Consumer Durable Industry

Presented by-Kasturi MandalA Vijay KumarSasi KumarUmesh GS Arun KumarBarun Bardhan

Consumer Durables- Overview

Mass market heavy goods such as washing machines, refrigerator etc. intended to last 3 or more years. Also called hard goods

Consumer Durable Industry

White/Brown

Characteristics - Consumer Durable Industry

• Rapid Innovation• Dynamic market place• Highly competitive industry• Significant ‘time to market’ pressure• Significant cost pressure• Rapid rate of market penetration• Rapid transition of technology

Consumer Durable Sales (USA)

Source: Consumer Electronics Association

Key Findings - Global Asia-Pacific region is the most lucrative area for the consumer electronics

industry, as most of the markets are still untapped.

MP3 players continue to drive the audio market worldwide. 

Wi-Fi networking is expected to become a key enabler for the delivery and redistribution of content in homes, particularly for retail consumer electronics hardware.

Mobile camera phone market has emerged as the single largest market for image sensors, surpassing the entire consumer electronics segment, including digital still cameras worldwide.

The strongest growth in consumer electronics segment is expected to come from China by 2012, as the demand for consumer electronics is rising with the rapid pace of economic development and low cost consumer electronics manufacturing.

On the back of this strong demand, China will become the second largest market for consumer electronics, after US.

Top 5 Emerging Nations (Consumer Electronics)

1. CHINA2. INDIA3. BRAZIL4. MEXICO5. SOUTH AFRICA

• The Top 5 Emerging countries contributed $37.6 billion to the global consumer electronics

industry in 2007, with a CAGR of 10.9% between 2003 and 2007

• In 2012, the market is forecast to have a value of $51.2 billion, with a CAGR of 6.4% over the

2007-2012 period.

• China is the leading country among the Top 5 emerging nations, with market revenues of

$21.6 billion in 2007

Source: Consumer Electronics Association

Indian Consumer Durables- Overview• Pre liberalization , only a few companies like Kelvinator, Godrej, Allwyn, and Voltas

were the major players in the consumer durables market, accounting for no less than 90% of the market.

• Post liberalization, foreign players like -LG, Sony, Samsung, Whirlpool, Daewoo, Aiwa came into the picture.

• Today, these players control the major share of the consumer durables market

43%

Political Factors:I. Anti-dumping duty on imported color picture tubes.II. FDI (100%), High Tax IncidenceIII. Resolution to reduce emission of carbon footprints in the

atmosphere

Indian Durable Industry- PEST Analysis

Effect of GST & DTC

• Reduction in overall tax incidence (14-16% from 20- 25%)

• More disposable income• Efficient SCM • Prices of goods to reduce in the medium term

Economic Factors: I. Growth of retail sector – expected to reach 16% by 2011-12 from

4% in FY07II. Easy fin schemes to consumerIII. Economic reforms by the government –higher purchasing powerIV. Emergence of organized retail market with large players like

Croma, next, reliance digital etc – leading to lower prices and higher varieties

VI. Indian incomes are likely to grow three-fold over the next two decades

Indian Durable Industry- PEST Analysis

Social Factors :I. Disposable Income roughly doubled since 1985II. Changing perception of luxury to necessityIII. Rural market – constraintsIV. Demand of the consumer durables is seasonal V. Decrease in average household size

Indian Durable Industry- PEST Analysis

Source- CRISIL, NKP Research

Technological I. Power efficientII. Higher quality products III. Technological advancements

Indian Durable Industry- PEST Analysis

TV Washing Machines AC

LCD,HD,OLED,3D,LPD Direct Drive, Fuzzy Logic, Silver Nano, Waterless (90%)

DEVap ( Desiccant enhanced evaporative AC) developed by NREL

Indian Durable industry - SWOT

Supplier PowerIndigenous supply base limited

- most raw materials are imported

Threat of New Entrants• Most current players are global

players• New entrants will need to invest in Brand, Technology and Distribution

Competitive Rivalry• Number of well established players, with new

players entering• Good technological capability

• Many untapped potential markets

Customer PowerMultitude of brands across price points - wide variety of choice for customers

Threat of SubstitutesTechnological Enhancement

Indian Durable Industry- Porter’s 5 forces

Indian Durable Market• The Indian durables market, with a

market size of US$ 27.38 billion in 2008–09, has grown by 7.1 per cent over the previous year.

• The compounded annual growth rate (CAGR) for the industry has been recorded at 20.3 per cent between 2004 and 2009.

Consumer Electronics• Production in the consumer electronics industry is US$ 6.7 billion in

2009–2010.• The segment registered a growth of 18 per cent in 2009–2010 from

US$ 5.5 billion in the previous year.• The consumer electronics segment contributes about 27 per cent to

the total hardware production in the country.

