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Consumer Electronics in China Euromonitor August 2004 Consumer electronics China List of Contents and Tables 1. INTRODUCTION ....................................................................................................................... 1 2. EXECUTIVE SUMMARY ......................................................................................................... 2 3. CONSUMER ELECTRONICS .................................................................................................. 3 3.1 Market Perfor****nce ...................................................................................................... 3 Table 1 Retail Sales of Consumer Electronics: Value 1998-2003 .................... 5 Table 2 Retail Sales of Consumer Electronics: Volume 1998-2003 ................. 6 Table 3 Retail Sales of Consumer Electronics: % Value Growth 1998- 2003 ..................................................................................................... 6 Table 4 Retail Sales of Consumer Electronics: % Volume Growth 1998-2003............................................................................................ 6 Table 5 Consumer Electronics Company Shares 2002-2003............................ 7 Table 6 Consumer Electronics Brand Shares 2002-2003.................................. 8 4. VIDEO PRODUCTS ................................................................................................................... 8 4.1 Sector Perfor****nce ....................................................................................................... 8 Table 7 Retail Sales of Colour Televisions by Screen Size: % Volume 2001-2003.......................................................................................... 10 Table 8 Retail Sales of High-End Colour Televisions by Screen Size: Volume & Value 1998-2003.............................................................. 11 Table 9 Retail Sales of VCD and SVCD Players: Volume & Value: 1998- 2003......................................................................................... 12 Table 10 Retail Sales of Video Products: Value 1998-2003............................. 14 Table 11 Retail Sales of Video Products: Volume 1998-2003.......................... 15 Table 12 Retail Sales of Video Products: % Value Growth 1998-2003 ........... 15 Table 13 Retail Sales of Video Products: % Volume Growth 1998- 2003 ................................................................................................... 15 Table 14 Video Products Company Shares 2002-2003..................................... 16 Table 15 Video Products Brand Shares 2002-2003 .......................................... 17 4.2 New Product Developments ......................................................................................... 17 Sum****ry 1 Video Products New Product Developments 2002-2003................... 18 4.3 Retail Distribution ....................................................................................................... 18 Table 16 Retail Sales of Leading Electronic Chain Stores: 2002-2003 ............ 20 Table 17 Leading Electronic Chain Stores Number of Outlets: 2002- 2003 ................................................................................................... 20 Table 18 Retail Sales of Video Products by Distribution For****t: % Analysis 1998/2003 ........................................................................... 21 5. AUDIO PRODUCTS ................................................................................................................. 21 5.1 Sector Perfor****nce ..................................................................................................... 21 Table 19 Retail Sales of Home Cine****/Theatre System/HTIB: Product Structure: 2001-2003 ......................................................................... 22 Table 20 Retail Sales of Portable MP3 Players by Manufacturers: % Volume: 2002/2003 ........................................................................... 23 Table 21 Retail Sales of Audio Products: Value 1998-2003............................. 24 Table 22 Retail Sales of Audio Products: Volume 1998-2003 ......................... 25 Table 23 Retail Sales of Audio Products: % Value Growth 1998-2003 ........... 25 Table 24 Retail Sales of Audio Products: % Volume Growth 1998- 2003 ................................................................................................... 25 Table 25 Audio Products Company Shares 2002-2003 .................................... 26 Table 26 Audio Products Brand Shares 2002-2003 .......................................... 27 5.2 New Product Developments ......................................................................................... 27 Sum****ry 2 Audio Products New Product Developments 2002-2003................... 27 5.3 Retail Distribution ....................................................................................................... 28 Table 27 Retail Sales of Audio Products by Distribution For****t: % Analysis 1998/2003 ........................................................................... 30 6. FORECAST MARKET PERFORMANCE............................................................................. 30 Table 28 Forecast Retail Sales of Consumer Electronics: Value 2003- 2008 ................................................................................................... 32 Euromonitor Page i Consumer electronics China Table 29 Forecast Retail Sales of Consumer Electronics: Volume Table 30 2003-2008.......................................................................................... 32 Table 31 Forecast Retail Sales of Consumer Electronics: % Value Growth 2003-2008............................................................................. 33 Forecast Retail Sales of Consumer Electronics: % Volume Growth 2003-2008............................................................................. 33 Euromonitor Page ii Consumer electronics China CONSUMER ELECTRONICS IN CHINA 1. INTRODUCTION This report ****yses the ****rket for consumer electronics in China. For the purposes of the study, the ****rket has been further divided into two sectors: video and audio. The video sector covers the following product categories: • Televisions • Video cassette recorders (VCRs) • Digital video/versatile disc (DVD) players/recorders • Camcorders • Digital cameras The audio sector covers the following product categories: • In-home audio • Personal/portable audio • In-car audio after****rket The People’s Republic of China consists of 23 provinces, five autonomous regions, four municipalities, and two special administrative regions (SARS). This report will cover Mainland China only, and will therefore exclude Taiwan, and the two SARS of Hong Kong and Macao. There are a few facts that ****y help understand the consumer electronics industry in China: • In conformity with other countries’ data, the VCD/SVCD players are excluded from China’s video sector. Yet, given the importance of VCD/SVCD players in China in relation to the decline of VCRs and the blossoming of DVD players, VCD/SVCD players are covered as a separate product type, and ****ysed in the context of local product evolution. • Attention needs to be paid to the vast seasonal discrepancy of ****rket perfor****nce within a year. As data below are calculated on an annual basis, the ****rket’s seasonal fluctuations will not present themselves directly. However, a good understanding of the seasonal patterns of the Chinese consumer electronics (CE) ****rket will shed light on consumers’, and thus retailers’, behaviour. In the late 1990s China’s Government introduced a slew of policies and measures to stimulate the then lukewarm domestic consumption. For the consumer electronics ****rket, the government’s prolonging of national holidays around National Day (1 October) and May Day, resulting in the so-called ‘holiday economy’, has had the greatest impact. Firstly, it gives people more time to shop. Previously, the golden season for retailers was limited to the one and half months preceding Chinese New Year, correspondingly around December and January in the solar calendar. With the longer October holiday, year-end sales now last from October to January, accounting for nearly half of annual value and volume across most products. The percentage can be even higher for high-ticket items as colour TVs and in-home audio systems. Secondly, since Chinese consumers have more time for leisure, family outings and other social activities, de****nd for digital cameras and digital camcorders soars during the May and October holidays, in addition to the Chinese New Year. • Corporate-funded private consumption, in the form of giveaways, accounts for a considerable proportion of certain CE products. As a typical Chinese business practice, conferences and exhibitions – most of which are organised by either trade associations or governmental departments – collect fees from participant companies and give away gifts to individual Euromonitor Page 1 Consumer electronics China participants. Based on industry interviews, for consumer electronics that are light weight, priced below RMB1,000, and include products such as VCD/DVD players, low-end digital cameras, and portable MP3 players, up to 5% of units sold annually have gone into private consumption in this way. 2. EXECUTIVE SUMMARY Strong economic perfor****nce underlies consumer electronics growth With strong GDP growth averaging 8% per annum since late 2001, Chinese consumers feel much more secure about long-term economic conditions than they have previously. Rising household incomes resulted in an increase in entire consumer electronics industry of more than 3% in current value terms in 2003 over the previous year. Audio products saw growth in current value terms of almost 6%, and of 2% in volume terms. Video’s double-digit volume growth of nearly 13% did not readily translate into equally positive value growth due to the falling prices, and as a result video products saw an increase of only 1.5% in current value terms during 2003. Consumer electronics largely unscathed by SARS epidemic In hindsight, the ****rket emerged relatively unscathed from the SARS epidemic, which swept the cities of North, East and South China, and peaked in April/May 2003. The limited dampening effect of the SARS outbreak on the perfor****nce of the consumer electronics ****rket was due to the fact that the second quarter of each year ****kes the lowest contribution to total annual Chinese sales of consumer electronics. As soon as the country was officially declared SARS free, crowds reappeared in ****rketplaces, drawn by the drastic price cuts implemented by retailers anxious to stimulate turnover. Soaring sales, starting from National Day Holiday in October until Chinese New Year, more than enough compensated for the sales lost to SARS in the second quarter. Digital is the buzzword ‘Digital’ is the best selling point for ****ny video and audio products. In colour TVs, even though none can strictly be classified as digital TV (DTV), high definition CRT TVs, projection TVs, Plas**** TVs, and LCD TVs have all been selling rapidly on the pitch of being ‘digital’ or ‘digital- ready’. The grand plan laid out by the government to broadcast the 2008 Olympics digitally, and to set up a national digital broadcasting system by 2010, promises huge potential for private de****nd for digital TV sets and related products. Seeing the digital TV as the next growth source, foreign brands and leading domestic ****nufacturers have invested heavily in setting up production lines. For audio device ****nufacturers, being digital means incorporating multiple channel digital sound processing technologies such as Dolby Digital and THX into their in-home audio systems. The progress in digital technology has also led to digital cameras, digital