How Philips is dealing with slower growth in key African markets

The Netherlands-based technology giant, Philips, has a long history of distributing to African markets. The company – most famous for its light bulbs and consumer electronics – has recently undergone restructuring to focus on ‘health tech’, prioritising growth of its high-margin healthcare and medical products. And the continent has been identified as a key target market.

But how is it dealing with slower growth and currency volatility in key countries? How we made it in Africa poses these questions to the company’s new CEO for Africa, Jasper Westerink. Here are edited extracts of the interview.

Which are the biggest African markets for Philips?

Due to changes in speed, due to the currency dependencies on commodities, we do see shifts. Our approach to Africa is that we have been here for over 100 years and we intend to stay here, so we are investing accordingly and growing the business accordingly. This also means that if a market is maybe less profitable, we are still in there for the long run, and we will be in that market and support our partners to grow the business… We look at Africa as one continent, one P&L and we are happy to drive individual countries if there are more opportunities. But we don’t really pick countries based on profitability and then neglect the rest. We have a long-term view of Africa overall as a market.

What you see typically is that the largest markets [in Africa] are also the largest markets for us. So if you look at an Africa level, you can clearly see that South Africa and Egypt are two of the largest markets in Africa – and they are also our largest markets. And that is a reflection simply of where the business is. We of course also play in other countries, and we have offices in Casablanca and Algiers, but if you look at pure size, currently Egypt and South Africa are Africa’s biggest health markets and also the biggest consumer markets.

How are you dealing with slow growth in many of these markets (such as Nigeria and South Africa)?

If you look at our health business, I think everyone understands that there is a clear need for investments. And I think everyone also understands that if you look at all 56 countries, there is quite a difference in their ability to pay for certain services. So one of the things we do is we work very closely with governments and NGOs to ensure financing – that is part of the solution we offer because I think what Philips does is not so much selling equipment, but more that we try to sell a solution. This means we like to talk to a government or a hospital about what really is the need they have – which can be equipment, but also financing and finding a payment model for whoever is making use of the service. So one of the things we are doing is bringing in Philips Capital which specialises in funding solutions, such as leasing and getting loans. That is one way we try to address the challenges some countries have.

Currently, in Nigeria, we are present with our personal health business… and of course it is growing at a slower rate than before. But over there we use partners and distributors combined with our own sales force and we talk primarily in distributor financing – so understanding the fact that currency fluctuation and availability of foreign currency is an issue. We try and distribute the financing to help our distributors to be able to support our businesses to grow. We currently do not have any large projects that we are working on in our health systems business. But there are some opportunities which we are working on for the future; what we call large-scale projects. And part of successfully getting those deals is issuing funding. Again it could be co-funding, with an NGO that supports, or it could be securing loans. So that is how we are trying to do it, not only in Nigeria, but also in most of the rest of Africa. Because that challenge, to a larger or lesser extent, is everywhere.

Are there any other strategies deployed to help circumvent current hurdles?

What we also have is managed-equipment services, where instead of a party procuring a product, we actually offer a service for monthly payments… That service could be [medical equipment] that is up and running for a certain period for a certain amount of patients to use it. It is also a way to try and level out the impact of the exchange rate and currency [fluctuations]. Again, it is a financing function that allows our partners, or whomever procures our services, to avoid a large upfront payment because some people feel the risk of making payments today when the exchange rate can go the other way tomorrow… So we offer leasing.

How does Africa’s challenge with counterfeit products compare to markets like Asia?

With our baby products… we have had challenges in the past with similar looking products with lower quality being pushed into the market and where, for a much lower price, people can buy a lookalike product. There are two reasons why this is a challenge. Firstly, it doesn’t have the same quality and checks as our products. So we do still get quite a lot of consumers – especially in markets like Nigeria – that contact our service centres to say how poor the quality is in the product, and we then have to disappoint them and tell them they have bought a fake – when they thought they had a Philips product. We do try and invest in making sure we have the best available products – especially when [it comes] to baby products… We heavily invest in that. So from our company’s point of view this, of course, has a negative impact on our image and on the business we do. So it is quite a key area. I think, if you look at markets like both Asia and Africa, because you have volatility and you have opportunities popping up in rapid concession throughout the continent, you will always have people trying to make money [from this]. And they know by taking a strong brand name they will make money.

So the ‘Buy Original’ [campaign], where you get an SMS code to prove you have bought the right product, and having all the graphic stickers to tell people this is the real [brand] – these remain quite important. I think it is difficult to quantify what that does in sales value… But it has to do with educating consumers on where you can buy the right products.