i

A study on Consumer Electronics Industry in India

Submitted to
Prof. Dennis Rajkumar
In partial fulfillment of the Course: Research Methodology in Semester II of the Master of
Business Administration.

Submitted by
MBA Finance. SEM II
Batch (2013-2015)
Group 11
Adithya B A (13010121159)
Aayush Kumar (13010121218)
Swathi Rao J (13010121095)
Priyanka Basera (13010121142)
Zishan Ali (13010121364)


ii





Declaration
This is to declare that the Report titled A study on Consumer Electronics Industry in India has
been made for partial fulfillment of the course Research Methodology in Semester II by Group 11,
Finance specialization, MBA July (2013-15) under the guidance of Prof. Dennis Rajkumar
We confirm that this report truly represent our work undertaken as a part our course. This work is not
replication of work done previously by other person/group. We also confirm that the contents of the
report and the views contained therein have been discussed and deliberated with the faculty.



Names: Registration No: Signatures:
Adithya B A 13010121159
Aayush Kumar 13010121218
Swathi Rao J 13010121095
Priyanka Basera 13010121142
Zishan Ali 13010121364







iii





Certificate

This is to certify that Group 11 of Finance specialization, MBA, Batch July (2013-15) has
completed the report titled A study on Consumer Electronics Industry in India under my
guidance for the partial fulfillment of the course Research Methodology in Semester II of the
Master of Business Administration





Signature of Faculty:

Name of the Faculty: Prof. Dennis Rajkumar

Date: April 5, 2014
iv

ACKNOWLEDGEMENT

A completion of a project takes the time and effort of a plenty and on the completion of this
study we would like to acknowledge the time and efforts of all those who have helped and
supported us directly and indirectly.
We would firstly thank the management ofAlliance School of Business, Bangalore for giving us
this opportunity to undergo an extensive research.
We thank and appreciate the continuous guidance and assistance we received from Prof. Dennis
Rajkumar throughout this passage, as without his guidance this project would seem impossible
to complete.
We would also like to extend our gratitude to Prof. Shamim Mondal for helping us understand
the core concepts of this subject and how to delineate research objectives.
Last but not the least we are thankful to all our families and friends who have been of immense
help during our research.
5

Executive Summary

India is one of the largest electronics market in the world and it is set become the fifth largest
consumer electronics market in the world. This report gives us a larger understanding of the
Consumer Electronics Industry that is component of the whole Electronics Industry. The
report discusses and analyses the current progress of the Consumer Electronics Industry in
India. It also talks about the development and future outlook of this Industry.
This report begins with an introduction, giving a brief background about the Consumer
Electronics Industry and further it explains the global scenario and domestic scenario for this
industry.
The latter part of the report discusses the mergers and acquisitions in Consumer Electronics
Industry, further the strength and weakness of the industry are measured with the help of
Porters Five Powers and also the concentration of the industry is measured with the help of
Herfindahl-Hirshman Index considering few main market players.
In last portion this report gives a larger vision concerning whereas the Consumer Electronics
Industry and it concludes with the future outlook of Indian Consumer Electronics Industry.














6


Chapter 1:
INTRODUCTION






















7

TABLE OF CONTENTS
1 Background

2 Indian Scenario


3 Global Scenario

4 Herfindahl Index

5 Porters Five Forces Model

6 PESTEL Analysis

7 Future Outlook

8 Conclusion


8

1.1 BACKGROUND
The electronics industry in India took off about 1965, with a focus on space and defense
technologies was controlled and initiated by the government. There was also the development
of consumer electronics, mainly with the transistor radio, television in black and white,
calculators and other audio products. In 1982, the government allowed thousands of color
televisions imported into the country issuing the Asian Games in New Delhi and it was an
important year in the history of Indian television. The period between 1984 and 1990 was the
golden age of the electronics industry in which the industry has experienced steady and rapid
growth.
In 1991, there was an era of liberalization has reduced tariffs and the signing of the NAFTA
and the WTO in 1997, India has pledged to complete the removal of all tariffs on IT. In the
following years, a number of companies fell ill and had to be closed. Late 2000s, as
companies Moser Baer, Samtel color. Celetronix, etc. onida have an identity in the world.
Indian electronics production increased from USD14.6 billion in 2007 to USD21.2 million in
2008. Production of electronics in the country have increased in all years and in 2013 the
production of the electronics industry reached USD32.7 million and production will grow at a
CAGR of 16.8 percent during the period 2007 -2012.
1.2 INDIAN SCENARIO
Share on production
Communication and dissemination actions marked plus 29% of electronics production in
India in the years 2009-10 and 2013 increased by 31%, followed by consumer electronics fell
27.4% to 23% , computers have increased by 13.1% to 14% in 2013, 12.4% of industrial
electronics has been steady in 2013, the elements of a 12.2% increase to 15% in 2013 and 6.3
strategic% has been reduced to 5% in 2013. India has the potential to develop and
manufacture electronic equipment for global markets and gain global share increasing to meet
the future requirements of the country in the meeting fields of information, communication
and entertainment.

Types of electronics

1. Consumer electronics
Electronic equipment is intended for everyday use and are used most frequently in
entertainment, communications, and to expand office productivity. The main products
of consumer electronics include personal computers, telephones , MP3 players , audio
equipment , televisions, calculators, GPS navigation systems, digital cameras and
automatic playback and recording of video media such as DVDs, VHS video or
camcorder. Indian market for consumer electronics has witnessed a steady increase in
9

its market value in recent years, from U.S. $ 2.9 billion in 2004 to U.S. $ 4.2 billion in
2008 , witnessed a CAGR of 9.7%. The growth rate is the highest in 2006 (12.5%) ,
and relatively , in 2008, the industry has seen slower growth of 7.7%. Data
visualization projected expects that the Indian market for consumer electronics to
attend a CAGR of 6.1% during the period 2009-2013.

