Consumer Electronics In India 265k

MIDDLESEX UNIVERSITY BUSINESS SCHOOL

Consumer Electronics Market, India MBA 4641, Strategy Dynamics SHOAIB KHAN, M00435609

Total Numbers of Words Used: 3962

The document reflects on the consumer electronics market in India at macro environmental level using PESTEL Analysis and Five Force Analysis and discusses about current environment and its impact and effect of changing demography and technology on the future of consumer electronics in India and degree of five forces in retail market of consumer electronics.

Table of Contents INTRODUCTION Market Overview Global

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PESTEL ANALYSIS 4 Political

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Economical 4 Social

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Technological

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Environmental

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Legal

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FIVE FORCE ANALYSIS

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Forces Driving Competition 9 Drivers of Buyer Power

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Drivers of Supplier Power 9 Factors Influencing New Entrants 10 Factors influencing the Threat of Substitutes

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Drivers of Degree of Rivalry10 RECOMMENDATION REFERENCES APPENDIX

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INTRODUCTION Market Overview India’s local consumer electronics device business, defined to comprise mobile handsets and video, audio, computing devices and gaming products, was projected to be valued around US$28bn in 2011 and this is projected to grow to US$57bn by 2016, driven by increasing incomes and rising affordability of key products (Business Monitor International Ltd, 2012). Global The increasing concentration of information, entertainment and communication is guiding a new age of consumer electronics all over the world. (escindia, 2010). In emerging markets, particularly, consumer electronics is one of the biggest chunks in the manufacturing industry and ensures a great potential. The global consumer electronics industry is anticipated to arise at a CAGR of more than 10% during 2012 to 2015, with the growing household income levels, local manufacturing, launch of innovative technological products and increasing awareness, according to the latest report “Global Consumer Electronics Market Outlook, 2015”. It has noticed that US, UK, China, Japan, India, , South Korea and Taiwan are the largest consumer electronics markets and contribute more than half of the global industry (ReportLinker, 2013). Due to tremendous technological development and rising income levels, market demand is increasing and has determined the consummation of the consumer electronics market. The large population of China has also presented it as a strong emerging market. Along with this, India’s consumer electronics market is the fastest growing. It has been noticed that Smart TV sets, 3D TV sets, High Definition DVD Players, Digital Radio, Smartphones and Tablets are amongst the few products that are witnessing increase in growth and hold enormous prospective in the future.

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Key Consumer Electronics Products:

Source:(Consumer Coordination Council India, 2012)

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PESTEL ANALYSIS: POLITICAL: India has had many various governments after the bill of reforms began, irrespective of distinctive political agendas of every governments, growth of India has been their prime economic agenda. By this continuous attention to reforms, Indian and foreign investors have increased their investment in the economy. Since 1992 to 2004 investment spending has grew from $56 billion to 156 billion (Jonathan Ablett, 2007). The ultimate aim of Government is for 1bn internet-connected computers in India, which is equivalent to the total estimated number of PCs in the world today. Annual PC sales were forecast at above 12mn units in 2011 and could rise to 34mn by 2016. Focus is on the lower end of the market, which is expected to power market growth over the next few years. The government’s aim to connect India to the developing word is accelerating the development of consumer electronics market (Business Monitor International Ltd, 2012). The government is encouraging manufacturers by providing tax benefits and subsidies, which will help to keep PC prices low and will boost growth. Government’s budget on uplifting and modernising the educational and public sector departments is a key driver for this industry. In 2011, the government of Karnataka along with other governments announced programmes to bring Information and Communication Technologies education to schools and gave free netbooks and laptops to the students. Another ICT programme, for example, Kerala State Mission, was intended at other departments like police department. As the sales of digital TV’s is growing, set top box market is also growing rapidly, the subscribers are expected to grow from 23 million to 42 million, making India the largest DTH market in the world (Consumer Coordination Council India, 2012). A nascent market is developing for set top boxes and strong growth is expected during five year forecast period. To help local manufacturers, the government has decided to impose a 5% raise in customs duty on these set top boxes could raise INR100-150 on unit price of import. Set top boxes are usually retailed at around INR1,000-1,500 (Business Monitor International Ltd, 2012). ECONOMIC: In 2005, consumer electronics market of India reflected growth of 9.2% than 2006, and was worth $3.6billion, with 12% of compound annual growth rate for the period of 2001-2005. In contrast

