Philips 2009 Annual Report Download - page 108

Philips’ ongoing investments in the “sense and simplicity”
brand campaign, with a focus on simplifying the interaction
with its customers, translating awareness into preference
and improving its international brand recognition, could
have less impact than anticipated.
Philips has made large investments in the reshaping of the
Group into a more market-driven company focusing on
delivering advanced and easy-to-use products and easy
relationships with Philips for its customers. The brand
promise of “sense and simplicity” is important for both
external and internal development. If Philips fails to deliver
on its “sense and simplicity” promise, its growth
opportunities may be hampered, which could have a
material adverse effect on Philips’ revenue and income.
Philips’ overall performance in the coming years is
dependent on realizing its growth ambitions in emerging
markets.
Emerging markets are becoming increasingly important in
the global market. In addition, Asia is an important
production, sourcing and design center for Philips. Philips
faces strong competition to attract the best talent in tight
labor markets and intense competition from local
companies as well as other global players for market share
in emerging markets. Philips needs to maintain and grow
its position in emerging markets, invest in local talents,
understand developments in end-user preferences and
localize the portfolio in order to stay competitive. If
Philips fails to achieve this, its growth ambition and
financial results could be affected materially.
6.5 Operational risks
Failure to achieve improvements in Philips’ solution and
product creation process and/or increased speed in
innovation-to-market could hamper Philips’ profitable
growth ambitions.
Further improvements in Philips’ solution and product
creation process, ensuring timely delivery of new
solutions and products at lower cost and upgrading of
customer service levels to create sustainable competitive
advantages, are important in realizing Philips’ profitable
growth ambitions. The emergence of new low-cost
competitors, particularly in Asia, further underlines the
importance of improvements in the product creation
process. The success of new solution and product
creation, however, depends on a number of factors,
including timely and successful completion of
development efforts, market acceptance, Philips’s ability
to manage the risks associated with new products and
production ramp-up issues, the availability of products in
the right quantities and at appropriate costs to meet
anticipated demand, and the risk that new products and
services may have quality or other defects in the early
stages of introduction. Accordingly, Philips cannot
determine in advance the ultimate effect that new
solutions and product creations will have on its financial
condition and operating results. If Philips fails to accelerate
its innovation-to-market processes and fails to ensure that
end-user insights are fully captured and translated into
solution and product creations that improve product mix
and consequently contribution, it may face an erosion of
its market share and competitiveness, which could have a
material adverse affect on its results.
If Philips is unable to ensure effective supply chain
management, it may be unable to sustain its
competitiveness in its markets.
Philips is continuing the process of creating a leaner supply
base with fewer suppliers, while maintaining dual sourcing
strategies where possible. This strategy very much
requires close cooperation with suppliers to enhance,
amongst other things, time to market and quality. In
addition, Philips is continuing its initiatives to reduce
assets through outsourcing. These processes may result in
increased dependency. Although Philips works closely
with its suppliers to avoid supply-related problems, there
can be no assurance that it will not encounter supply
problems in the future or that it will be able to replace a
supplier that is not able to meet its demand. Shortages or
delays could materially harm its business. Philips maintains
a regular review of its strategic and critical suppliers to
assess financial stability.
6 Risk management 6.4 - 6.5
108 Philips Annual Report 2009