2. Computer
The computer hardware market consists of computers, storage devices and other
segments. The segment of desktop computers and laptops includes. Storage segment
includes memory cards, CD packs, hard disks and other storage devices data . Sector
other devices includes computer peripherals, PDAs , organizers, calculators and
satellite navigation systems . The growth of computer hardware market in India in
2008 was 15.6 % compared to 2007. Indian computer hardware market has seen
growth rates of its market value in recent years, from U.S. $ 2 billion U.S. dollars in
2004 to $ 3.7 billion in 2008, witnessed an impressive CAGR of 16.6 % . Growth
rates have trended upward from 15% in 2005 compared to 2004, to 18.5% in 2007
compared to 2006 and a moderate decline in 2008 of 15.6% compared to 2007.
According to data visualization, the computer hardware market is expected to grow at
a CAGR of 17% during 2009-2013. Therefore, it is expected that the value of
computer hardware market in the Indian market for U.S. 8,100 million in 2013. Total
consumption in the IT market was conducted by firms and households. Businesses
include the sectors of education and telecommunications, banking and financial
services. Over the years, the business sector has been dominating the sales of the
computer industry. Recently, however, the proportion of households also began to
increase. On the one hand 22% in 2003 to 04 in PC sales total households in the
segment increased its position with a share of 42% in 2009-10. For the future, with
signs of recovery of the national economy, the sector is expected to show positive
growth for computers and other IT products for the year 2010-11 .s
3. Industrial Electronics
Industrial electronics sector is a focus on high technology requires very high
investments in R &D. Therefore, there are a limited number of global players in
terms of R & D is concerned. The main suppliers of electronics and industrial
controls , operating in India , including Siemens, Rockwell Automation ( Allen-
Bradley ) , Asea Brown Boveri , Schneider, L & T , Honeywell, Mitshubishi ,
Emerson, etc. A small number of level units are also coming in the recent past held
by technocrats having experience in integrated solutions for automation and control
instrumentation and software. During 2009-10 , the production of industrial
electronics is estimated at 13,630 crore 23against 12.740 crore for the year 2008-09 ,
registering a growth of around 7 %. In 2008-09 also, the sector recorded a growth of
7 % of its production. However, it is much less than the growth witnessed in 2007-08
10

of 14.5 % over 2006-07. The main reason for the slowdown in output growth could
be the general slowdown in the global economy.
4. C&B
Telecommunications services have been recognized the world-over as an important
tool for socio-economic development of a nation. Telecommunications is a leading
support services necessary for the rapid growth and modernization of various sectors
of the economy. It has become very important in recent years due to the significant
growth of information technology and its significant potential impact on the rest of
the economy. The telecommunications sector, which has the multiplier 24on affects
the economy, has a key role to play, a way to contribute to the growth of efficiency
role. Production of c & b doubled since 2007, which was 14% to 31% in 2013.
5. Strategic
Although the government has initiated the process of obtaining private sector
involved in the production of strategic electronic equipment, private sector
participation is in its initial phase. Estimated for strategic electronics India during
2005-06 was Rs.32 million market and 95 percent of what was done per unit of
public sector Bharat Electronics Limited (BEL)
6. Electronic Components
The total production of components was estimated at Rs. 88 billion in 2005-06.
Production of color picture tubes is likely to be around 11 million, a decrease of $
11.2 million last year. The production of B & W CRT was reduced due to the
decrease in market B & W TV. The components most affected by export are CD -R ,
CPT, PCB , DVD -R , connectors, semiconductor devices , ferrites , resistors, etc.
important events took place during the years in the field of color picture tubes and
pieces of colored glass . Another manufacturer launched successfully producing flat
pure CPT tubes, which leads to the existence of three flat tubes native sources. CPT
units continued capacity expansion to further enhance its global competitiveness.
Two other lines were commissioned during the year , one for the manufacture of
color cathode ray tubes large TV and the second for the small size. Two other lines
are likely to come until next year . Keeping pace with the downward trend in the
prices of color televisions, recent prices have also declined.




11

Electronics Exports
India was largely an importer of electronic products rather than exporting the same.
Electronics is one of the most important items of imports from India. However, the export of
electronic products in India has grown in recent years. The growth trend has been positive,
even in 2008-09 , in which most sectors have witnessed a slowdown in exports . During the
year 2008-09, exports of electronic products reached a value of U.S. $ 6.8 billion, or 3.7% of
total exports of India. The share of electronics exports in total exports from India to the
world, have remained more or less 2% to 4 % in recent years. During 2009-10, exports of
electronic products from India were worth $ 5.48 billion, with a share of 3.1% of total exports
of India. During this period, electronic exports have shown a negative growth of -19 %
compared to the same period last year.
During April-September 2010-11, exports of electronic products were valued at U.S. $
3,469,950,000 and showed growth rates over 10 % compared to the same period last year.
Imports during the same period amounted to 10,110.58 million U.S. dollars, a decrease of -
5.4 % over the corresponding period last year (Exhibit 33). In 2008-09, imports of electronic
products reached a value of U.S. $ 23.08 billion, which represents a share of 7.9 % of total
imports. Imports of electronic products as a percentage of total imports have remained
roughly the same at about 8% in recent years. In 2009-10, imports of electronic products
reached a value of U.S. $ 20.96 billion, a negative growth of (-) 9.2% compared to the
previous year. During April 2010 to September 2010, imports of electronic products were
assessed U.S. $ 10.11 billion, down 5.4% compared to the same period in the previous year.
Major destinations for electronic exports from India during 2009-10 include Asia (excluding
Middle East) ( 31%), followed by the European Union ( 20%) , America (17%) , Middle East
(15%) and Africa ( 11 % ) . In the case of imports as the countries of Asia (excluding Middle
East ) (74 %) are the main sources of imports from India in 2009-10 , followed by the
European Union ( 13%), Latin ( 8% ) and the Middle East ( 2%). export and source of
electronic products for 2009-10 import destinations. In 2009-10, total exports amounted to
5.48 billion U.S. dollars and the main destinations of electronic products in India were the
United States (14.8%), Singapore ( 8.2%) , United Arab Emirates States ( 8.2% ), Germany
(6.7% ), Hong Kong (5.8%) and the Netherlands ( 4.9%). During the year 2009-10, total
imports of electronic products from India were worth $ 20.96 billion and the main countries
of origin of imports are China ( 45.3%) , United States (6.4% ), Singapore ( 6.3%) and Korea
(5.3%).





