Consumer Electronics Market in Hong Kong, China

Consumer Electronics Market in Hong Kong, China- Dissertation Writing Help

Introduction

This report analyses the market for Consumer Electronics in Hong Kong. For the purposes of the study, the market has been divided into two sectors:

·         Video products

·         Audio products

For the purpose of this study, Hong Kong has been treated as a separate entity alongside the People's Republic of China. Following the handover by Great Britain of Hong Kong to China in July 1997, Hong Kong is referred to as a Special Administrative Region (SAR) of China. Though it is treated as an individual entity in this report, it should not be referred to as a separate country.

Executive Summary

"The Year of Digital" – digital products lead the way

In 2003, value sales of consumer electronics approached HK$7,800 million, representing growth of more than 7% on 2002. Growth was mainly driven by flat panel televisions, digital cameras, camcorders, in-car audio aftermarket, home cinema/theatre systems/home theatre-in-a-box and MP3 players. Compared with the other categories in the market, digital cameras, digital camcorders and MP3 players have relatively short histories, as they are all fairly new to local consumers. With digital technology fuelling the market, major players launched more than 50 new products in total in these three categories in 2002/2003 as a way of boosting sales.

DVD well positioned to replace VCR

More than 85% of Hong Kong's 1.6 million households already owned video cassette recorders (VCRs) by the end of 1999. The VCR was a wildly successful consumer electronic appliance for many years, although it is outmoded today. Its replacement is the DVD player, which requires no rewinding, is more difficult to break, is smaller and easier to carry, and holds more information. Manufacturers of DVD players – and also DVD recorders – benefited from this replacement over the forecast period and should continue to benefit throughout the forecast period. During the review period, new DVD models, with various attractive features and lower prices further spurred demand.

Growth of mini disc players expected to surpass MP3 players after 2006

Compared to MP3 players' dynamic growth, mini disc players' performance was relatively modest in 2003 with a growth of 12% in current value terms. However, given that the perceived music quality of mini disc players is better than that of MP3 players, price cuts in the future should see mini disc players witness faster constant value sales growth than MP3 players in the late forecast period, especially as the MP3 players category was fairly mature during the review period. According to industry sources, this is likely to occur in 2007.

Mainland Chinese retailers challenge Fortress

Mainland Chinese consumer electronics retailers are entering Hong Kong, challenging the tight grip over the market held by Fortress, the chain controlled by the territory's richest man, Li Ka-shing. In a reversal of the traditional flow of commerce, Gome Home Appliances (Hong Kong), mainland China's largest electronic appliances retailer, opened its first store in the territory in November 2003. Its smaller rival, Shenzhen-based MKD Home Appliances, followed, opening its first stores in the territory in the same month.

Their entry into Hong Kong's congested retailing infrastructure, whose tough competition has in the past even forced large foreign operators, such as Carrefour, to pull out, is expected to spark a new price war among the city's more than 600 household electronics outlets. In all, consumer electronics retailers from mainland China are hoping to garner 30% of consumer electronics value sales by 2006 according to industry sources

Growth still driven by digital products

During the forecast period, the whole consumer electronics market is expected to grow by CAGRs (compound annual growth rates) of 6% in constant value terms and 8% in volume terms. Given the relatively small share held by the audio sector, the dynamic growth of MP3 players and mini disc players will continue. Although certain subsectors are expected to decrease in demand over the forecast period, the strong growth of digital products is expected to see a more dynamic constant value CAGR in the audio sector than in the video sector.

Consumer Electronics

Market Performance

MP3 players, digital camcorders and digital cameras lead the way

In 2003, value sales of consumer electronics reached HK$7.8 billion, representing growth of 7.1% on 2002. Growth was mainly driven by the performance of the digital cameras, camcorders and MP3 players categories. The development of plasma and LCD colour televisions helped boost sales in the mature video sector, with their value share of colour television sales expanding, superseding the decreasing sales of traditional cathode ray tube (CRT) televisions.

Compared with the other categories in the market, digital cameras, camcorders (digital) and MP3 players have relatively short histories, as they are all fairly new to local consumers. With digital technology fuelling the market, major players launched more than 50 new products in total in these three categories in 2002/2003 as a way of boosting sales. Digital cameras grew by 5.0% in value terms in 2003, whilst camcorders (digital) registered 4.5% growth in value sales in the same year. MP3 players registered the highest value growth, at 75.2%, in 2003, which balanced out the decrease in some subsectors to result in a positive performance for the whole market.

Furthermore, the development of plasma and LCD televisions within the colour television category helped boost current value and volume sales in this mature sector during the latter half of the review period. LCD, plasma and projection television's share of the whole colour television category grew to about 20.0% in 2003, up from only 12.0% in 2002, which represented growth of about 70.0% in current value terms. The dynamic growth of flat panel televisions balanced the decrease of CRT televisions to boast a growth rate of 2.0% in current value terms in 2003 for the whole colour television category.

Average prices of consumer electronics decrease in general

Total value sales of consumer electronics grew by 7.1% in 2003, while volume sales registered growth of 9.4%, reflecting a further decrease in average prices.

