Consumer Electronics Market in Argentina-Dissertation Writing Help
Executive Summary
After Six Years of Growth the First Doubts Appear
The consumer
electronics market in Argentina has achieved its sixth consecutive year of
growth since the country’s economic crisis between 1999 and 2002. In-home, portable
and in-car consumer electronics registered an important expansion both in value
and volume terms, boosted by higher disposable incomes, a lower unemployment
index and a significant reduction of poverty levels. Consumption continued to
be the lifeblood of local companies, boosted by governmental policies and an
increase in credit facilities. However, in 2008, internal conflicts, together
with the international financial credit crisis, impacted negatively on
consumers’ trust to replace products, which then reduced the growth rates
observed in previous years.
the Market Starts To Reach Its Ceiling in Key Sectors
Analogue
televisions, DVD players, mobile phones and portable MP3 players, the four
sectors that traditionally had led the market in volume terms, reached maturity
in 2008. This impacted negatively on the key manufacturers, who began to
formulate new strategies in order to turn towards more dynamic segments.
the Digital Technology Shows the Way for the Sectors With Biggest Growth
Those sectors
offering products driven by digital technology showed dynamic growth in 2008.
Digital televisions, cameras and camcorders registered an important expansion
both in volume and value terms. Competition also intensified due to new market
entrants attracted by the high price per unit of the products. Digital
technology was also the main protagonist in the launches of other sectors’ new
models. In-car media players and hi-fi systems also grew by the apparition of
equipment capable of reproducing digital music and video formats. Replacement
cycles tend to decrease due to consumers’ interest in changing from analogue to
digital and falling unit prices.
Domestic Companies Are Gaining Ground in the Market, Despite Multinationals
The devaluation
of the Argentine peso resulted in a new wave of investment by domestic
companies, which forced multinationals to lower their prices and look for new
products to attract consumers. The expansion of local companies began in the
most traditional sectors of the market, and soon moved to new segments, such as
LCD TVs, MP3 players and laptops. The economic recovery and the increasing
presence of local companies will set new challenges for multinationals, and
will also have a positive impact on their sales. On the other hand, new small
competitors dedicated to imports started to appear alongside the growing
popularity of the internet as a sales channel. These new companies are capable
of supplying cheaper innovative products, competing in some sectors with the
leading brands.
Market Will No Longer Grow in Chinese Rates, But Opportunities Still Come Up
Maturity of the
market in key sectors, together with deceleration of the Argentine economy,
will have a negative impact on the consumer electronics market. Both production
and growth rates have drastically dropped towards the end of 2008, and
companies reduced their short-term expectations. Moreover, for the medium and
long term, a strong deceleration is expected for the newest subsectors, such as
navigation systems, in-car DVD players, portable multimedia and DVD players,
and even laptops.
Key Trends and Developments
Consumption Slows Down After Six Years of Strong Expansion
At its peak in
2003 when the economy was registering 10% growth rates, GDP finally showed a
slow-down in the demand for durable goods in 2008. According to national
statistics, GDP has grown more than 8.5% per year between 2003 and 2008.
However, since July 2008 the growth index descended to 6.5%, according the
INDEC.
Along with
economic expansion, the unemployment rate fell from 26.2% to 8.5% between 2002
and mid-2008, which improved households’ purchasing strength and promoted
consumption. The rise in sales of goods and services was partly promoted in
this period by Nestor Kirchner’s government public policies, which forced
companies to increase salaries on four different occasions. Thereby, every
sector of the consumer electronics market benefitted with a rise in demand;
although this came to an end in 2008 when Cristina Fernandez de Kirchner’s
administration put an end to massive salary increases.
Outlook
The global
financial crisis restricted access to credit and pushed down the price of
commodities, Argentina’s main export product. The growth estimations made by
the local central bank affirm that the GDP will only grow between 3.5% and 4.5%
in 2009 quite a drop on previous years.
Although demand
for all durable goods will fall, it is the automobile and real estate markets
which will be most affected in the short term, with the consumer electronics
market unaffected until the end of 2009.
Current impact
The drop in
consumption and the lack of credit access will start to affect the lower-income
consumer bracket the most. This bracket played an important part in the
expansion of specific sectors such as mobile phones, desktops and analogue TV.
The fall of growth expectations was further exacerbated in 2008 due to
widespread layoffs in the workforce. This has a negative effect on the market,
by decreasing low-income families’ demand.
