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Consumer Durables

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

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)

Source: Consumer Electronics Association

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

Indian Consumer Durables- Overview

43%

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

Political Factors: Anti-dumping duty on imported color picture

tubes. FDI (100%), High Tax Incidence 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 Prices of goods to reduce in the medium

term

Indian Durable Industry- PEST Analysis

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

Source- CRISIL, NKP Research

Durable Industry- PEST AnalysisSocial 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

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

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

SWOT

STRENGTHS Presence of established distribution

networks in both urban and rural areas Presence of well-known brands In recent years, organized sector has

increased its share in the market via a visa the unorganized sector

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.

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

Consumer Durable- Growth Drivers

Appreciation of Indian Rupee

Refrigerator Market Share

LG26%

Samgsung16%Videocon

14%

Wirlpool 16%

Godrej6%

Others22%

FY 2009-10

Source- CRICIL

Television Market Share

LG19%

Videocon22%

Samgsung15%

Mirc13%

Others31%

FY 2009-10

Source- CRICIL

Washing Machine Market Share

LG23%

Samgsung17%IFB

5%Videocon

20%

Godrej6%

Whirlpool

15%

Other14%

FY 2007-08

Source- CRICIL

Mobile Phone Market Share

Nokia59%

Sony8%

Samgsung7%

Mo-torola

6%

Others20%

FY 2009-10

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 Retailing

Company Managed

Stores

Franchisee Showrooms

E-RetailingReverse Logistics

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.

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

1. Nokia India2. LG Electronics India Ltd3. Samsung India Electronics4. Sony India

5. 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

24,65923,77423,17123,502

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%

2009-10

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

The Situations of Supply

Chain

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 Challenge In 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.

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