Consumer Electronics Market in Japan

Consumer Electronics Market   in Japan-Thesis  and Dissertation Writing Help

Executive Summary

2008 Consumer Electronics Continues To Polarise

The Japanese market is characterised by both positive and negative conditions that compel manufacturers to find the most appropriate key strategies to sustain profitable sales. While a negative environment contained market saturation, as well as lower replacement rates and dying formats, the historic periods, however, are still laden with opportunities for manufacturers to consider. These included the consumers’ consistent demands for new and sophisticated digital products, improved convergence for audio and video products, as well as increased demands for technology, portability and efficiency. One of the strategies that manufacturers employed included the production and sales of products that cater both the masses and the premium. Mass production resulted in lower unit prices while premium products catered to high-end consumers, for which the products’ marketability relied on its sophistication, functions and design.

Death of Analogue Paves the Way for Digital Products

The transition from analogue formats to digital products in the consumer electronics market reflected the complete shift of interest of consumers towards more sophisticated products. As a result, Japanese manufacturers plan to completely eradicate analogue formats by 2013. The Japanese government introduced terrestrial broadcasting for digital televisions as a standard format for Japanese households, which will eventually accelerate the shift. Audio/video clarity, high memory capacity, convergence technology and remote control possibilities became the winning combinations of most of the digital formats over analogue formats. In addition, the largely stable economy of Japan in 2008 encouraged consumers to purchase and replace analogue formats with new digital counterparts.

Technology Spurs Demands Over Portability

Despite the argument that portability is one of the driving forces for demands, this is not completely true in the consumer electronics market in Japan where portable consumer electronics such as cassette players, CD and DVD players, minidisk players and MP3 players showed depressing demands instead. This trend reflected Japanese consumers’ preference for advanced technology over portability as a primary criterion in selecting products. Home cinema and speakers systems, despite not being portable, recorded robust growth while advanced and sophisticated smart mobile phones, laptops and portable navigation systems for cars grew to positive rates.

Online Stores Back Up Store Based Distributions

Store-based distribution channels continue to be the main driving force for sales for consumer electronics market in Japan. These have been the most important avenue to generate sales and introduce new products. Due to the tightening market competition reflective of the price erosions, and market saturation, manufacturers backed store-based retailing with online stores where consumers can easily search for products online or download necessary support programs or manuals.

Brand Loyalty and Integrity A Important Criteria for Future Demands in 2013

It is inevitable that the future Japanese market for consumer electronics shall be laden with electronic products which continue to compete and target various sectors in order to maintain profitable market scales. However, according to Japan Electronics Manufacturers Association, the most important criteria to sustain consumer interest and spark demands greatly depend on the manufacturers improving their product image. In the end, image and quality of the products will more effectively convince consumers, which shall be translated to future purchase and replacements of older versions.

Key Trends and Developments

Japan Shifts To Digital Broadcasting

In December 2003, digital terrestrial broadcasting started its services in the three metropolitan areas of Tokyo, Osaka and Nagoya. It provides hi-definition television (HDTV) broadcasting and data broadcasting services, which were not available through analogue terrestrial broadcasting.

Digital BS satellite broadcasting started in December 2000, with a penetration of over 5 million households and still increasing. This trend is relevant to the consumer electronics market supporting demands for digital products while accelerating the decline of the analogue formats.

Outlook (of the trend)

Analogue terrestrial broadcasting, which has been available in all households in Japan, and analogue BS satellite broadcasting with a penetration rate of about 36% of households are scheduled to terminate their services by 2011. This means that, by 2011, the digitalisation of all TV broadcasting, together with viewers’ transition to digital receivers from their current analogue receivers will have been completed, which would mark the end of the analogue formats in the country. This complete shift is expected to stay, compelling key manufacturers to comply production in terms of the regulations and standards that develop along the way.

Demands for digital televisions therefore are expected to be both manufacturer and demand driven. According to sources, it is expected that by 2011 one hundred percent of the televisions in Japan will be digital broadcast compatible.

Current Impact

Over the review period, the move by the government compelled manufacturers to start moving towards the complete shift of production from analogue to digital formats by March 2010, affecting the televisions and projectors sector, as well as other market products with broadcast capabilities, such as mobile phones or portable players. This is one of the main reasons for the eventual death of the analogue formats.

