Chapter Four AN OVERVIEW OF INDIAN CONSUMER DURABLE INDUSTRY

Chapter Four AN OVERVIEW OF INDIAN CONSUMER DURABLE INDUSTRY

CHAPTER-FOUR AN OVERVIEW OF INDIAN CONSUMER DURABLE INDUSTRY The Consumer Durable industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air conditioners and washing machines. Instruments such as kitchen appliances (microwave ovens, grinders etc.) are also included in this category. This industry includes all those goods which are durable i.e. products whose life expectancy is at least 3 years. These products are hard goods that cannot be used up at once. According to recent industry reports, the steadily growing market for consumer durables is estimated at Rs. 300 billion. Segmentation of Consumer Durables Industry: The consumer durables industry can be broadly classified into 2 segments: Consumer Electronics and Consumer Appliances. Consumer Appliances can be further categorized into Brown Goods and White Goods. The key Product lines under each segment are as follows: Consumer Durables Consumer Appliances Consumer Appliances Others like Watches Jwellery etc. Brown Goods Kitchen Appliances like Microwave Owens, Mixtures etc. White Goods like Air conditioners, Refrigerators etc. Mobile Phones Televisions, MP3 Players, DVD etc. Flow Chart : 4.1: The Key Product Lines Under Each Segment [61]

India s consumer market is riding the crest of the country s economic growth. Driven by a young population with access to disposable incomes and easy finance options, the consumer market has been throwing up staggering figures. The Indian durable market in 2009-10, has grown by 8.6% over the previous year. India officially classifies its population in five groups, based on annual household income (based on year 1995-96 indices). The groups are: Lower Income; three subgroups of Middle Income; and Higher Income. Household income in the top 20 boom cities in India is projected to grow at 10 percent annually over the next eighth years, which is likely to increase consumer spending on durables. With the emergence of concepts such as quick and easy loan, zero equated monthly installment (EMI) charges, loan through credit card, loan over phone, it has become easy for Indian consumers to afford more expensive consumer goods. Table # 4.1: Segment-Wise Percentage Share Of Indian Durables Household Industry Segments Percentage Air Conditioners 6% Audio/Video Equipments 12% Components 7% Computer And Peripherals 19% Electric Fans 1% Industrial Electrical And Electronics 5% Mobile Phones 20% Other Domestic Appliances 4% Others 3% Refrigerators 2% Sewing Machines 1% Telecommunication 18% Washing Machines 1% Watches And Clocks 1% As mentioned in Table 4.1 share of mobile phones segments is highest (20%) and the lowest share of watches and clocks. [62]

Air Conditioners Audio/Video Equipments Components Computer And Peripherals Electric Fans Industrial Electrical And Electronics Mobile Phones Other Domestic Appliances Others Refrigerators Sewing Machines Telecommunication Washing Machines Watches And Clocks 1 1 1 1 2 3 4 5 6 Percentage 7 12 18 19 20 25 20 15 10 5 0 Figure # 4.1: Segment-Wise Percentage Share Of Indian Durables Household Industry CONSUMER CLASSES Even discounting the purchase power parity factor, income classifications do not serve as an effective indicator of ownership and consumption trends in the economy. Accordingly, the National Council for Applied Economic Research (NCAER), India s premier economic research institution, has released an alternative classification system based on consumption indicators, which is more relevant for ascertaining consumption patterns of various classes of goods. There are five classes of consumer households, ranging from the destitute to the highly affluent, which differ considerably in their consumption behaviour and ownership patterns across various categories of goods. These classes exist in urban as well as rural households both, and consumption trends may differ significantly between similar income households in urban and rural areas. [63]

The rapid economic growth is increasing and enhancing employment and business opportunities and in turn increasing disposable income. Middle class, defined as household with disposable incomes from Rs. 2 00 000 to 10,00,000 a year comprises about 50 million people, roughly 5% of the population at present. By 2025 the size of middle class will increase to about 583 million people, or 41% of the population. Extreme rural poverty has declined from 94% in 1985 to 61% in 2005 and is projected to drop to 26% by 2025. Affluent class, defined as earning above Rs. 10,00,000 a year will increase from 0.2% of the population at present to 2% of the population by 2025. Affluent class s share of national private consumption will increase from 7% at present to 20% in 2025. Availability of Substitutes: Low to Medium Supplier Power: Low Competitive Rivalry : High Buyer Power: High Threat of New Entrants: Medium Flowchart 4.2: Porter s Five Forces Model and Consumer Durable Industry Buyer Power: The buyer s power is quite high as they have multiple brands across different price points, hence giving them a wide variety cross both durable and nondurable products to choose from. Supplier Power: the suppliers power is low because of the availability of the large numbers of suppliers in the domestic market and cheap import options for components from other suppliers and countries. [64]