Local companies
are suffering the worse effects of this trend after enjoying fast market
expansion of recent years, whereby there will be less money for company and
product investment. International players will suffer less the effects, since
most of their production is imported. The retail sector, especially the durable
goods sellers’ channel, has also delayed its growth expectations by opening new
stores.
Future impact
The global
financial crisis, the fall of export prices and overall economic deceleration
will all have a negative impact on the market in the forecast period. The most
dynamic sectors, such as digital TVs, laptops, digital cameras and other
innovative products will still witness good growth. However, the markets that
depend on the middle- and low-income bracket consumer could be seriously
affected as demand for analogue TVs, mobile phones, small audio products see a
fall.
While companies
are preparing to promote consumption they are also preparing to face stiffer
competition. Aggressive marketing campaigns in order to win customers will
become the norm as the effects of a mature market slows down demand. Even
though the economy’s expansion will be less in the forecast period, the growth
of sales in value and volume will be constant in most subsectors of the consumer
electronics market due to the demand for new digital technology products.
An Adverse Climate for Business: Inflation and Local Issues
Rising inflation
was the main concern among Argentine consumers by 2008, which had a double
negative impact on the consumer electronics market in that same year. Rising
prices limited the purchasing power of millions of wage earners, who had to
channel their income towards the acquisition of basic needs goods, such as food
and health services. The second negative consequence was the odd business
climate created in the country, due to the government’s intervention in the
National Institute of Statistics and Census (INDEC) – one of its functions is
to measure the increase in prices – which affected the credibility of the inflation
index.
There were also
other controversial economic measures driven by Cristina Fernandez’s
administration that created social tension, causing a strong decrease in sales
for several months, even in some sectors of the consumer electronics market.
The most contentious of these measures was the decision of raising farmers’
product exportation taxes, which ended in road blockades, massive strikes,
mobilisations in the cities and more mistrust amongst consumers. In several
consumption markets, sales fell back to the level of six years ago between May
and July. Such an adverse business climate also caused the postponement of
multinational and domestic industry investment.
Outlook
Inflation was a
consequence of the Argentine peso’s devaluation after the domestic economic
crisis between 1999 and 2003. The local currency lost its value fourfold,
causing an increase in imported goods prices. This had a knock-on effect on
food and local goods’ prices which all rose, including those goods manufactured
in the country for export or those using imported raw materials. The
inflationary process worsened in 2007 and 2008, with rates between 10% and 30%.
Argentine’s
adverse economic climate is predicted to continue for the next five years. At
this point, the government will have to take strong decisions to recover
industry, business and consumer confidence. Surveys conducted by Clarín, La
Nación and Perfil newspapers showed that businessmen expected a “worse
scenario” for the 2009–2010 period.
Current impact
Inflation had an
inconsistent impact on the consumer electronics market. Between mid 2007 and
early 2008 many consumers decided to acquire durable goods as a way of
protecting their interests from the Argentine currency’s loss of value. This
benefited subsectors with high price per unit, especially HD televisions,
computers and hi-fi systems. During 2008 inflation’s impact on the market was
negative, since the rise in prices reduced wage earners’ purchasing power. The
lower end of the electronics market was also affected since demand is mainly
from low-income consumers.
The adverse
business climate impacted negatively among companies. Several investment plans
were postponed due to mistrust, especially among domestic companies. Also, some
multinational companies with expansion plans, such as LG and Samsung, postponed
the start of operations in their television factories. The distribution
channels were also affected by government policies, one of which was to force
them to maintain price stability during periods from two to four months.
Future impact
Inflation’s
impact during the forecast period is uncertain. Both multinational and local
companies claim they could diminish the impact of price rises if measures to
promote consumption were taken. Their biggest challenge is to obtain consumer
trust, although that could also be achieved if the government were to take the
right measures to restore that confidence. Until then, consumers will choose to
save money instead of spending it, as some of the main companies consulted by
Euromonitor International pointed out.
The unfavourable
and negative business climate partially arises from the price controls
implemented by the government, and could lead to local producers switching to
exporting their products rather than selling them domestically. Such a rarefied
competitive environment could cause multinationals to perform lower than
expected, although they will likely remain above the continent’s average growth
rates. This situation could delay investment, which in turn will stifle the opportunity
to increase R&D in technology and products especially in dynamic sectors.
