, meaning the loss of a large number of jobs on many
occasions. In this sense it is clear that failed to build manpower into a
capability.

Minor issues

During the 1960s, creation of common market eroded trade barriers, and
diluted the rationale for maintaining independent country level
subsidiaries

Matrix organization of Philips had its own disadvantages as it was difficult

to hold NOs or PDs responsible due to lack of an agreement of
responsibilities. In such organizations complex operations lowered the
speed of reaction to the market demands.

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Matsushita
Major Issues

1) Highly centralized and inflexible organization structure: Slow to

manage change

Historically, the high level of centralisation and the tall structure have
hindered Matsushita’s innovation attempts. The presidents in recent years
have tried to make innovation a capability of Matsushita. The hierarchy
has been flattened, and restructuring has finally taken place. After the
collapse of the Japanese economy left Matsushita with excess capacity
and evaporating profits, restructuring was certainly necessary, but took
many years until anything was done to correct the situation. This shows
that Matsushita was also slow to manage the changes in the external
environment.

2) Dependence on competitors for technological innovation

As Matsushita has never been an innovative company, its main

capabilities have always been the ability to mass produce and at low
price, due to its production techniques and the fact that it produces in a
low cost area of the world. It has also been quick to market, so that when
a competitor brings out a new and potentially successful product,
Matsushita is usually fast in producing a similar product. This strategy is
somewhat risky, as it is dangerous to rely on other companies’ innovation
and Research and Development to produce new products.

Minor Issues

Matsushita faces issue of high turnover by disgruntled overseas staff due

to excessive control from Japan’s highly centralized R&D operations. There
was lack of initiative at foreign plants as they were too dependent on the
centre and acted only as an implementation arm.

Despite excess capacity and strong yen, management couldn’t radically

restructure its increasingly inefficient portfolio of production facilities or
even layoff staff due to strongly held commitments to lifetime
employments

There was lack of technology development in own overseas companies

and the organization formed joint R&D agreements with other
organizations.

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Failure of ‘Destruction and Creation’ program by Nakamura created chaos

and confusion in the organization and led to sharp financial losses.

3.Analysis

a. International Business motives of Matsushita and

Philips

Matsus
Philips hita

Matsushita exploited the post-war surge in demand by introducing a flood

of new products and extensively expanding its distribution network which
not only assured sales volume but also gave the company direct access to
domestic market trends and consumer reaction. However, due to slowing
down of post-war growth, Matsushita expanded to new markets as the
domestic market was already mature and saturated whereas international
market provided huge opportunities. It needed new markets and
opportunities to boost sales and exploit its economies of scale.

One of the main reasons attributable to Philips success initially, was its
one product focus strategy. While other electronics companies were keen
to diversify into other products, Philips concentrated producing light bulbs
and inventing new technologies for this product. It was, thus, able to build
a competitive advantage based on technology, and subsequently, became
a market leader in this field. To avoid market saturation, Philips soon
expanded into global territories like Japan, Australia, China, etc.

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b. Global Strategies of Philips and Matsushita

Matsushi
ta

Philips

Philips: Initially, when Philips did internationalization of its operations and

marketing, the main strategy was to hedge risks against impending wars
etc. It expanded to various countries and set up autonomous national
organizations which controlled their own marketing, production and R&D
decisions so as to suit the local demands.

However, it realized that globalization and increasing standardization of

products by other companies call for efficient, scale-intensive, low-cost
production facilities. And then, Philips started to look towards low-cost
countries to set up production facilities and shifted its focus towards
gaining efficiencies.

Matsushita: The organization looked outside its domestic market only

when its own market was highly saturated and the demand growth had
begun to slow down. It expanded to new markets so as to seek markets
and the main strategy was to achieve efficiency through economies of
scale and highly centralized operations.

Later, it began to realise that the foreign subsidiaries were too dependent
on the centre for strategic decisions and technological development and
they themselves acted as only implementation arms. So, it began to

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introduce decentralization of decisions in the organization structure. Also,

Matsushita started to look outside for learning new technologies and
formed various technological agreements and set up a venture fund for
sourcing new inventions in Silicon Valley.

The source of competitive advantage for Matsushita was derived from

economies of scale like lower costs and higher quality resulting from
specialization by designating one plant to serve as the sole producer of a
component for use in the final assembly of a product. It also made use of
scope economies based on the saving and cost reductions that accrue
when two or more products can share the same assts such as the
productions plants, distribution channels, brand name, staff services etc.
Philip
Philips derived its competitive advantage from National differences and
s
benefitted from the varied tastes and consumer choices in different
countries.

