Training And Maintenance Are As Important As Sales

Philips

Your businesses such as healthcare can involve a lot of work with government and ministries. How is this different from traditional marketing and salesmanship?

The government is the main partner for Philips in Russia. It's not only procurement and supply issues, it's also about working with the government to take healthcare to the next level. The government is talking about a local footprint and setting up a medical equipment industry that is less dependent on imports. We are positive about the upcoming improvements to allow for more effect in tendering in terms of cost of ownership, the quality of the goods delivered and let's say pre-classification of companies being able to perform the offer they are going to make in a tender.  

At the moment, at least 90 percent of the healthcare is provided by regional and federal government and municipalities.

I expect the private hospital sector to grow but there is still a long way to go before private becomes 50 percent of the market. There is no fully functioning reimbursement system, there is no policy on tariffs, and so not all of the requirements for private entrepreneurs to enter the market are in place yet. Now that might come. Every private entrepreneur will understand cost of ownership and will look at running costs. From that point of view it is much easier to work with private business and work towards the optimal solution.

Is the private sector restricted to elite hospitals?

I would not call it high end. In Russia, in the area of children's care, for example, timely care and quality is close to the heart of any parent. If they can get it tomorrow they will pay an affordable premium. I call it the pyramid of demand.

I think private is good because you will see some examples of how things can be done differently but it is crucial that it does not stay in the high end of the market where people can afford access, quality or speed of availability. If you look at India, the hospitals are mostly private but at a level that people can afford.

How do you segment the market, between those requiring expensive equipment and more day-to-day hospital equipment?

If you have a general-purpose hospital they do not need the equipment that is used in the three or four top institutes in the country. Our proposal is targeted, ranging from value-for-money products to very advanced innovations but it is not only about equipment. You need to understand what you can do with the equipment, to be more effective and get more patients through, using less attention from doctors. The hospital will be more efficient and that investment will pay back.

That means we are keen to give the right education to people so they know how to use it most effectively. We also want to offer service contracts so that machines are up and running. Rather than having to go through all kinds of tender procedures to organize a repair that might mean a machine being out of use for months.

What about other sectors such as personal healthcare?

There are other interesting aspects such as oral healthcare where we have a good position in toothbrushes and flossing, and we are working with dentists and society to take care of dental issues. Also in mother and childcare, Philips has the Avent label which represents taking care of the baby when it's not ill. All our technology is created with the idea that people want to be healthy, live well and enjoy life.

What business are you doing in the field of energy efficiency?

We have businesses in healthcare, lighting and consumer lifestyle. Energy efficiency and use of resources are our key priorities. Lighting is one of the low hanging fruits to drive energy efficiency. It is not difficult or costly to take the first steps towards an energy efficient society.

Very theoretically, we looked at what would happen if all Russian residential, commercial, industrial, government and outdoor lighting would be replaced with LED lighting solutions. We found they could cut $2.5 billion from the annual energy bill. That is equivalent to the output of 14 large power plants. You cannot do that overnight but the numbers are staggering enough to give it thorough thought if you are serious about forming an energy efficient environment.

Private companies see that, and government institutions have it in their agenda and their key performance indicators. Where we have some way to go is the consumer sector that still looks at the initial price of a lamp. We are getting into the price range for the new LED lighting of 300 rubles and that helps close the gap between traditional lighting and LED lighting. The price level is key for consumer adoption, but the lifetime is a multiple of existing lamps.

Philips has a long history in Russia, since 1898 when Anton Philips visited Russia and persuaded the Tsar to buy 50,000 light bulbs for the Winter Palace. What is the rough sequence of products since then?  

The first deal does not only show how long Philips has been in Russia but it has a very inspiring and symbolic meaning because we see Anton Philips as the first entrepreneur in Philips, going to the customer and working with the customer. So he is an example to us.

We opened the first office in St. Petersburg in 1914. Over all these years Philips continued to innovate: from lamps to X-ray tubes, radios, televisions, audio cassettes, CDs; and in the meantime our healthcare division developed 3D ultra sound, angiography systems for minimally invasive heart surgeries, CT and other kinds of scanners. They all found their way into Russia.

Now we have just short of 1,000 people at 11 Philips offices across Russia and the CIS, and a wide network of distributors and service partners. We have seen dedicated products for the Russian market like the Cube Cutter to make Olivier salad, or the Philips Multi-Cooker especially for the Russian home.

You mentioned that the Russian government is keen to develop industries such as medical equipment. Who are you working with?

We cooperate with Electron, a leading Russian medical equipment manufacturer, in computed tomography scanners. We produce the products of that partnership locally. In the healthcare sector there is legislation on localizing medical equipment, similar to that in the automotive and pharmaceutical industries. We support that as part of the bigger picture on how to get more efficient industry here in Russia with a bigger supply base.

We have a joint venture with Optogan, a leading Russian manufacturer of LED products, to produce energy efficient street lighting. The main advantage of producing locally is you are close to the customer, with the benefit of better logistics, shorter cycle times and there is a better understanding of the customer and that feeds back into the product.

It is not necessarily the basis for a hub. It makes sense to do it for Russia and if useful products come out of it that have a global application, we would think about it but it is not for the global market at the moment. However, we see the Customs Union (of Russia, Belarus and Kazakhstan) and the other CIS countries as a relatively homogeneous market from a trade region point of view.

What about the decision to localize the company, as opposed to simply selling into the Russian market. What are the trade-offs there?

This year Philips has moved fully onshore. And having a footprint as a localized company is a benefit. That includes providing support to customers and understanding Russian legislation, rather than just importing, which is still done by a lot of the other companies.

You can only participate in healthcare by being a full subsidiary as a legal entity, and doing everything from Russia.

If you later want to produce locally, do research and development, or educate the customer you need that local footprint because you need to be part and parcel of Russian society to fully participate in the Russian market and deliver the level of innovation that makes a difference to local people.


Russia - Holland 2013
Russia - Holland 2013
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