Source: Department of Information Technology, Minister of Communication & IT, Government of India., & http://www.mit.gov.in/dbid/eproduction.asp#2

Consumer Electronics

Sources: “Consumer durables: Durable enough for tough times,” The Economic Times, December 13, 2009; Department of Information Technology, Minister of Communication & IT, Government of India.

Consumer Appliances• The consumer appliances market is estimated at US$4.34 billion, with

imports valued at US$ 1.22 billion in 2009–2010. • Most imports are in the finished goods categories such as watches, electric

coffee makers, food grinders, electric heaters, etc.

AC38%

Refrigerator14%

Electric Fan8%

Washing

M/C7%

Sewing5%

Others28%

2009–2010

Source- www.ibef.org/download/consumer_durable

Rs.bn

Key Players

Key Players

Product Mix Of Key Players By volume

Electronic Goods EX-IM • Every year India imports electronics and appliances in huge quantity.

• More that 70 per cent of Indian electronics market depends on import of both finished

goods and components.

• India imported worth US$ 18.5 billion and exported worth US$ 3.69 billion of electronics

goods between April 2008 and February 2009

Source: Ministry of Commerce and Industry, Government of India, Annual Report 2008–09.

USD (mn) 2006-07 2007-08 2008-09 % Growth 2007-08 % Growth 2008-09

Exports 2690.5 2809.3 3697.1 4.4% 31.6%

Imports 15057.3 17320.4 18505.8 15.0% 6.8%*excluding computer in physical form

Sales Trend- Consumer Electronics

Source- CRICIL

Consumer Durable- Growth Drivers

Appreciation of Indian Rupee

Consumer Durable- Growth Drivers

• Availability of financing

Source- CRISIL, NKP Research

Consumer Durable- Growth Drivers

• Income Growth

Refrigerator Market Share

LG26%

Samgsung16%

Videocon 14%

Wirlpool 16%

Godrej6%

Others22%

FY 2007-08

Source- CRICIL

Television Market Share

LG19%

Videocon22%

Samgsung15%

Mirc13%

Others31%

FY 2007-08

Source- CRICIL

Washing Machine Market Share

LG23%

Samgsung17%

IFB5%

Videocon20%

Godrej6%

Whirlpool15%

Other14%

FY 2007-08

Source- CRICIL

Mobile Phone Market Share

Nokia59%

Sony8%

Samgsung7%

Mo-torola

6%

Others20%

FY 2007-08

Source- CRICIL

DTH TV Market Share

Dish TV6%

SunTV4%

TATA Sky4%

Big TV2%

Airtel1%

Cable83%

FY 2007-08

Source- CRICIL

Consumer Durables SCM

IMPORTANCE:• Product Proliferation• Multiple players• High competition• Benchmarking and TQM• Production Demand mismatch• Ever Increasing Targets• Bargaining power of Retailers

OBJECTIVES: • Efficient Sourcing• Demand Planning• Inventory Optimization• Order Management• Tracking• High Inventory for High Demand Periods• Reverse Logistics

Benefits of Efficient SCM

•Reduced vendor payments due to better on-time delivery and

improved availability

•Increased revenues from improved availability of high fast moving

inventory

•Working capital reduction due to improved inventory management and

reduced order cycle times

• Fixed capital reduction due to effective asset utilization

Consumer Durables Channel

Individual Consumers Institutional Consumers

Traditional RetailingCompany

Managed StoresFranchisee

Showrooms

E-RetailingReverse Logistics

Consumer Durable Supply Chain

COMPANY SHOWROOM

E Retail

Planning and Forecasting

• Annual Forecasts based on previous year sales and current trends.

These sales are disaggregated into monthly sale plans

• Catering for the seasonal variations in demand

• Interaction between production and marketing departments for

better quality of forecasts and demand utilization.

Consumer Durable Value Chain

Durable- Top 10 Players (Indian) by sales FY 2009-10

1. Nokia India2. LG Electronics India Ltd3. Samsung India Electronics4. Sony India5. Philips India6. Whirlpool Appliances7. Titan Industries8. Siemens9. Videocon Industries10. Blue star

Source: http://www.naukrihub.com/india/consumer-durables/companies-list/top-players

• India being the second largest growing economy with huge consumer class has resulted in consumer durables as the fastest growing industries in India

• LG, SAMSUNG the two Korean companies has been maintaining the lead in the industries with LG being leader in almost all the categories.