Competitive Rivalry: Presence of a large number of players in the domestic consumer durable market in each segment leads to high rivalry. Availability of Substitutes: The threat of availability of substitutes in the Indian Consumer Durables market is medium. Where the white goods segment (air conditioners, refrigerators) face low threat of substitutes, the brown goods segment and consumer electronics segment do face a threat of substitutes. As new technology enters the market at an increasing pace, the manufacturers need to upgrade their products accordingly. For e.g. the VCR got replaced by DVD player. On a different note, televisions face the threat of multiplexes. Also, brown goods like pressure cookers face the threat of microwave ovens etc. Threat of new entrant: For any new company, to establish and build a new brand, cope with the technological advancement and create a wide-distribution network is difficult. One the other hand, cheaper brands from Asian countries like china and the entry of other global brands is a concern. OVERVIEW OF INDIA S CONSUMER DURABLE MARKET The Indian consumer durables segment can be segregated into 2 consumer electronics groups: Table 4.2(a): Segment-Wise Consumer Durables White goods Consumer electronics Air conditioners Televisions Refrigerator Audio and video systems Washing machines Electronics accessories Sewing machines PCs Electric fans Mobile phones Watches and clocks Digital cameras Cleaning equipments DVDs Microwave ovens Camcorders Other domestic appliances [65]

Most of the segments in this sector are characterized by intense competition, emergence of new companies (especially MNCs) and introduction of state-of-the-art models, price discounts and exchange schemes. MNCs continue to dominate the Indian consumer durable segment, which is apparent from the fact that these companies command more than 65 percent market share in the colour television (CTV) segment. In consonance with the global trend, over the years, demand for consumer durables has increased with rising income levels, double-income families, changing lifestyles, availability of credit, increasing consumer awareness and introduction of new models, products like air conditioners are no longer perceived as luxury products. Table 4.2(b): Net Profit Margin (NPM) and Compound Annual Growth Rates Company Name What is it into? Net Sales (Rs. Cr.) Net Profit (Rs. Cr.) 6-yr Avg NPM 2005 2010 CAGR 2005 2010 CAGR Titan Watches & Jewelry 1113 4776 34% 54 253 36% 6% Blue star White Goods 917 2525 22% 12 203 42% 5% Whirlpool* White Goods 1476 2544 20% 13 150 126% 4% Videocon* Consumer Electronics 7219 9163 8% 820 408 (21)% 8% MIRC Electronics Consumer Electronics 1088 1502 7% 28 18 (8)% 2% Bajaj electrical Brown goods 642 2229 28% 14 118 53% 4% TTK Prestige Brown Goods 181 508 23% 3 52 74% 5% * 6 year assessable data is not available, hence a 3-year CAGR is calculated Titan, the market leader in watches and branded jewelry, has clocked the highest Net Sales CAGR of 34% over the last 6 years. It has the competitive advantage of a strong brand, which has helped it become the market leader. Titan has successfully captured the watch and jewelry market. It has also managed to maintain & NPM of 6%. [66]

