“A study on Consumer Electronics Industry in India”

Submitted to

Prof. Dennis Rajkumar

In partial fulfillment of the Course: Research Methodology in Semester II of the Master of Business Administration.

Submitted by

MBA Finance. SEM IIBatch (2013-2015)

Group 11

Adithya B A (13010121159)

Aayush Kumar (13010121218)

Swathi Rao J (13010121095)

Priyanka Basera (13010121142)

Zishan Ali (13010121364)

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Declaration

This is to declare that the Report titled “A study on Consumer Electronics Industry in India” has been made for partial fulfillment of the course Research Methodology in Semester II by Group 11, Finance specialization, MBA July (2013-15) under the guidance of Prof. Dennis Rajkumar

We confirm that this report truly represent our work undertaken as a part our course. This work is not replication of work done previously by other person/group. We also confirm that the contents of the report and the views contained therein have been discussed and deliberated with the faculty.

Names: Registration No: Signatures:

Adithya B A 13010121159

Aayush Kumar 13010121218

Swathi Rao J 13010121095

Priyanka Basera 13010121142

Zishan Ali 13010121364

ii

Certificate

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

Signature of Faculty:

Name of the Faculty: Prof. Dennis Rajkumar

Date: April 5, 2014

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ACKNOWLEDGEMENT

A completion of a project takes the time and effort of a plenty and on the completion of this study we would like to acknowledge the time and efforts of all those who have helped and supported us directly and indirectly.

We would firstly thank the management ofAlliance School of Business, Bangalore for giving us this opportunity to undergo an extensive research.

We thank and appreciate the continuous guidance and assistance we received from Prof. Dennis Rajkumar throughout this passage, as without his guidance this project would seem impossible to complete.

We would also like to extend our gratitude to Prof. Shamim Mondal for helping us understand the core concepts of this subject and how to delineate research objectives.

Last but not the least we are thankful to all our families and friends who have been of immense help during our research.

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Executive Summary

India is one of the largest electronics market in the world and it is set become the fifth largest consumer electronics market in the world. This report gives us a larger understanding of the Consumer Electronics Industry that is component of the whole Electronics Industry. The report discusses and analyses the current progress of the Consumer Electronics Industry in India. It also talks about the development and future outlook of this Industry.

This report begins with an introduction, giving a brief background about the Consumer Electronics Industry and further it explains the global scenario and domestic scenario for this industry.

The latter part of the report discusses the mergers and acquisitions in Consumer Electronics Industry, further the strength and weakness of the industry are measured with the help of Porters Five Powers and also the concentration of the industry is measured with the help of Herfindahl-Hirshman Index considering few main market players.

In last portion this report gives a larger vision concerning whereas the Consumer Electronics Industry and it concludes with the future outlook of Indian Consumer Electronics Industry.

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Chapter 1:

INTRODUCTION

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TABLE OF CONTENTS

1 Background

2 Indian Scenario

3 Global Scenario

4 Herfindahl Index

5 Porters Five Forces Model

6 PESTEL Analysis

7 Future Outlook

8 Conclusion

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1.1 BACKGROUND

The electronics industry in India took off about 1965, with a focus on space and defense technologies was controlled and initiated by the government. There was also the development of consumer electronics, mainly with the transistor radio, television in black and white, calculators and other audio products. In 1982, the government allowed thousands of color televisions imported into the country issuing the Asian Games in New Delhi and it was an important year in the history of Indian television. The period between 1984 and 1990 was the golden age of the electronics industry in which the industry has experienced steady and rapid growth.

In 1991, there was an era of liberalization has reduced tariffs and the signing of the NAFTA and the WTO in 1997, India has pledged to complete the removal of all tariffs on IT. In the following years, a number of companies fell ill and had to be closed. Late 2000s, as companies Moser Baer, Samtel color. Celetronix, etc. onida have an identity in the world. Indian electronics production increased from USD14.6 billion in 2007 to USD21.2 million in 2008. Production of electronics in the country have increased in all years and in 2013 the production of the electronics industry reached USD32.7 million and production will grow at a CAGR of 16.8 percent during the period 2007 -2012.

