competition issues in consumer electronics and durable ... · case. yet again in 1998, cartel...
TRANSCRIPT
Competition issues in
Consumer Electronics
and Durable Industry
by Suresh Khanna,
Secretary General
CETMA
Consumer Durable Sector
It Contributes more than 5.5% to index of Industrial
Production and provides jobs to lakhs of professionals,
Skilled, Semi Skilled and unskilled workers,particularly
women. It improves the quality of life of people by
providing Entertainment / information / education /
comfort and helps reduce daily chores, particularly for
housewives.
But the importance of the sector in National Economy
remains unnoticed. Governments both at Centre and
States view this sector only as source of Revenue
generation.
Growth of Consumer Electronics1950s Radios
Late 1960s B&W TV Transmission
1982 Colour TV Transmission
1992 Liberalization Process initiated
1993-94 Dismantling of controls such as licences, use of
foreign Brand Names etc.
1994-95 Entry of MNCs � Panasonic, Sony, LG, Samsung
etc.
Lowering of Import duties.
Cable TV Started
1995- Till Date Entry of Many MNCs & Rapid Growth
2001 Non Tariff Barriers on Imports removed.
2004 Free Trade Agreement with Thailand implemented,
resulting in reduction of import duties on Colour
Television sets, Colour Picture Tubes, Refrigerators
and Air Conditioners, thus more competition.
Performance Highlight (2000-2004)
1440016200
19900
23000
12900
13% 23% 16%CE+HA % 12%10%
Value Growth % (Rs Cr)
�00 �01 �02 �03 �04
8200CE9200
12000
14000
7400
13% 30% 17%CE % 11%11%
6200HA
7000
7900
9000
5500
12% 13% 14%HA % 11%11%
-High investment in HA - Lack of buoyancy
-Little or No fresh investment in HA
-Fewer players in HA as against CE
-Rising input cost �slower growth- negligible profit
-Stress on MOP& already low retention in DC/SA
-Steady growth of CE at 13-15% (�03�23%)
-HA falling behind CE on account of growth
-HA yet to hit point of Inflexion of growth
-Steady growth of CE+HA - yet low penetration
100
%
40%
9000
23000
60%
14000
�04
100
%
41%
6200
14400
59%
8200
�01
CE+HA %
HA %
100%
43%
HA 5500
12900
CE % 57%
CE 7400
Value Contribution % (Rs Cr)
�00
100
%
40%
7000
16200
60%
9200
�02
100
%
39%
7900
19900
61%
12000
�03
Durable Industry
Unleashing of Durable Industry
-HA to level up CE in contribution by 2010
-More global players to emerge in HA
-Reversal in price erosion of HA(Value growth)
-CE+HA growth expected at 15-20% next 5 yrs
-HA to grow faster than CE
-Replacement of RAC/WM/Ref to fuel growth
28%
33400
22%
13200
HA % 20%
HA 10800
25%
20400
27%
26000
23%
16300
20%
66800
18%
31700
CE+HA % 17%
26900
19%
45600
20%
55000
19%
38300
Value Growth % (Rs Cr)
15%
33400
�10
15%
18500
�06
CE % 15%
CE 16100
�05
15%
25200
�08
15%
29000
�09
20%
22000
�07
100
%
50%
50%
33400
66800
33400
�10
100
%
42%
58%
13200
31700
18500
�06
CE+HA %
HA %
100%
40%
CE % 60%
Value Contribution % (Rs Cr)
HA 10800
26900
CE 16100
�05
100
%
45%
55%
20400
45600
25200
�08
100
%
47%
53%
26000
55000
29000
�09
100
%
43%
57%
16300
38300
22000
�07
Durable Industry
Brands in Consumer Electronics Sector
MNCs National Regional
LG ) Onida Oscar
Samsung ) Korea Videocon Beltek
Hyundai ) BPL Salora
Weston
TCL ) T-Series
Haier ) China Bush
Konka ) Crown
Jolly
Philips ) Holland Texla
and Others
Panasonic )
Sharp )
Sony )
Hitachi ) Japan
Sansui )
Akai )
Aiwa )
Brands in Home Appliance Sector
MNCs National
LG Siemens
Samsung Fedders Lloyd
Haier Voltas
Whirlpool Godrej
Electrolux Onida
Carrier BPL
Panasonic IFB
Daewoo
TV
Pen
etratio
n R
ates in
Select C
ou
ntries
0
100
200
300
400
500
India
USA
Canada
Japan
Russia
Singapore
Korea Rep
Israel
Brazil
China
Mexico
South Africa
Egypt
Philippines
Sri Lanka
Pakistan
TVs / 1000 people
847
715
707
So
urce : S
tatistic
al o
utlin
e of In
dia
Price of most durables have been on a
downtrend in recent years
5000
7000
9000
11000
13000
15000
1998-99 1999-00 2000-01 2001-02 20002-03
Ref. W/Ms CTVs ACs
35000
30000
25000
20000
15000
10000
Rs. / Unit Figure 5
Heavily Taxed
Tax on CE and Durable products varies from 30% to over 40%.
