By Srabani Sen
In the last decade, India has observed a robust change in the consumer electronics industry with television revolutionising the Indian electronics industry. The country is fast emerging as a key driver in the global television market, both as a manufacturer and consumer.
India, the third largest TV market in the world, has 109 million television homes and 61 million cable TV homes, of which CRT accounts for 92.9 per cent. However, flat panel TV market is emerging as the next big thing with a steady growth expected every year for the next five years. “In 2009, the Indian TV market is expected to be about 14 million units,” informs Suresh Khanna, Secretary General, Consumer Electronics and Appliances Manufacturers’ Association (CEAMA).
Driven by the growing middle class population whose pockets are getting deeper, their changing lifestyle, and rapid urbanisation, the Indian consumer electronics industry is predicted to grow at a rapid rate of 10-12 per cent in the coming few years.
Key drivers of growth
This robust market is driven by the changed mindset of the consumers, who now buy TV as a commodity and not as a luxury item. With fierce competition among the army of players to capture market shares, survival of the manufacturers, no doubt, have become challenging, and most manufacturers have, therefore, resorted to drastic price cuts. They are also adopting various marketing strategies, shifting their focus from dealers to the consumers.
Other factors that have contributed to the growth of this industry are significantly the buoyancy in the economy and growing consumerism, coupled with the manufacturers’ efforts to create demand by adopting innovative technology and making feature-packed products. Another key driver is the huge replacement market which came into being after the cable and satellite boom in the 1990s, and saw a huge rise in the number of channels. Since the old TV sets, both black and white and colour TVs (CTVs), could not offer the required number of channels, they became obsolete. Besides, during this period there was a dramatic increase in the sale of CTVs with the income of the middle class going up drastically. They suddenly replaced their old black and white TV sets with colour ones. According to an estimate, TV replacement constitutes 25 per cent of the market, while first-time buyers give rise to 7 per cent of the demand.
Another major development that may sweep the urban markets in the coming years is the growing popularity of flat panel display televisions (FPTV) or liquid crystal display (LCD) and plasma televisions. “Suddenly, a huge market materialised out of nowhere, changing the TV market in India from the conventional CRT to FPTV. Today the demand is for LCD, plasma and slim and ultra slim CRT TVs,” says Khanna.
FPTV is projected to increase at a robust rate in near future. “LCD TV is doing excellent in the metropolitan cities and tier 2 cities. In the next six to eight years, there will be a huge boom in the LCD TV market. All three, four and five star hotels are buying LCD TVs in bulk,” states Parmeet Singh, marketing manager, Beltek India. As per recent research data available, the global market for FPTV is expected to grow from 51 million units in 2006 to 127 million by 2009 end.
In the last couple of years, the price of CTV has also fell drastically from over Rs 20,000 to about Rs 11,000 for a 21 inch CTV. Says Radhashyam Saini, proprietor, Karan Electronics, “At Rs 25,000, a CTV was a luxury for many, but at Rs 11,000 or even less, it became a necessity. We are taking advantage of this fact.” Karan Electronics manufacturers CTV in the brand name of Osian.
Over the last couple of years, LCD TV prices have also dropped by around 30 per cent annually. This is driven by the fact that people have now realised the advantages of LCD TVs, which are now available easily from any dealer. The different attractive finance schemes offered by the manufacturers have also led to prize reduction. A survey predicts that more than 23 million Indians will possess LCD TVs in the next five years. Meanwhile, major brands like Samsung, LG, Sony and Philips and Indian local brands like Videocon and Onida are all focusing on innovative promotional efforts to capture the market, particularly the market for LCD TV, giving rise to more price cuts.
Demand leads to manufacturing
Besides all the above key drivers of growth of the TV industry, easy availability of low-cost skilled labour and the emergence of SEZs, which are tax-free zones, are some other factors which have resulted in the growth of TV manufacturing units in India. This boost in India’s TV manufacturing sector has, in turn, impacted the overall electronics industry positively.
“Economies of scales are very important, as it gives the manufacturers an advantage in the material cost, which is about 80 per cent of the total cost of the TV set,” says Khanna.
The Indian television industry has also witnessed entry of a number of MNCs in the country. This helped India to emerge as a TV manufacturing hub, with many domestic and MNC companies opening their production bases on the Indian soils. LG and Samsung already have manufacturing facilities in India. “But due to the new standards and trends set up by the MNCs for the industry, the local players, particularly the small and medium ones have to struggle,” says Ajay Gupta, proprietor, Nath Electronics. Nath Electronics assembles CTVs in the brand name of Clarins by importing Chinese kits. In fact, encouraged by tax benefits, new manufacturing units are also coming up in less developed regions. India is also one of the few emerging countries to have an excellent component supply base for colour picture tubes.
These advantages have attracted global players to India and leaders like LG, Sony, Samsung, Panasonic and many more have made large investments to access the Indian market. With more than 15 brands competing in the market place, and with very little differentiation between one brand and the other, the Indian TV industry is witnessing a stiff competition. This saw companies resorting to various sales amd marketing tactics to attract the attention of the consumers. Besides the brands, there are innumerable local manufacturers who are either manufacturing locals brands or assembling for international brands. This competition, no doubt, has drastically increased the sale of TVs in India.
