Ladies and Gentlemen,
It’s a pleasure to be here today and talk to you about the future of The Netherlands' technology industry in an international context. I am glad to be here because the technology industry is one of the essential drivers of the Dutch economy. This is clear even just from the core data of your own FME1 : 2,750 member companies with 260,000 employees and total sales of 84 billion euros, of which no less than 60% is from exports. Out of the entire Dutch industrial sector, the technology industry is leading in terms of innovation: about 10% of sales is spent on innovation. And over the coming decade, The Netherlands' technology industry will create several tens of thousands of high-value jobs.
The technology industry is not only important because of its economic relevance but also because its significance as a source of employment. Now and in the future, this industry is also one of the major solution providers for problems that we are being confronted with in the West and elsewhere in the world. With this I am referring to good and affordable healthcare for an aging population for example and the challenge to guarantee mobility in a densely populated, urbanizing world. And, of course, sustainability and energy saving. Without a constant flow of innovative solutions from the technology industry we will find it difficult to deal with these problems.
Therefore, there is every reason for us to look after our technology industry and to secure its future. We have to do this, and it can be done. If we in the Netherlands and Europe really get our act together, things will get better here for both high-tech research and production. That is why my message is positive today: we can control our own future, even though the world around us is changing at a rapid pace.
We hear quite a lot of alarming noises about the ‘threat from Asia’. I am not afraid of this. The rise of new technological and industrial powers like China and India cannot be stopped and we shouldn't want to stop them. In sectors like mobile telephony, China and India are − in terms of volume − already the largest markets in the world. The old days will never return, and is that a shame? I don't think so.
We need to focus more on the opportunities that the rapid growth of the emerging markets provides rather than simply looking at the growing competitive strength of manufacturers in Asia. It's no good sitting still and worrying, like a rabbit caught in the headlights. If we do that, we are sure to be run down. No, we need to actively change, to increase our competitive strength, and take advantage of the opportunities that are arising. In this way, Asia will be able to benefit from our strengths, and we from theirs. Win-win.
That really is possible. In a recent issue of the FME Magazine there was a report on two Dutch companies that are operating successfully in India: dredger IHC Merwede and the ICT company HITT, which supplies radar installation systems for harbors and airports. We at Philips produce a lot in China for the global markets − directly or via outsourcing. However, our ‘made in Europe’ X-ray equipment, high-end shavers and energy-saving fluorescent lamps also find their way to China, India and Brazil. It definitely is a case of two-way traffic. What's more, it is not just production. There is increasing cooperation in the field of research and development. Large numbers of researchers from Europe may be leaving to go to the emerging markets, but researchers from Asia are also finding their way to knowledge institutes and companies in Europe.
In order to benefit from the growth in the emerging markets we are going to have to improve our own competitive strength. On this I agree entirely with Jan Kamminga2, who summed this up concisely in FME’s annual report 2009: “Investment in knowledge and sustainability is essential in order to ensure Dutch industry can remain competitive”.
A focus on sustainability is essential because sustainability is a precondition worldwide for economic growth. This is particularly true in countries like China, where people's awareness of the need for energy saving and environmentally friendly production and products is rising rapidly. And they are also acting on this awareness. In China, for example, the most advanced, energy-efficient LED solutions for street lighting are taking off.
It is up to both the government and business to strengthen our technology industry by focusing on sustainability and innovation. Let me share a few suggestions and experiences with you. Starting with businesses: how can we, as entrepreneurs, respond most effectively to the rise in the emerging markets, to globalization, to increasingly empowered consumers, and to the pressing need to tackle environmental and energy-related issues?
First of all, it is important to make choices. You need to choose a product portfolio which enables you to create the maximum amount of added value. You can't always be there for everyone everywhere. You have to be brave enough to adjust your portfolio when the world and the markets change, even if this means taking painful decisions. I speak from experience: it was not easy to sell off Philips’ semiconductors and components businesses, sometimes emotions ran really high, but we wanted to focus on a portfolio based around health and well-being, and that meant we had to take action.
Secondly, it is important for the technology industry to keep up its investment in innovation, even in difficult times. The added value from research and development is essential for our competitive power in the future. After all, The Netherlands and the rest of Europe are to rely on innovative products. In innovation we need to work together and exchange knowledge with each other. Multinationals, small and medium-sized businesses, knowledge institutes: we all need to be part of an ecosystem of Open Innovation. At Philips I have tried to put this into practice. During the difficult year of 2009 we invested 1.6 billion euros in R&D, that's about 7% of sales.
It is also important to operate in a customer-centric way and to create a simple, customer-friendly organizational structure. I'd particularly like to emphasize that at this meeting of the technology industry. Yes, technical knowledge and progress are essential if we want to get to grips with present-day problems and be able to base our economy and society on a sustainable framework. As technology companies we must, however, never lose sight of the fact that the technology is there for the benefit of the users, our clients and consumers, and not the other way round. That is why it is important, for example, that sales and marketing departments are closely involved in the definition of research and product development. And it pays to invest in customer relations and thus in the strength of your brand. A strong brand is crucial for your competitive position.