12

Table - 15: Indias Major Export Destinations and
Import Sources of Electronic Products (2009-10)
Indias major
Export
destination
US
$Million
% Share Indias
major
import
source
US$
Million
% Share
World 5483.46 100.0 world 20963.14 100.0
USA 809.69 14.8 China 9494.95 45.3
Singapore 452.33 8.2 USA 1340.12 6.4
UAE

450.05 8.2 Singapore 1325.50 6.3
Germany 369.58 6.7 Korea
Republic
113.24 5.3
Hong Kong 317.82 5.8 Germany 994.50 4.7
Netherland 270.79 4.9 Malaysia 821.84 3.9
China 256.19 4.7 Japan 916.95 3.4
Indonesia 189.42 3.5 Hong Kong 681.07 3.2
Nigeria 157.23 2.9 Taiwan 522.05 2.5
Romania 154.47 2.8 Sweden 469.01 2.2







13

Increase in exports
The increase in exports of products with high added value incorporating intellectual property
rights and diversification of export basket of India help increase exports of electronic
equipment in India. Forces the electronics industry in India in the design, systems integration
and diagnostic skills must be harnessed to serve niche markets. According to a strategy paper
on " doubling exports in the next three years ( 2011-12 to 2013-14 ) ", prepared by the
Ministry of Commerce , Government of India, it is expected that the export target spam
products $ 15 billion by 2013-14 . U.S. goal to exceed $ 15,000,000,000 exports of electronic
products for 2013-14 , and the replacement of imports as important by-product, require reply
some challenges related to infrastructure, labor productivity , costs and common facilities.
Adopt strategies such as cluster development, diversification of export products, the
simplification of customs procedures, and support for R & D for the generation of intellectual
property rights and the development of high-tech products, improvements in infrastructure
development and capacity building to help the electronics industry in increasing its exports
easing Exports of Electronics goods.

: Contribution of Different
Items and Categories of
Electronic Goods
(US $ million)
No. category 2010-11 20111-12 2012-13 2013-14
1 Mobile Phones

2 Sub-Assemblies

3 Electronic Components

4 Audio-Video Products

5 Computer Peripherals &
Parts.
1560

1070

1020

1000

450

2100

1280

1310

1300

590

2700

1550

1720

1500

770

3600

1900

2300

1800

1000

14

6 Power Equipments

7 Solar Energy Products

8 Medical Equipments

9 Telephone Sets

10 Industrial Equipments

11 Computers

12 Trans. Apparatus & Parts

13 Watches and Clocks

14 Others
420

400

300

250

200

80

40

30

680
530

500

340

300

220

100

50

40

840
700

630

440

380

270

140

70

50

1080
850

770

500

430

300

160

80

60

1250
Total 7500 9500 12000 15000
(Source: Ministry of Commerce)





15

Largest share in Exports
Export of communication and broadcast equipment and components together account for
over 80 percent of total electronic exports in 2011.Exports for C&B equipment has increased
at a CAGR of 86.8 per cent during FY07-11 (Highest among all segments) followed by
Strategic electronic components with a CAGR of 25.8 per cent during same period.
Communication and broadcast has the highest share in export of 45.5%, strategic electronics
36.6%, computer electronic 3.2%, industrial electronic 11%, consumer electronic 3.5%.










Key players in India
Videocon-Videocon Industries Ltd offers a range of products in televisions, washing
machines, air conditioners, refrigerators , audio products , home theater systems and
microwave ovens . The company operates in four segments : Consumer Electronics and
Home Appliances , crude oil and natural gas , telecommunications and power . The company
is engaged in the manufacture , assembly and distribution of a range of consumer electronics ,
products and home appliances, including finished products : such as television, home
entertainment systems , refrigerators , washing machines , air conditioners and other
appliances and components of small appliances , : as glass shell , compressors and motors.
- LG is the market leader in consumer durables. It manufactures televisions, audio solution -
visual, computers, mobile phone, refrigerators , washing machines , microwave and CA .
May 10, 2010 LG spends nearly USD85.0 million modernizations of Indian plants. May
2012 LG Electronics launches latest round of Cinema 3D Smart TV with marketing expenses
of $ 20.8 million
66
45.5%
36.6%
3.5%
11.1
%
3.2%
16