With the fierce competition in Hong Kong, price discounts and promotions are common to boost sales. On top of this, the rapid pace of technological innovation means that product lifestyles have shortened considerably. In turn, this had led prices to fall more and more quickly, particularly at the high-end of the price spectrum. For example, the average price of consumer electronics products decreased by more than 2% during 2003.

Japanese brands dominate the market

Japanese brands have been leading the Hong Kong consumer electronics market for some while. In almost every subsector, Japanese brands hold more than a 50% volume share in total. Especially in those subsectors with large shares of the market or high growth potential, Japanese brands are strong and aggressive. In colour televisions, Sony, Sharp, Hitachi, Toshiba, Panasonic, JVC and Pioneer held approximately a 66.0% volume share in 2003 according to industry sources. In digital camcorders, approximately 90.0% volume share was collectively captured by Sony, Sharp, Canon, Hitachi, Toshiba, JVC and Panasonic in the same year. An 88.5% volume share of digital cameras was also captured by Japanese brands in 2003.

Although some European brands have also gained popularity in Hong Kong, such as Philips, and even Korean giants, such as Samsung, Onkyo and LG, have some presence, the long-standing presence of Japanese giants in Hong Kong determines the consumer perception of products.

However, Japanese brands are facing threats from lower-cost Taiwanese and Chinese original design manufacturers (ODMs), which are expected to gain a more aggressive hold on the market during the forecast period. This stands to bring about some changes among equipment vendors and their chipmakers. The outsourcing business model is most efficient in the digital cameras subsector, because of the short product lifespan. Taiwanese ODMs, with their scale advantages, are potential winners, as outsourcing to ODM players can lower costs and shorten the time it takes to bring a product to market. Around 15-20% of digital cameras were outsourced to ODM/OEM manufacturers in 2003. In the meantime, low prices will continue to attract consumers in the short term at least.

Influx of mainland visitors helps sales recover after SARS

Between March and June 2003, the consumer electronics market was badly hit by SARS, with the virus keeping people out of shopping malls in Hong Kong. While every manufacturer suffered a slowdown in growth, the situation was more challenging for consumer electronics companies due to competition from low-cost products made by Chinese manufacturers in a market already saturated at the lower end. Well-known Korean manufacturers, including Samsung Corp and LG Group, are also securing a reputation for well-made, technologically advanced products, with affordable price tags. Sharp Hong Kong adjusted its forecast growth in earnings for the year downwards by a few percentage points, due to the SARS outbreak. It was also estimated that the whole consumer electronics market saw sales decrease by about 10-15% between March and April 2003.

The Hong Kong market returned to normal when the impact of SARS subsided. Sales of home entertainment products recovered first as consumers played it safe by looking for new ways to keep themselves entertained at home. The value of television sets sold in Hong Kong, for example, grew by 15% in May 2003 over the previous year, driven largely by sales of plasma television sets. In addition, with the major cities in mainland China allowing residents to travel to Hong Kong, sales growth in the second half of 2003 countered the loss resulting from low consumption during the SARS outbreak.

The Guangdong Provincial Government decided to allow residents in Guangzhou, Shenzhen and Zhuhai to visit Hong Kong from 20 August 2003, following a trial run in Dongguan, Zhongshan, Fushan and Jiangmen since 28 July 2003. Volume sales of digital cameras and camcorders surged by 10.0% in August and September because of the entry of mainland tourists. Following the Central Government's decision to allow residents in several cities in Guangdong to travel to Hong Kong, mainland visitor arrivals jumped by 43.4% in August 2003 to a record 946,122, according to the tourism board. The new policy was then extended to residents of Shanghai and Beijing. Spending by mainland tourists is estimated to be about HK$5,000 per person, which helped to revive retailing in Hong Kong following the SARS outbreak in March 2003 and fragile local consumption as a result of high unemployment.

Sony is overall winner

Sony Corp of Hong Kong Ltd was the leader in the consumer electronics market in 2002 with a 29% volume share through its Sony and Aiwa brands. In 2003, its volume share jumped to 31.3%, mainly driven by product innovation and the restructuring of its Aiwa subsidiary. In October 2002, Sony made Aiwa a wholly owned subsidiary and absorbed the firm completely at the end of the year. In almost every subsector, Sony captured a majority volume share in 2003.

The Sony brand's leading share position owes much to the high regard with which Hong Kong consumers hold it. One manifestation of this esteem was that the "Reader's Digest SuperBrands 2003 Awards" announced that Sony was the super winner again in the technology division. To be the gold or platinum winner, the product or service should be distinctive in all elements, including trust, quality, image and reputation. Based on votes cast by readers of Reader's Digest in the Superbrands Survey, Sony got four platinum awards and one gold award in 2003.

Sony has been included in this list each year since 1999, which was the first year that Reader's Digest conducted the SuperBrands Survey. Hence, most customers in Asia-Pacific (Hong Kong, Malaysia, Philippines, Singapore, Taiwan and Thailand) prefer Sony's high-quality products, although they do have a variety of choice in the market, according to the survey.