Consumer Electronics Market in Chile-Dissertation Writing Help
Executive Summary
Telecommunication Sector Experiences Important Increase
Technology
penetration in Chilean homes caused a real revolution in consumption of durable
goods. Individual and family expenditure on mobiles phones, computers and
peripherals increased to double-digit rates, which translated into 37% of the
total expenditure of durable goods. Consumption saw important expansion during
the first quarter of 2007 mainly due to better income conditions and the
constant reduction of unemployment. A reliable and expanding credit market and
price deflation also helped this process. Internet access also experienced a
significant increase during the last year.
Decline in Many Home Audio Categories
Home and
portable audio products saw a slight dip in sales during the first quarter of
2007. This contraction was partly due to the process of substitution of more
conventional electronics products for new technologies, such as MP3 players.
Indeed, sales of these products bucked the general trend and saw healthy growth
during the first quarter of 2007, as average unit prices for these products
fell.
Significant Increase in Sales of TVs and Dvds
DVD players and
TVs experienced a significant increase during the last quarter of, as prices
fell by more than 15% due to high demand and low dollar values. The increase in
sales of TVs was also due to the replacement of analogue TVs with digital
products, such as LCD and Plasma monitors. This changeover continues to take
place in anticipation of the introduction of digital TV.
Approval of Digital TV Still Pending
Digital TV is
not yet available in Chile, but the government and private companies are in the
process of implementing the best technology to apply and plans are to launch
Digital TV by the end of 2007. In order to help in the study of this technology
implementation, 160 homes will be chosen to experience the new technology in
October 2007. There are three competing standards: the American standard
(ATSC), European (DVB-T) and the Japanese (ISDB-T). Additionally it will also
be available a fourth standard, the Chinese (DMB-T).
Strong Household Penetration of Computers and Mobile Phones
Almost 75% of D
and E segment homes have now replaces fix phones with mobile phones. This is
mainly seen in the cities surrounding Santiago and is most common in young
households (under 30 years). According to experts this is due to the low cost
of mobile phones and the popularity of the pre-paid segment. Although people do
prefer to subscribe to a fixed plan in the Metropolitan area, in other cities
pre-paid phones are more popular, accounting for 80% of all phones in these
areas. Dual telephony is the next step to come, with low penetration in the
country offering great potential.
Negative Effects of Low US Dollar in Technology Industry
Although
consumers benefited from the low US dollar, as imported products became
cheaper, technology industries were negatively impacted as their financial
statements are in US dollars, which resulted in an increase in costs. Most
companies issue their invoices according to the exchange rate, which impacts
company incomes, as they need more resources to pay the salaries of their
employees which in most cases are highly trained professionals with high income
levels. Therefore to overcome this deflation technology industries are trying
to optimise their processes and undertaking major efforts to maintain their
staff.
Key Trends and Developments
Growth in Consumption of Durable Goods
Growth in
general consumption during 2007 was 8%, but consumption of durable goods during
the second quarter of 2007 saw even higher growth of 20%. This increase was
mainly due to rising incomes and falling unemployment. This represents a
significantly expansion from average growth of 6% during 2006. Estimates are
that GPD growth will be nearly 6% in 2007, although inflation rates may rise to
5% from less than 3% in 2006.
The increasing
penetration of technology in Chilean homes is responsible for this high
increase in consumption of durable goods. The lower price of electronic
products due to reduced import tariff also helped improve demand. Free Trade
Agreements with China and Japan opened the Chilean market to Asian products
that offer really low prices.
Current impact
Despite the
significant growth in durable goods sales, electronics products saw sales fall
slightly in volume terms in the first quarter of 2007. This was mostly due to
consumer substituting new technologies, such as MP3 players, for more
conventional electronics products. MP3 player sales increased by nearly 7% in
the first quarter of 2007.
In general
consumers can afford to substitute low cost electronic products, especially
young consumers, as there is the facility to buy these products on credit
cards, or store cards, which have lower interest rates than bank credit cards
and it is for this reason that more banks and stores are offering consumer
credit to their customers.
Outlook
The decline in
the price of durable goods seems to be a permanent trend. The accelerated speed
of technological advancement and increasing presence of China as a low cost
provider explains the deflationary trend which will continue to affect prices
of most consumer electronics products in the near future. Data from March 2007
showed an average unit price decrease of more than 6% on the same period of
2006.
Although
inflation is increasing in Chile, it is not expected to dampen demand for
portable consumer electronics products, such as mobile phones, portable
computers or MP3 players.
Future impact
The market for
electronic goods will continue growing as new technologies are constantly
appearing, and there are now many electronic brands opening their own stores,
or own subsidiaries in Chile, a trend that is likely to continue in the future.
This was the case with LG which was formerly represented by Mellafe y Salas,
but opened its own subsidiaries in 2004. Panasonic followed suit in October
2006, opening its own business in Chile and a state of the art store in a
sophisticated location in Santiago. Apple also opened a store near Panasonic's,
with sophisticated iPod products offering the latest technologies available in
the international market.
Prices will
probably continue decreasing as electronics goods will be replaced with newer
products and technologies. Analogue products will probably disappear in the
coming years, while portable goods will see increased demand. Most electronic
goods come from Asia with little manufactured in Chile, the exception being IRT
products, where some are assembled in Chile.
Digital Technology Under Discussion by Chilean Authorities
Chile is
presently discussing which digital technology will be used for its TV
broadcasting. There are three main contenders, the ATSC system used in the US,
ISDB=T used in Japan and DVB=T used in Europe and Australia. Regardless of
which technology is adopted, Chileans will need a decoder to receive the
signal, or in some cases a new TV will be needed. The choice of system will
greatly affect the digital TV market as consumers will be obliged to invest in
this new technology.
