Q: Can you tell us a little bit about the history of Philips in Romania? They were quite active in Romania before the war...
A: That's correct. We first came to Romania in the late twenties. We had a factory at the time, the old Electronica factory. In my office you can even see an old picture taken along Calea Victoriei that shows a Philips sign from that time. We came back to Romania and re-established the company five years ago. Since then things have progressed rapidly, especially in the last couple of years.
Q: When you say that do you mean your sales or your product acceptance?
A: Despite the relative low purchasing power of Romanians, there are some aspects which are important. First of all, there is the quality. From the beginning, Romanians look for quality products, and Philips is what we call an A brand, a top market brand that is rather more expensive than the locally produced products. Second and very important is that, while we of course look at the total market, we have also managed to increase our market share within this market, mainly at the expense of the so-called B brands. We have been focused on our distribution, and on our consumers, and things have gone well.
Q: So, the nature of the consumer market is changing...
A: What you see is the shifting of the market where there is more space for A brands and Philips is filling up that gap to a large extent. Local companies and B brands don't have the economy of scales and therefore they cannot keep up with the price levels. Consequently there will be a shake out in the industry I expect in a couple of years.
Q: Can you describe a little about your product line?
A: Philips is divided into product divisions, the main being the sound and vision divisions, and domestic appliances. We also have a big lighting division, medical systems, and business electronics. Beyond that we have a joint venture with Lucent Technologies worldwide called PCC Philips Consumer Communications.
All our product divisions are represented in our organization here and our main activity is targeted to consumer products. We are also focusing on medical systems, big projects in lighting, including a joint venture based in Timisoara with a well-known Romanian company called Elba for municipal street lighting. The lighting division is also interested in other infrastructure projects like stadiums, bridges, tunnels, hotels, banks, etc..
Q: So far, Philips Romania has not acquired a local factory. Why not?
A: We have made major investments in Poland, Czech Republic and Hungary, ranging from 7,000 people being employed in Hungary to more then 10,000 people now in Poland. We have over seven investments made in the region: manufacturing, lighting, televisions, components. Every country's business is different. What is very important is the degree of privatization. If it reaches 60 percent with people being employed in private sector the country can take off. I truly believe the entrepreneurial spark needs to ignite the economy.
Q: So, Romania is practically there...
A: I really don't know where the privatization level in Romania is now but they should develop further. Things are not going fast enough and that worries me. Romania should understand, in my view, that multinationals don't look over the country, they look over the region, to see if they should reallocate part of their industry into Eastern Europe because of labor cost or market size. They did that in the early nineties and as a consequence, they put a lot of money in countries like Poland, Russia or the Czech Republic. An important factor is, of course, the size of the economy and the size of the country but it is not determinant. Look at the Czech Republic or Hungary, where the important factor is actually how easy it is to operate or to do business in these countries. Do they have skilled people, how is the infrastructure, those are key questions that need to be addressed and were addressed by a lot of multinationals in the early nineties. Romania was not yet ready and now is trying to struggle to get foreign investment in.
Unfortunately, a lot of the cards have been dealt already. We've made significant investments in Hungary, Czech Republic and Poland and it isn't necessary to have the same factory 300 kms from here. Multinationals looking for economies of scale don't put factories in every country.
Q: Are you saying you're not interested in privatization opportunities here or greenfields?
A: No, we are always looking for opportunities because of the fact that Philips is involved in such a vast range of products and to stay ahead we are looking at opportunities constantly but we have to be very realistic. Finding cheap labor to make assemblies is one thing, but not if your suppliers of subassemblies don't move with you, so that the labor cost savings can be passed through 100 percent of the product.
Q: On the retailing side, where are you putting the most emphasis?
A: Our biggest activity at the moment is sound and vision and domestic appliances equipment. For sound and vision, things are going pretty well because we found very good partners who want to help us build our brand in Romania. We are working with distributors, looking for a recognizable distribution where people understand that they can buy our products and they can obtain quality and services for prices they know from shops. We are very happy because we have found strong players in the market to do that, so we have tripled our market share in the last year and a half.
Q: What about on the marketing side? Philips has a global re-enforcement campaign...
A: We had to divide our advertising strategy in two. First of all we've got an umbrella campaign which is the corporate campaign "Let's make things better". Very important is that we focus on people, not on products. When we say "Let's make things better", we address the people and we are truly interested to improve people's lives in Romania. It's important because we have to cover everything from a light bulb to a computer tomograph. Before we started the campaign we had 26 slogans around the world! How can you build a global brand with 26 slogans? Of course, underneath that you find the product-related advertising in every market, very directed and very focused.
Q: You've been pretty outspoken about the need to improve human resource management in Romania. How much time do you spend on HRM issues in-house?
A: I spend a lot of time because I truly believe that the key factor for success in any organization, is good people. Train and motivate them, let them be a part of the Philips organization. To answer your question, I spend something between 20 and 40 percent of my time on organizational and employee development issues.
First of all, in the past years we have established a very solid structure in our organization which include corporate guidelines and a good assessment structure to see how people would perform in the organization. It might sound a little bit rigid but it is not. People need to understand what they can expect from the company and we are very transparent with what we expect from them. We want to pay our people well, we want to make sure that they are happy with their salaries but the best way to retain people is that they feel they are part of a winning team that is developing constantly. We offer international training possibilities to our people, and we are currently working on a human resource development plan to understand where the organization could be after five years down the road.
We are part of a regional organization as well, so can we move people internationally, can we expose them to international business. Virtually all our staff in the first weeks when they came to the company they have been sent abroad, some for a longer and some for a shorter period.
Empowerment is very important. You have to give them responsibility, they have to drive their own business. Recently I lost an employee in the sense that he left the company to become his own boss. We lose very few people, yet this was an "honorable" way to lose someone, because we gave him that sense of entrepreneurialism, perhaps a bit too much in these cases but at least we won't be confronted with that problem where we have to push people out. It is very interesting and fascinating to be among them, as a member and a team leader in a strategic sense.
Q: Like many multinationals, you are faced with importing your products. Does this remain an important issue for you?
A: The biggest problem is not so much in the nominal cost of customs and taxation. Let's be reasonable, the costs are in line with other countries. VAT is not excessive. What bothers me is the smoothness of the whole process, and this is nothing new. Romania is in a phase of transition so it's also a challenge for us. We wouldn't be here if everything was as good as in Western Europe or in the States. We have to be flexible, creative, of course by all means legal, there's no question about that. Still we don't compromise on our ambition. Logistics, including crossborder utilities is one of the biggest issues at the moment.
The longer your capital is tied up in stocks, the less capital can be employed on advertising or a price reduction. If you have your capital tied up in stocks, it's not good for the country, it's not good for the consumer, it's not good for the organization.
Q: What about environmental protection? You are also offering energy-saving devices.
A: On one hand this is a microproblem and on the other is a macroproblem. It's a microproblem because every individual in Romania has to be aware of the issue (i.e. saving energy) and has to do something about it. It's also macro because the prices of energy are still so low compared to world energy prices. That needs to be addressed by the government because it's easy enough to say we need to increase the prices of the energy but, on the other hand, if we speak about the purchasing power of the people, there has to be a certain balance. We are trying some things that will educate energy consumers. For example we did a big mailing of a leaflet on energy savings of Philips two months ago together with Renel.
Q: Sounds like a long term effort. Overall, do you think prospects are good?
A: I am very happy to be in Romania. Things are becoming much more dynamic especially in the retail area. In the special projects area where we need the involvement of the government and officials, things are much more difficult. The pace of reform is too slow.
Interview by Bill Avery
Bill Avery
distributed in nettime