camcorders, MP3 players and other digital devices becoming s****ller in size, increasing storage capacity, lowering prices, and improving functions. As they provide more advanced functions to consumers, these devices are quickly ****king their way to the consumer ****rket, replacing previous generation models. Technological advancement shortens product cycle As cameras, camcorders and video cassette recorders (VCRs) only recently started to be accepted by Chinese consumers, the new generation of i****ging products, in the form of digital cameras, digital camcorders, and VCD/DVD players, entered Chinese consumers’ scope around the same time. This created a unique ****rket evolution pattern in the vast Chinese ****rket. For example, it took six years for VCD player sales to grow in China, yet only three years for DVD players to reach a similar level. Euromonitor Page 2 Consumer electronics China 3. CONSUMER ELECTRONICS 3.1 Market Perfor****nce A consumer electronics revolution hits China Underpinned by a strong ****croeconomic background, with China ranking as the fastest growing economy in the world, the country’s consumer electronics ****rket has enjoyed a healthy growth in recent years. In 2003 sales of consumer electronics were worth approaching RMB160.4 billion, which represented an increase of 3.5% in current terms on the previous year. The reasons for this perfor****nce are rising levels of household disposable income as a dividend of the strong economy, falling unit prices, and an increasing amount of leisure time for consumers. These factors are underpinned by the greater role played by electronic multiple specialists in the distribution and retailing of such products, and the strong consumer appetite for new and digital technology products. Technological advancement shortens product cycle As cameras, camcorders and video cassette recorders (VCRs) only recently started to be accepted by Chinese consumers, the new generation of i****ging products, in the form of digital cameras, digital camcorders, and VCD/DVD players, entered Chinese consumers’ scope around the same time. This created a unique ****rket evolution pattern in the vast Chinese ****rket. It took six years for VCD player sales to grow in China, yet only three years for DVD players to reach a similar level. Similar scenarios are occurring with regard to digital cameras versus traditional ****ogue cameras, and MP3 or other digital music players compared with ****ogue for****t players. A critical factor that contributes to the shortening CE product cycle in China is its own ****ssive and nimble ****nufacturing force in the Southern and Eastern regions. The ****nufacturers based there are well informed of the global ****rket development through their Original Equipment Manufacturer (OEM) production experiences for leading global CE brands, which date back as early as the late 1980s. Since most high-tech components can be imported as modules, domestic ****nufacturers can focus on product design and ****rketing network development. Once their assembling technology level is comparable to foreign standards, domestic brands, due to cost advantages, are able to offer large quantities of products at prices that are affordable to Chinese consumers. With the profit ****rgin cut by the ensuing price wars, ****nufacturers will cannibalise the sales of current product lines and swiftly switch to the next generation technologies. SARS has limited effect on consumer electronics The SARS epidemic proves to be short-lived and have little impact on the annual ****rket numbers. Given that consumer expenditure was virtually put on hold when most cities in the Eastern and Southern regions were plagued by the SARS virus, the perfor****nce of the consumer electronics ****rket might have been considered exceptional at first sight. However, close examination indicates that the SARS outbreak, which peaked in April and May in the most affected regions, did not really dampen the annual sales figures. The quarter-on-quarter comparisons pictured a bleak scene across the board during the second quarter, during which time consumers were confined to home after office hours and at weekends due to fears of contamination. The sales volume of ****ny electronics products, particularly those sold through large ****rketplaces and priced below RMB1,000, either stagnated or even declined. However, as the seasonal pattern of China’s consumer electronics ****rket dictates, the second quarter is always the weakest in terms of both value and volume sales. High-ticket item purchases tend to occur between October and February, the period that encompasses the mid-autumn festival (Mooncake festival), national day holiday, Christ****s, New Year, and Chinese New Year. Sales of low budget electronic or digital products suffered most during the SARS period, because the Euromonitor Page 3 Consumer electronics China purchasing decisions regarding those items are usually ****de on an ongoing base, and are least subject to family or personal consumption planning. As soon as the SARS outbreak ended, the ****rket picked up steam: crowds returned to ****rketplaces, and released pent-up de****nd for consumer electronics and other products as retailers and ****nufacturers slashed prices in order to stimulate consumption, and boost turnover. Internet benefits from SARS outbreak Unsurprisingly, the SARS outbreak spurred direct sales via the Internet. As crowds deserted ****rketplaces, chain stores and ****nufactures were forced to promote their products on-line. Manufacturers implemented extensive advertising campaigns on their own websites as well as in other popular portal sites, and listed product prices and direct-line phone numbers of dealers or outlets. Interested consumers could call the numbers provided to ****ke further inquiries. Sometimes consumers could even bargain for better price terms. Goods would then be delivered to their door and payment settled in cash – an innovative way to bypass the barrier of undeveloped electronic payment in China. As a result, chain stores and ****nufacturers were able to minimise the da****ge caused by SARS, while preparing themselves for the post-SARS period with newly gained brand recognition. Foregin vendors dominate high-end price segment Foreign vendors dominate sales of technology-intensive consumer electronics, with a ****rket volume share of over 80% in product categories such as LCD screen televisions, plas**** display panel (PDP) televisions, digital cameras, and digital camcorders. The almost elusive control over core technologies in DVD players, LCD/PDP circuit modules, and digital cameras’ memory storage and lens systems, has benefited foreign companies tremendously. On one hand they can reap in the patent fees required of Chinese companies using their technologies. Those charges cut thin the profit ****rgins of affected Chinese ****nufacturers. On the other hand, the supre****cy in technology has reinforced a deep-rooted perception of superior quality and functionality with foreign products among Chinese consumers, which enables foreign brands to com****nd a sizeable price premium over their domestic counterparts. In ****ny product categories, foreign brands rank much higher in value terms than their sales volume would otherwise indicate compared with domestic brands. Higher living standards and rising levels of disposable income have increased de****nd for high-tech electronic products in China. Major international consumer electronic brands such as Sony, Panasonic, Samsung, LG, and Philips view the Chinese ****rket not only as their production base, but also as an increasingly important component of their global strategy, and a long-term core ****rket. This change of view is reflected in the fact that ****jor foreign companies have begun to launch new products simultaneously in both Chinese and Western ****rkets. Also, the closeness between production line and ****rket enables foreign brands to compete more aggressively on the domestic front, even taking on domestic brands in price wars when opportunities arise. Vulnerability is the name of the game for domestic ****nufacturers of consumer electronics, which are learning the hard way. An often cited example is multi-tiered patent fees levied on Chinese- ****de DVD players by the so-called 6C group (Toshiba, JVC, Mitsubishi, Time Warner, Hitachi, and Matsu****a) and 3C group (Philips, Sony, and Pioneer) respectively. The threat of patent fees also looms large in digital cameras and other digital products. Major Chinese companies have started to invest heavily on research and development in recent years, as evident in the invention of the Enhanced Versatile Disc (EVD) technology, and several breakthroughs in PDP circuit technologies. Yet, there is still a long way to go for domestic companies. Electronic specialist chains a force to reckon Euromonitor Page 4 Consumer electronics China It is safe to say that at the beginning of the review period, not one in a thousand Chinese consumers had the remotest idea what an electronic specialist chain store was. Today, however, specialist chains are known to the ****jority of urban Chinese consumers. In a ****tter of five years electronic chain stores – pioneered by Beijing Gome Electronics Corp and Su-Ning Electronic Chain Store Corp – have become the first choice for urban Chinese consumers when ****king purchases of electronic goods, because these outlets offer quality brands, integrated after-sale service, and most importantly the best price to perfor****nce ratio. The rapid rise of specialist chains led to the reshuffling of the retailing scene. Traditional distribution channels such as department stores and ****nufacturers’ direct sales outlets have come under tremendous pressure, while s****ll businesses have been forced out of the ****rket completely. More than 60% of volume sales in provincial capitals and ****jor hub cities in more developed coastal regions are derived from chain stores. At national level, chain stores’ volume share is around 50%, and this is expected to increase further in the near future, as ****jor chains continue to expand aggressively. Large screen TVs most popular CRT colour TVs with a screen size of 29 inches and over continue to be the leading product on the ****rket. This is because CRT TVs still offer the best perfor****nce in terms of value for money than projection, LCD or PDP sets. However, consumers are shifting their focus towards high-end and thus more expensive TVs. Consumer education efforts by different players have greatly increased awareness of projection, LCD and PDP TVs, particularly the more affluent urban Chinese consumers. The migration from conventional CRT TVs to more expensive non-CRT units has already taken place. As with any high-tech, high-value product, falling prices represented the key de****nd driver. Digital video products boosted by falling prices With more affordable unit prices, the consumption of videodisk units – VCD, SVCD and DVD players – re****ins high. However, DVD players have become ****instream products, while de****nd for VCD/SVCD players is limited to rural areas and declining, as these products have lost out to DVD players in cities. The almost universal videodisk player ownership, coupled with the increasing consumption of large screen colour TVs, has stimulated de****nd for in-home audio systems. Most consumers purchased in-home audio systems in order to fully appreciate digital audio processing technologies incorporated in videodisk recording for****ts. Digital products are among the most dynamic in volume terms. Chinese consumers’ acceptance of new technologies cannot be better depicted than in their enthusiastic embrace of digital cameras, digital camcorders and MP3 players. Extended national holidays and the resultant increase in available leisure time as a result of government domestic consumption-stimulating policies, have had a positive effect on the