1.2 INDIAN SCENARIO

Share on production

Communication and dissemination actions marked plus 29% of electronics production in India in the years 2009-10 and 2013 increased by 31%, followed by consumer electronics fell 27.4% to 23% , computers have increased by 13.1% to 14% in 2013, 12.4% of industrial electronics has been steady in 2013, the elements of a 12.2% increase to 15% in 2013 and 6.3 strategic% has been reduced to 5% in 2013. India has the potential to develop and manufacture electronic equipment for global markets and gain global share increasing to meet the future requirements of the country in the meeting fields of information, communication and entertainment.

Types of electronics

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

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

2. Computer

The computer hardware market consists of computers, storage devices and other segments. The segment of desktop computers and laptops includes. Storage segment includes memory cards, CD packs, hard disks and other storage devices data . Sector other devices includes computer peripherals, PDAs , organizers, calculators and satellite navigation systems . The growth of computer hardware market in India in 2008 was 15.6 % compared to 2007. Indian computer hardware market has seen growth rates of its market value in recent years, from U.S. $ 2 billion U.S. dollars in 2004 to $ 3.7 billion in 2008, witnessed an impressive CAGR of 16.6 % . Growth rates have trended upward from 15% in 2005 compared to 2004, to 18.5% in 2007 compared to 2006 and a moderate decline in 2008 of 15.6% compared to 2007. According to data visualization, the computer hardware market is expected to grow at a CAGR of 17% during 2009-2013. Therefore, it is expected that the value of computer hardware market in the Indian market for U.S. 8,100 million in 2013. Total consumption in the IT market was conducted by firms and households. Businesses include the sectors of education and telecommunications, banking and financial services. Over the years, the business sector has been dominating the sales of the computer industry. Recently, however, the proportion of households also began to increase. On the one hand 22% in 2003 to 04 in PC sales total households in the segment increased its position with a share of 42% in 2009-10. For the future, with signs of recovery of the national economy, the sector is expected to show positive growth for computers and other IT products for the year 2010-11 .s

3. Industrial Electronics

Industrial electronics sector is a focus on high technology requires very high investments in R &D. Therefore, there are a limited number of global players in terms of R & D is concerned. The main suppliers of electronics and industrial controls , operating in India , including Siemens, Rockwell Automation ( Allen- Bradley ) , Asea Brown Boveri , Schneider, L & T , Honeywell, Mitshubishi , Emerson, etc. A small number of level units are also coming in the recent past held by technocrats having experience in integrated solutions for automation and control instrumentation and software. During 2009-10 , the production of industrial electronics is estimated at 13,630 crore 23against 12.740 crore for the year 2008-09 , registering a growth of around 7 %. In 2008-09 also, the sector recorded a growth of 7 % of its production. However, it is much less than the growth witnessed in 2007-08

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of 14.5 % over 2006-07. The main reason for the slowdown in output growth could be the general slowdown in the global economy.

4. C&B

Telecommunications services have been recognized the world-over as an important tool for socio-economic development of a nation. Telecommunications is a leading support services necessary for the rapid growth and modernization of various sectors of the economy. It has become very important in recent years due to the significant growth of information technology and its significant potential impact on the rest of the economy. The telecommunications sector, which has the multiplier 24on affects the economy, has a key role to play, a way to contribute to the growth of efficiency role. Production of c & b doubled since 2007, which was 14% to 31% in 2013.

5. Strategic

Although the government has initiated the process of obtaining private sector involved in the production of strategic electronic equipment, private sector participation is in its initial phase. Estimated for strategic electronics India during 2005-06 was Rs.32 million market and 95 percent of what was done per unit of public sector Bharat Electronics Limited (BEL)

6. Electronic Components

The total production of components was estimated at Rs. 88 billion in 2005-06. Production of color picture tubes is likely to be around 11 million, a decrease of $ 11.2 million last year. The production of B & W CRT was reduced due to the decrease in market B & W TV. The components most affected by export are CD -R , CPT, PCB , DVD -R , connectors, semiconductor devices , ferrites , resistors, etc. important events took place during the years in the field of color picture tubes and pieces of colored glass . Another manufacturer launched successfully producing flat pure CPT tubes, which leads to the existence of three flat tubes native sources. CPT units continued capacity expansion to further enhance its global competitiveness. Two other lines were commissioned during the year , one for the manufacture of color cathode ray tubes large TV and the second for the small size. Two other lines are likely to come until next year . Keeping pace with the downward trend in the prices of color televisions, recent prices have also declined.

