The ACE factor in India

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The Indian appliances and consumer electronics (ACE) market is driven by the buyer’s desire for the ‘next big thing’ as well as by the conveniences these gizmos offer.

By the ComConnect Consulting research team

The Indian consumer electronics industry is evolving rapidly, keeping pace with the global trend to continuously capture the imagination of the public with new devices and technologies. For the last ten years, Indian consumers, especially the middle-class segment, have undergone a dramatic change in their lifestyles and buying preferences, and have developed a liking for consumer electronic products. The rising disposable income of these consumers, coupled with the need for Internet usage, has increased the demand for smart devices, though high-end products are yet to acquire a larger market share in India.

Market opportunities
Apart from local factors like market demand, the increasing manufacturing costs in China have made India a potential electronics manufacturing hub. The Make in India policy of the government is further attracting more investments into the consumer electronics industry. In the overall Indian electronics industry, consumer electronics has a market share of around 9.5 per cent.

Figure 1: The Indian appliances and consumer electronics (ACE) market (Source: IBEF)
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According to a study by the Indian Brand Equity Foundation (IBEF), the Indian appliances and consumer electronics (ACE) market had a turnover of Rs 2.05 trillion (US$ 31.48 billion) in 2017, and this is expected to reach  ₹ 3.15 trillion (US$ 48.37 billion) in 2022 with 9 per cent CAGR (Figure 1). The same study also mentioned that overall exports of consumer durables which touched US$ 780 million in 2017, dropped to US$ 451.29 million in FY19. However, production of consumer durables under the Index of Industrial Production has grown 5.5 per cent year-on-year during April 2018-March 2019 (Figure 2).

Figure 2: Growth rate of the Indian consumer electronics manufacturing segment (Source: IBEF)

The market for television sets in India is estimated to have reached Rs 660 billion (US$ 10.19 billion) in the calendar year 2017 and is projected to reach ₹ 862 billion (US$ 13.31 billion) in the calendar year 2020.

Also, rural demand for durables like refrigerators and other consumer electronic goods is likely to grow in the coming years as the government plans to invest significantly in rural electrification. As of FY18, the washing machine, refrigerator and air conditioner markets in India were estimated to be around ₹ 70 billion (US$ 1.09 billion), ₹ 195 billion (US$ 3.03 billion) and ₹ 200 billion (US$ 3.1 billion), respectively (Figure 3).

Figure 3: Size of the Indian white goods market in FY18 (Source: IBEF)

The white goods industry in India is controlled by just a few big players. In the washing machines and refrigerators segments, the top five players have more than 75 per cent market share, while they collectively control around 55-60 per cent of the market for air conditioners and fans. On the other hand, the kitchen appliances segment is fragmented, with the top five players having just 30-35 per cent market share.

In urban India, demand for products like LED TVs, refrigerators, laptops, split ACs, set-top boxes, beauty and wellness products, etc, is expected to rise. While rural markets will see growth in durables like refrigerators and ACs, the market for electric fans and other appliances will grow too. The rural market has recently experienced around 30 per cent growth rate in the demand for electronics and home appliances.

The Consumer Electronics and Appliances Manufacturers Association (CEAMA) forecasts that the LED/LCD TV market is expected to grow at a CAGR of around 20 per cent from 2014 till 2020, while refrigerators are expected to grow at around 10 per cent over that period. The air-conditioner market will continue to grow at a pace of 6 per cent to 7 per cent. The washing machine market is expected to grow by up to 9 per cent during the period.

However, the set-top box market will grow at the fastest pace, primarily because of the digitisation of the cable delivery system.

Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the consumer market. The Indian government’s policies and regulatory frameworks, such as the relaxation of licence rules and the approval of 51 per cent foreign direct investment (FDI) in multi-brand retail outlets and 100 per cent in single-brand retail outlets, are the other major growth drivers for the consumer market. According to the Department for the Promotion of Industry and Internal Trade, between April 2000 and March 2019, FDI inflows into the electronics sector stood at US$ 2.36 billion.

Market mix
The Indian consumer electronics industry can be classified in different ways, based on the following options:

  • Product type
  • Pricing model
  • Business model
  • Distribution model

Looking at the market from the perspective of product types gives us the following categories:

Visual and audio products

  • Televisions
  • Laptops
  • Speakers
  • Others (headphones, etc)

Major home appliances

  • Air conditioners
  • Refrigerators
  • Washing machines
  • Dish washers
  • Others (cooktops, etc)

Small home appliances

  • Food processors
  • Microwave ovens
  • Iron
  • Others (kettles, etc)

The market scenario for some key consumer electronics products is depicted in Table 1.
According to pricing models, the Indian consumer electronics market can be classified as follows:

  • Low cost products
  • Medium cost products
  • High-end products (customised or luxury brands)

All the above mentioned categories follow both business-to-business (B2B) and business-to-consumer (B2C) models. Further, with the rise of the e-commerce segment, distribution patterns have also evolved a lot and can be classified as follows:

  • Online distribution channel
  • Offline distribution channel

Emerging trends
Technological innovations to improve people’s lives are the key drivers of the consumer electronics market. Here is a sneak peek of the emerging trends that we are likely to witness in the consumer electronics sector.

Connected IoT based products: Connectivity and communication is becoming ubiquitous in consumer electronics. This in turn increases the electronics content as well as the need for technology adoption in this sector—in devices of all sizes and applications. For example, flat, rigid sensors and chips may not be a viable option for wearable devices that must be comfortable to wear. With the broad and ever-expanding spectrum of smart devices, breakthrough manufacturing technologies must continue to be explored, tested and implemented.

