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Consumer Electronics Industry in India:

The electronics industry, especially consumer electronics, emerged in the 20th


century and has now become a global industry worth billions of dollars.
Contemporary society uses all manner of electronic devices built in automated
or semi-automated factories operated by the industry.
The electronics industry started in 1900s when the electron tube having two
elements was invented by John Ambrose Flemming. Till the 1950s, the
techniques developed were known as radio techniques as they were
mainly used in the radio appliances. It was the 1960s when the analog devices
were invented that brought a revolution in the electronics industry. In 1970s the
consumer electronics were developed. These years also saw the dominance of
the United States of America coming to an end with many new economies
showing their presence.
The electronics industry in India took off around 1965. It was followed by
consumer electronics mainly with transistor radios, black & white TV,
calculators and other audio products. In 1982, the history of television was
changed in India when the government allowed a thousand of colour TV sets to
be imported into the country.
In general consumer electronics refers to a variety of electronic equipment used
by private customers. This industry can be divided into many segments:
1. Traditional Consumer Electronics: audio and video equipment.
2. Computing Devices: Computers, Calculators, Laptops, etc.
3. White Goods: Household /Domestic Appliances such as washing machines,
irons, vacuum cleaners, grinders, etc.
4. Personal Care: Hair Dryers, shavers, electric toothbrushes.
In addition to this, the emergence of telecommunication has lead to the
convergence of mobile technology into the consumer electronics industry.
Videocon is mostly present in the Brown Goods sector of this industry.
According to industry definitions, traditional consumer electronics, mobile
phones and computing devices which can be termed as Brown Goods.
In the electronics industry in India, the consumer electronics segment is one of
the biggest markets. The consumer electronics industry comprises of
communication devices, computing devices, audio, video and gaming products.
Televisions, music players, digital players, cameras, laptops, PCs, mobile
handsets and accessories, gaming consoles commonly fall into the consumer
electronics category.

The Indian consumer electronics market had total revenues of $5,926.9m in


2013, representing a compound annual growth rate (CAGR) of 11.2% between
2009 and 2013. With the growing population in India, exceeding 1 billion, the
consumer electronic Industry is all geared up for fast growth in the coming
years.
India's consumer confidence continues to remain highest globally and showed
improvement in the fourth quarter of calendar year 2014 (Q4), riding on
positive economic environment and lower inflation. Nielsen's findings reveal
that the consumer confidence of urban India increased by three points in Q4
from the preceding quarter. India's market is consumer driven, with spending
anticipated to more than double by 2025. The Indian consumer segment is
broadly segregated into urban and rural markets, and is attracting marketers
from across the world.
Global corporations view India as a vital market for the future. India has a
young demographic and a middle class with rising disposable income. If the
country can sustain its current pace of growth for some time - and that is likely average household incomes will triple over the next 20 years and India will
become the fifth largest consumer economy in the world by 2025, as per a study
by the McKinsey Global Institute (MGI). The Government of India has also
played a major role in the growth of this segment. It has enacted policies that
have attracted foreign direct investment (FDI) and as a result boosted economic
growth.
On the back of better incomes and increasing affordability, the consumer
durables market is anticipated to expand at a compound annual growth rate
(CAGR) of 14.8 per cent.
The trends of the consumer electronics industry in India observed over last five
years can be summarized as follows:
High inflation in the country impacted sales of consumer electronics:
Inflation continued to be a major concern among Indian consumers in the last
few years. Double-digit inflation made consumers conservative in their
spending. Many people delayed making big-ticket purchases during 2013,
anticipating a change in the government in early 2014. Expectations of an
overall price drop across sectors and most industries post elections were high,
including consumer electronics, leading to consumers and businesses
postponing purchases. Consumer spending during festive period of Dussehra,
Diwali and Christmas when most sales of consumer electronics take place, was
also on the conservative side. Overall, inflation played an important role in

slowing down sales of consumer electronics products. However, with the


change of government and other factors, it is again seeing a rise, resulting in the
expected CAGR of more than 14%.
Compulsory digitisation implemented by government boosted sales of
LED/LCD TVs:
The government continued its implementation of compulsory digitisation of
television broadcasting across various regions, a process which it started at the
end of 2011. This move boosted sales of digital TVs, such as LCD and LED. By
the end of 2013, the government was able to implement compulsory digitisation
across most regions in the country. Due to the availability of digital content,
demand for LCD, LED and 3D TVs witnessed strong growth. Consumers also
went ahead with purchasing home theatre systems, Blu Ray Disc players, hi-fi
systems and other such devices due to the availability of digital content. The
digitisation of cable TV also led to a shortening of the replacement cycle of
television sets, as CRT TV owners started upgrading to digital TVs.
International players continued to dominate the Indian consumer
electronics market
South Korean giants, namely Samsung Electronics and LG Electronics,
continued to have a dominant share of the Indian consumer electronics market.
This domination of foreign players led Indian players, such as Micromax
Informatics, Karbonn Mobile and Videocon Industries, to focus on mass end of
the marketplace and achieve volume sales through affordable consumer
electronics products. Moreover, domestic players started focusing more on
online retailing to achieve sales.
Electronics and appliance specialist retailers continued to be the
dominant channel:
Indian consumers continued to shop for electronics products in electronics and
appliance specialist retailers. Although hypermarkets and online retail have
been registering strong growth for sales of electronics products, electronics and
appliance specialists continued to maintain a strong lead. Indian consumers
continued to prefer to shop in bricks-and-mortar stores mainly due to the lower
penetration and reach of online retailers in the country. However, online retail
witnessed tremendous growth, although this was restricted mainly to urban
centres. The online channel, however, helped Indian players to stay competitive
by saving the costs of having a bricks-and-mortar store and passing on the cost

