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