Korean firms LG and Samsung haven’t won the battle for the consumer durables market. Indian firms such as Onida, Videocon and BPL are making a comeback and retailers like Future’s Kishore Biyani are launching store-brands.
Just about when everybody thought that the war for durability in the Rs 25,000-crore consumer electronics industry in India had been fought and won, the industry seems to be gearing up for another battle. On the face of it, nothing seems to have changed, not the game, nor the players and not even the prize. The industry continues to grow sluggishly, an 8 percent compounded average growth rate (CAGR) between 2000 and 2004 (China grew 14 percent CAGR during this period, LG and Samsung continue to rule the market, accounting for around 50 percent of the total Rs 25,000-crore industry and the other Indian as well as multinational players like Videocon, BPL, Mirc Electronics, Whirlpool, and Sony continue to play catch-up. Under the surface though, things are stirring.
For one, the also rans are refusing to play their part and are making a strong comeback bid. “It is not for nothing that the Devil (a character that represents brand Onida) is back,” gushes Gulu Mirchandani, Chairman and Managing Director (MD), Mirc Electronics. “He is here to rule the market again”. Apart from televisions, where it has historically held its own against competition, Mirc is making an aggressive play in categories such as washing machines, air conditioners, microwave ovens and DVDs. Then says Mirchandani , there are exports. He claims to have sold between 100,000 and 150,000 color televisions each in Ukraine and Russia last year, and hopes to translate this into a competitive advantage in the Indian market.
BPL Ltd, which ruled the CTV market in India till early 2000 and then slipped into heavy losses (the net loss stood at Rs 214 crore in 2003 and Rs 214 crore in 2003 and Rs 74 crore in 2005) , has formed a 50:50 joint venture with Japans Sanyo Electric. The latter has committed $100 million (Rs 450 crore) to its Indian operations. The JV has launched CTVs, LCDs and plasma screens under the Sanyo and BPL brand names and is also foraying into refrigerators, washing machines and DVDs. “ We intend to be a 2,000 crore venture by 2009 with a considerable market share in all segments, says Ajit Nambiar, Chairman and Chief Executive Officer, Sanyo BPL.
Videocon Industries, another leading Indian player that go battered during the late 90s and early 2000s, boasts revenues of Rs 4,500 crore today. The group’s oil business contributes significantly to this, but the consumer electronics business is thriving, too. Chairman Venugopal Dhoot identified a different route to growth: Allwyn, Kelvinator, Hyundai, Toshiba and Electrolux in the domestic market, and of manufacturing facilities such as French Electronics major Thomson’s color picture tube, globally. “If there is one player that will thrive in Indian market, besides the Korean majors, it is Videocon,” says Dhoot.
Whirlpool India is another company, which after a long cold winter, is getting back into shape. The company, which recorded a net loss of Rs 38 crore in 2005-06, recently announced a $20-million (Rs 90 crore) investment for 2006 and 2007 and launched several new products. The company says Arvind Uppal, its Managing Director, is committed to India. Then, there are others like Godrej Appliances, Sony, Haier, Sharp, Hitachi and various other smaller companies that are aiming to corner some share in the industry.
All This And No Growth
These ambitions plans and strategies would not seem misplaced if the consumer electronics industry were growing the way other industries are. Last year, when GDP grew by around 8.1 percent, the stock markets boomed and most industries, even those that had been in dire straits, fast moving consumer goods, grew at between 15 and 30 per cent; consumer electronics was one sector that grew only 5 percent. In terms of value, the biggest constituent of the segment, CTVs, actually saw a decline. Nor are growth estimates for the future any more sanguine. According to market research agency Datamonitor, the industry is likely to grow around 7.7 percent CAGR for five years ending 2009.
There are many reasons for sluggishness in the industry; some immediate and others, historical. Most people attribute last year’s slow growth to two factors-confusion regarding value-added tax (VAT) and a surge in stock markets. “Confusion regarding VAT in the first quarter last year took a heavy toll on sales,” says K.R.Kim, intriguing correlation between stock markets and consumer durables industry. “It has been observed that whatever stock markets or real estate sectors are booming, consumers tend to postpone their consumer durable purchases and invest their money in these assets.” Says Bhuwan B. Singh, Director (Client Service), ORG – Gfk
Then, there are historical reasons. When the government opened up the sector, recalls Mirchandani, incumbent players “were not ready for competition and most of them died or are still bleeding.” Videocons Dhoot holds heavy taxation responsible for industries’ woes. “Total tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in other Asian countries are between 7 and 17 percent,” he says.
Poor infrastructure is another reason that seems to have held back the industry. “Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India,” says Ravinder Zutchi, Deputy Managing Director, Samsung.
Indeed, over 80 percent of the rural market in India remains irrelevant for the industry because of these reasons. But the fact remains that these problems are not going to be resolved in the near future. And the companies will have to factor them in when they draw new growth plans. Which they have now done. Shorter replacement cycles, especially in urban areas, also give companies cause for hope. Over the next few years, the topography of the industry will likely change, with some companies gaining at the expense of others. Eventually, however, the market itself will grow, as rural markets evolve and companies create specific products for them.