Credits and Aggressive Special Offers, the Preferred Marketing Strategies
Last year’s
marketing actions were characteristically in two directions: firstly to
encourage consumption credit, and secondly, aggressive special offers in order
to gain new customers. The first component was promoted by banks and loan
organisations, distribution channels and companies who acted together to obtain
clients. Each one played its part: banks granted credit cards to current and
new clients, while retail stores – especially durable goods retailers and
supermarkets – agreed special discounts with manufacturers.
Aggressive
offers on behalf of the retail sector and companies were a constant marketing
tool which had a double effect: it increased the demand within dynamics
subsectors and pushed down unit prices, overnight in some cases. Marketing
managers from the consulted companies informed us that in 2008 a “cannibal
market” existed with “aggressive campaigns” with“fierce competition” among the
leaders. The sectors involved in such activity were mobile phones, laptops,
digital TVs, digital cameras and portable MP3 players.
Outlook
Consumption
credit was promoted by banks and distribution channels even in 2008, when
consumption began to decelerate. However, towards the end of 2008 two key
factors threatened a retraction of medium- and long-term credit: the global
financial crisis and the raise in interest rates. The first did not threaten the
amount of credit available or its demand, although it did become more expensive
to acquire. In fact, the annual interest rate for consumption loans changed
from 23% to 35% between October 2007 and the same month of 2008.
Aggressive
marketing campaigns were also related to credit, since most discounts applied
to credit card payments. In the medium and long term, a reduction in the bank’s
credits is expected, and therefore retailers should increase their
participation in credit facilities. In this sense, the country’s most popular
department store, Falabella, and durable goods retailer, Frávega, already had
by 2008, before the crisis, their own credit cards. Argentina increased by 70%
the release of credit cards since the crisis, and in early 2008 it was possible
to count 20 million credit cards over a population of 40 million inhabitants.
Visa and Tarjeta Naranja, the leaders in the Argentine credit card market, were
expecting a growth in the uptake of credit cards.
Current impact
The rise of
credit by banks, financial institutions and the retail sector brought uneven
consequences. On the one hand it allowed the middle income sectors to acquire
more sophisticated products, especially third-generation mobile phones, digital
televisions, digital cameras and laptops. On the other hand, not every
manufacturer benefitted from the trend. Multinational companies forged
alliances with banks and retail stores and thus increased their sales, but
local competitors could not compete. Many companies criticised these measures
because they affected free competition, since Argentine companies – mostly
manufacturers – could not offer such significant discounts.
Aggressive
marketing campaigns promoted a considerable drop in the prices of digital TVs,
laptops, mobile phones and digital cameras. This enabled users and consumers to
buy products with more technology, newer and with more innovation, all at the
same price as basic models had been a year before. For instance, consumers
purchased a 32-inch high-definition television at the same price they would
have paid for a 25-inch model in 2007. This so-called “cannibal” marketing has
even affected leading companies such as Sony and Panasonic, who tried to avoid
a sudden drop in prices to protect their good public image.
Future impact
The worldwide
financial crisis and the economic deceleration towards the end of 2008 has had
an affect on the short-term availability of consumer credit. It is expected
that the Argentine Government will take measures in order to reactivate consumption
in the long term. In the face of the banking sector’s caution to offering
credit, it is expected that supermarkets and durable goods retailers will offer
credit through non-traditional financial instruments. The credit cards managed
by the retail sector, Falabella’s CMR, Frávega’s TF, Garbarino’s TG and Coto’s
TCI, for instance, might play a more important role in the years to come.
Aggressive
marketing tactics are expected to continue and even to increase in the face of
dropping demand. This will have a negative impact on manufacturers who will see
reductions in their profits per unit margins. It will also affect the market’s
composition, since most promotions aim at massive market and popular products,
such as televisions, desktops and laptops. More dynamic and innovative
subsectors could grow at a slower rate than expected due to the retail sector
giving such products less shelf space.
New Distribution Channels Promote Competition
The growth of
the consumer electronics market provoked the diversification and specialisation
of sales channels. New shops began to expand due to the reactivation of
commerce within Argentina, the growing interest of banks and companies in
selling electronics and the spread of internet use and direct sales as
alternative means. Companies were also protagonists of a change in
distribution, opening their own shops, where only their brand products are
sold.