growth of digital products. Table 1 Retail Sales of Consumer Electronics: Value 1998-2003 RMB million 1998 1999 2000 2001 2002 2003 Video products 85,739.2 81,889.4 71,260.3 69,882.0 80,851.0 82,052.0 Audio products 62,231.6 66,299.0 69,806.0 69,908.4 74,025.5 78,303.2 Consumer electronics 147,970.8 148,188.4 141,066.3 139,790.4 154,876.5 160,355.2 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 5 Consumer electronics China Table 2 Retail Sales of Consumer Electronics: Volume 1998-2003 '000 units 1998 1999 2000 2001 2002 2003 Video products 36,786.4 35,422.5 35,508.0 38,118.4 48,912.0 55,235.6 Audio products 50,562.0 51,723.4 52,560.4 52,417.2 52,821.9 53,897.4 Consumer electronics 87,348.4 87,145.9 88,068.5 90,535.6 101,733.9 109,133.0 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 3 Retail Sales of Consumer Electronics: % Value Growth 1998-2003 % current value growth 2002/03 1998-03 CAGR 1998/03 TOTAL Video products 1.5 -0.9 -4.3 Audio products Consumer electronics 5.8 4.7 25.8 3.5 1.6 8.4 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 4 Retail Sales of Consumer Electronics: % Volume Growth 1998-2003 % volume growth 2002/03 1998-03 CAGR 1998/03 TOTAL Video products 12.9 8.5 50.2 Audio products Consumer electronics 2.0 1.3 6.6 7.3 4.6 24.9 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 6 Consumer electronics China Table 5 Consumer Electronics Company Shares 2002-2003 % retail volume 2002 2003 Company Sony (China) Ltd 14.3 13.8 Matsu****a Electric (China) Co Ltd 8.0 7.5 Konka Group Co Ltd 4.5 5.7 Suzhou Philips Consumer Electronics Co Ltd 6.6 5.6 Sichuan Changhong Electronics Group 5.6 4.8 TCL Corp 4.5 4.4 Shenzhen Skyworth-RGB Electric Co Ltd 3.3 3.6 Samsung China Electronics Co Ltd 3.6 2.8 Qingdao Hisense Co Ltd 3.5 2.8 Jiangsu Shinco Electrics Distribution Co Ltd 2.0 2.7 Shanghai Kenwood Electronics Co Ltd 2.4 2.6 BBK Electronic Co Ltd 1.8 2.5 JVC China Ltd 2.2 2.1 Haier Group 2.3 1.7 Guangdong Nintaus Electronics Co Ltd 1.1 1.2 Malata Group Ltd 0.4 1.2 Nanjing Sharp Electronics Co Ltd 1.1 1.1 Alpine Electronics (China) Co Ltd 1.0 0.6 SVA (Group) Co Ltd 0.9 0.6 Avlight Technology (Zhongshan) Co Ltd 0.1 0.2 Canon (China) Inc 0.1 0.2 Pioneer China Holding Co Ltd 0.2 0.2 Shenzhen SAST Electronics Co Ltd 0.2 0.2 C**** Audio Co Ltd 0.1 0.2 Valle Digital (Zhongshan) Co Ltd 0.0 0.2 Sanyo (China) Ltd 0.1 0.1 Olympus (China) Inc 0.1 0.1 Nikon (China) Inc 0.1 0.1 Onkyo China Ltd 0.0 0.1 Roland Shanghai Electronics Co Ltd 0.1 0.1 Others Total 29.6 31.1 100.0 100.0 Source: China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 7 Consumer electronics China Table 6 Consumer Electronics Brand Shares 2002-2003 % retail volume Company 2002 2003 Brand Sony Sony (China) Ltd 7.6 8.2 Panasonic Matsu****a Electric (China) 8.0 7.5 Co Ltd Konka Konka Group Co Ltd 4.5 5.7 Philips Suzhou Philips Consumer 6.6 5.6 Electronics Co Ltd Aiwa Sony (China) Ltd 6.7 5.6 Changhong Sichuan Changhong Electronics 5.6 4.8 Group TCL TCL Corp 4.5 4.4 Skyworth Shenzhen Skyworth-RGB 3.3 3.6 Electric Co Ltd Samsung Samsung China Electronics Co Ltd 3.6 2.8 HiSense Qingdao Hisense Co Ltd 3.5 2.8 Shinco Jiangsu Shinco Electrics 2.0 2.7 Distribution Co Ltd Kenwood Shanghai Kenwood Electronics 2.4 2.6 Co Ltd BBK BBK Electronic Co Ltd 1.8 2.5 JVC JVC China Ltd 2.2 2.1 Haier Haier Group 2.3 1.7 Nintaus Guangdong Nintaus Electronics 1.1 1.2 Co Ltd Malata Malata Group Ltd 0.4 1.2 Sharp Nanjing Sharp Electronics Co Ltd 1.1 1.1 Amoi Alpine Electronics (China) Co 1.0 0.6 Ltd SVA SVA (Group) Co Ltd 0.9 0.6 Avlight Avlight Technology 0.1 0.2 (Zhongshan) Co Ltd Canon Canon (China) Inc 0.1 0.2 Pioneer Pioneer China Holding Co Ltd 0.2 0.2 SAST Shenzhen SAST Electronics Co Ltd 0.2 0.2 C**** C**** Audio Co Ltd 0.1 0.2 Valle Valle Digital (Zhongshan) Co Ltd 0.0 0.2 Sanyo Sanyo (China) Ltd 0.1 0.1 Olympus Olympus (China) Inc 0.1 0.1 Nikon Nikon (China) Inc 0.1 0.1 Onkyo Onkyo China Ltd 0.0 0.1 Boss Roland Shanghai Electronics 0.1 0.1 Co Ltd Others 29.7 31.1 Total 100.0 100.0 Source: China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 4. VIDEO PRODUCTS 4.1 Sector Perfor****nce Large flat screen CRT continues to dominate Euromonitor Page 8 Consumer electronics China Colour TVs accounted for just over three-quarters of total video sales value in China in 2003. The sector has largely enjoyed a bumpy year in 2003. Sales of colour TVs reached 36.5 million units by the end of 2003, up by almost 7% on the previous year. Due to high household penetration (more than 100% in urban areas according national statistics), colour TVs are almost ****ture. As a result, most retail sales come from either existing TV-owning households replacing old sets, or buying additional sets. For upgrading, consumers tend to opt for more expensive units than those purchased previously. There is increasing de****nd for larger screens, better picture quality and more stylish models. For ****ny urban Chinese consumers, the concept of a colour TV has changed from that of a luxury item to a necessity, and now to an entertainment utility. Foreign brands increase share in sales of large screen CRT sets Large-sized, flat-screen CRT televisions are the best selling items. Specifically, the 29-inch model alone accounted more than a third of colour TV sales in 2003 at 36.6%, but this represented a decline on the share of 41.4% held in 2002 and 44.2% held in 2001. De****nd is increasing for models with 34-inch or larger screens. The continuing strong perfor****nce of CRT televisions throughout the review period is due to the fact that this, the most ****ture kind of TV technology, is deemed as offering the best perfor****nce for money, as large-screen colour TVs are still considered high-ticket items for most Chinese households. Interestingly, the share of foreign brands among large screen CRT televisions increased significantly over 2002 and 2003. Per industry sources, the first four leading foreign brands now have over 30% volume share of CRT television sales. This might be attributed to the fact that foreign ****nufacturers are taking full advantage of low cost local production, which enables them to engage in strong price competition with domestic ****nufacturers. Projection TVs lead in sales of high-value models Among more affluent urban consumers, the desire for models with a larger screen and higher picture resolution led to surging sales of projection, plas**** display panel (PDP), and LCD TVs. Retailers in ****jor municipal cities reported selling out of PDP and LCD TVs during Chinese New Year, and other national holiday seasons in 2002 and 2003. Combined, these three high-value television for****ts saw a 160% increase in volume in 2003. Projection TVs lead sales of these three high-value products. Major TV vendors in China introduced projection TVs in the late-1990s, and it is widely accepted in the consumer electronics industry that projection TVs are more ****ture than PDP or LCD TVs. A fall of 30% in the unit prices of ****instream projection TV models throughout 2003 certainly represented another important factor contributing to the ****rked sales recorded in 2003. Projection TVs are typically 40- to 50-inch units. Most models feature VGA/XGA input, so that the screens can double as computer monitors. Foreign projection TV brands that are locally produced have a volume share of around 75% of total projection TV sales. The re****inder is taken up by a few domestic ****kers, with Changhong leading. Foreign brand PDP/LCD sell fast in municipal areas As for PDP TVs, screen sizes fall between 32 and 60 inches. The 42-inch model is the ****instream unit, accounting for more than 60% of sales volume. Standard 42-inch models usually have a resolution of 1,024x768 pixels, up to 1,024x1,024 pixels. Similar to RPTV, most PDP sets also have VGA/XGA inputs. Eight out of 10 PDP units sold are foreign-branded items. Japanese and Korean brands have undisputable dominance. In terms of brand share, Panasonic leads, followed by LG Electronics and Philips. Domestic brands with relatively significant shares are SVA, TCL and Skyworth. Euromonitor Page 9 Consumer electronics China The perfor****nce of LCD televisions largely mirrors that of PDP units. LCD TVs tend to be of s****ll screen sizes, typically 15- or 20-inch sets, and are thus sold at considerably lower prices than PDP sets. Sharp leads sales volume of LCD TVs, with more than a 40% volume share in 2003. Though ****ny of CRT flat-screen, projection, and PDP and LCD units claim to be ‘HDTV-ready’ or ‘SDTV’ types, they are not true digital televisions, in the sense that ‘HDTV-ready’ units still require a set-top box (STB) to receive digital programmes, while SDTVs only receive ****ogue signals. Digital TVs with a built-in decoder to receive digital signals are non-existent in China as yet, because national digital TV standards re****in unsettled. Reputation and quality the most important concerns for upper income consumers The weak position of domestic brands in the high-value categories belies their lack of core technology. For example, when it comes to PDP-related technologies, six Japanese and Korean companies exclusively control related patents. Industry sources admit that the cost of imported core parts can take up to 60% of domestically ****de PDP TV sets. Because buyers of PDP and LCD TVs fall in the upper level income segment, they are the least price sensitive. Their ****in concerns are brand reputation and product quality. Unsurprisingly, sales concentrate on a selective few municipal cities, such as Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, and Wuhan, where consumers’ disposable incomes are higher than the national average. Sales of monochrome TVs have been plunging in recent times, falling by 20% in volume terms and by almost 22% in current value terms in 2003 alone. Previously, monochrome TVs were for the less developed rural de****nd. As colour CRT televisions become more affordable, rural consumers are moving away from monochrome TVs. Table 7 Retail Sales of Colour Televisions by Screen Size: % Volume 2001-2003 % 2001 2002 2003 14-inch 1.0 1.4 1.9 21-inch 25-inch 26.4 28.3 30.0 29-inch 34-inch 18.7 17.6 16.6 38-inch 38-inch+ 44.2 41.4 36.6 Others Projection TV 7.4 7.6 9.3 PDP TV LDP TV 0.1 0.1 0.1 2.1 3.0 4.5 0.1 0.8 2.0 0.08 0.**** 1.77 0.01 0.08 0.08 0.01 0.08 0.09 Source: China Electronics Industry Yearbook, company research, trade interviews, Euromonitor esti****tes Euromonitor Page 10 Consumer electronics China Table 8 Retail Sales of High-End Colour Televisions by Screen Size: Volume & Value 1998-2003 000 units 1998 1999 2000 2001 2002 2003 Projection TV PDP TV 4.8 7.4 9.9 24.7 218.8 ****5.9 LDP TV – – 1.0 3.1 27.3 31.4 – 0.08 27.3 33.6 0.01 0.09 RMB million 99.7 151.1 201.6 400.3 2,839.4 6,707.1 Projection TV 973.9 PDP TV – – 42.3 129.5 984.4 369.7 LDP TV – – 17.1 52.3 351.6 Source: China Electronics Industry Yearbook, company research, and Euromonitor esti****tes Sales of television combinations re****in negligible Television combinations (TVC) have never registered any meaningful retails sales in China because Chinese consumers are more inclined to purchase separate TV sets and video recording/playback units. Another practical reason from a TV ****nufacturer’s point of view is that integrating video units into TV sets would add little value given that the previously high unit prices of standalone videodisk players have been declining in recent years. Several leading domestic TV ****nufacturers interviewed are producing TVC units for overseas ****rkets only. Chinese development of video recording/playback different to Western model Video recording/playback devices in China have evolved differently to North America and Europe since the mid-90s. Neither the US or Europe passed through the VCD or Super VCD (SVCD) phase. As a result, when DVD was introduced to these ****rkets in the late 1990s and early 2000s, the for****t was revolutionary. The laser disc (LD, the same size as a vinyl music album), which was present, was an ****ogue product. So, the subsequent progression from VCR to DVD has been very much one-directional, and one generation apart in terms of technology, with no real transient product in between. However, Eastern Asia, especially China, had seen the substantial development of VCDs from mid- 1990s, with de****nd for VCD/SVCD players and discs re****ining strong until late in 2001. As a result DVD comes to Chinese consumers as a natural step from VCD/SVCD, as both digital in nature. For now, although DVD is becoming increasingly popular, the existing de****nd for VCD/SVCD, while declining, re****ins huge. This also explains why VCD recorders are selling so well in China, because recordable VCD – not VCR – is the predominant means of capturing and storing video in the country. VCD ****kes way for DVD China’s videodisk player ****rket still encompasses three products: VCD players, SVCD players and DVD players. 