The Threat of Retail
There is another imminent threat for the industry, the emergence of organized retail. “World over consumer electronics is used as a loss-leader category to woo consumers,” says Ireena Vittal, Principal, McKinsey. “Retailers give consumers huge discounts on these products to win over consumers, which, in turn, mean squeeze on margins.” Vittal points to another trend that is sure to hit the players, that of organized retailers launching their store brands. That, in fact, is already happening. Electronic bazaar has started importing air conditioners and microwave ovens from China and is selling them, under the brand name Koryo, at prices that are over 40 per cent cheaper than those of competing products. “Initial response to these products has been encouraging,” says MD Kishore Biyani. “We intend to import other products like TV and washing machines soon.”
Mukesh Ambani’s Reliance Retail is also said to be exploring such opportunities. In fact, the group is said to be in talks with some companies that neither have any manufacturing facility nor a strong distribution network in the country, but are keen on a presence here. “There are companies that can take advantage of the free trade agreement (FTA) route and import their products to India and then, sell them through us without making any ground-level investments,” says a senior executive at the Reliance Retail. To be sure, companies like Hitachi, Sharp and TCL Holdings are already looking at exploiting the FTA route. “We are looking at increasing our market share in CTV, LCD and plasma screen business,” says Prasun Banerjee, Vice President (Sales and Marketing) Sharp India. “We would largely be importing these products, making use of the FTA route.”
It is not that the players are oblivious to these challenges; they have no opinion but to look at the brighter side of the picture, which in India’s case is its potential. “The Indian market remains heavily under-penetrated, which is a big opportunity for all players,” says Zutshi.
Then, foraying into rural markets has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory.
Even LG and Samsung, which are touted as having the largest distribution network in the country , have a direct presence only in 15,000 to 18,000 of around 40,000 retail outlets (for consumer durables) in the country.
Players admit that the increasing competition and new challenges will lead to another phase of consolidation with some losing and others winning. Early indications of that are already visible. The buzz in the market is that Samsung incurred losses (around Rs 80-100 crore) for the first time in 2005. Zutshi, however, refutes to this. “Our profits did take a hit last year, but there were no losses.” Whirlpool India, Godrej appliances and BPL Ltd, companies making a comeback, aren’t out of woods yet. LG’s Kim says that in the next two to three years “half the players will be pushed to fringes again.” Only two or three players will survive in each category.”
And who are the players who will survive? Only those who are resilient, committed to the industry and Indian market and at the same time, are looking at being globally relevant, is the chorus.
Source : Business Today
Just about when everybody thought that the war for durability in the Rs 25,000-crore consumer electronics industry in India had been fought and won, the industry seems to be gearing up for another battle. On the face of it, nothing seems to have changed, not the game, nor the players and not even the prize. The industry continues to grow sluggishly, an 8 percent compounded average growth rate (CAGR) between 2000 and 2004 (China grew 14 percent CAGR during this period, LG and Samsung continue to rule the market, accounting for around 50 percent of the total Rs 25,000-crore industry and the other Indian as well as multinational players like Videocon, BPL, Mirc Electronics, Whirlpool, and Sony continue to play catch-up. Under the surface though, things are stirring.
For one, the also rans are refusing to play their part and are making a strong comeback bid. “It is not for nothing that the Devil (a character that represents brand Onida) is back,” gushes Gulu Mirchandani, Chairman and Managing Director (MD), Mirc Electronics. “He is here to rule the market again”. Apart from televisions, where it has historically held its own against competition, Mirc is making an aggressive play in categories such as washing machines, air conditioners, microwave ovens and DVDs. Then says Mirchandani , there are exports. He claims to have sold between 100,000 and 150,000 color televisions each in Ukraine and Russia last year, and hopes to translate this into a competitive advantage in the Indian market.
BPL Ltd, which ruled the CTV market in India till early 2000 and then slipped into heavy losses (the net loss stood at Rs 214 crore in 2003 and Rs 214 crore in 2003 and Rs 74 crore in 2005) , has formed a 50:50 joint venture with Japans Sanyo Electric. The latter has committed $100 million (Rs 450 crore) to its Indian operations. The JV has launched CTVs, LCDs and plasma screens under the Sanyo and BPL brand names and is also foraying into refrigerators, washing machines and DVDs. “ We intend to be a 2,000 crore venture by 2009 with a considerable market share in all segments, says Ajit Nambiar, Chairman and Chief Executive Officer, Sanyo BPL.
Videocon Industries, another leading Indian player that go battered during the late 90s and early 2000s, boasts revenues of Rs 4,500 crore today. The group’s oil business contributes significantly to this, but the consumer electronics business is thriving, too. Chairman Venugopal Dhoot identified a different route to growth: Allwyn, Kelvinator, Hyundai, Toshiba and Electrolux in the domestic market, and of manufacturing facilities such as French Electronics major Thomson’s color picture tube, globally. “If there is one player that will thrive in Indian market, besides the Korean majors, it is Videocon,” says Dhoot.