The trend of terrestrial broadcasting created a heavier impact on the demands for digital televisions and further depressed demands for analogue format as well as decoders/receivers and tuners. The trend was manifested in the organic growth of the digital format as a whole. The Association for Promotion of Digital Broadcasting-Japan reported that almost 33million DTT (ISDB-T) receiving TV sets (except 1seg receiver) had been installed in Japan as of March 2008.

In order to benefit from the trend, manufactures fully complied with Japanese government and focused their production to digital products. The Japanese Ministry of Internal Affairs and Communications (MIAC) and the Dpa (The Association for Promotion of Digital Broadcasting-Japan) jointly set the specification and announced the guideline of ‘simplified DTT tuner’ with a price tag of under ¥5,000 on December 25, 2007.

Future impact

MIAC estimates that after 2011, a maximum of 14 million analogue sets will need the "simplified DTT tuner" to be adapted even after the complete transition to DTT; it is aiming to avoid the disposal of large numbers of useless TV sets without such a tuner at one time. Although this would still allow the use of digital units, this would, however, create difficulties for analogue owners, which will eventually push them towards purchasing digital units.

Having extrapolated out the trend from 2008 to 2013, the market in 2008 will be different from that in 2013. While 2008 means production and demands for analogue formats, 2013 shall be a complete shift toward the extinction of the analogue formats. By then, manufacturers would have been ready in terms of adapting units to the required guidelines set by the government. Seeing the better image quality of digital broadcasting, consumers are expected to welcome these as a positive development in the consumer electronics market.

Alliance As Key To Market Survival

Both manufacturers and distributors in the consumer electronics market in Japan not only depend on their corporate, marketing and retail strategies to survive but also the success of their relationship with other companies.

One of the key trends that surfaced in the historic periods has been the prevalent alliances forged among major key players. Survival therefore is anchored towards their strategy to improve research and development, cut costs in terms of raw materials and resources, as well as efficiently launching these products to the willing consumers based on their appropriate and effective campaigns. Some forged alliances among the key players in the consumer electronics industry including Hitachi’s alliance with Matsushita to transfer its IPS LCD production to the latter; the DVD Forum created by Hitachi, Matsushita, Mitsubishi, Pioneer, Philips, Sony, Toshiba and JVC, which serves as an avenue to share technology and improve existing formats among DVD manufacturing companies; and the Blu-ray Disc Association (Hitachi, LG, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony and Thomson), which successfully gained the support of the most international film makers.

Outlook (of the trend)

Alliances are expected to continue to be a trend over the long term. They shall serve as a buffer mechanism for manufacturers to formally and informally share technologies, leak information about next generation products or set certain standards as key to the survival of the operations of the companies.

It is expected that initiatives of this nature shall continue to exist in the future. Although the organisations forged through these alliances may eventually dissolve depending on the nature and purpose of the alliance, the concept of alliance itself shall always be one of the corporate strategies. 

Alliances shall always be supply-led initiatives as they are forged by the market players themselves, although it is always necessary to consider the consumer demand aspect in order to realise the most appropriate strategy and consumer approach in the market.

Current Impact

Alliances are a crucial move among manufacturers to ensure the survival of their operations in the market and thus create an impact in the whole market. In this way, involved parties can control their environment in order to make them marketing tools for their success.

One of the most successful alliances within the review periods was with Blu-ray Disc Association (Hitachi, LG, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony and Thomson), which gained the support of most film-making companies. During the format war with HD DVD, the companies involved made a decision to stick to the Blu-ray technology in order to save money in royalties.

Alliances can directly influence consumer demands based on the availability of formats or technology they afford the consumers. For example, in the case on the format war between HD DVD and Blu-ray disk technology, the consumers’ choices are limited to what formats and technology were eventually introduced in the market.

Future impact

Alliances are expected to have a great influence on both the domestic and international markets. Depending on the purpose of the alliance, this could either drive or obstruct certain key market performances within the projected periods (2009-2013).

The alliance made by Blu-ray Disc Association, for example, indicated that Blu-ray technology shall be the preferred disk-format releases of most of the film makers, which in turn favoured the format due to the higher level of piracy protection; it is expected to become prevalent in all DVD players.

Several key players shall be left with no options but to refocus their strategies. As an indirect result of the alliance among Blu-ray Disk Association, several companies were discouraged from continuing with the manufacture of HD DVD formats, such as the case of Toshiba, which ceased its manufacture of HD DVD in March 2008.