Framework of Global strategy

National Scale Economies Scope

Differences Economies
Matsushita benefitted Matsushita expanded Matsushita
Achieving from differences in factor and exploited potential shared investments
costs such as wages and scale economies in and costs across
Efficiencies cost of capital each activity products, markets
and businesses
Philips managed Philips did
Managing different kinds of risks portfolio
arising from market or diversification to
Risks policy induced changes create options for
various kinds of
consumers in
different markets
Innovating, Philips learned from Matsushita
Learning & societal differences in benefitted from
organizational and experience, cost
Adapting managerial processes reduction and
and systems as well as innovation and
consumer choice exploited it in foreign
markets

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c. Analysis of Reorganization attempts by both

companies

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Philips

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Matsushita:

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Overall, it appears that Matsushita has failed to manage change

effectively during the 1980’s and 1990’s. Although delegating
responsibility, successive presidents did not realise that if they wanted
their overseas subsidiaries to be more innovative they needed to invest in
the expertise. Had they done this, the subsidiaries may have developed
their own products, which they could be responsible for selling and not
have to be at the mercy of the Japan-based product divisions. It was only
Morishita, in the late 1990’s who realised this. However, he did not
restructure the Japan-based production facilities after the recession in the
Japanese economy and, thus the company was unable to reach the levels
of profitability it was used to prior to the recession.

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d. ARC Analysis

Philips:

• Architecture
The organizational structure at Philips was decentralized, with major
decisions divided between the PDs and the NOs

FORMAL NETWORK INFORMAL

NETWORK

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• Routines
• It was a company policy to renew plant machinery by
regularly scrapping pld plants and using new machines

• Allowed NOs and PDs relationship to affect company’s

success. The NOs had more voice when it came to dealing
with the top management

• International Concern Council established to formalize board

meetings with NO heads

• In the later stages, attempts to reduce autonomy of NOs and

replacement of dual management style with single
management

• Shutdown of a number of inefficient pland marked by a great

deal of turnover in short period of time

• Culture
Culture comprised of shared but competitive leadership between the
technical and commercial functions. In some places, it was a triad
management style concluded by the finance function, and this style
trickled down to front line teams. Decentralization of decision making was
a way to respond to country specific market conditions (difference in
consumer preferences and economic conditions, etc) better. Shared
values were disjointed from founder’s ideals. As company saw more
problems, the employee centric company no longer took precedence.

Matsushita:

• Architecture
The organization structure of Matsushita: highly centralized and strictly
hierarchical.

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MEI

36 product
METC divisions

Finance &
Import Industrial Regional
Service accountin Planning
s Goods Export Operations
g

MIS &
Personn
administrati
el
on

China Europe Latin North Asia/ Middle

America America Oceania East/
Africa

Planning Manufacturin Sales

g
Routines:

• METC and the product divisions used to set detailed sales and profit
targets for their overseas subsidiaries but local managers were
given autonomy on how to achieve those targets.

• The company hired Japanese managers and technicians on foreign

assignments to build relationships of subsidiaries with the central
management.

• The Japanese technical managers were sent to transfer product and

process technologies and provide local market information.

• Regular face-to-face meetings between managers of foreign

subsidiaries and the headquarters was a routine in the organization.

• Once a new product was established, it was spun off into its own
operation to create an independent product centre so as to maintain
the ‘hungry spirit’.

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• Various product divisions competed amongst themselves for

market, funds, R&D etc and it created a healthy competitive spirit in
the organization.

Culture:

The organization had become too centralized as all the major decisions
were taken in the headquarters and the foreign subsidiaries played no
major role in strategic decisions or product innovation. Many a times,
excessive control created dissatisfaction in foreign subsidiaries and led to
turnover of talent. It also led to over-dependence of subsidiaries on the
centre and thus, lack of technological innovation.

Since Matsushita was basically a Japanese company, it fostered Japanese

cultures and norms such as collectivism, lifetime employment etc. This
not only decreased the flexibility of the company to reorganize but also
restrained its capacity to lay off excess staff.

e. SWOT ( Strengths, Weaknesses, Opportunities,

Threats) Analysis

Philips:

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Matsushita:

4. Solutions and Recommendations

Philips

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Philips’ pursuit to become a global leader has failed, but it still possesses
capabilities that its competitors do not. Its ability to innovate and develop
technology is what made it successful in the first place, and it must
exploit these capacities further. Sustained investments in R&D and
marketing may be the only way to beat the low cost Japanese competitors

The essential need is that Philips should not give up on its value
proposition of being a ‘technology developer and global marketer’, which
might happen by outsourcing majority of production of its basic products
and services. If this happens, it will be close to impossible for Philips to
make a comeback and compete with rivals offering the technology at
more economical rates

Philips also needs to find the correct structure to suit its operations and its
strategy. It needs to find a structure that is compatible with its strategy as
opposed to changing one and trying to make the other fit to it.