Current impact
At a local level
there has been little discussion on the change in technology. The impact will
be very strong as channels that now have only 5 frequencies may double or
triple the frequency. Due to financial issues, TV channels tend to adopt an HDT
of 1050 lines which protect them from the multiplication of channels and also
from the entry of new operators.
Demand for
digital TV is very weak, as few consumers are aware of what this change in
technology means, and others fear it will be very expensive. Quality has already
improved due to LCD and plasma monitors
Outlook
The discussions
have been underway for several months, which slowed digital development in the
country and out pressure on the government to make a decision. For this reason
the government is expected to make a decision in the near future and the
changeover process can begin.
Future impact
New digital
technology will need attractive content to create a real interest. Decoders
offered by TV providers at low cost are likely to be popular, as this means
that TV itself does not need to be replaced. Analogue TVs are however likely to
disappear in the long run.
Other important
factors that need to be considered to establish the future impact of this trend
are the delivery conditions of concessions, new obligations for paid TV systems
and he choice of more channels or better technical quality.
Inflation Rate Rising
The Central Bank
announced an increase in inflation rate to over 5%. This represents a
significant increase from an inflation rate of less than 3% in 2006. The main
reason for this increase is the increase of food and electricity prices.
Current impact
Inflation has
not yet affected electronic product prices, as supply and demand of these
products is extremely competitive. Also most of these products are imported
from countries that have free trade agreements with Chile so no import tariffs
are paid. Demand for consumer credit remained stable, but may rise later in the
years, as a result of rising inflation.
Outlook
The development
of this trend is not yet clear, as during recent years Chile had very low
inflation rates. However, an increase in foreign investment may push prices up
slightly as more prestige products become available in the market.
Future impact
Consumer
electronics products will be less affected by a continued rise in inflation
than other durable goods, as these products represent 'must have' items for
many young people today.
Economic Growth Vs Education
Chile
experienced huge economic growth during the last five years but educational
standards and training are crucial to sustain development. Economic growth
alone is not enough, it is necessary to increase employment opportunities among
poor people and especially among women and young people in order to use the
employment opportunities generated by the economic growth.
Current impact
Education and
employment are areas in which different companies can participate.; For example
Microsoft through social responsibility programs, is trying to certify 100,000
young unemployed Chileans in the use of information technologies during the
next three years. This will certainly create a significant increase in new jobs
and opportunities, which will impact sales and retailers as there will be
greater purchasing power among young people, which are an important consumer
group.
Outlook
The segments
that will see the greatest increase during 2007 are infrastructure software,
prepacked applications and handheld devices. Portable computers will probably
see less growth than in 2006, but in general investment in technology will
decrease thus affecting education and future growth in technology.
Future impact
Chile is a
country that has a high level of sophistication in technology investment and
technological penetration higher than the average for Latin America. For this
reason, the future impact of less investment in technology at government level,
during this year, will probably be appreciated by individual markets rather
than in total IT investments.
Individuals Will Continue Investing in Technology
As many new
products are constantly entering the market and people have more cash, they are
eager to invest in these new products. Young people are very sophisticated and
are aware of the latest launches, many of which arrive in Chile shortly after
their international release. Stores promote new products through events or
special exhibits in which they clearly explain the advantage of these products.
Many brands that in the past were represented by Chilean companies now have
their own store in Chile, such as Panasonic, which was represented by Mellafe y
Salas until October 2006. The same occurred with LG which opened its own store
in 2004, this allows the companies to promote their products in a better way
and also to invest in new technologies.
Current impact
Although market
growth during 2007 will be less than 2006, this deceleration will mainly be
concentrated in the hardware sector, after a strong year of renewal in
technological infrastructure in the companies and the boom in the computer
market. Individuals will continue investing in technology faster as prices fall
and middle class incomes increase. This will impact the use of technology in
homes as well as in business.
Outlook
Greater
investment in technology will change the way in which people purchase goods and
services. Consumers will become increasingly mobile and connected, making them
more proactive in buying updated devices. Technologies that promote mobility
will be subject to higher demand in Chile in the coming years.
Future impact
As mobility
continues increasing portable products will see much higher demand than in-home
products. The growing number of wi-fi connections throughout the country will
also increase demand for portable consumer electronics products. MP3 players
will also continue expanding their market share. Apple's iPod is constantly
improving and launching more sophisticated products and individuals are eager
to invest in new technologies.
Department Stores Remain the Dominant Distribution Channel
Electronics
products are mainly sold through traditional channels such as department
stores, which control over 70% of volume sales, but there was some growth in
specialist single brand stores, with Panasonic, Apple, Sony and LG all opening
their own stores offering sophisticated products, service and demonstrations of
their latest products. Internet and hypermarket sales also experienced an
increase.
Current impact
For electronics
products it is difficult for other distribution channels to compete with the
main department stores, as the offer of credit at a very low interest rates
makes them the most attractive alternative and products such as portable
computers, digital TV and cameras can still be bought in up to 36 instalments,
not all specialist multiples cannot match this offer so sales through these
channels are more limited.
Outlook
With department
stores dominating the consumer electronics market for more than 12 years it is
unlikely that they will lose their strong position overnight. However, other
channels like the internet and hypermarkets are slowly eating away at their
share, which should see broader distribution of these products in the future.
Future impact
The fact that
many department stores owners are also entering the hypermarket arena, suggests
that the the credit terms offered by one may soon be available through the
other. Examples include Falabella, which owns the Tottus hypermarket chains,
Paris also joined forces with Jumbo and both belong to Cencosud. This would
lead to improved sales and share for hypermarkets.