Downward Pressures on Product Prices

The market competition for consumer electronics in Japan is intensifying as many companies continue to make aggressive efforts to increase their share. This resulted to a rapid decline in product prices which in turn reflected a negative sales performance on the market sectors. As manufacturers hoped to increase consumer base, price reduction has become the primary option. As a result, manufacturers resorted to offshore production in the aim of reducing labour costs, as well as finding cheapers alternative resources and raw materials.

From 2003-2008 the overall value sales were laden with reduced year-on-year growth performance. According to Japan Electronics Manufacturers Association, not only analogue formats were greatly affected but also digital formats which were faced by a more mature market and intense competition brought about by aggressive product launches of various players in the market. In the end, the market leaders put too much models and brands in one sector, eventually saturating the market. In 2008, value sales of in-home consumer electronics reflected a negative current growth rate of 4.3%.

Outlook (of the trend)

Falling prices are expected to continue over the long term as competitiveness is one of the key strategies for the market players, as is expanding their market base and sustainiing their leadership position. In 2007, Apple offered lower prices for its Apple iPhones, as well as its iPod touch, iPod classic and iPod nano for the Japanese consumers.

It is a fact that Japanese consumers would go for cheaper electronics as one of the criteria for product purchase aside from technology, portability, design and functionality. In this case, falling prices is reflective of a mature market whose market enthusiasm is merely induced by putting low price products in the market. In 2013, it is expected that overall value sales shall continue to decline at 1.4%.

Current Impact

Falling prices result in lower value sales, affecting the entire consumer electronics market. It is inevitable that all analogue formats would have lower prices in order to attract consumers before eventually completely consolidating production. The in-home consumer electronics sector is laden with analogue formats, thus its poor value performance is visible. However, other sectors are affected as well; sales of portable media players, such as MP3, CD, DVD and laptops are not spared from this trend. Value sales of analogue formats in the in-car consumer electronics, particulary cassette players, radio players were also affected.

This would therefore mean that the lowering of prices created an impact on the performance of the market players. In 2007, Toshiba noted that earnings declined in consumer electronics due to lower sales prices for flat-panel TVs and DVD recorders. While this maybe good to consumers, manufacturers have begun to squeeze out resources in order to offset rising cost of raw materials necessary for the manufacture of electronic products. As a result, several key players are eyeing towards more profitable market sectors. It is noted that Toshiba is shifting its focus from the production of DVD players towards the manufacture of profitable sectors in in-car consumer electronics, such as navigations systems.

Future impact

If price competition becomes too tight for the consumer electronics in Japan, there is a greater possibility that market leaders will consolidate unprofitable business segments and resort to other opportunities, such as the case of Toshiba Corp. Although much lower prices would mean higher rates of consumer purchase, this would still mean a risk to the companies especially when raw materials, resources and costs involve in the production process are too high.

Another risk at stake for the companies if they continue being price competitive is the quality of their products. There are already certain incidents that prove that in order to make the price competitive in the market, several market leaders resorted to offshore production which entail low skilled workers and cheaper but low quality raw materials. This means risking the integrity and eventually destroying the brand loyalty of a particular product. Reports of recalls were noted due to the installation of defective batteries on laptops by Dell and Apple in August 2006, Panasonic and Lenovo in September 2006, Fujitsu and Sharp in October 2006, and Lenovo and Sanyo in 2007.

Rise of the Next-generation-networks

In March 2008 Nippon Telegraph and Telephone Corporation (NTT) officially introduced the next generation network (NGN) in order to increase the sophistication and capacity of its existing internet protocol (IP) communications network by using its optical Fibre to the Home (FTTH) network, which extends all the way to subscriber networks. 

NTT began commercial NGN services in Tokyo and surrounding metro areas. In addition, KDDI, Softbank and other companies have also started to build and expand NGN backbones that address the emergence of IP networks and fix mobile convergence (FMC) as well as the convergence of broadcasting and communications. This development therefore is in line with clamour of consumers for improved digital communications and enhanced and improved digital communication systems. This would also mean greater demands for consumer electronic products which utilise improved communication network.

Outlook (of the trend)

Next generation networks shall culminate in improved and better demands for consumer electronics such as digital televisions, desktop and laptop computers, mobile phones and portable navigation systems. This would be positive for digital products as they continue to demands improved network convergence.

