Indian CE industry scales new heights

BANGALORE: The consumer electronics market is one of the largest segments in the electronics industry in India. With a market size of USD$3.89 billion in 2006, catering to a population of more than 1 billion people, the consumer electronics industry in India is poised for strong growth in the years to come.

iSuppli Corp. predicts the Indian audio/video consumer electronics industry will grow to $6.59 billion by 2011, rising at a Compound Annual Growth Rate (CAGR) of 10.0 percent from $4.5 billion in 2007.

The growth will be aided by a multitude of factors, including:

Growing consumer confidence due to rising disposable incomes

Easy financing schemes that are making purchases possible

Increased local manufacturing

Expanding distribution networks

Sporting events, such as the Cricket World Cup.

The figure attached presents iSuppli’s estimates and projections for the size of the Indian audio/video consumer electronics industry for the period of 2004 to 2011.

Video remains the key driver

Television continues to be the mainstay of the consumer electronics industry in India with the transition slowly occurring to newer technologies such as Liquid Crystal Display (LCD) and Plasma Display Panel (PDP).

Most players in the consumer-electronics industry have introduced products in the Flat Panel Display (FPD) segment, and for few companies—especially the Korean chaebols—FPD remains a focus area. But the Indian market continues to exhibit contradictions that may be unique to this market. On one hand, campaign promises have prompted the free distribution of 7.5 million 14-inch CRT television sets worth USD$75 each to families below the poverty line in one electoral state over the period of three years.

On the other hand, FPD sets are available for USD$3,000 in India. Although, black and white televisions are obsolete elsewhere in the world, they still sell in large numbers in India.

Increased customization to suit domestic demand

Companies are focusing on customizing products to suit Indian tastes, thereby creating a niche for themselves. Several companies are conducting market research in order to understand the psyche of an Indian consumer. The inputs from this research are determining product attributes and pricing and accordingly are achieving better acceptance among consumers.

By conducting consumer research, companies are trying to identify customer requirements, thereby incorporating specific design elements into their products. For example, LG in 2006 launched a range of televisions from 21 inches to 29 inches in size that were designed based on the company’s research on consumer preferences for television sets.

Expanded distribution is critical

In order to tap semi-urban and rural demand, companies are expanding their distribution networks in these areas. The move has positively impacted sales for companies opting for rural expansion. However, rural consumers have not been as brand-conscious as their urban counterparts. Due to the lower prices of unbranded products, rural consumers have been inclined to buy these products, although they often have poor quality.

As the awareness among rural consumers rises, they are expected to show a preference for branded products. This is reflected by the fact that established players are reporting higher sales of products in rural areas.

Domestic manufacturing to expand

iSuppli expects domestic manufacturing to be a key characteristic of this growth in the years to come. Although electronics production has remained a miniscule portion of overall Indian manufacturing for a long time, the trend is gradually changing.

The government has been focusing increasingly on developing the manufacturing sector by developing infrastructure, rationalizing duties and creating export-promotion zones. This is in alignment with India figuring into the plans of several companies that want to cater to the domestic and export markets.

Domestic consumption is reaching significant size to trigger manufacturing in the electronics sector. India also is assuming a significant place in the global plans of several major electronics manufacturers, thereby positioning it also as an export base.

Furthermore, fabless companies are suitable to cater to such development because they can assist in moving the industry up the value chain by creating design-service opportunities for the Indian market. EMS and ODM companies in India have been associated with several design companies, although such relationships represent an extension of their global relationships. However, some local partnerships also are appearing, such as Flextronics’ deal with inSilica for the development of System-on-Chip (SoC) devices.

Currently, such instances are few and far between. As the local market gains size, these associations will become more common.

Significant challenges remain

iSuppli believes that there are still challenges facing the India consumer electronics industry as the sector tries to realize its full potential. These include:

Declining margins for many players

Inverted duty structure

Expansion of distribution reach: Infrastructural bottlenecks (roads, power, etc.) have hindered the reach of the distribution network in India

Creating awareness about new technologies and products

Low affordability level of consumer products among the rural masses

However, these challenges are gradually being addressed. And looking ahead, iSuppli believes that India will continue to grow as an important market for the global consumer electronics industry. The future of India’s market is indeed bright.