Having a focus on the customer also means recognizing the individual characteristics of each market. If you want to be successful in China, India and other emerging markets, you have to make sure you provide solutions that are meaningful in the local context. That is why it is important to build up knowledge of the local market and to recruit local talent. We Western companies need to start seeing the emerging markets as our ‘second home’, somewhere where we can feel just as comfortable as we do in our main home.
We need to make sustainability a cornerstone of our strategy. Last week Imtech from Gouda announced outstanding growth prospects, based partly on the great opportunities the company sees for green solutions in the field of energy and environmental protection. Sustainability is simply good business. On the one hand you bring down your costs by reducing substantially the environmental footprint of your activities, whilst on the other hand there is an attractive market for green products and services.
For many companies from the Netherlands and Europe it is also a 'must' to greatly expand their activities in emerging markets. It can start with a local sales and marketing organization, or with the off-shoring of activities to the company's own subsidiary or local companies. However, for many technology companies it very quickly involves starting research and development in emerging markets. This expansion makes sense: in the years ahead economies like China, India and Brazil are set to grow faster than Europe and the US. But, again, let us make sure that here in the Netherlands and Europe we see this as an opportunity and not as a ‘zero sum game’, purely as a threat.
Last but not least, in a globalizing world the task of reducing costs is a never-ending one. You have to always be ‘lean’ and have a solid financial basis. We are living in increasingly hectic times, with unexpected developments that can have hugely negative effects. The credit crunch is of course both a tremendous and a frightening example of this. A solid balance sheet enables you to ride out such economic storms and to benefit from the opportunities that are created by a crisis.
Ladies and gentlemen, in practice there is a place here for advanced technological production and innovation. Just look at NXP, ASML, TomTom, Océ, Unilever, Shell, DSM, Akzo Nobel. But if you stop moving you fall behind, so we have to continuously build on our competitive strength. I have suggested some ways in which companies themselves can deal with this, but what can governments do to help companies here?
First of all, they can promote education, R&D and innovation. Knowledge is an essential resource for our economy. It starts with a good teacher for every class, a teacher who is rewarded for good performance. The government must promote entrepreneurship and innovation, because in the Netherlands there is room for improvement here − by means of specific subsidies, but also as a launching customer and by ensuring the efficient organization of higher education and the knowledge institutes. Here excellence must be rewarded and we must combat localism. We need to promote R&D in general, of course, but we don't want to be trying to reinvent the wheel at five different places in The Netherlands. Specialization, clusters, strong support for specific fields of research and industry, that is the way to go. The new government (in The Netherlands) may not be sufficiently aware of this.
The government also needs to operate an open international economic policy. Preferably no Fortress Netherlands or Fortress Europe mentality. The government needs to help create a favorable climate for business in the Netherlands, for both Dutch and foreign companies. It is a great help, of course, if the government itself is operating efficiently and can minimize the bureaucracy businesses have to deal with. We need to be an attractive location for companies from emerging markets, which are also increasingly looking to relocate to Europe. We need to welcome foreign knowledge workers, irrespective of the philosophy of life in whatever country they happen to come from. Diversity promotes creativity and innovation, as we are starting to notice at Philips.
Improving our competitive strength means that we should not cling on to false securities. We need to change with the times so we can adapt to a new world, and the government should play a guiding role in this and not shy away from taking what may be unpopular but necessary measures. In this respect I have been disappointed to see the new Dutch government's lack of ambition when it comes to liberalizing the labor market. This year the Netherlands rose from tenth to eighth place in the annual list of global rankings for competitive strength compiled by the World Economic Forum. That's fantastic, but we would perform a lot better if we would only improve our education, translate more of the scientific potential of our universities into commercial business, and, above all, liberalize our labor market. In terms of flexibility of the labor market we rank not eighth but eightieth!
For the sake of the competitive power of our companies and of the technology industry in particular it is important that we in The Netherlands continue to think in terms of Europe. We simply have to accept that a lot of decisions have to be taken not in The Hague but in Brussels if they are to matter and make any difference at all. As a united Europe we will have a powerful economic and political voice on the world stage, but not if 27 countries all are talking at once and at cross purposes. There is also an urgent need to complete the European domestic market for the service sector. At the moment it is still in its infancy.
Ladies and Gentlemen,
Strengthen knowledge and innovation. See the growth of emerging markets as an opportunity rather than as a threat. Accept change and act accordingly, even if the necessary adjustments are sometimes painful at first. Choose sustainability as a guiding principle. Combine an open, international approach with European élan. Adopt a solid financial policy and embrace diversity. If government and business follow these principles, there will be good times ahead for the technology industry in The Netherlands.
I thank you for your attention.
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1 FME association is the largest organization in the Netherlands representing employers and businesses in the technological industry. For more details, visit: http://www.fme.nl/Over_FME/FME_Association?lang=en
2 Jan Kamminga is a chairman FME association