benefits to consumers. Rural consumers continued to throng to electronics and


specialist retail outlets as they feel the need to see and touch such products
before buying. Electronics and appliance specialist retailers continued to
expand their stores and are opening up more stores in semi-urban regions,
targeting tier two and three consumers.
Slowdown in the Indian economy expected to stabilise, and help drive
consumer electronics sales:
Overall, the slowdown in the Indian economy witnessed over the review period
is expected to stabilise. The Indian economy witnessed steep inflation over the
past few years, which impacted various industries, including consumer
electronics. However, there is a general feeling among consumers as well as
businesses that the economy has started to recover. The consumer electronics
industry is expected to benefit from the growth of modern retail and online
retail over past years. Expansion of these channels will lead to higher
penetration of consumer electronics products across various regions. Recovery
of the economy would also lead to higher disposable incomes among
consumers, which would boost sales of electronics products. Increasing
competition among various consumer electronics players is expected to push
average unit prices downwards and help volume growth of the electronics
products industry.
All these factors acted in shaping the course of the electronics industry in India.

Porters 5 Forces Model:

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Rivalry among existing players: Moderate to high


There are few key players in the consumer electronic market, but as they
are mostly part of big Indian business groups, they have a lot of muscle
power.
International players operating in this industry are also big names.
Factors such as high transport and storage costs, lack of differentiation,
large investments, and low switching costs tend to intensify the rivalry.
Promises of high growth rates of 14% coupled with the diverse needs of
customer groups.
The rural market is yet to be tapped properly.

Threat of New Entrants: Low to Moderate


High Capital Requirements: In the case of retail stores, there is lack of
good distribution network and lack of knowledge of consumer buying
patterns which calls for large investment in distribution channels and
research to improve the reach.

Economies of scale required, high fixed costs involved: Economies of


scale is required in as there are large fixed costs associated with setting
up a manufacturing plant as there are problems of under-developed
infrastructure, erratic supply of water and electricity in many areas, a
high cost of capital and continuous up gradation of technical and
managerial skills.
Supply Chain Issues: The existence of too many intermediaries in the
supply chain coupled with issues in logistics, management of data,
pilferage and distribution and inventory management, eats away the
profits of the retailer, making it unattractive for new entrants.
Product Differentiation and Price-sensitivity: Though the awareness is
increasing amongst the Indian consumers, retailers and manufacturers are
unable to increase brand loyalty. The Indian consumer is very price
sensitive and hence he keeps hoping from one place to another, hunting
for good deals. Switching costs vary amongst the electronic categories.
For instance, the switching costs in mobile phones are high, as consumers
who are used to one brand find it difficult to use another brand. However,
for televisions, cameras, and even laptops, consumers are ready to try
new brands based on price for features offered and service quality or
reputation of the brand.
Government Policy: By encouraging manufacturing zones and improving
the infrastructure, the government is developing the entire manufacturing
sector, which will help in boosting the electronics production in India,
which has traditionally been a very small slice of the overall
manufacturing segment. While the government is trying to encourage the
growth of the retail and manufacturing industries in India, there are some
policies which need to be looked at. Red tapes and bribery in the Indian
government system is also a stumbling block for new retailers or
manufacturers.
Taking into consideration the positives and negatives, India still offers a good
chance for new entrants and hence the threat is considered to be low to
moderate.
Threat of Substitutes: Medium to High
Continually new technology is being introduced in the market at an
increasing pace.
The manufacturers and retailers need to understand the consumer needs.

For instance the VCR was replaced by the DVD player which will soon
be replaced by a Blue Ray Player. The incorporation of camera in the
mobile phones is definitely a threat to the camera market.
Product innovations in this segment are very high.
Bargaining Power of Suppliers: Low
One of the biggest threats is the trend of large suppliers integrating
forward as in the case of Dell, Apple, etc. by setting up their own retail
outlets.
There are a large number of suppliers in the market who face
overcapacities, poor distribution, large duties, and declining margins.
Also, competitive pricing comes into play.
With more companies setting up the manufacturing plants in India, the
bargaining power of suppliers is getting lower.
Product differentiation is more and more difficult in the consumer
electronics industry and the existence of cheap Chinese suppliers also
adds woes to the suppliers.
Bargaining Power of Buyers: Moderate to High
Online medium of buying leading to expectation of discounts: Though
the better brands can command a higher price, buyers are constantly
comparing prices, service quality and product features. This medium also
leads to expectation of discounts in price-sensitive consumers, as
numerous sites offer different levels on discount on various days.
Hypermarkets have advantage over smaller stores: Large chain stores like
Tata Croma, E-Zone have distinct advantage over the smaller stand alone
stores as they can demand good discounts suppliers.
Internet helps in comparing prices and selecting best deals in town: With
the emergence of new channels like the internet, auction sites like
rediff.com, the general consumer (buyers) who usually purchase
electronic goods from electronic retailers, hypermarkets, music and book
stores, can easily compare prices and go for the best deals in town.
Not just prices, reviews help in comparing service quality, product
features, etc.
Difficult for retailers to go for backward integration: As brands play an
important role in the electronics market, the retailers find it difficult to
integrate backwards to produce their own electronic goods as in the case
of private food labels.

Given all the various dimensions, it can be concluded that consumer electronics
industry in India presents a Hyper-competitive scenario.