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CAGR of 7% growth was reported in the Asia Pacific market the period of 2001-2005 (Datamonitor, 2006). Due to the rapid development of Indian consumer electronics market than the Asia-Pacific average, it was forecasted, for 2010, to establish 7.8% of the total regional market value (Datamonitor, 2006). In 2011, due to abrupt depreciation of Indian currency (Rupee) and India not strong in manufacturing, the cost of imports was drastically steeped. The raised costs came off on the customers, by increase in unit price in most of the categories. Indian consumer was forced to consider twice before spending, due to the ascending prices. Hence, in peak seasons like Diwali, volume sales were low (Euromonitor International, 2013). India has progressively abundant middle class population and in next two decades, the middle class population will jump from 5% to 40% and will become fifth largest consumer market in the world (Eric D. Beinhocker, 2007). More than 291 million people from desperate poverty will shift to a comfortable life and India’s middle class will expand by additional ten times of its present (2007) size of 50million to 583 million people. By 2025, more than 23 million Indians would be among the country’s wealthiest citizens, higher than the population of Australia (Jonathan Ablett, 2007). The rising availability of easy loan for consumers by the financial institutes has enhancement the sales. It is helping the price conscious customers and to raise the ticket size of purchases. These days consumer goods companies are themselves coming out with the financing options and helping customers to buy more and pay in easy EMIs. It is making direct impact on the revenues. (Consumer Coordination Council India, 2012) SOCIAL: The smaller cities where PC penetration has grown rapidly in recent years now offer some of the biggest growth opportunities (Philip M. Parker, 2008). TV plays dominant role the cultural life of Indian society (Venkatesh, 1994) and has become integral part of social policies, by distributing TV’s to lower income households in few states. In the year 2007-2008, 2.5mn color TV’s were distributed in Tamil Nadu by the government (Business Monitor International Ltd, 2012). Cricket in India is followed as religion and the big tournaments or events are being watched by millions. People wait for the tournaments in enthusiasm and the sales of TV grows drastically. In 2011, the growth in sales for flat TV was forecasted to grow more than 50%. In this year, the rapid increase was forecasted in the first 2 quarter of the year, due to the raise in cricket season and ICC Cricket World Cup. The sales of flat TV’s were contemplated to double during the cricket 5

season as compared to the last years of sales. IPL also boost the sales of s every season (Business Monitor International Ltd, 2012) & (Merchant, 1999). The festivals bring confidence in buyers, suppliers and retailers. The companies and retailers offer and lots of deals and promotions to the buyers. The festival of Diwali affects the revenues of the companies by around 30%. The festive sales season of 2010 instigated many queries on promotions by the consumers and retailers forecasted increase in volumes of consumer electronics products by 35% - 50%, higher than the previous year. In 2009, industry has reported an increase of 20%- 40% in revenues due to better customer spirit, impulse spending and seasonal bonus. The highest selling products were LCD/LED, DVD players/recorders and digital cameras (Business Monitor International Ltd, 2012). In India, only Nine out of 1,000 people owns a computer, which is one fifth of that of China. Moreover, 45% of population in India is under25 years, which should boost PC and IT usage (Business Monitor International Ltd, 2012). Increasing awareness and media boom in India is also surging the customer goods demand. (Consumer Coordination Council India, 2012) TECHNOLIGICAL: Technological change has made great changes in the Indian economy. Traditional technologies had very less impact on Indian consumers. However, technologies like TV, VCR and appliances like refrigerator has made differences in Indian life. Emergence of consumer electronic has made much of the revolutionary changes in India (Venkatesh, 1994). History reflects breath-taking increase in productivity, transformation of industries and framing the society on fresh paths to growth by the innovations in technology. For example, PCs and smartphone, facilitated by faster and ever-smaller chips, have evolved the consumer electronics market. Another example started with Sony Walkman and continuing with iPod, in portable audio devices, has completely turned around the way music is packaged and consumed(Rogers, 2012). Very much alike impressive transformation of energy market is on the edge. Energy technology innovators are taking benefits of growth in areas like consumer electronics to improvise the way world produces and consumes energy as the prices of oil, aluminium, steel, cooper and other goods are rising to all time high. To be successful, companies should and must be conscious of the major threshold for every technology and the market changes that progress will provoke. Those who will follow and be average technological developments, rather than placing itself in cutting edge, may not survive in the emerging sphere these innovations create (Rogers, 2012). For example, Apple 6

