Videocon to make and sell Philips TVs in India

Philips Electronics has signed an agreement with Videocon according to which Videocon would make and sell Philips brand TV sets in India.

http://www.dnaindia.com/money/report_philips-videocon-in-marketing-pact_1373358

Videocon would pay around 3% of royalty to Philips in return. The initial contract is for five years which can be extended by another spell of five years.

I see the benefits to the two companies in the following ways:

Benefits to Philips:

1) Better profitability because of cost rationalisation and synergy with Videocon.
2) Philips would use the sales and distribution network of Videocon to increase sales tremendously.
3) This scheme would allow Philips to invest in and focus on more profitable and innovative technologies.
4) Philips may replicate the success of a similar JV with Funai Electric in US.

Benefits to Videocon:

1) Access to advance technology courtesy Philips.
2) Wider product range.
3) Better brand value as it would be managing a respected MNC brand like Philips.
4) Better international reputation.

On the other hand, I see the threats to the two companies as:

Threats to Philips:

1) A forever dependency on Videocon. Due to any reasons if the agreement fails, Philips may not be in a position to go solo again in India.
2) In case Videocon doesn’t ensure quality, Philips brand value would diminish.
3) Customers may see it as company’s surrender to the competition.

Threats to Videocon:

1) Videocon may lose focus on its own home-grown brands in terms of technology and innovation and lose out in the long term.
2) Philips sales may cannibalise Videocon.
3) Videocon Bazooka lost its value after collaboration with Toshiba. Philips experience may become a repeat.

On the overall, I think this is a great opportunity for Videocon. Agreed that its similar collaboration with Toshiba harmed its own brands, but the company may have learnt lessons from the past and could do it better this time. Access to global technologies is one good thing which would help it in the long term. And the Philips brand is highly respected in India: a fact which would continue giving Videocon a long term returns.

I see this as a win-win deal.

- Rahul