Industry analysts opine that although the MNCs are not making a large profit, they are here to stay, and with good budget and technological superiority, they are not only becoming a challenge for the small and medium players but also the domestic brands like BPL, Videocon and Onida. However, the MNCs have helped increase the overall growth of the industry. Not to mention, domestic brands have always matched the strengths of the MNCs and their competitive pricing strategy, and amidst this fierce competition, the TV industry grew and made space for even the small and medium players.
Thin margin for manufacturers
Despite the growth in the TV industry and the rise in the number of manufacturing units, the small and medium manufacturers are forced to operate on wafer-thin margins as the market is riding on increasingly price-sensitive products. “In this scenario, it is the consumers who are the main beneficiary as they get better value for their money,” says Saini. “Manufacturers are learning to adjust with slender margins, he adds.
Besides competition from MNCs, domestic players also have to contend with price cut. “Unless companies manage to control their costs, and at the same time push up volumes, they will be sidelined. At the moment, domestic players enjoy some cost advantages as well as benefit from tariff protection against imports, but these advantages are not enough. Innovative sales strategies and newer pastures can only save us,” says Saini.
Penetrating small towns & rural areas
TV manufacturers are also expanding their distribution area and penetrating into smaller towns and cities and semi-rural and rural areas as well. “Today’s smaller towns would become tomorrow’s urban conglomerates,” points out Gupta. Today, a 21 inch CTV set retails for as low as Rs 8,000-10,000 as against Rs 15,000-16,000 a year ago. Prices of 14 inch CTVs have fallen below the Rs 10,000 level and are now available for around Rs 8,000. “With the fall in prices, a whole new class of people have been lured into buying and replacing their existing old TV sets,” says Khalif Siddiqui, AGM, marketing, Protonics Systems India Pvt Ltd, which manufactures CTV in the brand name of PRO. It also manufactures CTVs for Big Bazaar in the name of Korya.
Even the MNCs have realised that if they are to really succeed in capturing increased market shares, they have to moveinto smaller towns and semi-rural and rural areas. Almost everyone from Sony to LG is penetrating the rural markets. “The rural markets have tremendous potential for growth; hence, we are tailor-making some products for those markets,” says Gupta.
“The economic downturn has hit cities more than the countryside; we see a potential market there. LCD TV sales have started rising in smaller towns as well,” states Siddiqui. Taking a cue from the brands, small and medium local players have also turned their attention to the rural markets and are adopting a rural-oriented sales strategies.
Sales strategy to generate demand
Khanna feels that the sale strategy of the players in this domain should be to introduce innovative products and aggressive sales & marketing tactics. Much of the growth that is occurring right now in the CTV market can be attributed to the aggressive marketing strategies adopted by the manufacturers. A competition in price has been given rise by the new players in the market, who, in order to face the competition in the market, have dropped prices of CTVs drastically. Free gifts, attractive exchange schemes for old television sets, money-back offers and zero-per cent finance schemes have become handy tools to push sales. With each company outdoing the other in giving freebies, discounts and exchange offers, the market registered a dramatic increase in size. This has also generated significant interest among the consumers, resulting in increased sales.
New breakthrough technologies such as LG’s ‘Golden Eye’ (which adjusts the colour and brightness of the TV set as per the prevailing light conditions) andSamsung’s ‘VisionPlus’ (which shows the complete uncut broadcast picture, unlike most televisions) are other main sales strategies.
“India’s TV industry has a huge potential for growth as the penetration level is only about 44 per cent. Technological advancement, economic growth giving rise to more disposable income, digitalisation of cable TV network, introduction of DTH and more channels, will all add to the potential of the Industry,” says Khanna.
Says Singh, “About 40 per cent of the population still don’t possess even a black and white TV. So this 40 per cent can be tapped. Rural markets also hold a lot of potential; when there is good harvest, farmers buy TV sets with cash, no EMI, no credit—and they constitute 70 per cent of out population. So you can imagine how much potential lies in the rural areas,” adds Singh.
With 31.2 per cent of India’s population below 14 years and 63.9 per cent between 15-64 years, this large base of consuming population is a big catalyst to the growth story. While there is undoubtedly a huge market waiting to be tapped—India currently has only 109 million television homes for a population of more than 1 billion—the future for TV manufacturers is anything but secure. But in the long run, survival of the manufacturers will depend on successful brand building, rather than short-term marketing schemes. Only those who provide quality products at the best possible prices and back it up with an efficient after-sales service will survive.
What’s in demand within this industry
All this said, this growth story holds a lot of potential for the suppliers of SMT equipment, components as well as the current players in this segment. The future players can also plan their own investment in this sector and adopt sales strategy for generating more demand in this segment. The growth of the SMT equipment market and the components market are bound to grow in India along with the growth of the TV market. Therefore, irrespective of all hindrances, manufacturing of components should happen in India, which will be a flourishing business, predict industry analysts. “But unfortunately, presently component base is very weak in the country. CEAMA and ELCINA are working together to encourage the Indian TV industry to use more indigenous components,” says Khanna.
