The announcement by Philips to exit the audio-visual equipment business by signing a deal with Japanese company Funai is the second such step by the Dutch major in nine months. In April last year, Philips had entered into a 70:30 joint venture with Hong-Kong-based TPV Technology to manufacture and sell its television sets.
This agreement excluded mainland China, India, the US, Canada, Mexico and certain countries in South America. But there is one thing common between the two deals: Philips has ensured that its brand identity will be retained even though manufacturing, marketing and distribution has moved into the hands of allied players.
This has been done by parallely signing a brand licensing agreement with Funai in the audio-visual space and TPV in the television space. The licensing agreement with Funai, in particular, is for a period of five years with the option to extend it after that. Given the heft of the Philips brand, analysts estimate that Funai is likely to extend it after the first five years. It is unclear how long the brand licensing agreement with TPV extends.
But in a market like India, where the Philips-TPV joint venture does not exit, the Dutch major has stitched up a licensing deal with Videocon for its television business. The deal also includes Videocon's range of Electrolux home appliances. Both Philips and Videocon have set up a separate company called PE Electronics, which is headquartered in Mumbai. This company markets the Philips range of TVs and Electrolux range of home appliances.
When contacted, executives from PE Electronics said they saw no impact of Philip' arrangement with Funai on the television business. "We have been marketing Philips's range of flat panel and conventional TVs since 2010. The deal with Funai, on the other hand, had to do with audio, DVD, home theatres and accessories in that space. That has no bearing on our business," said a company executive from PE who declined to be named.
At the moment, Philips has a 40 per cent share in audio products in India. While Funai would initially take up production of audio, multimedia and accessories, following closure of the deal in the second half of 2013 (the video business will be transferred to Funai in 2017), analysts say it is unlikely to impact Philips' market share in the segment.
In television sets, however, Philips does not rank among the top manufacturers in the country, owing to the domination of players such as Samsung, LG and Sony in flat panels. In the cathode ray tube or CRT TV market, which comprises conventional television sets, Videocon calls the shots, owing to its wide distribution and presence in semi-urban and rural areas.