LG Electronics

LG Global Presence

LG Leading Player In Many

LG Electronics India Ltd• The parent company was originally established in1958 as Goldstar producing

Radio, TV, Refrigerator & AC• LG group was the merger of two companies Lucky and Goldstar• A wholly owned subsidiary of LG Electronics, South Korea• Established in India in January, 1997• State-of-the art manufacturing facility at New Delhi / Pune• Vision was to become a 'Health Partner' for its consumers

•The CTV range offered by LG has 'Golden Eye' technology•Entire range of LG air-conditioners have 'Health Air System'•Microwave ovens have the 'Health Wave System’•Refrigerators have the 'PN System’•Washing machines have 'Fabricare System'

Vision- “Global Top 3 by 2012”

"Life's Good“Represents LG's determination to provide delightfully smart

products that will make your life good

LG- Product Portfolio

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LG- Product PortfolioMobile communications• CDMA Handsets• GSM Handsets• 3G Handsets • Cellular Phones

Digital appliance• Air Conditioners • Refrigerators• Microwave Ovens • Washing Machines

Digital display• Plasma TVs• LCD TVs• Micro Display Panel TVs• Monitors

Digital media• Home Theater Systems • DVD Recorder • Notebook PCs• Desktop PCs• Car Infotainment

Source: Corporate Website : http://www.lg.com

LG Technology Collaboration

LG Global Financials

http://www.lg.com/global/ir/financial-information.jsp

2003 2004 2005 2006 2007 2008 2009

20,177

24,659 23,774 23,171 23,502

27,63830,513

Sales KRW (bn)51%

2003 2004 2005 2006 2007 2008 2009

663

1,546

703

239

1,222

483

2,052

Net Profit KRW (bn)

209%

The challenges faced by LG when entered in Indian market

• Low brand awareness about LG in India.

• One of the last MNCs entered in India (Samsung, Panasonic entered in1995 in

India).

• High import duty

• Competition from local market players and other MNCs in consumer durable

segment.

• Price sensitiveness of the Indian consumer

LGEI over came these challenges to emerge as the Market Leader!

LG Electronics India Ltd

Source- www.lg.comSource- www.lg.com

LGIL- SWOT Analysis Strength:• Manufacturing Unit at tax incentive area• Wide range of products to serve all

category• Widest distribution network in the

industry (47 branches, 10000 trade partners)

• Highest share in home appliance market

Weakness:• Transportation cost• Demand fluctuation handling capacity• Service quality

Opportunities:• Fast growth of home appliances market• Growing rural market in India• New technology• Increase in income level

Threat:• Cut throat competition• Korean rivals in Indian market• Raw material import duties• Price sensitiveness of the Indian

consumer

Market share in a few categories

Source- CRICIL

Microwave

Color TV

Refrigerators

Washing Machines

40%19%

26%

23%

2007-08

Leader in all the above categories

LG Logistic Organization Structure Corporate Logistics

Team Head

Zonal Head For 2 Zones (S&W, E&N)

Branch Logistics In Charge

CFA & Warehouses

Distribution &Planning

Product Wise

Operation & Traffic

To Deals With trucks & Transporter

• LGE Transportation with its annual expense exceeding $40 million, was recognized as one of the critical areas within the companies operations that would deliver significant value to both the top and bottom line.

• Transportation Cost account for approximately 51% of total logistic cost and was recognized as a primary target for reduction.

• In order to extend the value of Oracle ERP and EXEWMS systems deeper into the distribution network ,LGE needed to integrate a best of breed transportation management into its existing enterprise management systems.

The Situations of Supply Chain

The challenge for LGE was to achieve transparency between market demand variability and distribution planning and execution.

To effectively manage this, LGE set out to establish integrated best practice workflows across the entire transportation and distribution organization.

The selection criterion was focused on partnering with the best in class transportation management solution provider, followed by the lowest overall total cost of ownership the least rest and a rapid time to value.

The Challenge In Supply Chain

Innovative Market Strategy

LG has adopted the regional distribution channel in India.

Introduced the low-priced “Cineplus” and “Sampoona” for the rural market.

LG was the first brand to enter in cricket in big way a way, by sponsoring the 1999 world cup followed it up in 2003 as well.

LG brought in four captains of the Indian cricket team to endorse its products. LG invested more then US$ 8 million on advertising and marketing in this sport.

Launch new technologies in consumer electronic and home appliances.

LG has differentiated its product using technology and health benefits. CTV has “Golden eye technology” Air conditioner has “Health air system” and microwave ovens have the “Health wave system”.

Key Trends

LG- Future Outlook

• Plan to focus on premium products for the monitor business and expand buyers for commercial display business while entering new markets to secure profitability

• Focus on profitability by launching premium smart phones and differentiated tablet PC products along with recovering cost competitiveness for feature phones

• Maintain market dominance in refrigerators and washing machines while securing competitiveness for future businesses

Although uncertainties exist, market demand is expected to increase along with the IT industry recovery