Over the years, there has been a substantial change in the manufacturing processes in the TV industry. The emergence and usage of high-speed machines and the combination of different applications in the same equipment have helped the manufacturers in attaining a positive growth in the industry.
The latest research of Frost & Sullivan on Indian SMT market showcases the various process changes the electronics manufacturing sectors are adapting to and the impact of the usage of SMT equipment. With an increase in electronics consumption in the the TV industry, the original equipment manufacturers (OEM) and electronic manufacturing services (EMS) companies are more involved in adopting sophisticated equipment in their process lines to match the demand, thereby giving SMT equipment a positive penetration in many sectors including the TV segment. The current growth of the TV industry and the potential it holds, fuels the growth of the SMT equipment market as well.
However, manufacturing of electronic components in India being less, manufacturers and assemblers of TV face problems in sourcing components from the local manufacturers. Most TV makers are, therefore, importing components or complete component kit mainly from China. “Many factors serve as hindrance to manufacturing of components for power devices in India,” says Pradeep Khadilkar, director, Cermet Resistronics, manufacturers of resistors. “The qualitatively better raw materials imported from other countries are much cheaper than the domestic ones and that is restricting the growth of manufacturing components in India. Many local manufacturers are hesitating to enter this sector as the situation here is not conducive for manufacturing components,” he adds.
The component manufacturers are concerned with the fact that TV makers are increasingly going in for the imported components or the imported kits. “Although we do not source any components from the Indian market, 60 per cent of the TV market is captured by unbranded TVs who source their components from local manufacturers. So I don’t think that the local component manufacturers will suffer in any way,” says Siddiqui.
Amit Agarwal, proprietor, Advance Technologies, points out, “As the demand for TV is growing, it becomes even more essential that the domestic players as well as the MNCs get to source components from the domestic market. But presently, almost 70 per cent of components that are used by these manufacturers are being imported and thus the advantage India has of low labour costs gets nullified by the duty charges these manufacturers pay for importing components. We also have to do a lot of catching up when it comes to domestic component manufacturing for CTVs in terms of technology and infrastructure.”
One of the oldest manufacturers of electronic components, Insel Rectifiers has been in component business for almost 30 years. Says Naveen Goel, managing director, Insel Rectifiers, “China is a challenge for us. Chinese style of business is different from ours. They produce in bulk and sell at low costs whereas we believe in regular and as-per-demand production with right quality. Our price is higher in comparison to the Chinese ones,” says Goel.
The sector also has a good presence of importers, who import components for CTVs mostly from China and distribute them to the manufacturers. One such importer and distributor is Aaj Tech Trading Corp, which imports connectors from China and Taiwan and supply to the manufacturers. “There is a huge demand for connectors and it is increasing every year. Any amount of connectors imported are sold off. The market is wide and the business is flourishing. You just need the capital to invest, says Shivani Agarwal, director, Aaj Tech Trading Corp. Shivani feels the local manufacturers do not suffer from components being imported as it is a parallel market and there are buyers for both.
Perfect Radios director Sunil Makkar, however, shares a different view. “Manufacturers are importing either finished products or finished component kits from China and Taiwan,” says he. Perfect Radios imports IC, capacitor, resistor and many other components. “The demand for Indian components is, therefore, decreasing. We have started feeling the pinch and are diversifying into other areas. Now we are importing components for medical equipment and other industrial manufacturing equipment.”
Saini, however, is optimistic about manufacturing in India. “There are several advantages in sourcing components from the Indian soil. There will be no delivery problem; manufacturers will get immediate feedback from the local customers; and buyers can directly approach the manufacturers for any defect piece or for other problems.” However, to stand up against the stiff price competition, Saini suggests that the manufacturers should innovatively design, use modern machines and new techniques and do quality business.
Gupta, however, thinks that Indian components are being upgraded to keep pace with time. “Their quality is good but innovation and variety are missing,” he says. According to him, “The Indian component market is growing and more people are manufacturing components in India now.”
While the quality of the Indian componentsareatparwith theinternational ones, they turn out to be costlier than the international ones as they are produced in less quantity. Manufacturers of CTVs are, therefore, forced to import. A broader range of components should be produced here, opinethe CTV manufacturers. But with the demand being rising, Indian component market is also growing with time.
Indian manufacturers need to be aware of the fact that it is really a great time to be in the components business. Despite all hindrances, they need to take risk and manufacture more in number and variety so that the TV manufacturers don’t feel the need to import. Also, the buyers of components for CTVs should be aware of the fact that some of the Indian components are doing well and are better in design and quality. Most importantly, the Indian ones can be customised as per their requirements. So, if the manufacturers and buyers of components understand each others’ needs and go hand-inhand, there is no stopping from the Indian market to take a great leap.