export performance of consumer durables to the context of india

1. INTRODUCTION:<br />Consumer durables involve any type of products purchased by consumers that are manufactured for long-term use. As opposed to many goods that are intended for consumption in the short term, consumer durables are intended to endure regular usage for several years or longer before replacement of the consumer product is required. Just about every household will contain at least a few items that may be properly considered to be of a consumer durable nature.<br />Consumer durables are the products whose life expectancy is at least 3 years. These products are hard goods that cannot be used up at once. The consumer durables sector can be segmented into consumer electronics, such as, VCD/DVD, home theatre, music players, color televisions (CTVs), etc. and white goods, such as, dish washers, air conditioners, water heaters, washing machines, refrigerators, etc.<br />Examples of consumer durable goods include cars, household goods (home appliances, consumer electronics, furniture, etc.), sports equipment, and toys.<br />Manufacturers of consumer durables do tend to sell their consumer products with an eye toward long term use by the buyer. At the same time, many of these manufacturers normally provide documentation that defines what is considered reasonable use of the goods. This serves to set the standard for how long a consumer can reasonable expect any form of consumer durables to function, provided that the durables are not abused or utilized in an inappropriate manner.<br />CLASSIFICATION:<br />Consumer durables Sector can be classified as follows:1. Consumer Electronics includes VCD/DVD, home theatre, music players, color televisions (CTVs), cameras, camcorders, portable audio, Hi-Fi, etc.2. White Goods include dishwashers, air conditioners, water heaters, washing machines, refrigerators, vacuum cleaners, kitchen appliances, non-kitchen appliances, microwaves, built-in appliances, tumble dryer, personal care products, etc.3. Moulded Luggage includes plastics.4. Clocks and Watches5. Mobile Phones <br />OVERVIEW:With the increase in income levels, easy availability of finance, increase in consumer awareness, and introduction of new models, the demand for consumer durables has increased significantly. Products like washing machines, air conditioners, microwave ovens, color televisions (CTVs) are no longer considered luxury items. However, there are still very few players in categories like vacuum cleaners, and dishwashers.Consumer durables sector is characterized by the emergence of MNCs, exchange offers, discounts, and intense competition. The market share of MNCs in consumer durables sector is 65%. MNC's major target is the growing middle class of India. MNCs offer superior technology to theconsumers, whereas the Indian companies compete on the basis of firm grasp of the local market, their well-acknowledged brands, and hold over wide distribution network. However, the penetration level of the consumer durables is still low in India. An important factor behind low penetration is poor government spending on infrastructure. For example, the government spending is very less on electrification programs in rural areas. This factor discourages the consumer durables companies to market their products in rural areas. Some Facts1. Bargaining power of suppliers in consumer durables sector is limited due to threat of imports and intense competition.2. Some of the entry barriers in consumer durables sector are distribution network, capital, and ability to hire purchases.3. Demand is seasonal and cyclical. 4. Competition among players is on the basis of difference in prices and well-acknowledged brands. <br />EXPORT PERFORMANCE:<br />In terms of Purchasing Power Parity (PPP), India is the 4th largest economy in the world and is expected to overtake Japan in the near future to become the 3rd largest. Indian consumer goods market is expected to reach $400 billion by 2010. India has the youngest population amongst the major countries. There are a lot of young people in India in different income categories. Nearly two- thirds of its population is below the age of 35, and nearly 50 % is below 25. There are 56 million people in middle class, who are earning US$ 4,400- US$ 21,800 a year. And there are 6 million rich households in India. The upper-middle and high-income households in urban areas are expected to grow to 38.2 million in 2007 as against 14.6 million in 2000.Rural sector offers huge scope for consumer durables industry, as it accounts for 70% of the Indian population. Rural areas have the penetration level of only 2% and 0.5% for refrigerators and washing machines respectively. The urban market and the rural market are growing at the annual rates of 7%-10%and 25% respectively. The rural market is growing faster than the urban market. The urban market has now largely become a product replacement market.The bottom line is that Indian market is changing rapidly and is showing unprecedented business opportunity. <br />Performance<br />In the past 10 years, the global market has witnessed a surge in demand as economies such as Brazil, Mexico, India and China have opened up and begun rapid development, welcoming globalization with élan. The consumer durables industry has always exhibited impressive growth despite strong competition and constant price cutting, and the first contraction since the 2001 dot-com bust has been due to the global recession. Given the strong correlation between demand for durables (both new and replacements) and income, the industry naturally suffered during the 2008-2009 period. However, projections for current year going forward are very optimistic, as consumers resume spending, and producers launch new enticing variants to grab new customers. Leading players include Sony Corporation, Toshiba Corporation, Whirlpool Corporation and Panasonic Corporation.<br />Developing countries such as India and China have largely been shielded from the backlash of the recession, as consumers continued to buy basic appliances. In fact, China has been ranked the second-biggest market in the world for consumer electronics. Despite the recession, their strong domestic economy and growing high-income population have buoyed demand leading to aggressive market growth.<br />There is growing interest for new age products such as LCD-TVs and DVD players. Meanwhile, the penetration of the basic, largest dollar items such as ovens, washing machines and refrigerators is also increasing. India too, has witnessed a similar phenomenon, with the urban consumer durables market growing at almost 10 %p.a., and the rural durables market growing at 25% p.a. Some high-growth categories within this segment include mobile phones, TVs and music systems.