India's consumer electronics market reinvents itself

Companies aligning strategies to accommodate changing market dynamics

The consumer electronics industry in India is buzzing with activity.

Cheap labor, raw materials, abundant engineering skills and a growing middle class with higher disposable income are attracting multiple foreign companies to establish manufacturing facilities in the country to serve the domestic and export markets.

Korea-based LG Electronics has announced plans to invest $250 million in India during the next five years. The company is planning to establish a $120 million manufacturing facility at Ranjangaon in Pune (Maharastra). This manufacturing facility will make India a hub for the export of LG products to Africa, the Middle East and South Asian Countries.

Chinese consumer durables manufacturer TCL Corp. also is planning to make India a manufacturing base for exporting color televisions to Europe and the Middle East. The company is investing $22 million to establish an integrated manufacturing facility in India.

Japan's Matsushita Electric Industrial Co. Ltd. also is exploring the possibility of launching its Panasonic brand of environmentally-friendly electric goods in India, including washing machines and refrigerators.

Many Electronics Manufacturing Services (EMS) companies also are establishing new plants or expanding operations in India to manufacture consumer electronic equipment for OEMs based in the country.

Approximately 30 percent of the production by these companies involves manufacturing equipment for the consumer electronics industry.

Indian companies such as Videocon Industries Ltd. and Onida also are expanding their operations in the country and are making forays into the global arena. In June 2005, Videocon acquired Thomson's displays activities in China, Mexico and Poland. The company also has acquired the Electrolux brand in India and is looking to restart production and launch new Electrolux products.

iSuppli Corp. believes that the Indian Government fiscal policies have provided a significant boost to the Indian consumer electronics industry.

The national budget for fiscal year 2005/2006 reduced the import duty on consumer durables. The duty reductions benefited companies such as LG, Samsung and Sony, which import their premium end products from manufacturing facilities based outside India.

The government also reduced the import duty on Color Picture Tubes (CPTs) and glass components used for manufacturing CPTs.

Some of the trends witnessed by the consumer durable industry are an acceleration in the rate of technology adoption and increased sales in the replacement market.

There also has been significant growth in the replacement market for consumer electronics, especially televisions. This growth is largely fuelled by the improvement in the technology of televisions and the reduction in their cost.

Indian customers increasingly are being attracted to technology such as frost-free refrigerators, fully-automatic washing machines, split air conditioners, and flat TVs, thereby fuelling growth in these segments.

The markets for MP3 players and digital Set-Top Boxes (STBs) are also strong in India. Demand for MP3 players is being fueled by low-cost flash-based players and the availability of free content. Digital STB growth results from the expansion of satellite television.

Another trend in the industry is the shifting focus of consumer durable companies toward rural marketing. Companies such as Samsung Electronics Co. Ltd. and LG Electronics are reviewing their activities and strategies in the rural market. These companies are launching attractive finance and gift schemes to tap the customer base of these regions.

The consumer durable industry in India seems to be poised for growth in the coming years. This growth will be fuelled by indigenous manufacturing facilities, government support, improvements in technology and growth in the customer base of rural areas.

Pranav Kudesia is an iSuppli associate analyst and is a co-author of iSuppli Corp.'s  upcoming report, Consumer Electronics In India: Expanding Middle Class Drives Rapid Growth. This report, from iSuppli's India service, will provide a comprehensive analysis of the fast-growing consumer electronics industry in India.