Tax elements are
Customs Duties on
Picture Tube of CTV
(Main Component) - 20%
(Highest)
Excise Duty - 16%
For Air Conditioner - 24%
Sales Tax - 12% - 17%
Octeroi - 4%
TOT / Sales Tax Surcharge - 1%
INDIA THAILANDCustoms Duty
Raw Material 0-20% 0%
Components 0-10% 0-5%
Colour Glass Parts 20 0
Colour Picture Tube 20 0
Tuners, Cabinet, Antenna etc. 20 0
ACs., Refrigerators, Compressor 20% 30% (5% from ASEAN)
Excise Duty
Electronics 16 Composite VAT of 7%
Sales Tax / VAT
CST 4% Composite VAT of 7%
LST (State) 12-17% "
Purchase Tax 2-4% "
Other Costs
Rate of Interest 12% 4-5%
Diesel (INR) 22 16
Petrol (INR) 34 19
Electricity (INR) 5 per unit 2.5 per unit
Infrastructure Weak Good
Labour Cost (INR) 3500 6000
(per month)
Thailand has a composite VAT right from manufacturing sage, which is adjusted
at each stage with no cascading effect.
This is significant in view of FTA with Thailand
COMPARISON OF TAXES AND COSTS
Grey Market
High level of Taxation has resulted in thriving grey
market. Share of grey market in some of the products
are
B&W TV sets > 50%
VCD Players - 80%
Car Stereo - 80%
Radios - 75%
2-in-1s - 50%
Reduction in Excise Duty from 40% to 24% has
reduced the share of grey market from 60% to less
than 20%.
MRTP Case
Cartel Formation by B&W Picture Tube Manufacturers
B&W TV industry was registering rapid growth, many companies invested in
manufacture of main component Picture Tube. Seeing the growth, Governments
both at Centre and State Started levying more and more taxes on TV sets. The
industry went into negative growth from 1988 to 1992. Thus over capacity was
created in B&W Picture Tube industry. Many units closed down. Only due to
over capacity prices of Picture Tubes crashed. Only four major players were left in
1992. They formed a cartel to control price. They raised price, together of picture
tube, more than once.
CETMA filed MRTP case
Case went on for a couple of years. Agreement was reached and we withdrew the
case.
Yet again in 1998, Cartel formation was there and CETMA filed a case in MRTP in
1999.
But then legal procedure is so awfully slow that there was little progress. The
B&W TV industry in this period went into high negative growth. Very few players
were left, Industry lost interest in case and it was withdrawn.
Case in MRTP
There was one instance when a Refrigerator manufacturer filed a
case against competitor on grounds that capacity of refrigerator
indicated by competitor in advertisement, was more than actual
capacity of a model. The same was given wide publicity in
newspaper.
Result
It had negative impact on industry, as a doubt was raised in the
minds of potenital customers.
PROBLEM AREAS
Attributable to Industry
1. Inadequate stress on R&D
2. Quality - Yet an issue
3. After Sale Service & Customer Satisfaction
4. Fragmentation of Capacity - not able to achieve economies of scale
Government
1. Sector viewed as catering to elite and hence taxed very heavily
2. Tax System- deadly combination of inefficiency & Corruption
3. Highly bureaucratic approach increases Transaction costs.
4. Little understanding of problems of Industry.
5. Vested Interests influence Policy decision.
Action Points for Industry for Growth
� Commit sufficient resources for R&D
� Need to be more quality conscious
� Need to improve After Sales Services
� Need to Build economies of Scale
� Explore exports as a viable option.
� More emphasis to develop Rural Market.
Action Points for the Government
� Implement Value Added Tax without further loss of time
� Correct anomalies in Customs Tariff. Reduce Customs duty on
inputs to the industry such as copper, plastic, lead, aluminium,
CPT etc.
� Make Tax system simple and transparent to reduce corruption
and Improve efficiency of tax administration, leading to incresed
velocity of business
� Withdraw all tax exemption; it will improve revenue of both
centre and state governments.
� Lower total indirect tax incidence from the present level exceeding
30 per cent to less than 20 per cent. It will result in increased
revenue for both centre and state governments, as witnessed in the
case of reduced income tax.
� Reforms, particularly in the power sector, need to be speeded up.
Rural electrification should be a high priority task.
� Rural roads should also be a high priority task.
COMPETITION
Before liberalization, there was little competition.
Whatever was made was sold. It was sellers� market.
After liberalization, real competition started. Today the
sector faces very severe competition. The market has
not grown at a rate anticipated, particularly in Home
Appliances. There are spare capacities. Many
companies are running into loss. The margins, if any,
are wafer thin. The companies may be forced to cut
expenditure - such as R&D - which has long gestation
period, to stay afloat.
This competition is not in long term interest of industry
& consumer.
THANKS