FACTORS AFFECTING DURABLE CONSUMER GOODS INDUSTRY IN INDIA The following factors are affecting Indian durable consumer goods industry in India: 1) Rise in Disposable Income The demand for consumer durables has been rising with the increase in disposable income coupled with more and more consumers falling under the double income families. Also, growing Indian middle-class plays a major role in increasing the demand. This, along with a fall in the prices of durable goods mainly due to the advancement of technology, easy import of components has led to an increase in the consumption expenditure on durable goods. 2) Easy-Availability of Consumer Financing Apart from steady growth in income of consumers, consumer financing has become a major driver in the consumer durables industry. In the case of more expensive consumer goods, such as refrigerators, washing machines, color televisions and personal computers, retailers are marketing their goods more aggressively by providing easy financing options to the consumers by partnering with banks. The easy-availability of consumer financing is beneficial mainly for the lower and middle income group, especially when the cost of capital and flexibility of the scheme is in their favour. 3) Existing Potential in Rural Markets Growth is coming in a big way from the smaller towns and rural markets and is expected to be the next growth opportunity for the consumer durables market. In the last year 30-35% of the total sale of consumer durable was from the rural market. This is expected to grow by 40-45% in the near future. The rural durables market has been growing by 30% annually, mainly due to the growing affordability of products as well as the general buoyancy in the economy. Products like mobile [67]

phones, televisions and music systems are the ones which have witnessed high growth among the rural market. To further cater to this market are manufacturers have started using local languages while offering products to the rural crowd. Some initiatives taken by Top Consumer Durables Companies to tap rural markets: Videocon recently launched a mobile with basic characteristics and a longbattery life. This was mainly done to tap the rural markets where electricity is an issue. Bajaj Electrical is in the process of finalizing a special team for each of its product, specifically to tap the rural market. 4) Increasing Share of Organised Retail Since the last couple of years there has been an increasing shift towards organized retail (brands) from the unorganized (unbranded) products. With rising income and purchasing power, and the younger generation preferring branded products, the share of organized shopping is increasing. Shopping in malls is considered more of an experience these days. According to estimates, organized retail which constituted 4% of the total buying till 2010 is expected to grow to over 10% by 2013. 5) Entertainment and Media to Boost Growth According to a recent report by KPMG, the Indian Media & Entertainment (M&E) industry registered a growth of 11% over 2009 and touched Rs. 652 billion and is expected to achieve a 13% growth in 2011. Overall the industry is expected to register a CAGR of 14% to touch Rs. 1275 billion by 2015. Out of this, the television industry is expected to achieve a 16% CAGR and is expected to account for almost half of the Indian M&E industry revenues. The television segment of the consumer durables industry is seeing high growth coming form high-end flat panel TV, LCD [68]

TVs and Plasma TVs. All of these were expected to register a 100%+growth in the last year. Hence, the growing importance of entertainment and media on our lifestyles is expected to boost the demand for products like Plasma TVs, LCDs DVD players. 6) Consumer Preferences Consumers purchase goods by looking at the brand, pricing, and discount schemes available at the time of buying. So, for the consumer durables industry following are important growth drivers: Availability of new and innovative products A company that upgrades its technology and comes out with new and innovative products catches the attention of consumers. Especially in the consumer electronics segment, manufacturers have to make sure they are updated with the latest technology that has entered the market. For the higher income groups the brand, technology and the product features play an important role. Pricing of the products For the lower and middle income groups, price is the deciding factor especially in a price-sensitive industry like consumer durables. Festive discount schemes The sales of many consumer durables goods are driven by festive discounts. For example people consider it auspicious to purchase goods like LCDs, Televisions, Washing machines, etc during festivals like Diwali, Gudi Padwa, etc. 1) Cheap imports form Asian Countries: The cheap imports of consumer durable products from countries like China, Singapore etc are a major concern. 2) Increasing competition: Presence of a large number of players in each segment leads to high rivalry. Also, the unorganized market is yet very strong in the case of many consumer durable goods. The pie of the unorganized sector is relatively large in most of the segments, hence increasing the competition. [69]

3) Fluctuating raw material prices: Rising input costs of raw materials viz. copper, steel, aluminum and plastic the major raw materials required for this industry will severely put pressures on margins. 4) Unfavorable duty Structure: Top players in the consumer durables industry have been demanding a more favorable import duty on durable components imported by them. Take the case of LCD s which is the fastest growing segment is right now the industry has been demanding a reduction in the import duty. Contrary to this is the case of set top boxes, where 80% of the set top boxes are imported. The industry has been recommending that the custom duty on STB should be increased by 5% to 10% in order to boost domestic manufacturing. 5) Continuously changing technology; a challenge: The consumer durable sector faces the challenge of a continuous change in technology and the inability to cope with it. High-end consumers prefer changing their goods along with the up-gradation of technology and manufacturers have to make sure they cater to this requirement. The Indian market is fast moving towards high-end products and the importance of media and entertainment is growing among the young market. The consumer durables industry needs to constantly focus on innovation and needs to come out with product variations across categories to meet the different expectations of a varied class of customers. With easy availability of finance, fall in prices due to increased competition, growth of media, growth in consumer base of rural sector, the consumer durables industry is growing at a fast pace. Given these factors, a goods growth is projected in the future too. With the Indian Economy expected to grow at 7-8%, the existing potential in the durables market augurs well for the consumer durables industry. Hence, we can say that the consumer durables sector is expected to grow with a good growth rate and have a bright future. [70]