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Electronics Exports

India was largely an importer of electronic products rather than exporting the same. Electronics is one of the most important items of imports from India. However, the export of electronic products in India has grown in recent years. The growth trend has been positive, even in 2008-09 , in which most sectors have witnessed a slowdown in exports . During the year 2008-09, exports of electronic products reached a value of U.S. $ 6.8 billion, or 3.7% of total exports of India. The share of electronics exports in total exports from India to the world, have remained more or less 2% to 4 % in recent years. During 2009-10, exports of electronic products from India were worth $ 5.48 billion, with a share of 3.1% of total exports of India. During this period, electronic exports have shown a negative growth of -19 % compared to the same period last year.

During April-September 2010-11, exports of electronic products were valued at U.S. $ 3,469,950,000 and showed growth rates over 10 % compared to the same period last year. Imports during the same period amounted to 10,110.58 million U.S. dollars, a decrease of -5.4 % over the corresponding period last year (Exhibit 33). In 2008-09, imports of electronic products reached a value of U.S. $ 23.08 billion, which represents a share of 7.9 % of total imports. Imports of electronic products as a percentage of total imports have remained roughly the same at about 8% in recent years. In 2009-10, imports of electronic products reached a value of U.S. $ 20.96 billion, a negative growth of (-) 9.2% compared to the previous year. During April 2010 to September 2010, imports of electronic products were assessed U.S. $ 10.11 billion, down 5.4% compared to the same period in the previous year.

Major destinations for electronic exports from India during 2009-10 include Asia (excluding Middle East) ( 31%), followed by the European Union ( 20%) , America (17%) , Middle East (15%) and Africa ( 11 % ) . In the case of imports as the countries of Asia (excluding Middle East ) (74 %) are the main sources of imports from India in 2009-10 , followed by the European Union ( 13%), Latin ( 8% ) and the Middle East ( 2%). export and source of electronic products for 2009-10 import destinations. In 2009-10, total exports amounted to 5.48 billion U.S. dollars and the main destinations of electronic products in India were the United States (14.8%), Singapore ( 8.2%) , United Arab Emirates States ( 8.2% ), Germany (6.7% ), Hong Kong (5.8%) and the Netherlands ( 4.9%). During the year 2009-10, total imports of electronic products from India were worth $ 20.96 billion and the main countries of origin of imports are China ( 45.3%) , United States (6.4% ), Singapore ( 6.3%) and Korea (5.3%).

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Table - 15: India’s Major Export Destinations and

Import Sources of Electronic Products (2009-10)

India’s major Export

destination

US $Million

% Share India’s major import source

US$ Million

% Share

World 5483.46 100.0 world 20963.14 100.0

USA 809.69 14.8 China 9494.95 45.3

Singapore 452.33 8.2 USA 1340.12 6.4

UAE 450.05 8.2 Singapore 1325.50 6.3

Germany 369.58 6.7 Korea Republic

113.24 5.3

Hong Kong 317.82 5.8 Germany 994.50 4.7

Netherland 270.79 4.9 Malaysia 821.84 3.9

China 256.19 4.7 Japan 916.95 3.4

Indonesia 189.42 3.5 Hong Kong 681.07 3.2

Nigeria 157.23 2.9 Taiwan 522.05 2.5

Romania 154.47 2.8 Sweden 469.01 2.2

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Increase in exports

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

: Contribution of Different Items and Categories of Electronic Goods

(US $ million)

No. category 2010-11 20111-12 2012-13 2013-14

1 Mobile Phones

2 Sub-Assemblies

3 Electronic Components

4 Audio-Video Products

5 Computer Peripherals & Parts.

1560

1070

1020

1000

450

2100

1280

1310

1300

590

2700

1550

1720

1500

770

3600

1900

2300

1800

1000

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6 Power Equipment’s

7 Solar Energy Products

8 Medical Equipments

9 Telephone Sets

10 Industrial Equipments

11 Computers

12 Trans. Apparatus & Parts

13 Watches and Clocks

14 Others

420

400

300

250

200

80

40

30

680

530

500

340

300

220

100

50

40

840

700

630

440

380

270

140

70

50

1080

850

770

500

430

300

160

80

60

1250

Total 7500 9500 12000 15000

(Source: Ministry of Commerce)

