Consumer Electronics -Growth strategies and key trends in emerging markets
Consumer
electronics manufacturers are increasing their focus on emerging markets due to
weaker demand in the growth-deprived, mature markets of North America and
Western Europe. Major players in computing devices markets such as HP are
targeting consumers in the BRIC countries to accelerate the pace of revenue
growth. BRIC countries, which accounted for 10.3% of its revenues in Q1 2010,
were among the fastest growing revenue generating markets for HP. As the US
market matured, Dell has also expanded into emerging markets across the world
in search of higher revenue opportunities. In Q2 2010, the BRIC countries
together accounted for 11.3% of Dell’s revenue and posted 71.9% revenue growth
during Q2 2009–10.
In
spite of a lower revenue contribution from emerging markets, consumer
electronics manufacturers are optimistic about the future growth potential of
these markets. For instance, only 2.1% of Dell's revenue comes from India, yet
the company ranks India among its top three key global markets. Key growth
strategies for emerging markets adopted by the major consumer electronics
manufacturers are listed below.
- Focus on delivering electronics at competitive prices;
- Offering sophisticated, high-end electronics;
- Production outsourcing to become locally responsive.
Focus on delivering electronics at competitive prices
The
rise of low-cost domestic manufacturers in emerging markets is disrupting
traditional pricing dynamics. Emerging markets are also registering rapid
changes in leadership positions based on the pricing strategies of consumer
electronics manufacturers. HP lost its five year hold on PC market leadership
in India to rivals Dell and Taiwanese vendor Acer in June 2010, owing to
rivals’ changing distributions strategies and cost competitiveness. At the same
time, Samsung has risen as a major player in the emerging economies of Asia,
Africa and Latin America by overhauling the conventional business model of
selling high-end products in mature markets. Instead, it sells large volumes of
low-priced products in emerging markets, at competitive prices. As part of its
strategy, Samsung first targeted those areas in emerging nations that were not
serviced by Japanese rivals and then expanded into developed markets.
Leveraging rapid advancements in digital computing technologies, consumer
electronics manufacturers are making new as well as existing technologies available
at affordable prices for the consumers in emerging markets. For instance, Acer
has announced the launch of a tablet PC pricing as low as $299 in early 2011,
thereby enabling the company to compete on price with Apple's iPad. The prices
of flat-panel TVs are also falling at more than 30% per annum. Consumers in
emerging markets are therefore able to buy HDTVs and other digital devices such
as DVD players and Blu-ray players, which are rapidly becoming mainstream
products.
A
low pricing strategy has not proven successful for some major players such as
Sony. Although the company has launched some low-priced models in China, the
business has largely been unprofitable. Panasonic, which also considers BRIC
nations, Mexico, Indonesia, Nigeria, Turkey, Saudi Arabia, the Balkans and
Serbia as high-priority markets, is facing intense price competition from local
brands. Panasonic plans to continue with its low-price strategy only if it can
sustain profitability. The company is aware that it cannot sell its premium
products such as $1,200 large-screen LCD TVs to low-wage families in emerging
markets. Therefore, the company is planning a new line of low-cost offerings
that could include TVs starting from a price of $50. To accomplish this, the
company is scaling down many of the typical features found in its standard
products and customizing it to local needs, based on its ‘‘lifestyle research’’
findings.
Offering sophisticated, high-end electronics
Manufacturers
of premium consumer electronics, such as Apple and Sony, are focused on
differentiating their products based on quality and are reluctant to reduce
prices to gain market share in emerging markets. Sony is tapping emerging
markets by strengthening its direct marketing strategies and promoting brand
awareness to earn higher revenues. LG has also adopted the strategy of selling
premium products such as 3D TVs and LED-backlit LCD TVs in emerging markets,
resulting in higher revenues in Q1 2010. LG plans to boost its plasma TV
revenues in emerging markets by promoting sales of its large screen TVs (50
inches and more). The company is also reviewing the possibility of launching
its "smart TVs’’ globally. In particular, LG is expanding sales of premium
notebooks, while increasing the sales of large high-end monitors. LG aims to
generate $600m in net sales from its Southern African unit, which will cover
seven African countries by year-end 2010. In India, LG is massively promoting
its Infinia LED TV, as a key growth engine for sales in 2010. Its R&D
investments (which amounted to 3.7% of global revenue in 2009) will primarily
focus on introducing smartphones, LED-backlit LCD and 3D TVs in emerging
markets.