Samsung - the second largest player in the market for consumer durables after LG.
Manufactures TVs, home theater systems, DVD players , mobile phones, digital cameras and
camcorders , refrigerators , ACS, washing machines, microwave ovens and computers.
November 10, 2010 Samsung launches USD75.0 million manufacturing plant in Chennai.
January 1 : Samsung increase its investment USD41.4 billion to consolidate its position in
mobile chips and flat screens.
HCL- is a supplier of hardware and software first. Manufactures and markets personal
computers, PC servers, storage solutions, display products and other electronic products.
Moser Baer -is the world's second largest company in the field of optical storage media. It
supplies products to a number of branded players such as Sony, Verbatim, TDK, Maxell ,
Imation and Samsung. Also has a presence in the photovoltaic and home entertainment
segments. Moser Baer has a presence in more than 82 country clubs , served by six marketing
offices in India, USA , Europe and Japan, and has strong tie- ups with all the major players in
technology in general . Moser Baer has the distinction of being the favorite all the best global
brands OEM supplier. One in five worldwide disks comes from Moser Baer factory. Moser
Baer is committed to providing fully licensed media provide the highest quality to its
customers. Moser Baer products are manufactured at its plant in the state of the art
manufacturing facility located in Greater Noida. It has more than 5,000 employees and more.
Samtel - India largest integrated manufacturer of a wide range of display devices: such as
CRT televisions, CRT guns, heaters and cathodes and deflection yokes . Operates a facility in
Germany for the production of high technology, high-resolution CRTs for demanding
applications such as avionics and medical monitors











17

Major players
Bharat electronic: A Public Sector
It was established in 1954 under the Ministry of Defense to meet specialized needs of the
Indian defense services.
The company has a strong commitment to quality and innovation, with two dedicated central
research laboratories
During FY12, R&D expenditure was 6.0 per cent of total turnover
The company has nine manufacturing units; each unit has its own Development and
Engineering (D&E) division
In 2007 revenues was USD 859.6 Million, 2008 reached 1009.0 million but slightly declined
in next year 2009 to USD 998.4 million after that it increaded to 1177.6 million and then in
2013 I declined to USD 600.7 million.

Key success factors
Focus on innovation and R&D
Key technological collaborations with leading European, American and Israeli
companies
Rising defense spending in India
Governmental emphasis on indigenization and reduction of import bill
Diversification in the civilian and export market
(Source: BEL Website; Annual Reports)

Financial highlights
During FY07-12, BELs revenue increased at a CAGR of 7.7 per cent (from
USD859.6 million) to nearly USD1.2 billion
During same period, BELs net profits increased at a CAGR of 17.7 per cent (from
USD74.1 million) toUSD157.6 million




18

Videocon: A Private sector
Third largest company in consumer durables in India and one of the larger color image tubes
(CPT) Subject manufacturers worldwide market share on a quarter-on- the market leader in
the market for consumer goods lasting color TV, refrigerator , microwave and segments over
the years 1990-1991 oven, the management of the company underwent a change through the
transfer of shares units Videocon group. In 2000, the company acquired the plant Philips
color TV. In 2005, the company acquired three plants Electrolux India. In addition, Thomson
acquired the color picture tube and Hyundai Electronics. In December 2005, Eagle
Corporation Ltd. became a wholly owned subsidiary of the Company. July 21, 2006, EKL
Appliances Ltd. (formerly known as Electrolux Kelvinator Ltd) merged with the company. In
February 2007, the U.S. telecommunications giant Verizon was attached with the company to
offer international long distance (ILD) services in India. In November 2007, the Company
acquired Planet M at Rs 2,000,000. Planet M is the retail division of the music and media
home entertainment Bennett, Coleman & Company. During the year 07-11 Videocon
revenues increased at a compound annual rate of 11.1 percent at the end of the first nine
months of FY12, the revenue of the company reached USD1886.2 million.

MARKET SHARE IN CONSUMER DURABLES

Videocon


Other



Key success factors
Focus on R&D
Strong brand presence in Tier 2 and Tier 3 cities
Foray into telecom services and handset manufacturing
Launched LCD TV bundled with DTH and Internet chip
Plans to set up a SEZ in Pune and Aurangabad in Maharashtra
Acquisitions Thomson, Philips, and Electrolux plants
25%
75%
19


Financial highlights
Revenue base of over USD2691 million, with net profit of USD113
million
Market capitalization of USD1436 million
Sales expanded at a CAGR of 10.4 per cent during FY0711
Strong presence in the consumer electronics market

Strong Inflows of FDI in Indian electronic sector
Cumulative FDI inflows into the electronics and computer hardware & software over April
2000January 2013 stood at USD12.8 billion Demand growth, supply advantages, and policy
support have been instrumental in attracting FDI.
Cumulative FDI inflows into the electronics sector
(USD billion)


1.2 1.2
1.1
0.8 0.8




09 10 11 12 13
Years



20

Policy Support Aiding Growth in Electronic Sector
Encouragement to FDI, SEZs-100 per cent FDI is permitted in the electronics
hardware Manufacturing sector under the automatic routs.
100 per cent income tax exemption to SEZ units on export profits for five years, 50
per cent for the next five years.
Government planning to setup dedicated clusters to promote manufacturing of
electronic products

Customs Duty Relaxation- IT/Electronics sector is the first in India to be allowed
complete customs exemption on certain items used for manufacturing electronic
goods. No customs duty on 217 tariff lines covered under the Information Technology
Agreement (ITA-1) of the WTO. Peak rate of basic customs duty is 10 per cent

Reduced Central Excise- Standard rate of excise duty (CENVAT) is 12 per cent.
Microprocessors, hard disc drives, CD ROM drives, and DVD drives/DVD writers,
flash memory sticks, and combo-drives have concessional excise duty of 6 per cent
and are exempt from SAD.
Components and accessories of mobile handsets are exempt from excise duty and
SAD

EPCG, EHTP Schemes- EPCG allows import of electronic capital goods without
paying any customs duty.
EHTP provides benefits, such as duty waivers and tax incentives, to companies which
replace certain imports with local manufacturing