innovative technology and access to its new component technology months or years before its rivals allows it to launch breath taking products which are almost impossible to replicate (Gobry, 2011). Today, to operate a high-efficiency AC in hot region it cost about $3,000 to $4,000 every year. These days this technology is costly but by 2020, it can be half of the current cost (Rogers, 2012). For development of R&D and innovation in the consumer electronics sector Protection of Intellectual property rights (IPR) is a prime requisite. A strong IP act has been developed by the Government of India to encourage innovation, growth and development. Several improvements to the Patents Act, Copyright Act, creation of a new Trademark Act and a new Design Act reflects India’s continued effort to protect IPR (Consumer Coordination Council India, 2012). ENVERONMENTAL: Major companies are aware of the environmental effect and are developing eco-designs and ecotechnologies and environmental policy is part of the management policies (Nokia, 2013). In 2004, Samsung has developed and started the Eco-Design Assessment System, which monitors products compliance with environmental norms based on efficiency, energy efficiency and eco-friendly materials (Samsung, 2013). In Nov 2009, Sony has positioned “the environment” as one of the key strategic priorities and has announced this in the media. And in April 2010, revised Sony Group Environmental Vision and defined "Green Management 2015" which is Sony Group’s new set of mid-term environmental targets to “Road to Zero” global environmental plan (Sony Corporation, 2013). Environment has been an agenda in the management however it has been lately seen that it has become one of the priorities of the organisations. Also, most of the consumer electronics manufacturers implement some level of lifecycle assessment of their products and it has been regarded as sensitive for the commercial success (Pamela J. Gordon, 2008). In the use phase, the energy requirement of a product is determined by three factors: its usage pattern, power demand and projected functional lifespan. Hence, the more energy a product uses and the longer it is used and the more frequently it is operated, the larger the total energy needed. In consumer electronics Industry, recycling is high on the public agenda, the issue of disposal of end of life products affects all the manufacturers. Most of the major brands have started initiative to take back the “End of Life” products back and use it as resources and recycle the waste (Samsung, 2013) & (Sony Corporation, 2013). The companies are taking initiative by modification in process, volume reduction, recovery and reuse, sustainable design, use of renewable material and energy, looking for 7

green packaging options and using minimum packaging material. However, there is no definition or policy for e-waste in India (Pinto, 2008). It is mandatory for manufacturers to get their products rated by BEE. Energy star rated products are being promoted by the manufacturers and the rating is highlighted on every consumer electronics product. It shows the electricity consumption by the product (US AID INDIA, 2010). As the electricity tariff is among the highest in the world (bee-india.nic..in, 2010), so consumers get influenced by the brands and products which promote lower electricity consumption products. Moreover, in consumer electronic products, the potential of global warming and requirement of energy measures are very tly connected (WRAP, 2010). The primary impacts related to consumer electronics occur from the energy consumed during their use and embedded materials. LEGAL: In the Indian consumer electronics industry up to 100% foreign investment is allowed to set up units only for exports. All components and raw materials can be imported duty free and then manufacture products and export it (Consumer Coordination Council India, 2012). Benefits are given to the companies which are locally manufacturing certain products to replace imports by EHTP (Electronic Hardware Technology Park). Companies get benefited by business tax incentives, export credits, no duties on imported components and an expedited import export process. Customs duty has been removed on specific raw materials/ inputs used for manufacturing electronic components. Customs duty has also been removed on specific capital goods used for manufacturing electronic goods. On computers, excise duty has been removed (Consumer Coordination Council India, 2012). Additional approvals are not required on the import of capital goods, components and raw materials or engagement of foreign technicians, after the investment in equity has been approved. There is no need to take any approval from Ministry of Home Affairs for hiring foreign nationals with valid employment visa. Ministry of Commerce has given approval for setting up units in Export Processing Zone (EPZs). To set up export oriented units (EOUs) outside zone, approval has to be taken by the Ministry of Industry (Consumer Coordination Council India, 2012).

