Porter’s Five Forces Analysis of Philips

 

 

Key Facts

 

Name	Koninklijke Philips N.V.
Industry	Health Care Equipment & Services
Founded	May 15, 1891
Headquarters	Amsterdam, Netherlands
CEOs	Frans van Houten
Revenues	€ 17.156 billion, 2021
Profit	€ 3.319 billion, 2021
Competitors	Abbott, ResMed, General Electric, Siemens, OSRAM, Groupe SEB, Panasonic, GE Healthcare and LG Electronics.

 

 

Company Overview

 

Philips & Company was founded in 1891 by Frederik Philips and his son Gerard and officially listed as Koninklijke Philips N.V, started out as a lighting company and then concentrated on electronics.Philips generated around 17.156 billion euros in revenuesin 2021 and net profit of 3.319 billion euros. Philips spent over 1.97billion euros on research and development in 2021, so that R&D accounts for around ten percent of the company’s revenues. In 2021, over 80 thousand employees worked for Philips, with North America and Europe each accounting for around 21 thousand workers. Philips has an inter  brand value of  12.1 billion in 2021. Philips has partnership with UNICEF, Red cross, Amref and Ashoka.The diagnostics and treatment segment within the operations of Philips was forecast to continue to grow and account for an annual sale value of 12.2 billion euros in 2024.

 

Porter’s Five Forces Analysis of Philips

 

Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School.

 

Philips Rivalry among Existing Competitor

 

Philips Business Segments: The Company’s main business include three reporting segments; Diagnosis & Treatment, Connected Care & Health Informatics, and Personal Health with over  32 production sites in 22 countries and employs over 81,000 staff.

Philips entered into many partnership internationally including; In Germany, Philips signed a 10-year partnership agreement with the BrandenburgUniversity Clinic also in France, Philips and Rennes University Hospital signed a 5-year technology, research and innovation partnership to advance patient care.

 

Philips Global Operations Year 2021: During  year, most revenues were generated in the United States with approximately 6.4 billion euros of sales. In China Philips had roughly 2.3 billion euros of sales, whereas Japan had approximately 1.1 billion sales and had the biggest sales of Europe. Philips’ country of origin, which is the Netherlands, had 570 million euros of sales in 2021, Philips generated approximately 8.6 billion euros in sales from its diagnosis and treatment segment. This was an increase in comparison to the sales value from the preceding two years. Within the diagnostic and treatment segment, sales of diagnostic imaging products accounted for 40 percent of all revenues. Furthermore, personal health accounted for 5.4 billion euros of sales in 2020  as per Statista.

In France, Philips and Rennes University Hospital signed a 5-year technology, research and innovation partnership to advance patient care.

 

Abbott  is also proved to be one of key players by giving a record sale of US $ 43.075 billion and net profit of US $ 7.071 billionfor the year 2021.

In 2020 and 2021, Abbott’s COVID‑19 testing‑related sales totaled approximately $3.9 billion and $7.7 billion, respectively, led by sales related to Abbott’s BinaxNOW, Panbio and ID NOW rapid testing platforms.

In 2021, operating earnings for the Medical Devices segment increased 48.6 percent. The operating margin profile increased from 30.8 percent of sales in 2019 to 31.4 percent in 2021 primarily due to higher sales volumes in Diabetes Care and Abbott’s cardio‑ vascular and neuromodulation businesses. In Abbott’s worldwide diagnostics business, sales increased 42.7 percent in 2021 and 40.6 percent in 2020. In 2021, operating earnings for the Diagnostics segment increased 68.0 percent. The operating margin profile increased from 24.8 percent of sales in 2019 to 40.0 percent in 2021, total adult nutrition sales increased 12.8 percent in 2021 and 10.3 percent in 2020, total pediatric nutrition sales increased 3.3 percent in 2021 and 0.3 percent in 2020 driven by the Pedialyte®, PediaSure® and Similac® brands in the U.S.

Established Pharmaceutical sales increased 10.4 percent in 2021 and 1.9 percent in 2020. At December 31, 2021, Abbott had WIC business in 36 states.