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Largest share in Exports

Export of communication and broadcast equipment and components together account for over 80 percent of total electronic exports in 2011.Exports for C&B equipment has increased at a CAGR of 86.8 per cent during FY07-11 (Highest among all segments) followed by Strategic electronic components with a CAGR of 25.8 per cent during same period.

Communication and broadcast has the highest share in export of 45.5%, strategic electronics 36.6%, computer electronic 3.2%, industrial electronic 11%, consumer electronic 3.5%.

Key players in India

Videocon-Videocon Industries Ltd offers a range of products in televisions, washing machines, air conditioners, refrigerators , audio products , home theater systems and microwave ovens . The company operates in four segments : Consumer Electronics and Home Appliances , crude oil and natural gas , telecommunications and power . The company is engaged in the manufacture , assembly and distribution of a range of consumer electronics , products and home appliances, including finished products : such as television, home entertainment systems , refrigerators , washing machines , air conditioners and other appliances and components of small appliances , : as glass shell , compressors and motors.

- LG is the market leader in consumer durables. It manufactures televisions, audio solution - visual, computers, mobile phone, refrigerators , washing machines , microwave and CA . May 10, 2010 LG spends nearly USD85.0 million modernizations of Indian plants. May 2012 LG Electronics launches latest round of Cinema 3D Smart TV with marketing expenses of $ 20.8 million

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66

45.5%

36.6%

3.5%

11.1 3.2%

Samsung - the second largest player in the market for consumer durables after LG. Manufactures TVs, home theater systems, DVD players , mobile phones, digital cameras and camcorders , refrigerators , ACS, washing machines, microwave ovens and computers. November 10, 2010 Samsung launches USD75.0 million manufacturing plant in Chennai. January 1 : Samsung increase its investment USD41.4 billion to consolidate its position in mobile chips and flat screens.

HCL- is a supplier of hardware and software first. Manufactures and markets personal computers, PC servers, storage solutions, display products and other electronic products.

Moser Baer -is the world's second largest company in the field of optical storage media. It supplies products to a number of branded players such as Sony, Verbatim, TDK, Maxell , Imation and Samsung. Also has a presence in the photovoltaic and home entertainment segments. Moser Baer has a presence in more than 82 country clubs , served by six marketing offices in India, USA , Europe and Japan, and has strong tie- ups with all the major players in technology in general . Moser Baer has the distinction of being the favorite all the best global brands OEM supplier. One in five worldwide disks comes from Moser Baer factory. Moser Baer is committed to providing fully licensed media provide the highest quality to its customers. Moser Baer products are manufactured at its plant in the state of the art manufacturing facility located in Greater Noida. It has more than 5,000 employees and more.

Samtel - India largest integrated manufacturer of a wide range of display devices: such as CRT televisions, CRT guns, heaters and cathodes and deflection yokes . Operates a facility in Germany for the production of high technology, high-resolution CRTs for demanding applications such as avionics and medical monitors

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Major players

Bharat electronic: A Public Sector

It was established in 1954 under the Ministry of Defense to meet specialized needs of the Indian defense services.

•The company has a strong commitment to quality and innovation, with two dedicated central research laboratories

•During FY12, R&D expenditure was 6.0 per cent of total turnover

•The company has nine manufacturing units; each unit has its own Development and Engineering (D&E) division

In 2007 revenues was USD 859.6 Million, 2008 reached 1009.0 million but slightly declined in next year 2009 to USD 998.4 million after that it increaded to 1177.6 million and then in 2013 I declined to USD 600.7 million.