It is expected that commercial NGN services shall be extended outside of Tokyo and shall be accessible to the public within the projected periods. Japanese demands for better converged technology, faster upload and download capabilities, clearer audio/video transmissions shall lead to improved sales on compatible digital products. According to Japan Telecommunications Industry Association, by 2013 internet household penetration in Japan shall reach 88%.

Current Impact

Turning to mobile communications networks, penetration of High Speed Download Packet Access (HSDPA), a high-speed service, has been increasing and services with download speeds of up to 7.2 Mbps are now available. In terms of mobile WiMAx and the long-term evolution (LTE) 3.9G mobile phone system, which will both become NGNs, telecom companies are engaged in standardisation activities and developing equipment aimed at the roll-out of commercial services from 2009. This means that manufacturers are finding ways to improve their products and make them compatible with network convergence.

NGN shall positively affect sales of digital electronic products. The impact on the current market does not even consider that the present products in the market are still in the obsolete formats. The trend, however, shall manifest itself in new product developments and eventually shall create a positive impact in the market development. This benefits both manufacturers, as this yield increased sales, as well as to consumers, who long for improved and much sophisticated digital products.

Future impact

Thus, even for mobile phone users, ultra high-speed communications comparable to FTTH will soon become a reality. Looking at terrestrial TV broadcasting in Japan, digital broadcasting has already got under way and full digital broadcasting will begin in 2011 when analogue TV broadcasting ends. This is expected to increase content distribution over NGNs. In these ways, as various networks evolve to become NGNs, people will be able to exchange video and data at high speeds anytime and anywhere. NGN construction is also likely to give rise to a diverse array of new services using these networks.

This trend is expected to have a positive impact in 2013 as well, improving performance. Given the scale that all consumer electronic products are purely digitised, network convergence shall pave the way for future expansion in the field of communications and entertainment utilising the most appropriate products. There shall be more room for growth and expansion especially complementing demands for future network convergence across variety of consumer electronic products.

Internet Retailing Bolsters Demands

Domestic suppliers for consumer electronics are facing saturated market with lower replacement rates. However, internet retailing has helped manufacturers and distributors alike to improve sales by dedicating a particular website where they can showcase products based on the latest launches, features and prices. Most important of all is that consumers are given the chances to shop and download drivers, software or manuals for the products purchased.

In 2008, internet retailing in Japan accounted to 6.8% of the total purchase showing an increase from only 2.4% in 2003. According to Consumer Electronics Manufacturers Association, the rise of internet retailing is a back up marketing strategy for manufacturers to improve sales. This complemented the idea of home shopping where consumers can just browse products and use online purchase for their choices. Smart phones now have the capability to browse the internet so this means that internet retailing is readily available anywhere.

Outlook (of the trend)

Internet retailing is expected to continue for the long term. The online market caters particularly to shoppers looking for small devices, such as MP3 players and cameras, or other small digital products. Online purchases, however, are not expected to favour larger high-end products, such as plasma TVs, given their size and the fact that consumers tend to be wary of buying such expensive products via the internet.

As domestic internet penetration continues to grow, Japanese households shall see the convenience of online shopping. This trend shall also be complemented by the aggressive launches of online stores by both domestic and global market players. This is expected to result to a more intense market competition leading to the availibility of lower priced electronics online. According CEMA, internet retailing is expected to increase to 30% of the sales by 2013.

Current Impact

Internet shopping contributed to the reduction of prices for wide range of consumer electronic products. Distributors such as Rakuten Inc, have employed the use of internet to reduce their prices and offer consumers better financing options and discounts.

While online sites continue to provide consumers with an excellent source of consumer product information, the internet was also a major driver of price erosion as it increased price transparency. In Japan, in order to increase sales of chain-store retailers they have also included internet shopping as avenues to present their products online. These retailers can reach an increasing number of consumers and help generate higher profit margins.

Online shopping widened the target audience to men and women of the middle class. At first, main users of online shopping were young men with a high level of income and a university education however as internet penetration level in Japan is increasing, more consumer have found internet shopping as a convenient way to purchase products instantly.

Future impact

It is expected that the current growth in internet shopping in Japan shall sustain encouraging more manufacturers to follow the trend. As alternative avenues to increase their sales, manufacturers and distributors shall be able to promote their products with ease and increase awareness of products to potential consumers.

It is expected that the biggest growth in sales of consumer electronics products will occur in digital cameras, multimedia players and portable navigation systems. The use of credit cards in Japan shall, however, be an issue to consider because online stores require credit cards to make purchases.