2003 saw the volume of DVD player sales expand by more than 30% from the previous year. This followed upon even more impressive year-on-year growth of 183% and 166% in 2002 and 2001 respectively. In current value terms, however, the total annual sales value re****ined largely unchanged, as the average unit price of DVD players declines, hitting around RMB760. In 2003, for example, DVD players saw growth of only 0.4% in current value terms. That said, the pace of average unit price declines did slow significantly during 2003 as a result of a growing consumer for progressive scan DVD players. Progressive scanning technology offers a higher i****ge resolution and is quickly replacing alternative scanning to become the mean feature. De****nd for older VCD/SVCD units is in sharp decline, with sales in 2003 half of those in 2002. De****nd for such units is largely limited to rural areas. The disparity in technology between VCD/SVCD and DVD by no means indicates the price gap between these for****ts. A low-end DVD Euromonitor Page 11 Consumer electronics China player costs only RMB100 to RMB200 more than an SVCD unit. Since DVD technology is backwards compatible with VCD/SVCD for****ts, given the continuous decline of the price of DVD players, even rural consumers, for whom videodisk player penetration re****ins low compared to urban areas, will switch to DVD players sooner rather than later. VCRs **** out De****nd for VCRs has been dwindling as first VCD and SVCD players, and then DVD players, quickly gained prominence in the Chinese ****rket. The residual domestic de****nd is sustained by the needs of closed circuit television (****) units used for security purposes. Only a few ****nufactures in China still ****nufacture VCRs, with more than 90% of these units exported overseas. Table 9 Retail Sales of VCD and SVCD Players: Volume & Value: 1998- 2003 000 units 1998 1999 2000 2001 2002 2003 VCD players SVCD players 10,270 9,210 7,200 3,670 1,500 800 Total 5,500 7,840 12,800 11,600 8,100 4,400 17,050 20,000 15,270 9,600 5,200 15,770 RMB million 17,582 17,868 16,000 9,162 4,800 2,496 TOTAL VCD and SVCD Source: China Electronics Industry Yearbook, trade interviews, company research, Euromonitor esti****tes. Domestic DVD brands forced to innovate Domestic brands still dominate DVD player and DVDR sales, representing 70% of sales volume. However, ****jor foreign brands, including Philips, Panasonic, LG and Pioneer, doubled their combined share in 2003 from approxi****tely 15% in 2002 according to industry sources. Foreign brands ****inly target high-income consumers and lead in terms of product design and functional development. It is also believed that by establishing local production bases, foreign brands are able to compete in local pricing terms. Without exception, all leading Chinese DVD player ****nufacturers were previously heavyweight players in the production of VCD/SVCD units. Yet, Chinese ****nufacturers have a competitive disadvantage compared to foreign players. Under agreements with various DVD technology licensing agencies representing leading developers of DVD technology and for****t, domestic ****nufacturers have to pay patent fees of up to US$15.00 per unit, for products exported to overseas ****rkets, and eventually for those sold to end-users in China (exempt until the end of 2003). In order to prevent further erosion of profit ****rgins, leading local players are busy upgrading their products. Their latest models are slimmer, more aesthetically pleasing and more feature-rich. In the meantime, they have start ****king portable and hard drive-based models, both of which require certain technology sophistication, such as heat dissipation components and mini LCD displays. As a result they com****nd higher prices. Some have also entered the audio sector by developing in-home theatre systems around DVD players. Digital the ‘in thing’ in camcorders and cameras Camcorder sales grew steadily in both volume and value terms over the review period, despite falling unit prices. Low-end models cost as little as RMB6,000. Camcorder sales are set to increase to more than half a million units in 2003, 85% of which will be digital products. Digital is the keyword in the ****rket at the moment. Analogue camcorders are doomed to ****ke a quick exit even before they have achieved any significant sales in China, with less than 87,000 units sold in 2003. Major Japanese and Korean camcorder ****nufacturers have ceased to ****rket their Euromonitor Page 12 Consumer electronics China ****ogue products in China, as they concentrate on digital models. As a result, Sony and Panasonic’s shares have stagnated over the last two years, although their sales volume declined radically. Longer holidays underpin growth The fast expansion of digital camcorder sales in China has partly been stimulated by the ‘holiday economy’ promoted by the Chinese Government. Starting from 2000, the government designated the first week of each May and October as a public holiday in order to stimulate domestic consumer expenditure. The policy has proven quite a success. Sales of cameras, camcorders and related photographic products in the two so-called ‘golden weeks’ now account for as much as 20% of the annual total, as consumers purchase them for leisure purposes and to record family outings. Other significant de****nd drivers are family or social activities, such as weddings and the birth of a baby. It has almost become a fashion among young urban families to record those events, and then store the videos on CD-ROM using their home computers. Digital camcorders are the exclusive do****in of Japanese and Korean brands, which monopolise the core technologies. The leading two brands – Sony and Panasonic – set up local ****nufacturing facilities in China as early as 1995, with most of their production exported. In 2002, sensing the great potential of the domestic ****rket, Sony began to ****nufacture models specifically tailored to the Chinese ****rket. Two models introduced by Sony in the second quarter of 2003 have held the top two leading positions ever since. Samsung surges ahead In recent three years, Sony and Panasonic’s dominance in sales of digital camcorders was gradually eroded, as Samsung, Canon and JVC gained considerable shares through aggressive ****rketing and pricing activities. Sony still held a volume share of 40% in 2003, followed by Panasonic (Matsu****a Electric (China) Co Ltd) on 18%. Among the followers was Samsung Electronics on a 16.2% volume share in 2003. This was the only non-Japanese brand, and was quickly closing the gap with Sony and Panasonic, its share increasing by almost seven percentage points over 2002- 2003 alone. Samsung took to a different path to the other players in carving out its share. It emphasises ergonomic product design and engaged in aggressive price-oriented ****rketing activities. For example, first-time users need only to press the ‘easy Q’ function button on all of its products to begin recording. Such strategies have so far proved quite successful. Furthermore, in recent years Samsung has invested heavily in upstream electronic component research and productivity, ranging from memory chips to CCD/CMOS technologies. Those efforts seem to bear fruit as they provide a secure and low-cost supply source. Digital cameras become a necessity Fuelled by falling prices, domestic de****nd for digital cameras almost doubled in 2003, with volume sales reaching close to 1.1 million units, up by just over 88% on the previous year. The sharp rise in volume sales is more than enough to compensate for the effects of falling unit prices, pushing the annual value of digital camera sales in 2003 to RMB2.9 billion, a 50% increase in current terms from the previous year. As part of China’s commitment upon its accession to WTO in 2001, the import quota previously imposed on digital cameras was abolished at the end of 2002. Additional goods, to the previously allowed quota, worth US$140 million were injected into the ****rket, triggering intense price cuts in the lower-price range throughout 2003. On average, the price level dropped by almost 20% in 2003. In the past, traditional film-based cameras were regarded as luxury goods. The last four years, however, have seen digital cameras rapidly fill the huge gap arising from the underdevelopment of traditional film cameras. Until 2000, most digital cameras were used for business purposes rather Euromonitor Page 13 Consumer electronics China than leisure or family use. Leading applications were public security, medical filming and i****ge design. Similar to what became of digital camcorders, the growing number of tourists during the two golden weeks and the traditional Chinese New Year period, quickly led to increased and huge family and leisure de****nd for digital cameras. Buoyed by the ever-strong home PC sales, and the rapid expansion of Internet access over the review period, the digital camera has been readily accepted as a household necessity rather than a non-essential luxury by urban Chinese consumers. Fierce competition and more price cuts There are around 35 digital camera brands on the ****rket. Among them, the Japanese brands, led by Sony, Canon, Olympus and Nikon, held a combined volume share of just under 57% in 2003. The re****ining share was split between Samsung, Kodak and several domestic ****kers. Nikon and Canon have particularly strong positions in the high-end niche (six megapixels and above) while other leading foreign brands all offer a full range of products. 