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FIVE FORCE ANALYSIS – Consumer Electronics Market in India The consumer electronics market is analysed by taking retailers as players. The main buyers are taken as consumers and manufactures are taken as suppliers. Forces Driving Competition The consumer electronics retail market has large retail chains and independent retailers in competition. The switching cost of buyers are low and it is almost difficult for the retailers to differentiate themselves, as they all sell products from same big manufacturers. To add to this, traditional retailers confront competition both from suppliers like Apple opening retail outlets and online retailers. This industry has relatively low barriers to entry and exit. Drivers of Buyer Power Small buyers of the consumer electronics retail market is in large numbers. Buyer power is weakened as an impact on retailer of losing any specific customer is very less. The differentiation among retailers in this market is difficult. Other than the high end retailers, specialists or retail showrooms of manufacturers like Apple and Sony, most of the retailers are selling similar products of major electronics brands. Moreover, the price conscious customers, especially for ‘big tickets’ items like s, and lack of prominent switching costs and buyer strength starts to seem stronger. However, retailer on the other hand can fight against this by focusing on customer service. More knowledgeable employees have good information about the products and can therefore appropriately advice the customers. Buyer power is moderate. Drivers of Supplier Power Most of the retailers buy stocks directly from the manufacturers like Samsung, LG and Toshiba. They are the big multinationals, with high bargaining strengths. Consumer electronics manufacturers are get benefited from scale economics and therefore it is likely that there always will be a importance of large manufacturers upwards of the retailers. Retailers seldom consider backward into manufacturing, however few manufacturers operate high street retail chains to sell their products. It is doubtful that manufacturers will ever consider themselves deep into direct-to-customer business that the absolute retailers become replaceable for their sales. Consumer electronics is a moderately commoditized market. Even an innovative product like the Apple iPod instantly excites manufacturers into producing similar items. Along with that, a manufacturer with valuable intellectual property, can prefer to generate revenue by licensing agreements rather than fighting for exclusivity to demand high 9

prices. From the outlook of retailers, this will lead to weaken buyer power, as it means that none of the supplier monopolizes a specific product category. Overall, suppliers have moderate power. Factors Influencing New Entrants Barriers to market entry are very low. It is very likely and feasible for individualistic retailers of consumer electronics to last, in developed economies, where the high street is dominated by small number of large retail chain. Entry is possible without the requirement of huge capital, complicated regulatory compliance or obtaining of intellectual property. Consumers have very few switching costs to retain them to existing retailers. Retail market seems to be labour-sensitive, but the skill sets needed for customer facing staff are not difficult to find. However, competing directly with market leaders requires more resources, in order to lease stores, develop supply chains and . Market leaders may have certain economies of scale. For example, by increasing the number or size of stores, the cost of central operations costs may not increase as quickly as revenue. Moreover, it may be easier for a large company to absorb the cost of implementing an e-retail website. The risk of new entrant is very high. Factors influencing the Threat of Substitutes Substitutes for consumer electronics, defined oppressively here as audio and video devices, including the extended range of IT categories. For example, nearing devices offering audio and video features along with computing and communication features, like tablet and smart phones, are an alternate of fixed and intended devices. Retailers that are concentrated in the more traditional audio-video products may find their strength threatened and revenues weakened, but it is likely to be seen that the large market players offer a lot of range of entertainment, computing and telecommunication devices. This diversification reduces the threat of substitutes. Another type of substitute is alternative distribution channels, distinctive online retail as a substitute to brick-and-mortar outlets. Mostly all the leading high street retailers of consumer electronics have e-retail sites, but it may not be easy for new and small independent retailers to start up such sites, they will therefore have to face a greater threat. The exclusive retailers are also facing competition from non-exclusive such as department stores and supermarkets. These department stores and supermarkets compete on price, through the use of private label products. Overall the threat from substitutes is strong. Drivers of Degree of Rivalry The consumer electronics retail market has many large chain players, despite these exist together with small independents, it is clearly not difficult for a company to increase its sales volumes in response to market situations, for example it is mostly easy to take a supplemental staff where needed. It is not easy for retailers to individualize from the competitors and switching cost is less, as an outcome, 10

customers are flexible to move between one retailer to another and this increments the power of rivalry. Where the market is expanding speedily, rivalry will be softened. Also this market is somewhat easy to exit, which also smooth competition. Overall, the degree of rivalry is moderate. (MARKETLINE, 2012) & (Bhasin, 2012) RECOMMENDATION Examining all the major factors, in India, the consumer electronics industry is projected to grow, driven by increasing incomes and rising affordability of key products. Economy of India is growing with few hick ups like depreciation of Indian currency, however the market is still drastically emerging. The industry is getting benefitted by the policies and easy reforms from the government agencies. Urbanisation and change in the demography is revolutionising the consumer electronics industry in India. Frequent changes in technology are making the product lifecycle short. However, tremendous technological development has changed the market and taken it to the new heights. Easy availability of new technology is attracting the customers. Large no of retailers are present in the market, all these retailers are offering the similar products, produced by the major manufacturers, so the differentiation, among the retailers is low. However consumer in few category can somewhat differentiate in products and can buy the products as per their aspirations. In comparison in categories like TV, Refrigerators and ACs differentiation is not much however companies create and present same features in different ways with slight difference. Barriers to entry are low however looking at the demand it is a lucrative market. Moreover the margins are low, as it’s a volume business and profitability on capital will be generated after longer period of time. To add further, for the interest of business, manufacturers and retailers share common interest and work hand in hand. As profits are directly linked so both retailers and manufacturers are dependent on each other. Looking at the rising economy and rising demand and revenues, the consumer electronics industry seems stronger and favourable with tremendous opportunity however with few challenges. To be successful in consumer electronics, innovation is the key for success, with a strong supply chain network to reach to every customer in both urban and rural India, as urban is still strong and rural

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India is growing at a faster pace than urban. Retailers and manufacturers need to provide higher customer service and better trained and knowledgeable manpower.