Intellectual Property Rights-Intellectual Property Rights (IPR) is a key determinant
of progress in R&D and innovation in the electronics sector.
GOI has amended relevant IPR-related acts (like the Copyright Act, Trademark Act,
New Designs Act) from time to time to help spruce up innovation and new
technologies in the sector







21


Mergers & Acquisition
Acquirer Target Deal date Value (USD million
n)
Centum Electronic
Ltd
Solectron EMS India
Ltd
29
th
July 2010 6.8
Shemaroo
Entertainment Ltd
Vistas Digital Media
Ltd
30
th
October 2010 5.1
Emerson Electric Co Fisher sanmar Ltd 31
st
March 2011 135.0
Schneider Electronic
India Ltd
Smartlink Network
System
13
th
May 2011 113.0
Mitsubishi Electric
Corp.
Messung Group 23
rd
Jan 2012 NA
Crompton Greaves
Ltd
ZIV Group 27
th
july 2012 192.0

Marketing initiatives
Increased confidence in the Internet
For component manufacturers and their authorized distributors, Internet has allowed them to
expand their reach globally, while the same to reduce the cost of time that more and more
buyers are beginning to accept platforms e -commerce. This trend will continue in 2014 as
dealers and suppliers that provide Internet access to the populations of global buyers in high-
growth markets like China and India, while providing buyers the ability to source product
meets their needs and budget of the project. This is particularly important in the search for
hard to find parts and obsolete at the end of his life.
The coming year of new possibilities for the electronics industry and advance the process of
purchasing and supply chain management online to increase efficiency and reduce the
downward pressure on margins. Dealers looking to improve their offers inventory tracking
based on the Internet, product videos and downloadable electronic data sheets

22


Samsung Electronics Co is expected to spend around $14 billion - more than Iceland's GDP -
on advertising and marketing this year, but it doesn't always get value for money. "Samsung's
marketing is too much focused on projecting an image they aspire to: being innovative and
ahead of the pack," said Oh Jung-suk, associate professor at the business school of Seoul
National University. "They are failing to efficiently bridge the gap between the aspiration and
how consumers actually respond to the campaign. It's got to be more aligned."
Samsung spends a bigger chunk of its annual revenue on advertising and promotion than any
other of the world's top-20 companies by sales - 5.4 percent, according to Thomson Reuters
data. Apple spends just 0.6 percent, and General Motors 3.5 percent.

Factors favoring investment in electronics.
Growing customer base: Market for electronics is expected to grow at a CAGR of 22.0 per
cent during the period 20092020. The demand for electronics hardware in India is projected
to increase from an estimated USD68 billion in 2011 to USD125 billion by 2014 and
USD400 billion by 2020.
Targeted reduction in import bill: Domestic electronic production accounts for around 45.0
per cent of the total market demand. Therefore, in order to reduce the import bill, the
government plans to boost the domestic manufacturing capabilities and is considering a
proposal to give preference to Indian electronic products in its purchases
Increasing penetration in the consumer durables segment: Consumer durables market in
India is characterized by low penetration in various product segments, viz. 1.0 percent in
23

microwaves, 3.0 per cent in ACs, 16.0 per cent in washing machines, 18.0 per cent in
refrigerators, etc. Higher disposable incomes are leading to realization of penetration
potential in various product segments, especially in rural areas
Policy and investment support: To compliment the targeted reduction in import bill, the
government has proposed a minimum investment of USD555.0 million for semiconductor
manufacturing plants and USD222.0 million for ecosystem units. This is considered a major
step toward attracting foreign companies to set up manufacturing facilities in India

1.3 GLOBAL SCENARIO
The worldwide electronic industry is experiencing phenomenal and a remarkable
change through fast-growing technological advances, which have been contributing to
the growth of the industry over the years.

The growth cycle of global electronic industry may be categorized and can be noted
that since 1990s, and especially from 2000 onwards, the growth in global electronics
industry has been contributed by growth in internet, telecom penetration and newer
applications in industrial segments.

Growth cycles and electronics pervasion are the roots of such a rapid development.
Initially, driven by Government applications in the 60s and 70s, then by private
enterprises in the 80s, and later by growth of new applications since the 90s, the
electronics industry is re-inventing itself due to massive R&D investment, which
translates into permanent new product introduction.

Today, new societal needs in energy, security and even health are relying on
electronic solutions that are still to be developed, providing long-term growth
perspectives for the overall industry for the next decades. Although the electronics
industry demonstrates more mature growth profiles, it is still a young industry with
major growth perspectives ahead






24

World Electronics Industry 2008-2013:
Contrary to mass-market produce, expert electronic supplies is Characterized by
lower numbers from solitary constituents to hundreds of thousands Units .They do not
address individual clients but confidential firms or organizations such as
governments.

Certainly in order to contest in these corresponding areas, contestants demand to
Comply alongside rather disparate manufacturing paradigms. The construction of the
Electronics supplies industry is imitating this dichotomy.

As concerning half of the industry is pondered in IT sectors (Data Processing +
Telecommunications), half of the industry is localized in Asia including China, the
N1 creation centre for electronic supplies worldwide since 2005.

Industrialized economies have not vanished from the electronics manufacturing and
landscape. Europe and North America yet grasp suitably the 2nd and 3rd positions for
electronics supplies creation, jointly representing up to 40% of the Globe in 2008.

The Innovation engine and the Electronics Industry value chain:
The electronics industry embodied 1140 billion Euros in 2008 and is nowadays
comparable in size to supplementary vital manufacturing divisions such as the Car
industry (1800 billion Euros in 2008).

A rather amazing figure for such a recent industry whose origins go back merely half
a century , Development cycles and electronics pervasion are the origins of such a
quick development.

Early driven by power requests in the 60s and 70s, enterprises in the 80s and in the
end people as the 90s, the electronics industry is re-inventing itself as its basis cheers
to large R&D investment, which translates into perpetual new product introduction.