1.3 to 2 megapixel resolution models priced at less than RMB1,000 are considered entry level cameras, while 3 megapixel resolution models have the highest sales volume. Domestic and Taiwanese brands such as Lenevo (Legend Group), Founder and Taiwan-based Benq have gained significantly through aggressive price-cutting in sales of products of 3 megapixel and less, since they entered the ****rket around mid-2002. In 2003 Legend’s overall digital cameras volume share stood at 3.2%. Increased competition has forced the average price of 3 megapixel unit below RMB3,000, and is expected to touch the RMB2,200 level soon. Four megapixel and above models are still considered high-end units. However, they are likely to become ****instream products in mid-2004, as large domestic and Taiwan-based companies have recently launched their 4 megapixel models, driving the average price below RMB3,000. The volume shares held by Sony and other leading foreign brands are expected to drop further in coming years, as local ****nufacturers emerge and become more established. Table 10 Retail Sales of Video Products: Value 1998-2003 RMB million 1998 1999 2000 2001 2002 2003 Televisions 81,311.5 75,346.4 63,574.9 57,816.8 62,976.0 62,818.6 Television combinations - - - - - - Video cassette recorders Digital video/versatile 2,396.0 2,216.5 2,100.1 1,983.7 1,835.7 1,743.9 360.0 2,067.0 3,010.0 6,817.9 11,323.2 11,3****.3 disc (DVD) players incl DVDR 1,514.2 1,974.1 2,143.1 2,446.5 2,782.6 3,215.1 Camcorders 157.6 285.4 432.3 817.2 1,933.5 2,910.2 Digital cameras Video products 85,739.2 81,889.4 71,260.3 69,882.0 80,851.0 82,052.0 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 14 Consumer electronics China Table 11 Retail Sales of Video Products: Volume 1998-2003 '000 units 1998 1999 2000 2001 2002 2003 Televisions 34,140.0 32,097.4 31,689.8 31,7****.5 35,015.5 37,198.4 Television combinations - - - - - - Video cassette recorders Digital video/versatile 2,191.6 1,942.2 1,802.4 1,672.4 1,497.9 1,348.1 120.0 939.5 1,505.0 4,008.2 11,345.9 15,052.0 disc (DVD) players incl DVDR 297.3 371.9 396.8 446.5 487.7 574.1 Camcorders Digital cameras 37.5 71.5 ****.0 226.9 565.0 1,063.0 Video products 36,786.4 35,422.5 35,508.0 38,118.4 48,912.0 55,235.6 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 12 Retail Sales of Video Products: % Value Growth 1998-2003 % current value growth 2002/03 1998-03 CAGR 1998/03 TOTAL Televisions -0.2 -5.0 -22.7 Television combinations Video cassette recorders - - - Digital video/versatile disc (DVD) -5.0 -6.2 -27.2 players incl DVDR Camcorders 0.4 99.5 3,056.7 Digital cameras Video products 15.5 16.3 112.3 50.5 79.2 1,747.1 1.5 -0.9 -4.3 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 13 Retail Sales of Video Products: % Volume Growth 1998-2003 % volume growth 2002/03 1998-03 CAGR 1998/03 TOTAL Televisions 6.2 1.7 9.0 Television combinations - - - Video cassette recorders Digital video/versatile disc (DVD) -10.0 -9.3 -38.5 32.7 162.8 12,443.3 players incl DVDR Camcorders 17.7 14.1 93.1 Digital cameras 88.1 95.2 2,734.7 Video products 12.9 8.5 50.2 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 15 Consumer electronics China Table 14 Video Products Company Shares 2002-2003 % retail volume 2002 2003 Company Konka Group Co Ltd 9.4 11.2 Sichuan Changhong Electronics Group 11.7 9.6 TCL Corp 8.8 Shenzhen Skyworth-RGB Electric Co Ltd 9.4 7.2 Qingdao Hisense Co Ltd 6.9 5.5 Jiangsu Shinco Electrics Distribution Co Ltd 7.3 5.3 BBK Electronic Co Ltd 4.2 4.5 Haier Group 3.3 3.3 Guangdong Nintaus Electronics Co Ltd 4.8 2.4 Malata Group Ltd 2.2 2.3 Sony (China) Ltd 0.9 1.8 Matsu****a Electric (China) Co Ltd 1.9 1.2 Alpine Electronics (China) Co Ltd 1.3 1.1 SVA (Group) Co Ltd 2.1 1.1 Canon (China) Inc 1.9 0.4 Olympus (China) Inc 0.3 0.2 Samsung China Electronics Co Ltd 0.2 0.2 Nikon (China) Inc 0.1 0.2 Kodak (China) Ltd Inc 0.1 0.2 Fuji Photo Film (China) Ltd 0.1 0.1 JVC China Ltd 0.1 0.1 Others 0.1 Total 31.7 33.2 100.0 100.0 Source: Trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 16 Consumer electronics China Table 15 Video Products Brand Shares 2002-2003 % retail volume Company 2002 2003 Brand Konka Konka Group Co Ltd 9.4 11.2 Changhong Sichuan Changhong Electronics 11.7 9.6 Group TCL TCL Corp 9.4 8.8 Skyworth Shenzhen Skyworth-RGB 6.9 7.2 Electric Co Ltd HiSense Qingdao Hisense Co Ltd 7.3 5.5 Shinco Jiangsu Shinco Electrics 4.2 5.3 Distribution Co Ltd BBK BBK Electronic Co Ltd 3.3 4.5 Haier Haier Group 4.8 3.3 Nintaus Guangdong Nintaus Electronics 2.2 2.4 Co Ltd Malata Malata Group Ltd 0.9 2.3 Sony Sony (China) Ltd 1.9 1.8 Panasonic Matsu****a Electric (China) 1.3 1.2 Co Ltd Amoi Alpine Electronics (China) Co 2.1 1.1 Ltd SVA SVA (Group) Co Ltd 1.9 1.1 Canon Canon (China) Inc 0.3 0.4 Olympus Olympus (China) Inc 0.2 0.2 Samsung Samsung China Electronics Co Ltd 0.1 0.2 Nikon Nikon (China) Inc 0.1 0.2 Kodak Kodak (China) Ltd Inc 0.1 0.2 FujiFilm Fuji Photo Film (China) Ltd 0.1 0.1 JVC JVC China Ltd 0.1 0.1 Others 31.7 33.2 Total 100.0 100.0 Source: Trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 4.2 New Product Developments Hard drive based DVD players introduced Sichuan Changhong Electrics Group Co Ltd is among the first to release products offering the 16:9 screen for****t. The 38-inch 100hz CRT-based projection TV incorporates VGA/SVGA double- focus picture tune, full-system surround sound, digital stereo and woofer. Furthermore, it is in the RMB5,000-6,000 price range, ****king it realistically affordable price to local consumers. With its production base in Nanjing, Jiangsu, Sharp Corporation has taken full advantage of low local production cost, which enabled it to push the retail prices of its Aquos series LCD TVs below RMB10,000 in early 2003. It was the first time that the retail price of an LCD TV had fallen below this level. Since patent fees charged by the 6C and 1C groups have sliced the profit ****rgins of large domestic DVD ****nufacturers, ****ny have been upgrading their products. Amoi Electronics Co Ltd, among others, has introduced hard disk drive-based DVD players that utilise greater capacity hard disks for recording and playback of DVD-quality video. Introduction of EVD players an attempt to avoid royalty costs Another bold move by Chinese companies to avoid undue reliance on foreign technology and thereby alleviate the royalty burden has been the successful launch of Enhanced Versatile Disc Euromonitor Page 17 Consumer electronics China (EVD) players. The EVD for****t is designed to offer high definition content on optical disks using a red laser pickup, and become the presumptive standard for recording and playback of digital video, audio and data within China. It is still too early to say how this home-grown technology will fare. However, if the development of VCD/SVCD and DVD players represent an indication, the availability of high-definition content on EVD disks will play no s****ll part. As yet, however, none of ****jor domestic, Hong Kong-based, or Hollywood studios has committed to EVD. Digital camcorder technology develops As for digital camcorders, using DVD recordable disks as a video storage medium has been the trend. Panasonic’s VDR-M30 completely ditches DV tapes and adopts DVD-RAM/R technology to store video. Using DVD-RAM/R also greatly reduces the weight and size of the product. Another developmental direction is ****nifest in Samsung’s new models, which function both as camcorders and digital cameras. The product of the year, however, is Sony’s DCR-PC330E. It is the industry’s first 3-megapixel consumer camcorder. Sony produced and first launched the model in China before introducing it to other global ****rkets. As for new digital camera products, Sony has drastically lowered the prices of that 5 megapixels range to around RMB3,500, in the hope that 5 megapixels will be the ****instream resolution in 2004. Sum****ry 1 Video Products New Product Developments 2002-2003 Brand name Manufacturer Product type Launch date SVA EVD 8000 series SVA Group Ltd Co EVD player November 2003 Sony DCR-PC330E Sony (China) Limited Digital camcorder November 2003 Samsung vp D5000i Samsung (China) Digital camcorder October 2003 Electronics Amoi Amoi Electronics Co Hard disk drive DVD May 2003 Ltd recorder/player Panasonic VDR – Matsu****a Electronic Digital camcorder April 2003 M30 (China) Limited Changhong Sichuan Changhong CRT projection TV April 2003 Electrics Group Co Ltd Sony DSC-P10 Sony (China) Limited Digital camera February 2003 Aquos Nanjing Sharp LCD TV November 2002 Source: Electronics Co Ltd Trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews 4.3 Retail Distribution National specialist chain stores leap to predominance More than half of video volume sales were accounted for by specialist multiples in 2003, holding a volume share of 52.2%. The share held by this channel can be even higher in municipal cities such as Shanghai, Guangzhou and Beijing, where more than 60% of sales are ****de by the almost omnipresent national chained speciality stores, such as Beijing Gome Electronic Corp and Su-Ning Electronic Chain Store Corp. As incomes increase and living standards rise, the de****nd for high-end video products also soars, and consumers are beginning to expect professional advice and good after-sales services to be available, in addition to more favourable prices when ****king their purchases. As a result, specialist Euromonitor Page 18 Consumer electronics China multiples stocking ****inly mid-price to premium products, and which are capable of offering professional after-sales services, have emerged and risen to predominance over the review period. Specialist chain stores tend to purchase products directly from ****nufacturers via ****ssive bulk orders, through which chains can negotiate extensive price discounts. They then rely on discounts, partial cash refunds, vouchers, and seasonal clear-house sales to attract customers. For mid- to top- range products, special product features and novel designs are the ****jor selling points apart from brand reputations. Department stores and independents suffer due to rise of specialist multiples Department stores and independent specialist stores were also ****jor retail channels for electronic video products in China in 2003, holding volume shares of 24.6% and 15% respectively. Consumers preferred to go to reputable department stores and independent specialists for high-end, high ticket items because these outlets nor****lly offer quality assurances. However, both these channels saw significant declines in volume share over the review period as specialist multiples became increasingly important. For less well-known brands, goods are more likely to be sold on consignment. Under the consignment arrangement, payment will take a long period to settle after the goods are sold and ****nufacturers or suppliers ****y be asked to withdraw goods that re****in unsold for a long time. Some chain stores, Gome and Yong-Le, for example, have even started to sell products under their own labels. However, their share is still negligible, and considering the enormous local productivity, the chances that private labels will become significant in the future are limited. Sell cheap, fast, and big Department stores have been struggling to meet the challenge posed by national specialist chain stores. Due to their limited ****rket coverage – the ****jority of them operate in only one or two cities, they do not have the financial clout to bargain with suppliers or ****nufactures. As such, they are in an extremely vulnerable position whenever chain stores start to drastically slash prices. Many departments stores have since completely dropped out of consumer electronics ****rket, while others concentrate on the high-end electronics which are less susceptible to price fluctuations. It is esti****ted that department stores account for less than one quarter of annual consumer electronics sales volume in 2003, compared with almost 61% at the beginning of the review period. The sharp decline in the role of department stores is most evident in the change that occurred to the retail scene in Pearl River Delta from late-2002 onwards. Before Gome set up the first outlet in Guangzhou in October 2002, several state-owned department stores and local speciality stores held the lion’s share of the local ****rket. This, however, changed almost overnight. Gome reportedly wrenched away more than 40% of local share in the first month of operating. Su-Ning followed, opening stores one and half months later. Yong-Le Household Electronics Corp, a Shanghai-based chain store company, squeezed in around mid-2003 by acquiring Tornado Electronical, a leading local store chain. According to the city retail association’s esti****te, the three intruders com****nded a combined 60% of the local ****rket by the end of 2003. Over the same period, more than 300 local shops and department stores either quit the electronics ****rket or simply went out of business. More regional consolidation is expected Gome and Su-Ning are hopeful of winning the first round in the reshuffling of consumer electronics retail industry. Faced with the imminent threat of the aggressive expansion of Gome and Su-Ning, in July 2002 nine regional chain stores took the initiative to form a business alliance – ‘Zhong- Yong-Tong-Tai’, named after the four largest founding members (of