Philips 2010 Annual Report Download - page 110

7 Risk management 7.4 - 7.4
110 Annual Report 2010
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.
Most of Philips’ activities are conducted outside of the
Netherlands, and international operations bring
challenges. For example, production and procurement of
products and parts in Asian countries are increasing, and
this creates a risk that production and shipping of
products and parts could be interrupted by a natural
disaster in that region.
Due to the fact that Philips is dependent on its personnel
for leadership and specialized skills, the loss of its ability to
attract and retain such personnel would have an adverse
effect on its business.
The attraction and retention of talented employees in
sales and marketing, research and development, finance
and general management, as well as of highly specialized
technical personnel, especially in transferring technologies
to low-cost countries, is critical to Philips’ success. This is
particularly valid in times of economic recovery. The loss
of specialized skills could also result in business
interruptions. There can be no assurance that Philips will
continue to be successful in attracting and retaining all the
highly qualified employees and key personnel needed in
the future.
Diversity in information technology (IT) could result in
ineffective or inefficient business management. IT
outsourcing and off-shoring strategies could result in
complexities in service delivery and contract
management. Furthermore, we observe a global increase
in IT security threats and higher levels of professionalism
in computer crime, posing a risk to the confidentiality,
availability and integrity of data and information.
Philips is engaged in a continuous drive to create a more
open, standardized and consequently, more cost-effective
IT landscape. This is leading to an approach involving
further outsourcing, off-shoring, commoditization and
ongoing reduction in the number of IT systems. The global
increase in security threats and higher levels of
professionalism in computer crime have raised the
company’s awareness of the importance of effective IT
security measures, including proper identity management
processes to protect against unauthorized systems access.
Nevertheless, Philips’ systems, networks, products,
solutions and services remain potentially vulnerable to
attacks, which could potentially lead to the leakage of
confidential information, improper use of its systems and
networks or defective products, which could in turn
adversely affect Philips’ financial condition and operating
results. Additionally, the integration of new companies
and successful outsourcing of business processes are
highly dependent on secure and well-controlled IT
systems.
Warranty and product liability claims against Philips could
cause Philips to incur significant costs and affect Philips’
results as well as its reputation and relationships with key
customers.
Philips is from time to time subject to warranty and
product liability claims with regard to product
performance and effects. Philips could incur product
liability losses as a result of repair and replacement costs
in response to customer complaints or in connection with
the resolution of contemplated or actual legal proceedings
relating to such claims. In addition to potential losses
arising from claims and related legal proceedings, product
liability claims could affect Philips’ reputation and its
relationships with key customers, both customers for end
products and customers that use Philips’ products in their
production process. As a result, product liability claims
could materially impact Philips’ financial condition and
operating results.
Any damage to Philips’ reputation could have an adverse
effect on its businesses.
Philips is exposed to developments which could affect its
reputation. Such developments could be of an
environmental or social nature, or connected to the
behavior of individual employees or suppliers and could
relate to adherence with regulations related to labor,
health and safety, environmental and chemical
management. Reputational damage could materially
impact Philips’ financial condition and operating results.