GROWTH OF CONSUMER ELECTRONICS PRODUCTION IN INDIA The biggest attraction for MNCs is the growing Indian middle class. This market is characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their wellacknowledged brands, an extensive distribution network and an insight in local market conditions. One of the critical factors those influences durable demand is the government spending on infrastructure, especially the rural electrification programme. Given the government's inclination to cut back spending, rural electrification programmes have always lagged behind schedule. This has not favoured durable companies till now. Any incremental spending in infrastructure and electrification programmes could spur growth of the industry. The digital revolution is shaking up the consumer durables industry. With the advent of MP3 music files, personal video recorders, game machines, digital cameras, appliances with embedded devices, and a host of other media and services, it is no longer clear who controls which part of home entertainment. This has set off a battle for dominance, and the shakeup is spanning the entire technology spectrum. Microsoft Corporation is spending billions on entertainment initiatives such as its Xbox video game console. Compaq and HP sell MP3 music players that plug into home-stereo systems. Apple Computer is positioning its new imac as a digitalentertainment device. Sony is building Vaio computers that focus on integrating multimedia applications. Philips sells stereos that hook into a high-speed Internet connection to play music from the Web. More startups are trying to carve out profitable niches in digital music, video, and home networking. The industry is witnessing a number of strategic alliances, to develop a range of capabilities - electronic hardware, software, and entertainment content. [71]

As more consumers grow comfortable with technology, companies need to build simpler devices that offer more entertainment and convenience. These new machines need to work together readily, and should be as easy to set up and use as a telephone or a television. Consumerization of technology could be a major phenomenon over the next 5 to 10 years. This could hasten industry consolidation, as healthy companies gain market share by buying out weaker ones at attractive prices. Apart from steady income gains, consumer financing has become a major driver in the consumer durables industry. In the case of more expensive consumer goods, such as refrigerators, washing machines, color televisions and personal computers, retailers are joining forces with banks and finance companies to market their goods more aggressively. Among department stores, other factors that will support rising sales include a strong emphasis on retail technology, loyalty schemes, private labels and the subletting of floor space in larger stores to smaller retailers selling a variety of products and services, such as music and coffee. Colour TV (CTV) CTV is the largest contributor in this segment and the market has been estimated at 15.15 million units in 2009-2010. Liquid crystal display (LCD) LCDs are perceived as high-end products. The LCD market has been estimated at 0.8 million units, registering a growth of over 130 percent during 2008-09 over the previous year. Digital video disc (DVD) Indian DVD market was estimated at 6.2 million units in 2009. Direct-tohome Due to the expansion of DTH and introduction of conditional access system (CAS) in the metros, the set top box (STB) market is growing rapidly. Multimedia mobile phones Multimedia mobile phones have been growing at a fast rate, from 800,000 units in 2008-09 to 1.8 million units in 2009-2010. Figure 4.2: Consumer Electronics Products Rising disposable income and declining prices of durables have resulted in increased volumes. An increase in disposable income is aided by an increase in the number of both double-income and nuclear families. Production in the consumer [72]