which ‘Yong’ is named after Shanghai Yong-Le Household Electronics Corp). Its membership expanded to 16 as of October 2003. Euromonitor Page 19 Consumer electronics China The alliance gives member companies collective bargaining power comparable to that of Gome and Su-Ning when placing bulk orders from ****nufacturers and suppliers. It also enables member companies to take advantage of other economies of scale. The Shanghai-based Yong-Le expanded its business into the Central and South China regions beyond the home ****rket through mergers and acquisitions of other members. However, this development does not currently pose an imminent threat to Gome’s and Su-Ning’s leadership. Super****rket and hyper****rket shares growing, but still low Sales of video products through super****rkets and hyper****rkets, although growing rapidly, continued to account for a s****ll proportion (around 3.7% in 2003) of total video sales volume. Products sold in such outlets tend to be of a lower quality than those found in speciality chain stores, and are also lower in price. Products below RMB1,500, such as s****ll screen (less than 29-inch) CRT TV sets, VCD players and DVD players, account for the bulk of video sales in such outlets. Because super****rket and hyper****rket chain stores procure goods by placing ****ssive orders at discounted prices, domestic brands account for the ****jority of video products sold in these establishments. Diverse distribution channels for i****ging products Retail and distribution channels for digital cameras and camcorders are much more diverse. Depending on industry background of ****nufacturers, digital cameras and camcorders can be found on the shelves of IT general merchandise/authorised dealer shops, franchised film-developing and camera specialist shops, electronics chains and department stores. The first two channels account for 60% and 25% of “others” sales volume respectively according to industry sources. Table 16 Retail Sales of Leading Electronic Chain Stores: 2002-2003 RMB Million Beijing Gome Electronics Corp 2002 2003 Su-Ning Electronic Chain Store Corp Shanghai Yong-Le Household Electronics Corp 10,897 17,792 Jiangsu Wu-Xing Electronics Corp 8,068 12,098 4,895 3,233 8,760 5,107 Source: China Chainstore and Franchising Association Table 17 Leading Electronic Chain Stores Number of Outlets: 2002-2003 Beijing Gome Electronics Corp 01 Dec 2002 01 Dec 2003 Su-Ning Electronic Chain Store Corp **** 139 Shanghai Yong-Le Household Electronics Corp 148 Jiangsu Wu-Xing Electronics Corp 134 55 70 96 27 Source: China Chainstore and Franchising Association Euromonitor Page 20 Consumer electronics China Table 18 Retail Sales of Video Products by Distribution For****t: % Analysis 1998/2003 % retail volume 1998 2003 Specialist multiples 5.9 52.2 Specialist independents 28.0 15.0 Department/variety stores 60.9 24.6 Super****rkets/hyper****rkets/discounters Others 0.0 3.7 Total 5.2 4.5 100.0 100.0 Source: China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 5. AUDIO PRODUCTS 5.1 Sector Perfor****nce Strong growth in home theatres, MP3 players and in-car audio after****rket The overall audio sector enjoyed stable growth in 2003, reaching a value of RMB78.3 billion, up almost 6% in current terms from the previous year. The most ****rked perfor****nce is found in such product categories as home cine****s/theatres, portable MP3 players and in-car audio after****rket. Large TV/videodisk player ownership stimulates de****nd for home threatres While the current TV and videodisk player ownership among urban households is almost at saturation point, national statistics indicate that only around 30% of all urban households possess a hi-fi system of some sort. Many were purchased before the mid-1990s, and are thus in need of upgrading. The penetration rate in rural areas is much lower: a national survey revealed that only 37% of rural households had audio units, mostly in form of radio cassette combinations. As a result, new household purchases represent the most significant growth source for in-home audio products in China. As for out-performing home cine****/theatre niche in 2003, it demonstrated the following distinct characteristics: • The robust growth in 2002 and 2003 in both volume and value terms was driven by the relentless expansion of DVD player ownership. A survey implemented by the State Council’s China Economic Development Research Centre on China’s home cine**** trend in early 2003 revealed that consumers with DVD players are strongly inclined to purchase home cine****s/theatres in order to fully experience the enhanced digital sound quality promised by the DVD technology. This closely resembles the situation over 1999-2000, around which time the proliferation of VCD/SVCD players also stimulated de****nd for home audio products. • Given the secondary or derivative nature of de****nd, low- to mid-range products priced at between RMB3,000 and RMB6,000 are selling best. The sound codec technology employed in the low-end models is likely to be Dolby Pro Logic, a two-channel (stereo) for****t developed back in 1970 for VHS-based movies. However, an increasing number of mid-range (RMB6,000 and above) and high-end (RMB10,000+) products support Dolby Digital, DTS, or other various digital multi-channel for****ts. Home cine****/theatre products are still new, but are perceived to be mid-range to high-end products. Euromonitor Page 21 Consumer electronics China Table 19 Retail Sales of Home Cine****/Theatre System/HTIB: Product Structure: 2001- 2003 % volume 2001 2002 2003 Products employing Dolby Pro Logic 85.1 57.1 35.2 Products employing Dolby Digital, DTS, 11.7 37.7 56.3 AC-3 HITB 3.2 5.2 8.5 Source: Ministry of Infor****tion Industry, China Audio Industry Association, company research, store checks, trade interviews, Euromonitor esti****tes According to a survey conducted by the Economic Development Research Centre of the State Council on sales of home theatre systems, the top 10 brands held a combined volume share of less than 30% in 2002. The absence of heavyweight players can be better understood against the backdrop of the audio industry development through the review period. In Mainland China, it is esti****ted that there are over 300 suppliers of home theatre audio products. The domestic environment is split between s****ll enterprises and several large companies. As so ****ny ****nufacturers join the line, the domestic ****rket has become extremely competitive, causing product quality to slide. Manufacturers learned the hard way from the slump in 2001 – early in the year a scandal publicised on the national TV channel revealed several home audio systems touted as ‘imported quality foreign brands’ were in fact ****nufactured in Guangdong. The scandal cost the whole domestic audio industry dearly, as consumers subsequently shunned their products. Large companies, consisting of traditional audio product ****nufacturers and leading VCD/DVD ****kers, started to rely on improving product quality and design to differentiate their products, as well as to win over buyers. To raise the bar of industry standard, China Audio Industry Association introduced a so-called ‘Mark A’ accreditation scheme that evaluates the strengths of audio product ****kers in terms of product quality and penetration. So far less than 20 large-scale domestic ****nufacturers have obtained the certificate. Keen de****nd for mini hi-fi systems The booming de****nd for home cine****/theatre systems has a lot to do with the relatively subdued perfor****nce of in-home hi-fi systems over the review period. Most home cine****/theatre systems provide standard support for karaoke functions – a ****in reason why Chinese consumers buy hi-fi systems – as well as various audio line-in/out ports. However, there is keen de****nd for mini hi-fi systems. The ****in consumer group for such products is comprise of young people who want more privacy at home and a greater sense of personalisation when it comes to music. Mini hi-fi sets are compact in size and attractive in appearance, suitable for a s****ll area such as a bedroom. They feature s****ll speaker systems, integrated amplifiers, and high-precision A/D adaptors. Also, most of them can be used to play CDs, VCDs, DVDs and MDs, depending on the user’s requirement. Japanese brands such as Sony, Aiwa, JVC and Kenwood hold the lion’s share of sales of such products, although most are assembled in China. In-home audio separates limited to audiophiles Interestingly, de****nd for in-home audio separates is limited to a s****ll group of audiophiles. Probably due to lack of consumer education in audio products, Chinese consumers opt for systems that might cost considerably more than the better models of separate device. Euromonitor Page 22 Consumer electronics China CD portable goes strong Sales of portable audio devices have always been dominated by the few Japanese and Korean brands (with a volume share of more than 80% combined) ever since they were introduced. Local players are mostly export-oriented. De****nd for personal cassette players is in an irreversible decline, with such units now mostly bought by parents for their school children as a language learning tool. Portable minidisc players have never gained a significant share in China, although it is acknowledged that they offer superior sound quality compared with ****ny alternative products. Steep unit prices – around RMB2,000 – and the ‘complicated’ process involved in converting music files to the for****t, are the two ****in deterrents to minidisc sales. A typical minidisc player user is a young working **** who considers him/herself to be a music buff, and willing to pay more for better sound quality. The de****nd for portable CD players is still healthy and steady due to the ample supply of CDs. Many newer models sport integrated MP3 playback capabilities and other value-added features, which will reinvigorate de****nd for CD players. Table 20 Retail Sales of Portable MP3 Players by Manufacturers: % Volume: 2002/2003 %volume Brand 2002 2003 Samsung (China) Electronic Yepp 34.6 31.9 Beijing Huaqi Infor****tion & Digital Tech Co Aigo 18.8 22.3 iRiver Co Ltd iRiver 13.4 10.9 Benq Corporation Joybee Legend Group Lenovo 5.8 6.2 Vintion Electronic Co Ltd MSC 5.2 4.5 Others - 3.4 3.9 18.9 20.2 Source: Company research, store checks, trade interviews, Euromonitor esti****tes MP3 players demonstrate strong perfor****nce The real star of 2003 proved to be the MP3 player. This product continues to show strong growth, with 1.5 million units sold in 2003 at a value of approaching RMB1.4 billion, representing increases of 184% in volume terms and 142% in current value terms over the previous year. Rising Internet access, a greater array of models becoming available at more affordable prices, and the growing popularity of MP3 players among teenagers, students and young working ****s, all underpin the explosive sales of MP3 players in China. Due to the relatively low technological entry barrier, there is an abundant supply of flash memory MP3 players in the ****rket. It is esti****ted that there are around 30 brands – both domestic and foreign – currently available in China. It was, however, a completely different scene back in late 1999 when Samsung Electronic first introduced portable MP3 players into Mainland China as part of its DigitALL ****rketing campaign. Over 1999 and 2000 the whole Mainland ****rket was dominated by Samsung Electronic’s Yepp series MP3 players, with around 65% volume share. A standard model of the time was 32mb in flash memory, with its only function being MP3 music playback. As MP3 players increased in popularity among teenagers, college students and young working ****s, 2001 and 2002 saw an influx of new brands and suppliers. The new entrants can be categorised into four groups: electronic/IT product wholesalers/distributors; IT peripheral product ****nufacturers; large domestic PC ****kers and CE ****nufacturers; foreign brands led by Korean companies. Euromonitor Page 23 Consumer electronics China According to industry sources, Samsung’s Yepp series still hold the top spot in terms of volume share (31.9%), Beijing Huaqi Infor****tion & Digital Tech Co’s Aigo has been aggressively gaining share, ranking second with 23%, largely thanks to its existing distribution network, inherited from its computer peripheral dealership business. Functionality and design increasingly important Since MP3 technology has reached ****turity and competition has become increasingly tight, the current trend among ****nufacturers is to put more and more functions into one player. Built-in FM tuners, voice recording capability and USB port support are fast becoming standard features. Catering to the ever-strong de****nd for language learning among college students, ****ny MP3 players are also equipped with repeated reading functions. Most of the models now available also allow the playback of file in the Microsoft’s WMA (Windows Media Audio) for****t. In fact, ****ny consumers specifically check compatibility with WMA while ****king product inquiries. With more and more ****instream models equipped with the USB inte****ce, this opens the way for an MP3 player to double as a file storage device. Another equally noticeable trend is ****nufacturers’ increasing emphasis on cosmetic design, so as to attract i****ge-conscious consumers aged between 15 and 30, as well as students and working ****s. Booming private car ****rket stimulates de****nd for in-car products China has been the biggest OEM production basis for in-car audio after****rket. The car audio industry in Mainland China took off in the mid-1990s as leading Japanese companies, including JVC Corp, Matsu****a Electric Co Ltd, Clarion Co Ltd and Sony Corp established local production bases. Then most of their products went to overseas ****rkets. The local ****rket for in-car audio after****rket products came into being in the late 1990s, when domestic de****nd for cars increased. The booming private car ****rket in China, which is expected to register sales of 4.2 million in 2003, up 24% from the previous year has created tremendous business opportunities for in-car audio after****rket products. Japanese brands still ****naged to capture around 60% of volume sales. This figure, however, is not expected to be sustainable as more foreign companies, enticed by the rosy future of China private car ****rket, have started to enter the competition. Table 21 Retail Sales of Audio Products: Value 1998-2003 RMB million 1998 1999 2000 2001 2002 2003 In- home audio 51,608.1 55,347.7 58,352.6 58,345.1 62,090.3 65,607.2 Personal/portable audio 9,149.5 9,141.4 9,268.4 9,048.2 9,202.5 9,654.2 In-car audio after****rket 1,474.0 1,810.0 2,185.0 2,515.1 2,732.6 3,041.7 Audio products 62,231.6 66,299.0 69,806.0 69,908.4 74,025.5 78,303.2 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 24 Consumer electronics China Table 22 Retail Sales of Audio Products: Volume 1998-2003 '000 units 1998 1999 2000 2001 2002 2003 In- home audio 26,058.7 27,451.6 28,794.7 28,994.8 30,393.4 31,652.0 Personal/portable audio 23,783.3 23,356.8 22,670.7 22,178.3 21,079.6 20,758.4 In-car audio after****rket Audio products 720.0 915.0 1,095.0 1,244.1 1,348.9 1,487.1 50,562.0 51,723.4 52,560.4 52,417.2 52,821.9 53,897.4 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 23 Retail Sales of Audio Products: % Value Growth 1998-2003 % current value growth 2002/03 1998-03 CAGR 1998/03 TOTAL In- home audio 5.7 4.9 27.1 Personal/portable audio In-car audio after****rket 4.9 1.1 5.5 Audio products 11.3 15.6 106.4 5.8 4.7 25.8 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 24 Retail Sales of Audio Products: % Volume Growth 1998-2003 % volume growth 2002/03 1998-03 CAGR 1998/03 TOTAL In- home audio 4.1 4.0 21.5 Personal/portable audio In-car audio after****rket -1.5 -2.7 -12.7 Audio products 10.2 15.6 106.5 2.0 1.3 6.6 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 25 Consumer electronics China Table 25 Audio Products Company Shares 2002-2003 % retail volume 2002 2003 Company Sony (China) Ltd 25.9 26.1 Matsu****a Electric (China) Co Ltd 14.2 13.9 Suzhou Philips Consumer Electronics Co Ltd 12.7 11.4 Samsung China Electronics Co Ltd Shanghai Kenwood Electronics Co Ltd 6.8 5.4 JVC China Ltd 4.6 5.3 Nanjing Sharp Electronics Co Ltd 4.3 4.1 Avlight Technology (Zhongshan) Co Ltd 2.1 2.1 BBK Electronic Co Ltd 0.2 0.5 Pioneer China Holding Co Ltd 0.5 0.5 Shenzhen SAST Electronics Co Ltd 0.3 0.4 C**** Audio Co Ltd 0.4 0.4 Valle Digital (Zhongshan) Co Ltd 0.1 0.3 Sanyo (China) Ltd 0.1 0.3 Onkyo China Ltd 0.2 0.3 Roland Shanghai Electronics Co Ltd 0.1 0.2 Siemens VDO Automotive (Huizhou) Co Ltd 0.1 0.2 Liaoning No2 Radio Device Factory Co 0.1 0.1 Others 0.1 0.1 Total 27.4 28.3 100.0 100.0 Source: China Audio Industry Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 26 Consumer electronics China Table 26 Audio Products Brand Shares 2002-2003 % retail volume Company 2002 2003 Brand Sony Sony (China) Ltd 12.9 14.7 Panasonic Matsu****a Electric (China) 14.2 13.9 Co Ltd Philips Suzhou Philips Consumer 12.7 11.4 Electronics Co Ltd Aiwa Sony (China) Ltd 12.9 11.4 Samsung Samsung China Electronics Co Ltd 6.8 5.4 Kenwood Shanghai Kenwood Electronics 4.6 5.3 Co Ltd JVC JVC China Ltd 4.3 4.1 Sharp Nanjing Sharp Electronics Co Ltd 2.1 2.1 Avlight Avlight Technology 0.2 0.5 (Zhongshan) Co Ltd BBK BBK Electronic Co Ltd 0.5 0.5 Pioneer Pioneer China Holding Co Ltd 0.3 0.4 SAST Shenzhen SAST Electronics Co Ltd 0.4 0.4 C**** C**** Audio Co Ltd 0.1 0.3 Valle Valle Digital (Zhongshan) Co Ltd 0.1 0.3 Sanyo Sanyo (China) Ltd 0.2 0.3 Onkyo Onkyo China Ltd 0.1 0.2 Boss Roland Shanghai Electronics 0.1 0.2 Co Ltd VDO Siemens VDO Automotive 0.1 0.1 (Huizhou) Co Ltd Liaoning Liaoning No2 Radio Device 0.1 0.1 Factory Co Others 27.4 28.3 Total 100.0 100.0 Source: China Audio Industry Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 5.2 New Product Developments A typical mini hi-fi system such as Panasonic’s SC-PM 18 has multiple CD-decks and comes with two standalone speakers, sometimes even a subwoofer. An increasing number now also support MP3 playback and CD-R/RW functions. Sony has been the undisputable leader in sales of portable CD players ever since it introduced its Sony Disc****n personal/portable CD player 20 years ago. In late 2003, Sony revealed a new series of portable CD products catering to different users. The new series, priced at between RMB1,000 and RMB1,500, support four music file for****ts – CDDA, ATRAC3, ATRAC3 Plus and MP3. Hard disk-based MP3 players are expected to see increased sales in coming years since the leading domestic and foreign ****nufactures are moving away from low-value flash-memory based products. The Korean iRiver brand has been aggressively ****rketing its MP3 product. Its iHP-100 series uses mini hard disks of 1gb to 60gb capacity. With the rapid growth in the private car ****rket, leading European car audio companies such as Ger****ny’s Bosch and Italy’s Elettromedia had officially entered the Chinese ****rket by the end of 2003. These companies unveiled their latest state-of-the-art products in local auto exhibitions, followed by technical training programmes in ****jor cities and other ****rketing activities. Sum****ry 2 Audio Products New Product Developments 2002-2003 Brand name Manufacturer Product type Launch date Euromonitor Page 27 Consumer electronics China DA2600A SVA (Group) Co Ltd HTIB November 2003 Blaunpunkt series Bosch Car sound system November 2003 Audison Elettromedia Car audio amplifier November 2003 iRiver iHP-120 iRiver Co Ltd Portable MP3 player September 2003 Sony D-NE series Sony (China) Limited Portable CD player September 2003 Denon ****R1803 Denon Corporation Amplifier June 2003 Sanyo DC-MCR50 Sanyo Corporation In-home mini hi-fi May 2003 system Panasonic SC-PM18 Matsu****a Electric In-home hi-fi audio May 2003 Industrial (China) Co system Ltd Philips LX 3500D Philips In-home theatre February 2003 Sony MZ-N710 Sony (China) Limited Portable MD player January 2003 Bose AM-6II Roland Shanghai In-home satellite 2003 Electronics Co Ltd speaker system Kenwood HM-233 Shanghai Kenwood In-home hi-fi audio 2003 Electronics Co Ltd system Amoi Pro-300 Amoi Electronics Co Speaker systems 2003 Ltd Panasonic CT800 Matsu****a Electric Portable CD player 2003 Industrial (China) Co Ltd Yp-55 Samsung Electronics Portable MP3 player Late 2002 Source: China Audio Industry Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 5.3 Retail Distribution Franchised specialist stores lead brand-building actions Four audio product sales channels – large department stores, electronic specialist chains, hyper****rkets, and specialist stores for direct sales by the ****nufacturers – have coexisted for some time. Leading foreign brands such as Sony, Panasonic, Pioneer, JVC and Philips, most of which entered the Chinese ****rket in the 1980s, have established comprehensive distribution networks ****naged by regional representative offices, sales agents and various franchise arrangements. Through those networks, their products find their way to the shelves of branded counters in department stores and independent specialist shops, which might carry multiple foreign brands of audio and video products simultaneously. Guangdong-based C**** Audio Co Ltd was the first domestic audio products ****nufacturer to introduce franchised sales in the late 1990s. There are two standard forms of franchising: specialty stores/counters set up by regional distributors, which are in turn licensed by the ****nufacturer, and franchised stores directly licensed by the ****nufacturer. Generally, in the ****jor hub cities or the provinces where ****nufacturers are based, franchised stores would be the first option, while in the region where ****nufacturers have no strong local presence in form of a subsidiary or representative office, speciality stores/counters are more common. In either form, the franchising ****nufacturer has direct control over staff training, store design, product display, ****rketing activities and after- sales service. Euromonitor Page 28 Consumer electronics China In the absence of leading audio brands, franchising is the ideal avenue to build up and expand brand reputation. Many other large domestic brands, such as Avlight and Valle, have since adopted similar approaches. Equally important to audio distribution in China were electronic specialist chain stores not affiliated with a ****nufacturer. As consumers increasingly opt for chain stores to purchase electronic products, ****nufacturers have started to put their goods on chain store shelves. Large chains are also able to provide larger display areas, as well as audition room facilities to entice consumers. All told, nearly 32% of Chinese audio volumes were sold through specialist multiples – including both franchised and chained stores – during 2003. This represented a significant increase from the mere 5% volume share seen in 1998. Deparment stores retain considerable sales volume in low-end range With regard to personal or portable devices such as mini hi-fi systems, cassette/radio/CD Players (CRCs), portable radio/CD/cassette players, as they ****inly tend to be of relatively low-value and require little or no professional sales service of after-sales care, department stores still account for a considerable share of sales. Super****rket and hyper****rkets have also seen an increase in their share of sales of these products due to high customer traffic and deep discount offers. Conventional IT channels strong in MP3 player sales MP3 players are an exception to the general trend, with up to 70% of sales ****de through conventional IT channels, including IT general merchants and authorised dealer shops. The re****ining 30% of sales are accounted for by general department stores, super****rkets and