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On January 1, 1974, the FERA (Foreign Exchange Regulation Act) came into force in India. The Act was formulated with the aim to regulate foreign exchange and imposed stringent regulations on certain kinds of payments, the dealings in foreign exchange and securities and transactions that had an indirect impact on the foreign exchange and the import and export of currency. By 1978, Coca-Cola, IBM, Mobil and Kodak had quit India or had applied to do so. At that time, Philips India, was a public company and faced the same choices as other multinationals. It was a tough period for a company that had been in India for nearly 50 years (Philips India had been incorporated in India in 1930), which now faced the political and regulatory uncertainty prevailing in India at that time.
The global management recognised India's potential and expressed its commitment to the market by taking the decision to stay. The global stake was diluted to 39.7 per cent to be compliant with FERA (which allowed maximum foreign shareholding of 40 per cent). At the same time, the name of the Indian entity was changed to Peico Electronics and Electricals Limited but the products of the company continued to be sold under the Philips trademark and emblem.
Another problem that soon occurred was the stringent industrial licensing regime that existed at the time. The combination of the strict foreign exchange controls with the industrial licensing regime resulted in the 'lost era of manufacturing' in India. This had far reaching implications with companies becoming complacent as demand outstripped supply (some readers would remember the days when a Bajaj Chetak scooter had a waiting period that ran into years) and there were no incentives to bring in new technologies - think of Premier Padmini, which was manufactured from 1964 to the year 2000 with only minor upgrades.
Soon after its incorporation in 1930, Philips had realised that to be successful in India it could not depend on imports and by the 1970s, it had multiple manufacturing units across the country. As Philips entered the eighties, the industrial licensing regime threatened to slow down the company's aggressive plans for India which involved bringing new technologies to the market as well as expanding capacities to cater to the market demand.
As an outcome of the manufacturing restrictions, the company decided to expand through third-party partnerships, in addition to seeking government permissions to expand and modernise its existing facilities. Several partnership models were explored from acquisition of existing manufacturing capacities to joint ventures to exclusive and non-exclusive third party manufacturers, with varying degrees of success.
One of the most successful partnerships was a collaboration with Punjab Anand Lamps. In 1983, Philips NV Holland (the parent company) entered into a financial and technical collaboration with Punjab Anand Lamp Industries to manufacture general lamps and tube lights at Mohali. A 27-acre greenfield manufacturing facility was set up in Mohali for this venture. Thirty years later, this facility is still in operation - now a fully integrated part of Philips India - and is the largest single facility of CFL lamps in the Philips world globally, employing more than 1,000 people.
Similarly, the company worked with select third-party manufacturers, who manufactured products as per Philips' design and specifications. This allowed the company to expand rapidly without locking up a lot of capital in asset investments. The company was also able to have a geographically dispersed manufacturing footprint, reducing logistics costs and time. The partners benefitted from this relationship as the company gave technology and expertise and a ready market for the partner's production. This model was very successful and set the base for today's network of co-makers for the company in India.
All these steps ensured that the company continued to bring the latest technology and localised it for the Indian market. For example, the company brought sodium vapour lights to India, transforming street lighting in the country; it won the order for design, supply and installation of lighting systems for India's first Metro rail network, the Calcutta Metro; it was the first to bring color television transmission to India; the first company to bring energy efficient CFL lamps and so on.
It has not always been smooth sailing. Over the course of the last 40 years, the company has had to rationalise some of its manufacturing footprint. Wherever possible, it tried to sell the manufacturing units to other companies to prevent job loss; in others, it had to offer VRS and shut down the units. These have not been easy decisions but have been necessary as the business conditions and priorities changed.
Today, the company attributes its success in India to its 'Made In India' approach. More than 60 per cent of all revenue is coming from products manufactured locally and there are plans to expand that to 75 per cent in the near future. While a lot of the restrictions of the past are gone, the company continues to use both models (own manufacturing as well as dedicated co-makers) to expand its manufacturing in India. Recently, the company inaugurated its first ever greenfield healthcare facility in Chakan, Maharashtra, to manufacture interventional X-ray systems and mobile surgery units. It has been designated as the global centre for excellence for mobile surgery.
Today, Philips India is the leader in all the three categories that it operates in: lighting, healthcare and consumer lifestyle. The company has a footprint of five manufacturing facilities and four R&D centres. India is one of the fastest growing markets in the Philips world.
As we celebrate 84 years of Philips in India, we continue to build on the commitment that Philips management made in 1978 when it decided to stay in India and build the foundation for the Philips of today.
Priyank Agarwal
Head, Strategy & Business Development, Philips India
Head, Strategy & Business Development, Philips India