Governmental
programs aiming to shift from analog to digital broadcasting has been a prime
driver for the launch of sophisticated devices in emerging markets. Among these
high-end product launches, the uptake of smartphones has been phenomenal in
emerging markets with Asia-Pacific leading from the front. It is forecasted
that smartphones will account for more than 50% of all devices sold in
Asia-Pacific by 2015. Some of the factors driving smartphone sales in emerging
markets are:
- Strengthening digital infrastructure has helped in enhancing the reach, speed and accessibility of mobile broadband;
- Computing ability of smartphones is much higher than feature phones enabling on-the-go web browsing, surfing, messaging, video, music and gaming;
- Availability of multimedia rich smartphones at competitive prices;
- Mobile social networking has also provided substantial impetus towards smartphones adoption, particularly in emerging Asia-Pacific countries.
Handset
manufacturers are also increasing their portfolio of smartphones with mobile
Internet and pay TV features. Handset manufacturers in emerging markets are
largely relying upon their alliances with mobile telecommunications and
broadband service providers to increase consumer acceptability for their
products. In 2010, Research In Motion (RIM) launched the BlackBerry Bold 9700
smartphone for customers of Airtel, a large mobile telecom service provider in
India. Similarly, Apple is collaborating with Airtel and Vodafone to launch the
iPhone 4 in India by the end of 2010. The rising stakes of mobile and broadband
service providers and TV broadcasters in the smartphones market will also
improve content and service quality, which in turn will fuel demand for these
sophisticated devices.
Outsourcing production to become locally responsive
Major
players such as Samsung, Sony and LG, as part of their cost reduction strategy,
are outsourcing a significant amount of their manufacturing processes to
emerging markets. Samsung has set up its new production facilities in China,
Vietnam, India and Brazil. Its Chinese facility will produce low-priced phones
that will also cater to the local market. Similarly, Sony intends to reduce
costs by outsourcing 40.2% of inexpensive TV models production. In order to
become more locally responsive and generate higher margins from selling premium
products such as 3D TVs and LED-backlit LCD TVs, players such as LG are
increasingly outsourcing production to emerging markets. LG is currently
importing the majority of its top-end products from its facilities in South
Korea and China. However, after achieving optimal volumes in the Indian market,
the company feels that it would be cheaper to manufacture them in India rather
than importing. In India, the company intends to upgrade its Noida facility to
manufacture premium products. Further, the company is transforming its R&D
center in India into a global hub and intends to expand to a third facility in
the near future in either Hyderabad or Chennai. The company also aims at
contracting manufacturing of its low-end products over time. LG believes that
increase in outsourcing will partly help it to achieve higher revenue growth
rates by 2011.
Asia-Pacific
Summary
- The consumer electronics market in Asia-Pacific was valued at $246bn in 2009, accounting for 36.1% of the global market. This market is forecasted to grow at a CAGR of 8% to reach $361.2bn in 2014.
- The key emerging consumer electronics markets in Asia-Pacific are China, India, Malaysia, Indonesia, Thailand, Philippines, Vietnam and Pakistan. Together they accounted for a market value of $197bn in 2009.
- China will continue to be the largest emerging market for consumer electronics in Asia-Pacific during 2009–14. This market is valued at $146.7bn in 2009 and forecasted to grow at a CAGR of 8.8% during 2009–14.
- China has the largest population of Internet and mobile phone users in the world, which is a key growth driver for the consumer electronics market in the country.
- The free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) that came into effect from January 1, 2010 will increase consumer electronics trade in Asia-Pacific.
- The consumer electronics market in India was valued at $20.9bn in 2009 and is forecasted to grow at a CAGR of 16.9% during 2009–14 to reach $45.6bn in 2014. The emerging middle class population with significant disposable income will continue to drive demand for consumer electronics in India.
Market dynamics - size and growth
The
consumer electronics market in Asia-Pacific was valued at $246bn in 2009,
accounting for 36.1% of the global market. This market is forecasted to grow at
a CAGR of 8% to reach $361bn in 2014. Rising income levels and the emergence of
a large middle class population in developing economies such as China and India
will be the key growth drivers for the consumer electronics market in
Asia-Pacific.
