Main products and players:
Criteria I: Geographic
Criteria II: Market size
Criteria III: Products category
Criteria IV: Customer behavior
Future forecast and planning
The purpose of this Competitive Environment assignment is, through the research and discuss of macroeconomic, microeconomic, strategy and marketing in a particular industry in China, to analyze the general and special environment around this industry, to understand what these environment conditions mean to competitors in this industry and to find the strategy to cope with the environment. The assignment chooses consumer electronics industry of China to analyze as it is one of the most competitive and fastest-developing regions in modern China. Competition between Chinese local makers and foreign giants is intensifying. It is impossible to cover all the aspects of this industry because there are hundreds of players in different products categories and they have different advantages and disadvantages. Therefore, after general discussion, assignment will concentrate on two profitable and competitive products market, standing at the angle of local players, to identify both opportunities and challenge.
China is one of the biggest, fastest developing, most attractive and most changeable markets in the world. The population of China exceeded 1.3 billion in year 2005 (CPDRC, 2005), a number which is sufficient to produce an enormous market. On the one hand, China market is attractive because:
- China maintains high-speed GDP growth these years, according to China Business Forecast Report (CBFR), GDP growth from 2001-2005 achieved 8.8% in average (CBFR, 2006 ). GDP growth increases the domestic income, develops the competition of China and drives the progress of world economy. (See appendix)
- The number of middle-class people reached 60,000,000 in 2005(CUST, 2005), equal to the population of UK. The rising middle-class individuals and families delegate the most powerful consumer group in China
- China released 11th five-year plan tending to enhance the power of un-developed area, including rural and second-tie region, maintain the growth of GDP but more cautiously, stimulate domestic consumption and develop “green GDP” for long-term development. (Consumer market insights, 2005) (Asia Monitor, 2005)
On the other hand, future growth of China is risky because:
- In the structure of GDP, The investment-to-GDP ratio exceeded 50% in 2004, up from the low-40% range only two years before. (China Country Monitor-CCM 2005). However, the consumption which should be the most important part of GDP grows relatively slowly
- The import of China has sharply increased from $243.6 bn in 2001 to $560.9 bn in 2004. (CBFR, 2006). The composition of import is mainly held by energy (petrol), resource products and equipment which are vital for domestic development (Foreign Affairs, 2005). This means China economy is vulnerable by factors outside
- The fixed exchange rate between China renmibi to Dollar has already been broken under the commitment to WTO. Renmibi appreciated 2% on July 21 and will continue to revalue in the future (CCM, 2005). The appreciation will weak export advantages, increase production cost, affect GDP growth and even generate high unemployment.
Additionally, there are some uncertainties:
- The fact that east area develops economy much more quickly than west and that main markets of China concentrate on big cities in east region such as Shanghai generates the imbalance of China economy. If China can exploit economic potential of un-developed areas successfully, the opportunities for these markets are considerable, and vice versa
- The GDP growth means dilemma for China. China tried to stimulate the domestic consumption to extend its weight in GDP so that the share of investment, mainly domestic investment and government purchase, can be reduced. Along with GDP growth, China now is facing over-heated domestic investment which, in some cases, is out of control of government. Whether China can achieve economic “soft landing” to balance investment and consumption will lead to different future environment. (Asia Monitor, 2005)
In short, the whole market situation and foreground is attractive and changeable. The energetic economic growth brings both more consumer power and higher risk and uncertainty. The aspects shown above have general impact to most industries while some more will be highlighted according to different characteristics.
Consumer electronics industry is a fashionable, innovative and high-technology industry. Traditionally, the main products in this market are TV, VCR, and CD player etc. Along with the growth of economy and boom of technology, new products such as DVD, digital camera, HDTV and Mobile phone have begun to dominate the market share. Different research reports definite the boundary of market in different way. According to Consumer Electronics Industry Profile (CEIP), the market consists of three categories,
- Video product market: TV, DVD, Digital camera, Home Theater, etc
- Audio product market: MP3 player, CD player, etc
- Game product market: Play station, Game boy, Mobile phone, etc.
Following the GDP growth and income increase, the industry has developed quickly these years. The Chinese consumer electronics market generated total revenues of $13.8 billion in 2004, representing a compound annual growth rate (CAGR) of 14.4% for the five-year period spanning 2000-2004 (CEIP, 2005). The market of China has already exceeded that of Korea ($ 5.7bn / 4.9% growth rate, 2004) and approached to Japan ($14.6bn / 20.2% growth rate, 2004), which are traditionally two main market in ASIA. China accounts for 29.7% market share in ASIA-PACIFIC market. (See appendix)
Compared with Japan and Korea, China has some unique advantages and challenges to attract investors:
- Market potential
- High-speed economic growth
- Fast-developing middle class
- Economy imbalance
- Government policy to encourage foreign investment
As a high-technology dominated industry, the structure can be divided into four levels:
- Standard establishers who provide technology standard and patent. All the manufacturers have to follow it and pay money for patent using
- Brand owners such as SONY, CANON and TCL who have own sales channel and design capability
- Pure Manufactures, i.e., OEM or ODM (Original equipment / design manufactures) who do not have own brand and just accept orders from brand owners
- Pure retailers and wholesalers.
The first and second levels are more profitable than others and these two levels are generally vertical-integrated, i.e, brand owners are also standard establishers. On the other hand, the second level and third level are frequently integrated as well, for example, SHINCO (China) produces 80% of DVD players (mainly low-price) in China and owns 30% market share in brand DVD player sales market (CEIP, 2005).
Global competition in this industry is not optimistic for local makers. Many world electronics giants now have own plants and sales outlets in China. Others also receive benefit from Chinese new zero-tax policy for WTO commitment. In addition, most of them are standard establishers and/or famous brand owners.
Main products and players:
- TV / DVD relative, the biggest market in consumer electronics as well as the most competitive region. Chinese traditional TV giants TCL and HAIER now face the challenge from high-end products and new standard produced by foreign investors such as SONY, LG and SAMSUMG
- Digital camera products, have almost been dominated by foreign players (CANON, SONY and KODAK), especially middle and high-end products. Domestic brands only account for 5% in market share, according to CBI research
- Digital audio products are dominated by IPOD from APPLE
- Handset, another severely competitive region. The first four players in handset products market are MOTOROLA, NOKIA, BIRDS (China) and TCL (China). (Dano, Mike, 2005)
- Game products, dominated by SONY Play station series, NITENTO Game Boy and MICROSOFT Xbox, all coming from foreign investors.
Environment analysis will stand at the angle of Chinese local makers.
TCL is one of the traditional TV giants and the third biggest handset vendor in China. (Dano, Mike, 2005) It involves two competitive products and faces opportunities and challenges. On the one hand, in TV/DVD part, TCL faces challenges from high-end products and its market share in this high-end region is relative low. New DVD standard will become a crisis to lead to the direction of whole TV/DVD market. On the other hand, its market share of handset products falls from 11% in 2003 to 6% in 2004. (Media Asia, 2005) under the pressure of first and second leading companies: MOTOROLA and NOKIA.