<br />The Indian consumer durables industry has witnessed a considerable change in the past couple of years. Changing lifestyle, higher disposable income coupled with greater affordability and a surge in advertising has been instrumental in bringing about a sea change in the consumer behavior pattern. Apart from steady income gains, consumer financing and hire-purchase schemes have become a major driver in the consumer durables industry.<br />In the case of more expensive consumer goods, such as refrigerators, washing machines, color televisions and personal computers, retailers are joining forces with banks and finance companies to market their goods more aggressively. In addition, change in policy, such as the WTO FTA in 2005 resulted in zero customs duty on imports of all telecom equipment, thereby improving the pricing and affordability of imported goods.<br />CURRENT SENERIO:<br />The consumer durables market in India is valued at US $ 4.5 billions currently. In 2006, microwave ovens and air conditioners registered a growth of about 25%. Frost-free refrigerators have registered significant growth as many urban families are replacing their old refrigerators. Refrigerator sales amounted to 4.2 millions in 2006, whereas the production of the refrigerators went up by 17% as compared to the preceding year. Washing machines, which have always seen poor growth, have seen reasonable growth in 2006. More and more Indians are now buying electrical appliances due to change in electricity scenario. The penetration level of color televisions (CTVs) is expected to increase 3 times by 2007.According to National Council for Applied Economic Research (NCAER), Indian consumer class is growing at a fast rate. This in turn is benefiting the consumer durables manufacturers. <br />Demand and Penetration Level of White Goods in India 1995-19962005-20062009-2010Demand3.43 million8.72 million13.14 millionPenetration level149 per 1,000 households319 per 1,000 households451 per 1,000 householdsMARKETYING STRATEGIES:There has been strong competition between the major MNCs like Samsung, LG, and Sony.LG Electronics India Ltd. has announced its extension plan in 2006. The company is going to invest $250 million in India by 2011 and is planning to establish a manufacturing facility in Pune.TCL Corporation is also planning to establish a $22 million manufacturing facility in India.The Indian companies like Videocon Industries and Onida are also planning to expand. Videocon has acquired Electrolux brand in India. Also, with the acquisition of Thomson Displays by Videocon in Poland, China, and Mexico, the company is marking its international presence.According to isuppli Corporation (Applied Market Intelligence), country's fiscal policy has encouraged Indian consumer electronic industry. The reduction on import duty in the year 2005-06 has benefited many companies, such asSamsung, LG, and Sony. These companies import their premium end products from manufacturing facilities that are located outside India.Indian consumers are now replacing their existing appliances with frost-free refrigerators, split air conditioners, fully automatic washing machines, and color televisions (CTVs), which are boosting the sales in these categories.Some companies like Samsung Electronics Co. Ltd. and LG Electronics India Ltd. are now focusing on rural areas also. These companies are introducing gift schemes and providing easy finance to capture the consumer base in rural areas.Future ProspectsOverall, the industry’s future remains robust, and interested applicants will benefit from a holistic learning experience; Many of the research, sales, marketing and advertising related roles will necessitate a good on-the-job learning of target audiences, who may well be a totally new segment, based in never-before visited Class II and III towns. In addition, those with technical backgrounds will be able to leverage their knowledge and experience to constantly develop and innovate the product variants. With more MNCs growing their Indian businesses, there is great potential to also learn best-in-class systems and management skills.With easy availability of finance, emergence of double-income families, fall in prices due to increased competition, government support, growth of media, availability of disposable incomes, improvements in technology, reduction in customs duty, rise in temperatures, growth in consumer base of rural sector, the consumer durables industry is growing at a fast pace.In a study conducted by Frost & Sullivan and commissioned by India Semiconductor Association (ISA), the demand for Electronic Appliances is projected to grow exponentially at a compounded annual growth rate (CAGR) of 30%.In billions <br />Policy Initiatives<br />The Government has taken many initiatives to promote foreign direct investment (FDI) in the industry:<br />Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted<br />The automobile industry is delicensed<br />Import of components is freely allowed<br />The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive Mission Plan 2006-2016 to promote growth in the sector. It targets to:<br />Increase turnover to US$ 122 billion–US$ 159 billion by 2016 from US$ 34 billion in 2006<br />Increase export revenue to US$ 35 billion by 2016<br />Provide employment to additional 25 million people by 2016<br />SWOT ANALYSIS:<br />Strengths1. Presence of established distribution networks in both urban and rural areas2. Presence of well-known brands3. In recent years, organized sector has increased its share in the market vis a vis the unorganized sector. Weaknesses1. Demand is seasonal and is high during festive season2. Demand is dependent on good monsoons3. Poor government spending on infrastructure4. Low purchasing power of consumersOpportunities1. In India, the penetration level of white goods is lower as compared to other developing countries.2. Unexploited rural market 3. Rapid urbanization4. Increase in income levels, i.e. increase in purchasing power of consumers5. Easy availability of financeThreats1. Higher import duties on raw materials imposed in the Budget 2007-082. Cheap imports from Singapore, China and other Asian countries <br />Challenges<br />The biggest threats to the local industry going forward are supply-related issues pertaining to distribution and infrastructure, as well as demand issues due to competition from imported goods. The lack of well developed distribution networks makes it especially challenging to penetrate the fastest growing rural areas economically. In addition, regular power cuts and poor road linkages make systematic production, assembly and delivery problematic.<br />On the demand side, customers have increasing choice from both domestically produced and imported goods, with similar features. This homogeneity makes it difficult for players to remain ahead of the competition.<br />MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions. The largest MNCs incorporated in India are Whirlpool India, LG India, Samsung India and Sony India and homegrown brands are Videocon, Godrej Industries and IFB.<br />