Jun 06 2012
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Switching business priorities
The Middle East's unique social and economic dynamics are positive forces of change for global healthcare, lighting and consumer giant Royal Philips Electronics, says Roy Jakobs, the Company's regional president and chief executive
He takes charge in a region comprising fully-fledged offices and a distribution network spanning 14 countries, from the six Gulf states up to Turkey and Lebanon, all served from a Dubai headquarters where Jakobs and more than 200 of his staff are based.
A Dutch-German dual national whose executive career has also included stints in the oil industry (with international major Royal Dutch Shell) and publishing, Jakobs tells The Gulf he aims to accelerate brand growth in a region Philips defines as a "growth geography".
Globally Philips, which employs approximately 122,000 people in more than 100 countries, had a decent start to this year. First quarter sales reached 5.6 billion euros ($7.1 billion), up four per cent year-on-year. Tellingly, it announced "very strong growth" of 27 per cent in the "growth geographies" which, along with the MET region also include China, India and Russia.
"We are a franchise that has been built up over years, and are seen as a local brand that has been part of people's lives, something they grew up with," he explains.
Reflecting wider economic and social changes, the nature of Philips' regional business is changing, however. Consumer products still comprise a significant percentage of the business, about 30 per cent, but their contribution is slowly shrinking at the expense of healthcare and lighting products, which currently account for 40 and 30 per cent of the Company's regional business, respectively.
"We aim to strengthen the brand in the B2B [business-to-business] arena, part of Philips' global transition to becoming a full solutions provider," Jakobs notes.
Philips' worldwide healthcare business grew nine per cent year-on-year in the first quarter of 2012. In the MET region rapidly expanding populations and increased prevalence of conditions and diseases such as diabetes and cancer are placing unprecedented strain on medical infrastructure, presenting new opportunities and responsibilities for the Company, says Jakobs.
"There is a catch-up game going on in this part of the world, a strong ambition to take healthcare systems to the next level," he explains. He cites a major overhaul of medical facilities, as well as new hospitals and related services, currently underway in many of the countries he covers.
In response, Philips has been busy building its healthcare profile. Last year, for example, it hosted training courses for almost 200 healthcare professionals at its Customer Education Centres in the region. Meanwhile, earlier this year it unveiled a new mobile breast cancer screening unit at a major healthcare trade exhibition in Dubai.
The MicroDose unit will, once it hits the road soon in Oman, provide early detection of breast cancer for women in remote communities in the GCC where access to medical facilities is limited. Part of a broader corporate strategy to address what Philips believes has traditionally been a lack of focus and awareness on women's healthcare in this part of the world, it hopes to reverse an alarming trend which sees breast cancer as the leading cause of death for UAE women, and where 70 per cent of breast cancer cases in Saudi Arabia are not reported until they are at a very late stage.
But while healthcare initiatives provide focused brand engagement in the community, Jakobs believes the MET region's lighting industry offers the brightest business prospects going forward, thanks to the large number of big infrastructure projects planned.
Before moving to Dubai, Jakobs was the marketing chief for Philips' global lighting business, based out of the global headquarters in Eindhoven. He therefore has first-hand insight into and experience of a segment which the Company says delivered "high single-digit sales growth" in the first quarter of 2012.
"Lighting accounts for approximately 19 per cent of the Middle East's energy bill, which is higher than the global average. The challenge is how to integrate new lighting technology into a more energy-efficient infrastructure," Jakobs says.
While companies such as Philips - considered the world's largest lighting provider - are meeting the challenge with technologies such as LED [Light Emitting Diodes] - global sales of which increased in the first quarter of 2012 and now represent 16 per cent of the Company's total lighting sales - cracking a notoriously energy-inefficient Middle East market where consumers, used to generous utility subsidies may know little of conservation and may care even less about their choice of light bulb, will be more difficult.
Jakobs thinks consumer behaviour in the GCC can only really be changed by overhauling local regulations to mandate the use of more energy-efficient lighting systems such as LEDs. This would, he says, bring the region into line with the rest of the world, and enable it to join the "major global transformation" now taking place in this field.
"There is a need to start reducing energy consumption in the region - in Saudi Arabia it is forecast that if current consumption rates continue then by 2030/2040 the majority of the country's resources will be used for domestic consumption," Jakobs warns.
Although GCC countries do not formally stipulate the phase out of incandescent lighting - inefficient lights through which about 90 per cent of the energy escapes as heat - Jakobs says Philips - which claims to have invented the energy-saving light bulb in 1980 - is doing its bit to drive change.
It is currently in the midst of a programme to phase out incandescent bulbs in the GCC, and replace stock with LED products.
"Philips is actively involved in the ongoing debate about energy efficiency," Jakobs remarks. "We are teaming up with governments, and we are in the process of establishing the Middle East's first lighting association, which will help to establish common standards and practices and therefore accelerate adoption of the latest technologies," he adds.
Globally, Philips has high hopes for the Middle East, and this provides a context for its efforts to drive innovation and change across healthcare and lighting. Although about a third of worldwide corporate revenues are generated in 'growth regions', Philips is targeting a figure of at least 40 per cent 'in the near future'.
"Saudi Arabia is of course a very strong player, as is Turkey. Qatar is in the midst of active development towards 2022. The UAE is meanwhile positioned for a longer-term rebound," Jakobs says.
He admits that a volatile business environment is part and parcel of doing business in the Middle East, and that it is the ability to anticipate and adapt to circumstances which ultimately dictates success or failure.
"It is something you need to manage," he says. "You need to be aware of the particular nature of this region and manage the business within certain levels of acceptance of impact, and work to mitigate that," he adds.
"We are currently constrained by the ongoing situations in Iran and Syria. The Iranian market would however be of significant potential should it be open and accessible to global market competition."
Jakobs also says manoeuvering around restrictive trade regulations poses specific challenges which can drive import costs up.
"This raises questions about whether or not we manufacture locally, which is something countries are naturally in favour of. We understand that and continuously look into the possibility of doing so. If we see there is a need to bring specific knowledge into the region, for example through manufacturing or research and development functions, we would consider it," he states.
On the other hand, stressing Philips' reputation for innovation leadership, he believes the Middle East's acceptance of and reliance on technology as an economic driver, albeit from a relatively low base, is a "positive trait" which the Company hopes to tap.
With Europe consistently on the brink of financial meltdown and the global economy still mired in uncertainty, Philips is cautious about global business prospects for the remainder of this year. In the latest quarterly financial statement it announced that cost reduction efforts had saved 37 million euros in Q1 2012. It expects cumulative savings for the year to be about 400 million euros.
Against this background, whether the Company can emulate or eclipse its 22.6 billion euro global sales in 2011 is open to question. But from his seat in Dubai Jakobs will hope to accelerate MET growth and further justify its "growth geography" tag.
© The Gulf 2012
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