121 121 125 127 128 129 693 789 894 1026 1178 1352 4230 4626 '000 units 5048 5505 5996 6542 8867 9436 10029 10655 11204 11795 electronics industry has been estimated at US$ 6.7 billion in 2009-10. The segment registered a growth of 18 percent in 2009-2010 from US$5.5 billion in the previous year. The consumer electronics segment contributes about 27 percent to the total hardware production in the country. Air conditioners (including industrial and office conditioners) constituted 38 percent of the consumer appliances market, followed by refrigerators at 14 percent, electric fans at 7.5 percent, washing appliances at 7 percent and sewing machines at 5 percent. Table 4.3: Sales Trend In Consumer Electronic Market In India S. No. Year Unit ( 000) TV PC Refrigerator Video Recorder 1. 2005 8867 693 4230 121 2. 2006 9436 789 4626 121 3. 2007 10029 894 5048 125 4. 2008 10655 1026 5505 127 5. 2009 11204 1178 5996 128 6. 2010 11795 1352 6542 129 (Source:- Overview Report of Consumer Electronic Products 2011) Television Sets Personal Computers Refrigerators Video Recorders 14000 12000 10000 8000 6000 ` 4000 2000 0 2005 2006 2007 2008 2009 2010 Figure # 4.3: Sales Trend In consumer Electronics Market in India [73]

Consumer durables are expected to grow at 10-15 percent in 2007-08, driven by the growth in CTV s and air conditioners. Value growth of durable is expected to be higher than historical levels as price declines for most of the products are not expected to be very significant. Though price declines will continue, it will cease to be the primary demand driver. Instead the continuing strength of income demographic will support volume growth. Table # 4.4: Compound Annual Growth Rates (CAGR) Of Different Segment Categories in India (2008) S. No. Product Name 2007-2008 Over 2005-2006 % Growth Driver 1. Air Conditioner 20-22* Decreasing Prices, changing lifestyle 2. Refrigerator 5-8 High Demand for the frost free segment together with reduction in prices 3. Colour Televisions 5-8 Increasing disposable income and declining prices 4. Washing Machines 8-10* Reduction in prices of fully automatic machines Source:- Computed *Significant at 5% level Table # 4.5: Compound Annual Growth Rate (CAGR) Of Different Segment Categories in India (2010) S.No. Product Name 2008-2009 Over 2009-2010 % Growth Driver 1. Air Conditioner 30-40* Reduction in Prices 2. Refrigerator 24 Low penetration level in the country and increase in demand from the rural and semi urban areas 3. Colour Televisions 30-40 Reduction in Prices of LCD, LED 4. Washing Machines 30* Source:- Computed New Models launched and reduction in prices *Significant at 5% level [74]

COMPETITION OVERVIEW Samsung India Samsung India commenced its operations in India in December 1995, today enjoys a sales turnover of over US$ 1 billion in just a decade of operations in the country. Samsung design centers are located in London, Los Angeles, San Francisco, Tokyo, Shanghai and Rome. Samsung India has its headquartered in New Delhi and has a network of 19 Branch Offices located all over the country. The Samsung manufacturing complex housing manufacturing facilities for Colour Televisions, Colour Monitors, Refrigerators, and Washing Machines is located at Noida, near Delhi. Samsung Made in India products like Color Televisions, Color Monitors, and Refrigerators are being exported to Middle East, CIS, and SAARC countries from its Noida manufacturing complex. Samsung India currently employs over 1600 employees, with around 18% of its employees working in Research & Development. Table 4.6: Market Share Of Major Players In Refrigerator Market S.No. Players Turnover (Rs. Billion) 1. Godrej 12.05 2. Hair 1.85 3. LG 21.00 4. Whirlpool 15.11 5. Videocon 11.23 Source:- Consumer Electronics and Appliances Manufacturers Association (CEAMA) [75]

Turnover 2009-2010 (Rs Billion) 25 21.00 20 15 12.05 15.11 11.23 10 5 0 1.85 Godrej Haier LG Whirlpool Videocon Figure # 4.6: Market Share Of Major Players In Refrigerator Market Whirlpool of India Whirlpool was established in 1911 as first commercial manufacturer of motorized washers to the current market position of being world's number one manufacturer and marketer of major home appliances. The parent company is headquartered at Benton Harbor, Michigan, USA with a global presence in over 170 countries and manufacturing operation in 13 countries with 11 major brand names such as Whirlpool, Kitchen Aid, Roper, Estate, Bauknecht, Laden, and Ignis. Today, Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25%. The company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry, and Pune. In the year ending in March '06, the annual turnover of the company for its Indian enterprise was Rs.13.75 billion. According to IMRB surveys Whirlpool enjoys the status of the single largest refrigerator and second largest washing machine brand in India. [76]

