Philips became No. 1 after years of trailing GE in Indian health care. This may change as GE revs up. But both are fighting a battle with their HQs to take the small Indian market seriously
If you are looking for Wido Menhardt, don’t head for the corner office. In fact, don’t even bother looking for a cabin. Because there isn’t one! Instead, Menhardt, chief executive of the Philips Innovation Campus (PIC), prefers to work from one of the open-plan workstations that line the newly renovated floor at the company’s swank 36,000 sq ft facility in Bangalore’s newest technopolis, Manyata Tech Park. Aesthetic, yet spartan, his workstation is indistinguishable from those of the nearly 2,000 engineers that work under him.
The workspace at PIC signifies a culture shift. “The transition from cabin to open office is in line with Philips’s global office strategy —work place innovation... Even Frans [van Houten, global chief executive] and Deborah [DiSanzo, chief executive of Philips Healthcare] don’t have offices anymore,” says Menhardt matter-of-factly.
The cultural change is what global chief executive van Houten is driving through the €24.78 billion conglomerate. At a recent conference in the UK, he said it was “an area of ongoing focus in 2013”. Menhardt, for his part, has been experimenting with change across all businesses ever since he came to India in 2010, when 95 percent of the work was in software development. He even coined a slogan—Gurgaon Chalo—to encourage engineers to work with the sales teams.
Philips India is transforming, and the results are particularly heartening in health care. Krishna Kumar, president of the health care division, is cock-a-hoop: “In the last three years, the market, on average, grew 10.9 percent, but we grew at least 2.5x the market.”
In the ’90s, it was Siemens which dominated the Indian health care market. Then GE came and ate its lunch. In the process, GE almost lost its shirt but it pretty much remained the number one medical technology company for many years. At one time, it had the combined market share of Philips and Siemens. Now, it’s Philips’s turn.
Menhardt and Krishna Kumar (“KK” to friends), who make for a crack team, have rapidly grown market share in the last three years (see graphics, pg 53). In three of the five health care categories that Philips Healthcare sells its wares and competes with GE, it dominates with more than 50 percent market share. GE’s market share is in the “high 30s”.
Philips hired Krishna Kumar just as Menhardt had begun wielding his global experience to aid product development in India. Coming from a medical device company, Johnson & Johnson, he had to speed-learn imaging, scanning and the cornucopia of Philips’s technologies, but in the process he discovered a few unsold ideas. “He comes from a different background…brings a fresh perspective and always talks with numbers,” says Ranjan Pai, who, as chief executive of Manipal Education and Medical Group, has worked with most medical technology companies in India.
Given the cyclical nature of the business, Philips cannot assume it will retain its top dog status for long. What is clear is that a brutally competitive market forces every multinational vendor to sell at the lowest price, forcing it to innovate like it’s never done before. Each is developing its own business model, one that is worth exporting even to developed markets. So, it’s an open question how long Philips can hold its own against GE, which has lined up new initiatives of its own.
GE’s ‘healthy’ goals
On a Saturday in July, the meeting with Terri Bresenham, chief executive of GE Healthcare, is fixed for 10.20 am. It’s at the coffee shop in her residential complex. But when Bresenham arrives, she prefers to meet in the library. It’s quieter there. She’s carrying her coffee and has already been through one morning meeting. A GE veteran of over 25 years, in India she has learnt to optimise, time included. Traffic snarls in Indian cities can’t be wished away, so she sometimes has her meetings, even lunch, while commuting from one customer place to another. Still, she says, she is more optimistic now than when she arrived in India 20 months ago.
It’s a challenging market; profit margins are low, there’s tremendous amount of uncertainty—from care provider community to economy— and it’s one of the smaller markets, compared to, say, China, where GE’s business is five times as big. Largely private, with high out-of-pocket expenses due to the narrow coverage of medical insurance, the Indian health care market offers a unique opportunity. “Health care systems the world over are in great economic stress and in search of value. How do we help them in the cost curve…that’s our ultimate objective in how we look at this market,” she says.
Has that exacted a price—like ceding market leadership to Philips?
It is obvious that Menhardt-KK and Bresenham are trying to break out of what McKinsey calls the “midway trap” and are getting their parent companies to invest in India. Last year, GE Healthcare spent $1 billion, or 5.4 percent of its sales, on R&D. Philips Healthcare spent 11 percent of its revenue.
(This story appears in the 20 September, 2013 issue of Forbes India. To visit our Archives, click here.)