Today, new societal needs in power, protection or condition are relying on electronic
solutions that are yet to be industrialized, bestowing long-term development
perspectives for the finished industry for the subsequent decades. Even though the
electronics industry demonstrates extra mature development profiles, it is yet a
youthful industry alongside main growth perspectives ahead.

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Crisis Impact and Medium term growth perspectives:

The 2008 commercial disaster and its consecutive encounter on globe economy have a
profound encounter on the electronics industry. In 2009, the electronics is anticipated
to plummet by up to 6.8% in 2009 for the early period as the 2001 telecom disaster.

In the medium word, the average development trend (estimated at 6% in July 2007)
will be decreased by extra than half to 2,7% amid 2008 and 2013, due to the crisis
encounter on globe investment and consumption outlines

Decision development scenario stays though optimistic on the medium word as the
marketplace is anticipated to stabilize in 2010 beforehand recouping its 2008 level as
soon as 2011.

Contrary to the last telecom disaster, the electronics industry is not at the basis of the
present commercial slowdown and ought to consequently recoup much extra quickly
than it did back in 2001.
The United States is losing market share in Electronics to Japan:
The best metric for competitiveness assessment is globe marketplace share. The
United State's allocate of globe electronics marketplaces cut steadily across the 1980s,
with whole electronics sectors such as customer electronics nearly vanishing from
U.S.-based and -owned producing facilities.
26


"In electronics, ... the biggest U.S. manufacturing industry, the United States exported
$5B to Japan in 1987 but imported $26B.

The U.S. Transactions Department presently described that Japan might surpass the
United States in creation of electronic goods by 1994, and emphasized that since 1984
(except for multimedia and health equipment) the United States capitulated market
share in 35 of 37 electronics categories.

Even in fields such as confidential computers, super computers, and microprocessors,
long manipulated by the United States, the U. S. marketplace allocate has declined.

More defeat in globe marketplace allocate in most categories continued across 1990.
For example, U.S. factories' allocate of the U.S. market in computers went from 94
percent in 1979 to 66 percent in 1989.
Estimated growth of Electronics market in the world:
This shows the estimated growth in production of electronics by 2013 in comparison
with 2008. The analysis reveals that in 2013, the total world production is expected to
grow at a CAGR of 2.7%.

The major difference among the growth in geographical areas will be their capacity to
recover from the recent market downturn. To this respect, China is expected to
outperform other regions. China (growth of 7%) is expected to show the highest
growth followed by Other Asia Pacific countries (5.8%).

Europe and North America is expected to show deceleration in their production owing
to the recovery phase after the economic recession
27




Total Electronics production by region (2013%):

From the above diagram, the production of china is comparatively higher than other countries
of Japan, OAP, Europe, N Am etc.

13%
32%
19%
3%
19%
14%
Total Electronics Production by Region
japan
china
OAP
ROW
eur
N Am
28

1.4 PORTERS FIVE FORCES MODEL

1. Rivalry Among Existing Competitors - (High)

Numerous and equally balanced competitors As there are already large numbers of
competitors in this industry, rivalry for better quality at a cheaper price is quite high.

Shorter Product Life-Cycle As the technology is growing at a rapid pace, the life
cycle of products has become relatively shorter.

High R&D costs To come up with a better or a substitute product with better added
features it requires great deal of investment in research and development which can be
very risky because if the product fails then the costs incurred are sunk costs and
cannot be recovered.

Imitation of technology As the concept of reverse engineering has enabled
everyone to imitate the technology that the rival company uses, it becomes a difficult
task to maintain exclusivity and uniqueness.

Low profit margins As the competition is high in this industry the prices has to be
kept minimal so that customers do not buy other brand with same specifications. This
in turn reduces the profit margin if the firm.
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High exit barriers As there are huge fixed costs associated with setting up of
industry, therefore exiting from business means excessive losses which are almost
impossible to recover.


2. Threat of New Entrants - (Low)

1. Economies of scale It is very much significant as the fixed cost associated
with setting up a manufacturing plant is quite high due to inefficient
infrastructure, less supply of water and electricity, reasonably high cost of
capital and continuous up gradation of technical and managerial efficiencies.

2. Product differentiation Even though consumers are getting more and more
aware about differentiated products but still it is very difficult for manufacturers
and retailers to induce brand loyalty among consumers. The main reason behind
this is that consumers in India are very price sensitive and they switch to other
similar product if they find a better deal. It is very difficult for a new entrant to
manufacture a new product that is at par (in terms of quality) with the existing
product and at a lower price.

3. Capital requirements In case of consumer electronics, there is a deficiency of a
proper distribution channel and less information about customer purchasing
patterns which has to be substantiated with huge investment in distribution
networks and R&D to be better off. Also setting up of a manufacturing plant
requires heavy capital which also can serve as a barrier.

4. Switching costs - It varies among different categories of the electronic products.
For example the switching costs for cell phones are high as the customer find it
difficult to switch to other brand as he/she is already used to operate a particular
brand. However, in terms of refrigerators, laptops and television consumers are
more likely to switch to other brands if they find better features in terms of price
and quality or better brand at lower price.

5. Supply Chain Issues The already existing too many intermediaries in the
supply chain along with logistic issues, the management of Point Of Sale data,
theft in small amounts during delivery, distribution and inventory management,
almost eats up the earnings of the manufacturers and retailers which makes entry
for new players even more unattractive.