LG India LG Electronics was established on October 1, 1958 (As a private Company) and in 1959, LGE started manufacturing radios, operating 77 subsidiaries around the world with over 72,000 employees worldwide it is one of the major giants in the consumer durable domain worldwide. The company has as many as 27 R & D centers and 5 design centers. Its global leading products include residential air conditioners, DVD players, CDMA handsets, home theatre systems, and optical storage systems. Table # 4.7: Category-Wise Sales of Major Players S.No. Players Frost Free Direct Cool Total 1. Videocon 123 1258 1381 2. Whirlpool 318 1215 1533 3. LG 620 2000 2620 4. Haier 17.20 181.00 198.20 5. Godrej 340 1060 1400 Frost-Free Direct-Cool Total 3000 2620 2500 2000 2000 1500 1000 1533 1381 1258 1215 620 1060 1400 500 0 318 340 123 181198.2 17.2 Videocon Whirlpool LG Haier Godrej Figure # 4.7: Category Wise Sales Of Major Players [77]

Percentage Table # 4.8: Market Share of Washing Machines in India S. No. Year Market share LG Samsung Videocon Whirlpool Godrej Others 1. 2003-04 26 15 17 15 7 20 2. 2004-05 34 14 14 14 6 15 3. 2005-06 33 17 14 13 5 18 4. 2006-07 27 16 13 16 7 21 5. 2007-08 26 16 14 16 6 22 (Sources : CRISIL) 100 90 20 15 18 21 22 80 70 60 50 40 30 7 15 17 15 6 5 14 13 14 14 14 17 7 6 16 16 13 14 16 16 Others Godrej Whirlpool Videocon Samsung LG 20 10 26 34 33 27 26 0 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Figure # 4.8: Market Share of Washing Machines In India [78]

Godrej India Godrej India was established in 1897, the Company was incorporated with limited liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one of the largest privately-held diversified industrial corporations in India. The combined Sales during the Fiscal Year ended March 31, 2006, amounted to about Rs. 58,000 million (US$ 1,270 million). The company has a network of 38 company-owned retail stores, more than 2,200 wholesale dealers, and more than 18,000 retail outlets. The company has representative office in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou (China_PRC). Toshiba India Toshiba India Private Limited (TIPL) is the wholly owned subsidiary of Japanese Electronic giant Toshiba Corporation and was incorporated in India on September 2001). Toshiba had a presence in India since 1985 and was represented in India through their Liaison Office. Sony India Sony Corporation, Japan, established its India operations in November 1994. In India, Sony has its distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets, and 21 direct branch locations. The company also has presence across the country with 21 company owned and 172 authorized service centers. [79]

Household (In Million) Table 4.9: Television Penetration Level (2013) S. No. Year Penetration (Household in Billion) 1. 2000 210 2. 2008 230 3. 2010 245 4. 2011 240 5. 2012 215 6. 2013 250 300 250 210 230 245 240 215 250 200 150 100 50 0 2000 2008 2010 2011 2012 2013 Figure # 4.9: Market Share of Television Penetration Level in India [80]

Table # 4.10: Market Share of T.V. Sets in India (2007-08) S. No. Year Market share LG Videocon Samsung MIRC Others 1. 2003-04 26 15 17 15 20 2. 2004-05 34 14 14 14 15 3. 2005-06 33 17 14 13 18 4. 2006-07 27 16 13 16 21 5. 2007-08 26 16 14 16 22 (Note: Others = Sony, Haier, TCL, Philips, Hitachi, Sharp) Figure # 4.10: Market Share of T.V. Sets in India (2007-08) [81]

Sharp India Ltd Sharp India ltd was incorporated in 1985 as Kalyani Telecommunications and Electronics Pvt. Ltd., the company was converted into a public limited company in the same year. The name was changed to Kalyani Sharp India in 1986. The company was entered into a joint venture with Sharp Corporation, Japan - a leading manufacturer of consumer electronic products to manufacture VCRs/VCPs/VTDMs. The company manufactures consumer electronic goods such as TVs, VCRs, VCPs, and audio products. The products were sold under the Optonica brand name. Sharp has a production base in 26 countries with 33 plants, and its products are used in 133 countries. The company was accredited with the ISO-9001 certification in the month of February, 2001. Hitachi India Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide range of products ranging from Power and Industrial Systems, Industrial Components & Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software, materials, and components. Some of HIL s product range includes Semiconductors and Display Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards, and DVD Camcorders. POLICY AND INITIATIVES Foreign investment up to 100 per cent is possible in the Indian consumer electronics industry to set up units exclusively for exports. It is now possible to import duty-free all components and raw materials, manufacture products and export it. EHTP (Electronic Hardware Technology Park) is an initiative to provide benefits to companies that are replacing certain imports with local manufacturing. EHTP benefits include export credits, no duties on imported components or capital equipment, business tax incentives, and an expedited import-export process. [82]