Matsushita
Matsushita attempted to implement a change programme they perhaps
should have considered other factors before deciding on how to embark
on a change programme. If they had used a more bottom up approach,
employees may have been able to warn the management of potential
problems that may be in store.

Matsushita’s President Nakamura has now integrated the product division

structure into multiproduct production centres. This may reduce costs, but
it is difficult to see how this will stop them interfering overly with their
overseas subsidiaries. If these production centres do allow their overseas
subsidiaries more freedom then this may help to create an environment of
innovation. This, along with Matsushita’s new marketing initiative may
help the company to be more locally responsive and although this may
come at a significant cost to Matsushita, its management should be
prepared to sacrifice short-term profits for long-term success.

The management of Matsushita should engage in consultation with its

workforce when undergoing its large-scale restructuring programme and
carefully analyse the dynamic relationship between strategy and structure
when doing so.

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5.Current Status of Philips and Matsushita

Philips

Philips launched a ‘Vision 2010’ which aimed to simplify its organizational

structure by forming three sectors- Healthcare, Lighting and Consumer
Lifestyle- as next step in evolution into a market-driven firm. Philips
integrated its Consumer Electronics (CE) and Domestic Appliances and
Personal Care (DAP) businesses into one Consumer Lifestyle sector
capitalizing on the success of integration initiatives such as the
International Retail Board created in 2004. However, given the current
economic environment, the financial targets set as part of Vision 2010 are
not expected to be met by the end of 2010 as originally planned due to
the continuing economic slowdown and resulting declining demand in key
markets.

Philips employs 134,000 people, holds more than 60,000 registered

patents and has sales of EUR 27.0 billion or approx 39 billion US Dollars.
Headquartered in the Netherlands, it has a presence in over 60 countries
and is one of the largest multinationals in China.

Whilst the logo of the company has been consistent since the1930s the
way in which Philips has advertised and communicated to the outside
world has varied. In September 2004, Philips launched its “sense and
simplicity” brand promise, which marked a new way forward for the
company. “Sense and simplicity” reflects Philips’ commitment to be a
market-driven company that provides products and services that fulfil the
promise of being “designed around you, easy to experience and
advanced”. In 2008, the total estimated value of Philips brand increased
by 8% to USD 8.3 billion and was ranked the 43rd most valuable brand in
Inter-brands 2008 ranking of best global brands.

The executive management of Philips is entrusted to its Board of

Management under the chairmanship of the President/CEO. The members
of the Board of Management have collective powers and responsibilities.
The Supervisory Board supervises the policies of the executive
management and the general course of affairs of Philips and advises the
executive management thereon. The Group Management Committee
is the highest consultative body within Philips; it ensures that business
issues and practices are shared across Philips implements common
policies.

The business mission of Philips is – “Improve the quality of people’s lives

through timely introduction of meaningful innovations”. It clearly shows
the organization’s focus on innovation.

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Matsushita

On October 1, 2008, Matsushita Corporation was renamed as Panasonic

Corporation and all its brands were consolidated under the Panasonic
brand.
Panasonic Corporation is one of the largest electronic product
manufacturers in the world, comprised of over 540 companies. It
manufactures and markets a wide range of products under the Panasonic
brand to enhance and enrich lifestyles all around the globe.
There are currently more than 556 consolidated companies and 66
companies which are reflected by the equity method worldwide.
Panasonic is comprised of 14 business domain companies. Each company
has its own distinct R&D, production and sales divisions that respond to its
own business segment, such as digital AV, home appliances, industrial
solutions, and other electronic and consumer products.
Corporate Governance Structure

Panasonic manages Companywide risk based on the management

philosophies of founder Konosuke Matsushita: "worry earlier and enjoy
later," "causes of failures lie within one," and "be alert for signs of change
and act accordingly." In specific terms, in accordance with shared global
evaluation standards, risk information is collected widely and analyzed
centrally. At the same time, Panasonic maintains a management cycle

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that links risk management activities with business plans for responding
to important risks and with other business management initiatives.

Panasonic management philosophy is “Recognizing our responsibilities as

industrialists, we will devote ourselves to the progress and development of
society and the well-being of people through our business activities, thereby
enhancing the quality of life throughout the world.”

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