The
participation of supermarkets and hypermarkets is expected to increase also due
to a fall in the presence of independent specialists, many of which were sold
to larger stores. The internet will continue its upward road by the popularity
of sites similar to eBay. Direct sales, though still very small, raised its
profits after agreements between local manufacturers and big companies, who
present their offers to their employees through brochures.
Outlook
The sales
channels expansion continued strongly in 2008, even though the market showed
signs of maturation in key sectors such as mobile phones, computers and
analogue televisions. The growth in the number of shops was mostly among
important supermarket chains and durable goods retailers. In the first case,
Chilean holding Cencosud opened in 2008 eight new branches, while the French
Carrefour counted 20 outlets during the first eight months of the year. The
durable goods retailers, especially Red Megatone, Garbarino and Frávega,
leaders in sales of consumer electronics and domestic electrical appliances,
grew the most.
The other
phenomenon, the specialisation and diversification of channels, began with the
economy’s recovery in 2003 and was expected to continue at least for the next
three years. This trend includes the opening of non- traditional channels, such
as exclusive computer shops – the Compumundo chain, Garbarino’s computing
division – and mobile phone shops, and exclusive brands such as Sony and Apple.
In all cases new outlet openings are expected to continue until 2013.
Current impact
The
diversification of distribution exerts a strong pressure on local
manufacturers, who have to expand their infrastructure in order to put their
products in more shops. A decade ago, the concentration of the retail sector
allowed manufacturers to save transportation costs, while nowadays they have to
make distribution agreements with over two dozens big stores. Manufacturers
will have to continue enlarging their infrastructure and distribution
agreements, and come up with strategies for selling their products through a
wide – and new – range of distribution channels.
The increase of
non-traditional channels raised competition among retailers and caused a
decrease in prices. It also caused the direct import of unusual products from
companies located outside the country, hoping to attract new clients. The
opening of Sony’s exclusive shops (Sony Style) and Apple’s (Apple Store) is
benefitting multinationals since it gives them the possibility to import a wide
portfolio to supply these stores. Furthermore, the specialisation of sales
channels exclusively dedicated to sectors like computers, mobile phones and
in-car consumer electronics, favours this segments because it broadens the
supply and makes them more visible.
Future impact
The
diversification and specialisation of distribution channels will challenge
local manufacturers, although in general terms it could take more products to
clients and will push up sales. However, its impact will vary in the three
sectors of the market. In-car consumer electronics specialised stores will
continue being important, since consumers claim for services to install media
players, speakers and navigation systems in automobiles. The importance of the
internet since broadband availability will promote this sector’s consumption,
since it addresses mostly young consumers and adults up to 35 years.
Portable
consumer electronics could be the sector most affected by this trend in the
years to come, since its subsectors are increasingly connected with specialised
stores. Digital cameras and camcorders are more commonly seen in photo
developing stores; laptops are sold in stores with those exclusive products,
while mobile phones will be found in stands located inside core shopping
centres and in small malls with exclusive contracts with Claro, Movistar and
Personal, the telephonic service operators.
Niches and Dynamic Segments Grow Because of Smaller Size Players
The expansion of
consumption brought an original phenomenon to the consumer electronics market
in recent years: the arrival of dozens of foreign brands, imported by small
companies. Hundreds of new models arrived on retailers’ shelves, constituting
most sales of non-traditional channels, especially the internet. The new
products are manufactured by companies not located in the country, and have
neither exclusive sales representatives nor distributors.
These brands
imported by small domestic companies caused price reductions in market niches
and other dynamic subsectors, with strong growth rates. Though they are still
not competing with traditional brands, they have a very important role in the
market. Between 2007 and 2008, these products created an obligation for the big
companies: to constantly renew their products and start operating these niches
and new subsectors in the country.
Outlook
The trend’s
evolution in recent years was conclusive, since in less than two years the new
brands managed to promote sales via the internet channel and reached cities all
across the country. The internet selling sites Mercado Libre, De Remate and Más
Oportunidades guaranteed that between January 2006 and December 2007 around 300
new importers appeared. These, in general, are dedicated to a certain market
sector, importing in small amounts, updating their portfolio more frequently
and their prices are lower because they do not need to support large stores.