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REFERENCES bee-india.nic..in, 2010. Bureau of Energy Efficiency. [Online] Available at: http://beeindia.in/content.php? page=miscellaneous/electricity_act_2003.php [Accessed 02 March 2013]. Bhasin, K., 2012. This Chart Shows Why Best Buy Should Be Particularly Terrified Of 'Showrooming'. [Online] Available at: http://www.businessinsider.com/showroomings-consumerelectronics-best-buy-2012-6 [Accessed 28 Feb 2013]. Business Monitor International Ltd, 2012. India Retail Report Q3 2012. pp. 52-72. Consumer Coordination Council India, 2012. Consumer Durable Industry in India, India: Consumer Coordination Council India. Datamonitor, 2006. Consumer Electronics in India. Industry Profile, June.pp. 1-18. Eric D. Beinhocker, D. F. a. A. S. Z., 2007. Tracking the growth of India’s middle class. p. 1. escindia, 2010. CONSUMER ELECTRONICS EXPORT 2010-11. [Online] Available at: http://www.escindia.in/s/CONSUMER%20%20ELECTRONICS %20EXPORT%202010-11.pdf [Accessed 02 Mar 2013]. Euromonitor International, 2013. Consumer Electronics in India. [Online] Available at: http://www.euromonitor.com/consumer-electronics-in-india/report [Accessed 02 Mar 2013]. Gobry, P.-E., 2011. Apple's… Exclusive Supply Chain Of Advanced Technology [Is] Literally Years Ahead Of Anyone Else On The Planet. p. 1. Jonathan Ablett, A. B. E. B. A. B. D. F. U. G. E. G. S. G. S. G., 2007. The 'bird of gold': The rise of India's consumer market, San Francisco: McKinsey Global Institute. MARKETLINE, 2012. Industry Profile. Consumer Electronics in India, pp. 1-27. Merchant, K., 1999. Cricket contest spurs Indian surge in TV sales NEWS DIGEST. Volume 08, p. 1. Nokia, 2013. Environmental Management - Nokia. [Online] Available at: http://www.nokia.com/global/about-nokia/people-andplanet/strategy/ems/ems-and-policy/ [Accessed 02 March 2013]. Pamela J. Gordon, 2008. Environmental Sustainability and Innovation, Arlington, VA: Consumer Electronics Association. 13

Philip M. Parker, I., 2008. The 2009-2014 Outlook for Radio, pp. 1-321. Pinto, V. N., 2008. E-waste hazard: The impending challenge. E-waste hazard: The impending challenge, pp. 65-70. ReportLinker, 2013. Global Consumer Electronics Market Outlook 2015. [Online] Available at: http://www.reportlinker.com/p01103485-summary/Global-ConsumerElectronics-Market-Outlook.html [Accessed 28 Feb 2013]. Rogers, M., 2012. Energy = innovation: 10 disruptive technologies. Sustainability & Resourse Productivity, Issue Summer 2012, pp. 10-15. Samsung, 2013. Policy & Principle - Take Back & Recycling - Environment Sustainability - Samsung. [Online] Available at: http://www.samsung.com/us/aboutsamsung/sustainability/environment/takebackr ecycling/policyprinciple.html [Accessed 02 March 2013]. Sony Corporation, 2013. Sony Global - History of Environmental Activities at Sony. [Online] Available at: http://www.sony.net/SonyInfo/csr_report/environment/data/history/index.html [Accessed 02 March 2013]. US AID INDIA, 2010. [Online] Available at: http://www.indg.in/rural-energy/technologies-under-ruralenergy/guide_energy_efficient_room_air_cond.pdf [Accessed 03 March 2013]. Venkatesh, A., 1994. India's Changing Consumer Economy: A Cultural Perspective. Advances in Consumer Research, pp. 1-7. WRAP, 2010. Environmental assessment of consumer, Banbury, Oxon: WRAP.

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APPENDIX

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Source: (Consumer Coordination Council India, 2012)

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Source: (escindia, 2010)

Source: (Euromonitor International, 2013)

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