General Electric gave tough competition to Philips by generating a sales of US$74.196 billion for 2021. The company’s sales & distribution network is in more than 170 countries, having nine manufacturing plants across five states build appliances that are in half of all U.S. homes.

The Company’s major manufacturing and assembling facilities are located in U.S., Europe, China region, Asia (excluding China region), Middle East and Africa.The revenue generated in 2021 from  different segments include; Aviation segment worth US $ 21,310 million, Healthcare US $ 17,725 million, Power US $ 16,903 million Renewable EnergyUS $  15,967 million and US $ corporate 2,561 million.

Investment in Research & Development-Marketing Cost and Brand Image: The existing battles among the brands with a challenge of changing trend towards development of AI performing unskilled tasks , requires high investments in research and development to better design the product for an accelerated customer satisfaction. Philips also needs to focus the marketing cost to increase the brand image and better customer loyalty.

 

Philips Threat of New Entrants

 

• Global Healthcare Industry Revenue in the Health Care segment is projected to reach US$63.90bn in 2023.Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 10.15%, resulting in a projected market volume of US$94.07bn by 2027.With a projected market volume of US$18,270.00m in 2023, most revenue is generated in China.In the Health Care segment, the numberof users is expected to amount to 1,567.3m users by 2027 as per Statista.

• High Capital Investment- Trained Human Resources: The new entrant will be requiring high capital investment, with extensive and sophisticated manufacturing-assembling structure so it is discouraging barrier for any new entrant. As due to the specialized nature of the product only limited human resource can handle such high-end products.
• High Research & Development Cost: High research and development cost is required for launching any new product in the current healthcare industry.
• Technological Advancement: Robotic systems are being developed using AI and machine learning to replace humans in the performance of routine unskilled tasks , only high technological advance companies or groups can enter such a market.

 

Philips Bargaining Power of Suppliers

 

• Supplies Industry Influencer: Suppliers hold a very strong influence as this sector is dependent on services and products. Despite the increasing cost of healthcare demand does not stop, because people don’t stop getting sick.
• Suppliers Collaboration: Philips has more 10,000 first tier suppliers globally. China is one of the big center of export for Philips and currently manufactures 70 percent of the company’s audio products.The company has close ties and collaboration with the suppliers.

 

 

Philips Bargaining Power of Buyers

 

• High Product Differentiation: Due to highly sophisticated and technological advanced product the buyers have less knowledge and influence over the company’s decisions.
• Customer Satisfaction – After Sales ServicesThe requirements of after sales service include prompt reply to customer complaints, maintenance of equipment, easy exchange and return etc. For patient monitoring service and performance, Philips led with 20 number one rankings within the areas of system performance, satisfaction with manufacturer. Similarly, for ultrasound all systems service and performance, Philips leadership was confirmed in 15 factors.

 

Philips Threat of Substitute Products or Services

 

• Cheaper Medical Services: Customer prefer cheaper prescription medicines. They would always opt to go where they can find cheaper prices. Stores like Walmart, Target and other small in-house medical stores provide cheaper drugs however; substitute for coverage of entire health plan lacks and the situation is less alarming for future.
• Self-Diagnosis and Medication: Customers today also like to adopt “Do it yourself” strategy and thus in the digital world they want to adopt such trends where they remain connected with technology and keep most of the medical equipment at home.

 

 

References

 

1. Philips basic information and facts| Available at ForbesPhilips Claims Top Rank In Survey Of Customer Service In Patient Monitoring And Ultrasound| Available at Med Device Online.
2. Recent Developments in Health Technology(May 30,2022)| Available at News Medical.net
3. Philips reporting segments| Available atPhilips
4. Health Care – Worldwide(Nov,2022)| Available at Statista
5. Philips financial information and facts| Available at Philips
6. Abbott 2021 Annual Report| Available at Abbott
7. Sales of Philips by segment 2019-2021(Mar 23, 2022)| Available at Statista
8. Brand value of Philips 2010-2021(Mar 23, 2022)| Available at Statista
9. Sales of Philips Group 2021. by country(Mar 23, 2022)| Available at Statista