By staff reporter LU RUCAI

China's prime minister Wen Jiabao (right) meets with Gerard Keisterlee, president of Philips.

Royal Philips Electronics first entered China in 1920 and established the very first joint venture in 1985. With its accumulated investment worth in excess of US $ 2.6 billion, Philips owns 35 joint ventures and sole proprietorships in China. After seven quarters of losses, Philips began to profit in 2003. During this time, the Chinese market played an important role for Philips ¡ª its business in China maintained a good profit record. "China's economy has helped provide for speedy and stable growth," said Philips' president Gerard Kleisterlee on a 2003 visit to China. "It is a high point of the world economy and one of Philips' most important markets. We are confident about our business in China and the future of China's development."

Waving the Flag of Sustainable Development

Sustainable development is Philips' goal in China, which means taking up responsibilities in three areas: economic, social and environmental. Aiming at sustainable development means pursuing success in three aspects: economic prosperity, social fairness and environmental quality. Philips not only hammers at developing environmentally friendly products, but also does its best to repay society. Philips has donated some 5 million RMB in Inner Mongolia, Gansu and Hubei towards setting up 10 Hope primary schools and 307 Hope stack rooms since 1998. The company also sponsored the China's Football Association Cup from 1995 to 2001, became the premiere sponsor of " Team China " in 2001 supporting the national football team to qualify for the finals of World Cup and sponsored Chinese College Students' Football Association Match. Philips hopes to grow with China. "An enterprise's sustainable success cannot depend on short-term operations," said Zhang Yue, President of Philips China. "Spending the same amount of money on advertising as on sponsorship would achieve more direct returns, but Philips wants to root in China. That is to say, we cannot expect immediate returns. They come after years of investment."

Philips have worked out new decisions and solutions for low-income families unable to afford its products. "We won't discontinue our low-profit remote education and medical products because we want to bring people low cost technology," said Zhang.

Philips is also promoting its new brand image in China. Zhang Yue explains, "Philips is one of the biggest international enterprises in China. In 2003, we made a 7.5 billion dollar turnover here, 60 percent of which was from exports. This brought a great amount of foreign exchange to China. But our accomplishments are not well-known by the government, media or the public. We believe it's wrong to promote ourselves for nothing, but radically shortsighted if we don't make known our contributions and sponsorships."

Win-win with Chinese Government

China is a country that emphasizes and values coordinated relationships. Philips China president Zhang Yue, originally from Taiwan, is quite aware of this, and takes it into consideration when formulating the Philips development strategy. To him, an international enterprise's image in China is primarily a reflection of the Chinese government's attitude towards it. He also realizes that the Chinese government is a gigantic potential customer for Philips. The scale of governmental procurement is extremely attractive to any enterprise. "More important, the Chinese government leadership has led China on the road to openness and development. Mutual trust and win-win situations come upon our relationship with related governmental departments becoming well-coordinated."

Philips' president Gerard Kleisterlee visited China in November 2003 with the company's Group Management Committee. He pointed out at the press conference, "I hope that every member of our Group Management Committee will get to know China's market better, because it has immense potential for development." When meeting with Premier Wen Jiabao and Vice-premier Huang Ju in November, Kleisterlee reported on Philips' marvelous achievements in China. The committee visited eight major cities including Beijing, Shenyang, Shenzhen, Qingdao and Suzhou and had comprehensive meetings with leaders of local governments. All this indicates that the mutual understanding between Philips and the Chinese government is deepening.

President of Philips China Zhang Yue with the Philips Chiese College Students' Football Association Match winners.

Meanwhile, Philips' actual investment is coordinated with Chinese governmental policies. "Philips' development plan will march in step with Chinese governmental plans," said Kleisterlee. "We will continue investing in China by means of merger, acquisition and joint ventures, especially in west and northeast China." This plan is consistent with China's plan to redevelop its Northeast as a result, Jilin Philips Semiconductor, a Philips/Jilin Huawei Electronics joint venture, will start business in 2004, and a new project for medical equipment is in negotiation. This is just the beginning.

Promising Prospects

Brand awareness and advanced technology are Philips' two traditional advantages in China's highly competitive market. Brand awareness in China is more than 95 percent. Philips lighting products, shavers, electric irons, display and mobile display systems lead in China; its kinescope, medical system and optical storage business are also among the top three. Philips China's president Zhuang Yue is aware of competitive pressure from enterprises in the trade as they all emphasize brand awareness and technology. "Other enterprises are building their brands and reinforcing their technological development. Only by improving our brand consistently can we keep our products in the lead. Today's Philips has entered a 'technology for people' phase. This will put Philips far ahead in the future. As regards our brand, our product strategy is one of focusing on product quality at competitive prices."

The Chinese market is more complicated than those in other countries as customers at different income levels demands correspondingly diverse products. This also brings Philips opportunities. Kleisterlee and Zhang Yue have indicated that in the coming years, Philips will adjust its investment in China and increase business. In the past six years, Philips' annual income in China increased at a speed of nearly US$ 1 billion a year. China has now become Philips' second biggest market after America. Kleisterlee hopes Philips' income in China will double in four years, surpassing America by 2007. Zhang Yue sees this goal as conservative and believes it may take an even shorter time to realize. Furthermore, Philips has made China the focus of its strategy of business development, human resource management, marketing and enhancing technology research.

At the press conference for the Chinese College Students' Football Association Match, Zhang Yue said: "Young people will have great influence in the future China, and they are our potential customers. They may become our copartners, or more possibly, join us and become our new force. Sponsoring a university football match is consistent with our wish to root in China. We are investing in its youth."