Funai/Philips Outsourcing Woes

TV – Philips was one of the household names that we grew up with when it came to any form of consumer electronics, appliances, light bulbs, etc. As a Europe based company, time has not been kind to the company in the field of consumer electronics. Several years ago, Philips decided to give up on the production of TVs for the US in its own factories and instead have them made by Funai. I personally own one of those TVs.

Funai has been making audio and video equipment for a variety of brands such as Sylvania, Emerson Radio, Magnavox, Philips and Symphonic. For many years, Funai made good money with this branded business strategy.

The Nikkei Asian Review reports that Funai’s president, Yoshikazu Uemura, resigned suddenly and without giving any reasons for his decision. The report speculates that this is because of a recent fall out between Philips and Funai.

The source tells the story of a business deal concerning the Philips audio business falling apart and leading to massive legal claims from Philips and Funai about alleged breach of contract. (The companies agreed that Funai would buy the Philips “lifestyle” business, including audio, in January 2013, but started legal actions against each other in October 2013). The claims are made by both sides and are pending in court.

Nikkei Asian Review sees the step down of the president as a sign of disagreement within Funai’s leadership about its future growth strategy. With TV sales stagnating, Funai needs a growth engine for future years. Recently the firm acquired the Lexmark printer technology, allowing it to enter the ink-jet printer market after making printers for Lexmark since 1997. It is unlikely though that ink-jet printers can provide the future growth engine for Funai. Instead the company was looking to extend its brand deal with Philips. With this deal going nowhere fast, the question has to be raised what Philips can and will do in the TV market?

Certainly the Philips brand name carries some weight in the consumer world and Philips will not be giving up this value easily. So what can Philips do? It has a contract with Funai and depending on the wording will have some room to address issues with the company. However, if management trust in each other is completely gone, which may be indicated by the lawsuit and counter lawsuit, how do they continue?

This may very well be a great learning exercise for many brands that see a better income potential by letting someone else manufacture under their name. How much control are you willing to give up and how much control do you need to keep in house? What if you want or need to change the manufacturer? How do you transfer brand identity in product design, functionality and reliability from one supplier to another? These are just a few questions that Philips has to answer right now. In other words, the whole business model of outsourcing has reached a critical point, at least for Funai and Philips. – Norbert Hildebrand

Display Central Comments

Of course, in other parts of the world, Philips TVs are sold by TPVison, which was a joint venture between TPV and Philips, but was recently taken over completely by TPV. That means that Funai would have had to deal with TPV on product planning. It wouldn’t surprise me if that relationship along with the Philips relationship isn’t also a challenge. Given TPV’s ambitions over the year, it would be somewhat surprising if the company wasn’t quite keen on taking over the US Philips TV business. – Bob Raikes