Batteries with enhanced energy storage: All of us look for long battery life when buying a product. Continual innovations have led to more powerful battery technology. Higher energy density batteries will be critical to enabling the kind of products that deliver the performance consumers want. Though a significant amount of work has been done to improve battery technology, many challenges till remain unsolved.

Miniaturisation of devices: With each new generation of device, consumers expect more and more features packed into the same size or even a smaller package, apart from enhanced quality or safety. This creates a serious need for device and component miniaturisation by pushing the limits of technology—specifically, the miniaturisation of next-generation electronic components and systems. New manufacturing technologies will need to be developed for miniaturised components, including equipment and systems for micro level automated assembly, micro-sensors, and micro-scale electrical connections. Particularly critical will be developing new micro level assembly techniques and increasing the efficiency of techniques currently in use.

Flexible and printed electronics: Flexible and printed electronics offer flexible circuitry, which enables manufacturers to create consumer electronics products with unconventional functionalities and designs. Displays, sensors, and printed memory can be bent, wrapped, rolled and stretched out to a great extent, resulting in reduced cost, weight and power consumption of electronic devices.

3D and 4D printing: 3D printing or additive manufacturing has huge potential in the consumer electronics industry, especially in the printing of electronic circuits. The ability to print circuitry offers immense flexibility in designing innovative electronic devices, but the technical challenges associated with joining conductive materials to the 3D printed circuit materials must be addressed to explore the full potential of this technology in the consumer electronics sector.

A more advanced technology, 4D printing, refers to the concept of using smart or ‘shape-memory’ materials to print objects that can self-assemble into multiple configurations. The technology is still in the nascent stage but has the potential to revolutionise the consumer electronics sector.

Colour TVs (CTVs)
  • CTVs are the largest contributors to this segment.
  • Television industry in India is estimated to have reached ₹ 660 billion (US$10.19 billion) in CY2017 and is projected to reach ₹ 862 billion (US$13.31billion) in CY2020.
  • Number of TV house holds in India is expected to reach 200 million by 2020.
Flat Panel Displays
  • LED/LCD/Plasma television sets present a huge opportunity in India with a penetration of only 14 per cent households*.
  • Production of LCD/LED TVs has also grown at a fast pace in India from 8.7 million units in FY15 to 16 million units in FY18.
  • The price decline due to relatively low import duty on LCD panels, higher penetration levels and the introduction of small entry-size models are key growth drivers in the segment.
Direct-To-Home (DTH)
  • The set-top box (STB) marketis growing rapidly, due to the expansion of DTH and introduction of the Conditional Access System (CAS) in metros.
  • Active DTH subscribers in the country increased to 69.45 million in September 2018 from 63.61million in March 2017.
Refrigerators
  • This segment made up 27 per cent of the consumer appliances market in 2017.
  • The market share of direct cool and frost free segment in FY18 is estimated at 70 per cent and 30 per cent respectively.
  • Refrigerator market in India was estimated at around ₹ 195 billion (US$3.03 billion) and is expected to reach ₹ 344 trillion (US$5.34 billion) by 2022. Production of refrigerators in India increased 3 per cent year-on-year in FY18* to 11.88 million units.
Air Conditioners (ACs)
  • High income growth and rising demand for split ACs are the key growth drivers. Installed stock of room ACs in India increased from two million units in 2006 to 30 million units in 2017 and is expected to be between 55-124 million by 2030.
  • During FY18* production of air conditioners in India increased 4.9 per cent year-on-year to 3.19 million units. Split ACs had a 85 per cent market share in FY18. Over all room air conditioners market in the country is expected to increase to 7 million units by FY21 from 5.5 million units in FY18.
Washing appliances
  • Production of washing appliances in India increased 5.1 per cent year-on-year in FY18* to 5.79 million units. Washing machine market in India was estimates at around ₹ 70 billion (US$1.09 billion) in FY18.
  • Fully automatic washing machines are garnering an increasing share of the market due to reduction in price and higher disposable incomes.
Electric fans
  • Domestic electric fan market in India increased at 13 per cent CAGR between FY08-17 to reach ₹ 70 billion (US$1.1 billion). Around 22.6 million fans were produced in the country in FY18*.
  • Penetration of electric fans in rural areas is expected to reach 76-78 per cent in 2019-20 from 65 per cent in 2017.


Moving forward

The consumer electronics market is always flooded with the latest technologies and innovations. However, product life cycles are quite short and consumer interests change fast. Thus, many technologies and innovations often end up disappearing within a short span of time. The dividing line between a technology being around long enough to mature for widespread use and its obsolescence due to new technology introduction (or new consumer preferences) is razor thin. Thus, speed in manufacturing and quick product launches are critical success factors in this sector.

In addition, delivering innovative products that are smaller, faster, more durable and affordable, with a better battery life can only be possible through the successful adoption of innovative technologies and the use of innovative materials. Thus, a continuous focus on R&D is also a must to achieve a competitive edge.

Considering the fragile stage of the environment, the consumer electronics segment needs to focus more on electronic waste management. India produces 2 million tonnes of e-waste every year but has no proper guidelines on its disposal. Most of the companies operating in India do not have a tangible Extended Producer Responsibility (EPR) programme in place for taking back or managing their end-of-life waste electronics and electrical equipment (WEEE).
In some cases, though a take-back system is supposedly in place, it often is not functional. Most of the OEMs do not provide adequate information on their website about any take-back or recycling programme. Moreover, India being a vast country, setting up the collection mechanism is a big challenge. Another major issue in e-waste management in India is how to regulate the thousands of producers and importers.

However, industry cooperation with the correct intervention from the government can help this sector manage the e-waste menace. As India is highly deficient in precious mineral resources, there is a need for a well-designed, robust and regulated e-waste recovery regime which would generate employment, recover the precious metals used in electronics to earn revenue, and support the sustainable development of the consumer electronics sector in the country.

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