hyper****rkets, and online sales. Two reasons account for the s****ll role played by department stores and super****rkets/hyper****rkets in sales of MP3 players. First, large department stores and super****rket/hyper****rket chains have strict entry requirements. In addition to keeping prices low, suppliers are required to pay a range of different charges, such as entry fees, shelving fees, monthly and/or yearly discounts, etc. It can easily add up to several thousand renminbi or even 10 thousand renminbi per outlet. For any ****nufacturer wanting to put its products on the shelves of several hundred stores across the country, the total sum might be unbearable, since the profit ****rgin on MP3 players is declining rapidly. Secondly, retailers are typically several months behind in payment, which is considered unacceptable by most IT ****nufactures, which are used to cash-and-carry methods. In-car audio after****rket products are mostly sold through specialist shops and car service workshops. Foreign and joint-venture brands meet most de****nd. In the high-end range products include integrated systems that provide multiple functions and digital display panels. In mid- to low-price segments there is a wide selection of products from basic radio and cassette players to CD players from s****ll-scale domestic ****nufacturers. Euromonitor Page 29 Consumer electronics China Table 27 Retail Sales of Audio Products by Distribution For****t: % Analysis 1998/2003 % retail volume 1998 2003 Specialist multiples 5.0 31.6 Specialist independents 15.9 29.0 Department/variety stores 75.8 31.1 Super****rkets/hyper****rkets/discounters Others 0.1 4.2 Total 3.2 4.1 100.0 100.0 Source: China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes 6. FORECAST MARKET PERFORMANCE More growth from audio products Given the still low ownership of most home video and audio products compared to more developed countries, added to the fact that digital technologies accelerate product innovation, the Chinese consumer electronics ****rket as a whole is expected to grow by 48.5% in constant value terms over the forecast period, with an average annual increase of 8.2%. Broadly speaking, two critical ****cro factors will underpin the expansion of the consumer electronics ****rket: • Increasing consumer purchasing power, sustained by the country’s strong economic growth. The consensus among economists is that China’s annual GDP will continue to grow at a pace of 6% to 8% until 2008. Furthermore, it is expected that the government will continue with its policy of boosting domestic consumption through a private home ownership programme in urban areas, and easy personal credit, while increasing household income. All of these factors will translate into solid de****nd for household products, including consumer electronics. • A new cycle of consumer electronics consumption in the offing. The first consumption cycle, according to some academics, began when China first opened up its ****rket in the early 1980s, and lasted about 10 years. During that period most urban families bought their first colour TV, hi-fi system, and VCR/VCD/DVD unit. Yet most of their purchases are fast approaching the stage of upgrading, and as a result renewal consumption de****nds are approaching. Also, a new generation of consumers is coming of age. They are the result of the government’s one-child birth control polices introduced more than two decades ago. In the forecast period, around 80 million of these young consumers will start work, get ****rried, and start their own families. Although the number of newlyweds will be s****ller than in previous decades, unlike previous generations, this new generation will have more disposable income, and be more open to new technology and high-value products, which will be introduced rapidly in coming years. Imminent invasion of foreign specialist chains, led by Taiwan and Hong Kong At the end of 2003, Tsann Kuen Group, Taiwan’s largest electronics chain store, and Fortress, Hong Kong’s largest electronic chain store (ulti****tely owned by Hutchinson Whampoa Ltd) announced their imminent entry to the ****rket in Mainland China. The increasingly intense competition on the retail front will continue to inject vitality into the ****rket. Energy-saving might be a selling point in coming years However, energy conservation is likely to become an increasingly strong selling point in the next couple of years. Due to poor energy infrastructure planning, the South and East China regions have Euromonitor Page 30 Consumer electronics China been badly hit by shortages of electricity, and ****ny areas have been hit by power rationing. This situation is not expected to improve until late 2005 at the earliest. Industry sources fear the power supply would take a turn for the worse in 2004. Given this situation, consumer de****nd for more energy efficient consumer electronics should increase. Convergence of CE and IT industries heats up competition Large screen flat panel CRT TVs will continue to be the ****instay of TV sales. S****ll screen TVs at or below 29 inches will be retreating from urban areas and ****inly be sold in rural areas at lower prices. In the meantime, projection, LCD and PDP TVs will expand at the expense of CRT TVs. The interchangeability of technology between consumer electronics and infor****tion technology products has paved the way for large players in the IT/PC industry to move into LCD and PDP TV ****nufacturing. Leading brands such as Motorola, Dell, Legend and Founder have either already joined or planned to join the production line of LCD and PDP TVs. It is still too early to assess the full impact of the entry of IT companies into TV ****nufacture. The common view among TV ****nufacturers surveyed for the purposes of this study is that average prices of LCD/PDP TV units will probably fall by 20% by the end of 2004. As with any other high- tech and high-value item, a decline in prices will be the pri****ry driver for projection, LCD and PDP TV growth. Digital TV: a viable concept but a distant dream Digital TVs, in the strict sense, will not register any notable sales before 2008. The State Administration of Radio, Film and Television (SARFT), has recently decide to use the European standard for its digital television cable broadcasting as a transitional one, as it pushes ahead with its own plan to develop a home-grown DTV standard. According to SARFT’s blueprint, commercial DTV broadcasting will be first launched around 2005 in ****jor cities, most probably through set-top box signal conversion. The 2008 Olympics in Beijing will be broadcast digitally nationwide. The whole process will be completed only by 2010, by which time digital TVs will have replaced ****ogue TVs in most homes. Still, there will be increased interest in consumers switching to large screen CRT, projection, PDP and LCD TVs, to enjoy better visual and audio quality of programmes, as the current broadcasting system is upgraded to a digital system. Furthermore, if history is any guidance for a sport-obsessed country like China, the 2004 Olympics in Athens, and the 2006 Soccer World Cup in Ger****ny, will have the same sizable positive effect on TV sales as the 2002 Soccer World Cup. However, the greatest boost will be the 2008 Olympics in Beijing. De****nds for in-home audio products go strong The de****nd for in-home theatre systems will still be closely related to sales of colour TVs and videodisk units. However, the low existing ownership base will allow stronger growth for in-home theatre systems, which are esti****ted to see annual average growth of more than 15% in constant value terms over the forecast period. Digital products, including new-generation of videodisk players (hard drive DVD players), digital cameras, digital camcorders and MP3 players (or next-generation digital audio players), will outperform all other sectors to 2008. Consumption of those digital products is intertwined with the penetration of household computers and printers, and the expansion of Internet accessibility. The latest statistical survey on Internet development in China by China Internet Network Infor****tion Center (July, 2003) calculated that there were around 68 million Internet users in China. Of these 68 million, those below the age of 30, which are and will continue to be the ****in purchasers of digital products, account for 63.4% of the total or 43 million. Moreover, China’s Euromonitor Page 31 Consumer electronics China online population is expected to continue to increase by 20% every six months for the next three years. All of those statistics indicate huge untapped de****nd in China for digital players. Products such as monochrome TVs, VCRs, ****ogue camcorders and cassette tape-based audio devices are on the way out. It is almost certain that all of these products will become negligible or even non-existent by the end of the forecast period. In-car after****rket products on the rise The de****nd for in-car audio after****rket will ride on the strong growth of private car sales in China, which is aiming for a complete removal of import quota on automobiles by 2005. According to Organisation Internationale Des Constructeurs D’automobiles International (OICA), de****nd for cars will grow by more than 25% annually from 2004 to 2010 in China, of which the ****jority will come from private consumption (currently at 70% to 80%). Though ****ny of these new cars will come factory equipped with sophisticated sound systems, the growth in the consumer automobile ****rket still stand to benefit after****rket sales as well. Established Japanese ****nufacturers have started to adjust their production and ****rketing strategies, including product development and brand positioning to directly cater to after-****rket de****nds. Domestic car electronics companies previously engaged in OEM ****nufacturing for overseas ****rkets will see their domestic volume shares expand in coming years due to their indigenous advantages in terms of cost control and capital investment savings. However, as Chinese car buyers grow fond of higher priced models, their appetite for in-car audio products will increase, and foreign brands’ prestige i****ge and product/technology innovations will all come into play. Table 28 Forecast Retail Sales of Consumer Electronics: Value 2003-2008 RMB million 2003 2004 2005 2006 2007 2008 Video products 82,052.0 89,110.1 95,579.5 101,933.6 106,396.3 123,515.9 Audio products 78,303.2 84,823.8 92,955.7 100,536.9 107,435.4 ****,****3.4 Consumer electronics 160,355.2 173,933.9 188,535.2 202,470.4 213,831.6 238,159.3 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 29 Forecast Retail Sales of Consumer Electronics: Volume 2003-2008 '000 units 2003 2004 2005 2006 2007 2008 Video products 55,235.6 62,988.7 71,101.6 78,718.8 85,725.1 98,365.9 Audio products 53,897.4 57,730.9 63,279.9 69,191.8 76,432.3 78,909.5 Consumer electronics 109,133.0 120,719.7 134,381.5 147,910.5 162,157.5 177,275.4 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 32 Consumer electronics China Table 30 Forecast Retail Sales of Consumer Electronics: % Value Growth 2003-2008 % constant value growth 2003-08 CAGR 2003/08 TOTAL Video products 8.5 50.5 Audio products Consumer electronics 7.9 46.4 8.2 48.5 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Table 31 Forecast Retail Sales of Consumer Electronics: % Volume Growth 2003-2008 % volume growth 2003-08 CAGR 2003/08 TOTAL Video products 12.2 78.1 Audio products Consumer electronics 7.9 46.4 10.2 62.4 Source: Economic Development Research Centre of the State Council, National Bureau of Statistics of China, China Import/Export Yearbook, China Audio Industry Association, China Chainstore & Franchising Association, trade press (incl. Xian Dai Jia Dian, Dian Qi Ping Jie), company research, store checks, trade interviews, Euromonitor esti****tes Euromonitor Page 33
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