6. Government Policy By promoting the manufacturing sector and working for
improvement of the infrastructure, the government has developed the entire
manufacturing industry, which will help boost the electronic industry in a very
30

significant manner though it is only a small part of the entire manufacturing
sector. As the government is focused on doing all it can to encourage the growth
of manufacturing sector, it can be seen through some of the following policies
which substantiate the argument.
The tax revenue for the consumer electronics sums up to about 25% of the
manufacturing industry that itself tells the whole story. This is especially due
to the multiple tax structure that are 12% VAT, 8% excise, 4% goods and
services tax, 2% central sales Tax and other local taxes.
Normally all the FDI policies limits the investment of foreign investors up to
51% which forces the foreign investors to use franchise arrangements, but in
the manufacturing sector the FDI can be up to 100% that certainly favours the
foreign investors.
The new manufacturing policy implemented by the government in the year
2011 aims at further strengthening this sector(since the development of this
sector plays a crucial role in the development of other sectors such as IT sector
and retail sector) and also to build its international competitiveness which will
improve the exports as well.


By taking into consideration all the pros and cons, India still offers a fair chance for
new players and therefore the threat of new entrants can be said to be low to
moderate.


3. Bargaining Power of Suppliers - (Low)

Big Global Supply chain Management Since suppliers are not concentrated
and distributed almost evenly elsewhere the bargaining power is quite low.
Because of large number of suppliers, they are forced to either cut their costs
or to go out of business.
Direct negotiation with suppliers takes place in order to promote
Reliable supply
Faster delivery
Lower prices
Many Original Equipment Manufacturers have started to produce small
products in house which have increased competition among rivals.




4. Bargaining Power of Buyers - (Rather High)
31


Since the products are fairly undifferentiated as there are large numbers of
producers producing the same product at a same or lower price, the
consumer seldom differentiates among products unless he is too much brand
conscious.
Buyers face few switching costs
Online shopping has increased the bargaining power of buyers
Buyers are price sensitive and demand high quality


5. Threat of Substitute Products - (high)

The threat for the substitute products is quite high as the technology is growing
at a rapid pace and players are investing heavily in research and development for bringing up
with a new innovative product to have an edge over other rivals competing in the same
segment.
For example:
Digital cameras have replaces the film cameras.
Pen drives in place of floppies and Cds.
Mobile phones in place of pagers.






1.5 PESTLE ANALYSIS


POLITICAL
Government Type & Stability As India is a democratic country and mostly these
days governments are formed with alliances as no single party gets the majority, it
gets extremely difficult to pass tuff laws as it requires consent from the majority of
the house (Lok Sabha and Rajya Sabha). Moreover if the ruling government doesnt
comply with the demands of other parties they are brought down by passing of no
confidence motion, therefore it is highly unstable. So, the policies implemented by the
previous government may not still remain same if the new party doesnt agree to it.
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All this creates ambiguity in the minds of investors whether to invest in the industry
or not.
Corruption India is facing huge problem for curtailing corruption. According to a
survey by Transparency International in 2010, more than 65% of the population has
had a firsthand experience of paying bribes or influencing peddling to get jobs done.
Top level ministers and bureaucrats have been accused of corruption of some kind or
the other. This serves as one of the biggest hindrance to the development of any
industry and foreign investors also have their own apprehensions when it comes to
investing in India.
FDI Policy We have 100% FDI allowed in electronic manufacturing sectors which
allows opportunities for foreign investors to invest into this industry that in turn will
boost our economy and encourage Indian players also to improve their efficiency.
Good deal of relaxation is given by the government and many schemes has also been
announced such as EPCG, EHTP etc. to encourage investment in this industry.


ECONOMIC
Globalization Due to globalization, the access to international markets have become
quite easy which is a very positive sign. After the industrial reforms taken by India in
1991 and the implementation of Liberalization, privatization and Globalization, it has
become a very favorable environment for the foreign investors to come in and set up a
manufacturing industry.
Consumer Disposable Income Since the consumer disposable income has increased
in the last decade mainly because of the implementation of sixth pay commission in
govt. jobs and good salaries in private jobs, the manufacturers has an incentive to
produce more and more as the demand has risen significantly.
Labor Costs Since the Labor costs is quite low in India as compared to other
countries, the manufacturers has an incentive to hire more and more labors and
increase their efficiencies.
Inflation Rate the inflation rate in India is about 8% which provides incentives for
the suppliers to produce more as they earn more.


SOCIAL
Population Growth Rate Population in India is growing at a pace of 1.3% annually
and currently it is 1.234 Billion (2012) which is the second largest in the world after
China. The huge population along with increased disposable income of the service
class people and tech-savvy youth gives ample opportunities for the manufacturers of
electronic products and it is also lucrative for the foreign investors to come and invest
in India.

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Age Distribution India has more than 50% of population that is below the age of 25
and more than 65% that is below the age of 35. It is expected that by 2020 the average
age of India will be 29, as compared to 37 for China and 48 for Japan. Research
proves that the generation of 21
st
century is very tech savvy so therefore, electronics
industry has ample amount of opportunities to tap into the youth generation and
extract maximum profits.

Perception of safety The manufacturers undertakes high safety measures in the
factory and keeps upgrading its machines so that its workers are safe which in turns
improves the efficiency of the workers.