Whirlpool India is another company, which after a long cold winter, is getting back into shape. The company, which recorded a net loss of Rs 38 crore in 2005-06, recently announced a $20-million (Rs 90 crore) investment for 2006 and 2007 and launched several new products. The company says Arvind Uppal, its Managing Director, is committed to India. Then, there are others like Godrej Appliances, Sony, Haier, Sharp, Hitachi and various other smaller companies that are aiming to corner some share in the industry.
All This And No Growth
These ambitions plans and strategies would not seem misplaced if the consumer electronics industry were growing the way other industries are. Last year, when GDP grew by around 8.1 percent, the stock markets boomed and most industries, even those that had been in dire straits, fast moving consumer goods, grew at between 15 and 30 per cent; consumer electronics was one sector that grew only 5 percent. In terms of value, the biggest constituent of the segment, CTVs, actually saw a decline. Nor are growth estimates for the future any more sanguine. According to market research agency Datamonitor, the industry is likely to grow around 7.7 percent CAGR for five years ending 2009.
There are many reasons for sluggishness in the industry; some immediate and others, historical. Most people attribute last year’s slow growth to two factors-confusion regarding value-added tax (VAT) and a surge in stock markets. “Confusion regarding VAT in the first quarter last year took a heavy toll on sales,” says K.R.Kim, intriguing correlation between stock markets and consumer durables industry. “It has been observed that whatever stock markets or real estate sectors are booming, consumers tend to postpone their consumer durable purchases and invest their money in these assets.” Says Bhuwan B. Singh, Director (Client Service), ORG – Gfk
Then, there are historical reasons. When the government opened up the sector, recalls Mirchandani, incumbent players “were not ready for competition and most of them died or are still bleeding.” Videocons Dhoot holds heavy taxation responsible for industries’ woes. “Total tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in other Asian countries are between 7 and 17 percent,” he says.
Poor infrastructure is another reason that seems to have held back the industry. “Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India,” says Ravinder Zutchi, Deputy Managing Director, Samsung.
Indeed, over 80 percent of the rural market in India remains irrelevant for the industry because of these reasons. But the fact remains that these problems are not going to be resolved in the near future. And the companies will have to factor them in when they draw new growth plans. Which they have now done. Shorter replacement cycles, especially in urban areas, also give companies cause for hope. Over the next few years, the topography of the industry will likely change, with some companies gaining at the expense of others. Eventually, however, the market itself will grow, as rural markets evolve and companies create specific products for them.
The Threat of Retail
There is another imminent threat for the industry, the emergence of organized retail. “World over consumer electronics is used as a loss-leader category to woo consumers,” says Ireena Vittal, Principal, McKinsey. “Retailers give consumers huge discounts on these products to win over consumers, which, in turn, mean squeeze on margins.” Vittal points to another trend that is sure to hit the players, that of organized retailers launching their store brands. That, in fact, is already happening. Electronic bazaar has started importing air conditioners and microwave ovens from China and is selling them, under the brand name Koryo, at prices that are over 40 per cent cheaper than those of competing products. “Initial response to these products has been encouraging,” says MD Kishore Biyani. “We intend to import other products like TV and washing machines soon.”
Mukesh Ambani’s Reliance Retail is also said to be exploring such opportunities. In fact, the group is said to be in talks with some companies that neither have any manufacturing facility nor a strong distribution network in the country, but are keen on a presence here. “There are companies that can take advantage of the free trade agreement (FTA) route and import their products to India and then, sell them through us without making any ground-level investments,” says a senior executive at the Reliance Retail. To be sure, companies like Hitachi, Sharp and TCL Holdings are already looking at exploiting the FTA route. “We are looking at increasing our market share in CTV, LCD and plasma screen business,” says Prasun Banerjee, Vice President (Sales and Marketing) Sharp India. “We would largely be importing these products, making use of the FTA route.”
It is not that the players are oblivious to these challenges; they have no opinion but to look at the brighter side of the picture, which in India’s case is its potential. “The Indian market remains heavily under-penetrated, which is a big opportunity for all players,” says Zutshi.
Then, foraying into rural markets has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory.
Even LG and Samsung, which are touted as having the largest distribution network in the country , have a direct presence only in 15,000 to 18,000 of around 40,000 retail outlets (for consumer durables) in the country.
Players admit that the increasing competition and new challenges will lead to another phase of consolidation with some losing and others winning. Early indications of that are already visible. The buzz in the market is that Samsung incurred losses (around Rs 80-100 crore) for the first time in 2005. Zutshi, however, refutes to this. “Our profits did take a hit last year, but there were no losses.” Whirlpool India, Godrej appliances and BPL Ltd, companies making a comeback, aren’t out of woods yet. LG’s Kim says that in the next two to three years “half the players will be pushed to fringes again.” Only two or three players will survive in each category.”
And who are the players who will survive? Only those who are resilient, committed to the industry and Indian market and at the same time, are looking at being globally relevant, is the chorus.
Source : Business Today