The government, in an attempt to encourage manufacture of electronics in India has changed the tariff structure significantly. Customs duty on Information Technology Agreement (ITA-1) items (217 items) has been abolished from March 2005. All goods required in the manufacture of ITA-1 items are exempt from customs duty. Customs duty on specified raw materials / inputs used for manufacture of electronic components or optical fibers / cables has been removed. Customs duty on specified capital goods used for manufacture of electronic goods has been abolished. Excise duty on computers has been removed. Microprocessors, hard disc drives, floppy disc drives and CD ROM drives continue to be exempt from excise duty. INTELLECTUAL PROPERTY RIGHTS Protection of Intellectual property rights (IPR) is a prime requisite for development of R&D and innovation in the consumer electronics sector. The Government of India has developed a robust IP act to facilitate innovation, growth and development. Several amendments to the Copyright Act, creation of a new Trademark Act, a new Designs Act and amendments to the Patents Act show India s continued effort to protect IPR. The country has already made several changes in its IP acts over the years. Several amendments to the Copyright Act, creation of a new Trademark Act, a new Designs Act and amendments to the Patents Act show India s desire to change and adapt. New acts have also been enacted to cover semiconductors and layout designs which will be of considerable importance to the electronic industry. In the current WTO regime, India is a party to the Trade Related Aspects of the Intellectual Properties (TRIPs) Agreement and has accordingly, amended most of its IPR Acts and Rules to conform to the said Agreement. The Indian Copyright Act 1957 was amended in 1999; the patent Act 1970 was amended in 1999 & 2003 [83]

and Trademarks and Merchandise Marks Act 1959 was overtaken by a new Trademark Act 1999. The Industrial Design Act 1911 was effectively replaced by The Design Act 2000, and the Layout Design of Semiconductor integrated Circuit Act 2000 was enacted. The agreement on TRIPs takes care of the intellectual property rights by enforcing the patent rights, copy rights and related rights, and the protection of industrial designs, trademarks, geographical indications, layout designs of integrated circuits and undisclosed information. Accordingly, the member nations are asked to modify their existing laws. Once these laws come into force, unauthorized use of the patented innovations, trademarks, etc. becomes difficult. Enforcement of the TRIPs agreement makes the production of any product possible either through internal innovation or through formal transfer of technologies. The consumer electronics and durables sector is expected to continue to benefit from supportive policies and become globally competitive. REGULATIONS Free Trade Agreement WTO regime which came in force in 2005, results in zero customs duty on imports of all telecom equipment. 217 IT/electronic items were covered under the Information Technology Agreement (ITA) of the WTO for complete customs tariff elimination by 2005. Out of these 217 items, several items were already at NIL customs duty. In fact, IT/electronics was the first sector in India to face complete customs tariff elimination. The ITA-1 would result in intensifying competition as more imported products will be easily available at lower prices. [84]

Foreign Investment Policy: FDI Foreign investment up to 100 per cent is allowed in Indian electronics industry set up exclusively for exports. The units set up under these programmes are bonded factories eligible to import, free of duty, their entire requirements of capital goods, raw materials and components, spares and consumables, office equipment etc. Deemed export benefits are available to suppliers of these goods from the Domestic Tariff Area (DTA). A part of the production from such units is permitted to be sold in the DTA depending upon the level of the value addition achieved. The FDI approval for electrical equipment (including computer software and electronics) from April 2000 to January 2010 was US$ 21.24 billion, which was 2.01 per cent of the total Foreign Direct Investment (FDI) approved. During the same period the FDI inflow for electrical equipment (including computer software and electronics) was US$ 96.30 billion. Procedure for Approval Once the investment in equity has been approved, the import of capital goods, components and raw materials or the engagement of foreign technicians for short duration does not require any additional approvals. Approval of Ministry of Home Affairs is not needed for hiring foreign nationals holding valid employment visa. Approval for setting up units in Export Processing Zones (EPZs) is given by the Board of Approvals in the Ministry of Commerce. Approval for setting up export-oriented units (EOUs) outside the zones is given by the Ministry of Industry. Approvals for setting up Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) units are cleared by the Inter Ministerial Standing Committee (IMSC) set-up under the Chairmanship of the Secretary, Department of Information Technology. [85]