Currently it is
difficult to estimate growth in the forecast period, these new small import
companies are growing in number and management quality. In the beginning they
could not grant credit nor transport products to cities outside Buenos Aires,
but that has changed. Since 2007 they began offering the possibility to buy
products with credit cards and improved their distribution within Buenos Aires’
outskirts, where half of the country’s population lives. It seems this trend
will grow stronger in the following years, with implications for the market.
Current Impact
New brands
coming to market saw the highest growth rates such as computer peripherals,
portable media players, audio separates and other in-car consumer electronics
where most of the new brands were incorporated. Also subsectors navigation
systems, portable DVD players, speakers and small audio products were affected
by the importing of novelty lower-priced products.
The arrival of
new products, however, has not brought any particular inconvenience to the main
companies yet, neither domestic nor multinational. The sales of these products
were placed in segments where most companies are not present or they have only
a few models. Besides, both the retail sector and competitors still have scarce
penetration, since most are sold via the internet. Nevertheless, the impact
started to show when certain brands occupied a place in the retail stores,
towards mid 2008.
Future impact
In the
beginning, big competitors rejected the arrival of imported products of unknown
brands. However, the new players will increase their presence in the years to
come as they begin to sell products in certain subsectors creating a crossover
with the big manufacturers. The spread
of the internet and growth of small companies might generate a more competitive
market, where products need to be renewed faster and prices are pushed down due
to more competition.
The local
industry will be, once again, the most affected. Many of the products are
manufactured in Asia and are lower in price and sometimes have superior
features. The imported brands include Edifier, Xview, jWin, ViewSonic, Yamaha,
Harman Kardon, Coby, Thonet & Vander, JBL and Logitech.
Companies Analyse Consumer Trends To Avoid Seasonal Demand
The acquisition
of certain consumer electronics began to represent a symbol of social status
and fine taste, not only amongst the youth but also among adults. This new
culture was created by high-income consumers and then extended to the “middle
class”, an important one in Argentina’s social composition. The media helped
the creation of this new demanding consumer by making them better informed
about new technologies.
Both
multinationals and domestic firms jumped onboard this new culture which has
emerged from new technologies. They started to analyse consumption trends and
discern each type of consumer according to age, taste and different uses of
technology. The aim, apart from increasing sales, was to avoid the country’s
high seasonal demand. Between 2007 and 2008 shopping ceased to be exclusive
within periods of celebrations, like New Year, Fathers’ and Mothers’ Days and
Children’s Day, although old habits still prevail.
Outlook
The impact of
technology in daily life seems to be lasting and definitive; therefore it is
expected to continue in the medium and long term. On the other hand, companies’
decision to observe consumption trends are a consequence of the markets’ growth
and maturation in some segments. If such expansion continues in the coming
years, the firms will continue to launch exclusive products into specific
segments of consumers, supported in customised and targeted advertising
campaigns.
The two main
consumption trends were generated by the X and Y generations. The first are men
and women between 24 and 35 years, professionals, singles or married without
children, residents of the city of Buenos Aires and its surroundings or else in
the main provincial capitals, employed in big companies, influenced by fashion
and appearance. They are a new market niche and a promise not just for
electronics commerce, but for clothing and tourism as well. The Generation Y
was among those who allowed limits in market’s seasonality. Companies addressed
this group with advertisements and promotions of the portable consumer electronics
sector.
Current Impact
This new trend
has influenced the way companies advertise their products. Campaigns are no
longer addressed at a large generic audience but attempt to give what each
sector of the population wants. Thereby, brands began to appear in the places
where each generation of consumers were, like concerts, recitals and exclusive
events. Companies applied non-traditional advertising techniques too, such as
launching 2.0 Internet sites to generate interaction between brands and
clients. Multinationals were the first to incorporate these new strategies,
although local manufacturers soon joined the initiative.
Non-seasonal
demand impacts the market, especially for domestic firms and those oriented to
distribution. Domestic firms would have to adjust their production and
marketing cycles and even the number of employees to cope with the demand of
constantly launching new products. Multinationals are better equipped, since
they can import constantly due to their head offices’ strength and their
long-term expertise in distribution and marketing.
Future impact
New consumers
will spend more due to shorter product renewal cycles, value-added features and
constant design upgrades. This trend will be particularly beneficial to
multinationals operating in the country, which will be able to constantly
update their products. Domestic competitors, however, may have difficulties
keeping up with the fast turnover of their product portfolio and launching new
advertising campaigns.