Employment Patterns The human resource directly employed in this industry is
estimated to be approximately 0.9 million currently (Source: IMaCS analysis). In this
sector, about 50% of the work force is engaged in the production function and the
major skill gap are as follows
A) Improper ideas of the manufacturing of new products in this sector (Flat TVs,
plasma TV, etc), improper ideas about PCB Layout.
B) Improper knowledge about components to be used in the new products, material
management and reduction of rejection in the development of these products.
C) Scarcity of technically skilled workers for quality auditory functions, handling of
sophisticated machines tools as well as machines.
Corporate Social Responsibility (CSR) As per the new companies act 2013, the
companies are required to spend 2% of the profits for corporate social responsibility,
which will bring an estimated value of 20,000 crores to the social sector. This tidal
wave can serve both as challenge as well as opportunity. The challenge being high
rate of corruption which will lead to a high risk of money being misspent and stolen
that is supposed to cater the underprivileged sections of the society. The opportunity
is, if the implementation is done well, along with helping the poor and needy the CSR
will contribute towards building of trust and reputation of business enterprises. This is
crucial because, trust in businesses is quite low and people are disgusted with corrupt
businessmen and their practices. It is also a better way to engage employees as
todays educated youth has a desire to give something back to the society. Instead of
taking CSR as a burdensome imposition and 2% tax, companies should see it as a 2%
investment in building corporate trust, employee engagement and innovation. Real
CSR not only renews the implicit license to operate given by the society to the
companies, it also creates a functioning society where we all can live in.


Environmental
Environmental Protection Agency of India As of date this agency do not regulate e-
waste and local govts for the collection of electronic waste and disposing them.
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E-Waste Management (Waste like Lead, Cadmium, Mercury, etc.) The total waste
generated by the electronic industry amounts to 1600000 tonnes per annum. In India
the e-waste problem has not been properly addressed Hazardous waste rules
1989(amended in 2003).


Technological
Degree of Automation - India is investing a lot of money in developing infrastructure
which has impacted the manufacturing industry itself which includes the electronic
industry. These industrial processes require high degree of automation to maximize
efficiency, accuracy and speed. With the increase in the degree of automation there is
a increasing demand of skilled workers as well. Anup Wadhwa, director, Automation
Industry Association (AIA), explains, Automation itself it a very vast field.
Depending on the needs of businesses, different companies classify it via different
criteria. However, for industrial purposes, we talk about manufacturing environments.
There are front and back ends to automation, and companies deal in the same from the
end users point of view. A company can be called to be dealing with process
automation if the end user is operating in an explosive or hazardous area.
Alternatively, its called factory automation if the field and applications are related
more to the general manufacturing environment.

Automation industry addresses the design, development, production, and application
of devices and systems that sense, measure and control industrial processes and
manufacturing operations, he adds.(source: http://www.electronicsforu.com)

Emerging Technologies The preceding year 2013 has seen a drastic improvement in
the development and adoption of new technologies. Indian electronics industry has
dared to take the risks and adopted new technologies to maximize its efficiencies.
This industry has faced dramatic changes also the e-commerce sector is back in
business, people have started talking about customer experience rather than customer
relationship, cloud adoption has now become a reality with medium-size and large-
sized companies using either private cloud or public or hybrid model, even though
there are few security concerns yet new technologies are gaining acceptance. Some of
these technologies will continue to be a driving force of customers agenda in the
coming years like Big data, Cloud and customer experience along with new
technologies like mobility and internet of things. In todays scenario, the consumer
electronics items needs to be equipped with best features and user-friendly, hence
integration and innovation still remains to be the key driver for investments in the
consumer electronics in the year 2014. We are at a point where organizations are
looking forward to effective solutions to reduce the cost of capital, time utilization
and deployment and a drive for high performance. Each and every organization in the
industry are in a rush to be successful and they can easily comprehend the fact that
new technologies can only help them reach their objectives.

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Impact of Internet Many companies are using internet either to make direct contact
with the customers for the first time or to intensify the relationship with their trading
partners and utilizing the internets reach to request for quotes or selling off stocks of
goods by auction. By the use of internet customer can actually buy a product online
without having to go to the prescribed dealer. The internet is also helping firms to
reduce their costs significantly across its demand and supply chains, taking the
customer service to a different level, to enter into new markets, creating additional
profits and redefining the business relationship.



Legal
Tax Policies - According to the union budget of 2013-14 which the Indian finance
minister Mr. P. Chidambaram presented in the parliament, he says, The National
Electronics Policy 2012 is intended to promote manufacture of electronic goods in
India. We recognize the pivotal role of semiconductor wafer fabs in the ecosystem of
manufacture of electronics. I propose to provide appropriate incentives to
semiconductor wafer manufacturing facility including zero custom duty for plant and
machinery.
He further added, To attract new investments and quicken the implementation of
projects, I propose to introduce an investment allowance for new high value
investments. A company investing Rs 100 crores or more in plant and machinery
during the period 1-4-2013 to 21-3-2015 will be entitled to deduct an investment
allowance of 15 percent of the investment. This will be in addition to current rate of
depreciation. There will be an enormous spill over benefit to small and medium
enterprises. (Source: http://www.elcina.com/ ).This shows the emphasis of govt. to
promote the electronic industry which in itself is a positive sign for every investor.
Labor Laws Collective bargaining in India has remained limited in its scope and
controlled by a well defined legal structure. As a matter of fact, the labor laws
systematically promoted and perpetuated a duality of labor, i.e. formal sectors
workers with better protection and social security on the one hand and informal sector
workers with minimum or no protection and social security benefits on the other.
Similarly, formal sector workers have enjoyed better space for collective bargaining
in comparison to the informal sector workers with very little or no scope for collective
bargaining. It is interesting to note that the applicability of different sections of the
labor laws is limited by the number of workers engaged in an establishment. The
Factories Act provides for healthy, safety, welfare and other aspects of workers lives
while at work in the factories. Under this act, an establishment with 10 workers (and
electricity connection) or 20 workers in case of no power connection is a factory. The
Employees Provident Fund and Miscellaneous Provisions Act, the Maternity benefit
Act and the payment of gratuity Act apply to all establishments with 10 or more
workers.(Source: http://www.amrc.org.hk/ )
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1.5 HERFINDAHL INDEX
The current HHI index is 0.38 which indicates that industry is