Proposals involving foreign direct investment not covered under the automatic route are considered by the Foreign Investment Promotion Board (FIPB). FDI/ Foreign Technology Collaboration Agreement The government facilitates FDI and investment from Non- Resident Indians (NRIs) including Overseas Corporate Bodies (OCBs), predominantly owned by them, to complement and supplement domestic investment. Foreign technology induction is encouraged through FDI and foreign technology collaboration agreements. FDI and foreign technology collaborations are approved through automatic route by the Reserve Bank of India. CHALLENGES AND OPPORTUNITIES Challenges Heavy taxation in the country is one of the challenges for the players. At its present structure the total tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in other Asian countries are between 7 and 17 per cent. About 65 per cent of Indian population that lives in its villages still remains relevant for some consumer durables companies. This India, at least a large proportion of its constituents, still buys black and white TVs and doesn't know what flat screens are. The rural market has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory. Even LG and Samsung, which are having the largest distribution network in the country, have a direct presence only in 15,000 to 18,000 of the around 40,000 retail outlets (for consumer durables) in the country. [86]

Poor infrastructure is another reason that seems to have held back the industry. Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India. Opportunities The rising rate of growth of GDP, rising purchasing power of people with higher propensity to consume with preference for sophisticated brands would provide constant impetus to growth of white goods industry segment. Penetration of consumer durables would be deeper in rural India if banks and financial institutions come out with liberal incentive schemes for the white goods industry segment, growth in disposable income, improving lifestyles, power availability, low running cost, and rise in temperatures. While the consumer durables market is facing a slowdown due to saturation in the urban market, rural consumers should be provided with easily payable consumer finance schemes and basic services, after sales services to suit the infrastructure and the existing amenities like electricity, voltage etc. Currently, rural consumers purchase their durables from the nearest towns, leading to increased expenses due to transportation. Purchase necessarily done only during the harvest, festive and wedding seasons April to June and October to November in North India and October to February in the South, believed to be months `good for buying, should be converted to routine regular feature from the seasonal character. Rural India that accounts for nearly 70% of the total number of households, has a 2% penetration in case of refrigerators and 0.5% for washing machines, offers plenty of scope and opportunities for the white goods industry. The urban consumer durable market for products including TV is growing annually by 7 to 10 % whereas the rural market is zooming ahead at around 25 % annually. According to survey [87]

made by industry, the rural market is growing faster than the urban India now. The urban market is a replacement and up gradation market now. The increasing popularity of easily available consumer loans and the expansion of hire purchase schemes will give a moral boost to the price-sensitive consumers. The attractive schemes of financial institutions and commercial banks are increasingly becoming suitable for the consumer. Consumer goods companies are themselves coming out with attractive financing schemes to consumers through their extensive dealer network. This has a direct bearing on future demand. The other factor for surging demand for consumer goods is the phenomenal growth of media in India. The flurry of television channels and the rising penetration of cinemas will continue to spread awareness of products in the remotest of markets. The vigorous marketing efforts being made by the domestic majors will help the industry. The Internet now used by the market functionaries that will lead to intelligence sales of the products. It will help to sustain the demand boom witnessed recently in this sector. The ability of imports to compete is set to rise. However, the effective duty protection is still quite high at about 35-40 per cent. So, a flood of imports is unlikely and would be rather need based. Reduction in import duties may significantly lower prices of products such as microwave ovens, whose market size is quite small in India. Otherwise, local manufacturing will continue to stay competitive. At the same time, there will be some positive benefits in the form of reduction in input costs. Washing machines and refrigerators will also benefit from lower input costs. [88]