Key success factors

Focus on innovation and R&D Key technological collaborations with leading European, American and Israeli

companies Rising defense spending in India Governmental emphasis on indigenization and reduction of import bill Diversification in the civilian and export market

(Source: BEL Website; Annual Reports)

Financial highlights

During FY07-12, BEL’s revenue increased at a CAGR of 7.7 per cent (from USD859.6 million) to nearly USD1.2 billion

During same period, BEL’s net profits increased at a CAGR of 17.7 per cent (from USD74.1 million) toUSD157.6 million

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Videocon: A Private sector

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

MARKET SHARE IN CONSUMER DURABLES

Videocon

Other

Key success factors

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

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25%

75%

Financial highlights

Revenue base of over USD2691 million, with net profit of USD113 million Market capitalization of USD1436 million Sales expanded at a CAGR of 10.4 per cent during FY07–11 Strong presence in the consumer electronics market

Strong Inflows of FDI in Indian electronic sector

Cumulative FDI inflows into the electronics and computer hardware & software over April 2000–January 2013 stood at USD12.8 billion Demand growth, supply advantages, and policy support have been instrumental in attracting FDI.

Cumulative FDI inflows into the electronics sector

(USD billion)

1.2 1.2

1.1

0.8 0.8

09 10 11 12 13

Years

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Policy Support Aiding Growth in Electronic Sector

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

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

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

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

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

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Mergers & A cquisition

Acquirer Target Deal date Value (USD million n)

Centum Electronic Ltd

Solectron EMS India Ltd

29th July 2010 6.8

Shemaroo Entertainment Ltd

Vistas Digital Media Ltd

30th October 2010 5.1

Emerson Electric Co Fisher sanmar Ltd 31st March 2011 135.0

Schneider Electronic India Ltd

Smartlink Network System

13th May 2011 113.0

Mitsubishi Electric Corp.

Messung Group 23rd Jan 2012 NA

Crompton Greaves Ltd

ZIV Group 27th july 2012 192.0

Marketing initiatives

Increased confidence in the Internet

For component manufacturers and their authorized distributors, Internet has allowed them to expand their reach globally, while the same to reduce the cost of time that more and more buyers are beginning to accept platforms e -commerce. This trend will continue in 2014 as dealers and suppliers that provide Internet access to the populations of global buyers in high-growth markets like China and India, while providing buyers the ability to source product meets their needs and budget of the project. This is particularly important in the search for hard to find parts and obsolete at the end of his life.

The coming year of new possibilities for the electronics industry and advance the process of purchasing and supply chain management online to increase efficiency and reduce the downward pressure on margins. Dealers looking to improve their offers inventory tracking based on the Internet, product videos and downloadable electronic data sheets

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Samsung Electronics Co is expected to spend around $14 billion - more than Iceland's GDP - on advertising and marketing this year, but it doesn't always get value for money. "Samsung's marketing is too much focused on projecting an image they aspire to: being innovative and ahead of the pack," said Oh Jung-suk, associate professor at the business school of Seoul National University. "They are failing to efficiently bridge the gap between the aspiration and how consumers actually respond to the campaign. It's got to be more aligned."

Samsung spends a bigger chunk of its annual revenue on advertising and promotion than any other of the world's top-20 companies by sales - 5.4 percent, according to Thomson Reuters data. Apple spends just 0.6 percent, and General Motors 3.5 percent.

Factors favoring investment in electronics.

Growing customer base: Market for electronics is expected to grow at a CAGR of 22.0 per cent during the period 2009–2020. The demand for electronics hardware in India is projected to increase from an estimated USD68 billion in 2011 to USD125 billion by 2014 and USD400 billion by 2020.

Targeted reduction in import bill: Domestic electronic production accounts for around 45.0 per cent of the total market demand. Therefore, in order to reduce the import bill, the government plans to boost the domestic manufacturing capabilities and is considering a proposal to give preference to Indian electronic products in its purchases

Increasing penetration in the consumer durables segment: Consumer durables market in India is characterized by low penetration in various product segments, viz. 1.0 percent in

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microwaves, 3.0 per cent in ACs, 16.0 per cent in washing machines, 18.0 per cent in refrigerators, etc. Higher disposable incomes are leading to realization of penetration potential in various product segments, especially in rural areas

Policy and investment support: To compliment the targeted reduction in import bill, the government has proposed a minimum investment of USD555.0 million for semiconductor manufacturing plants and USD222.0 million for ecosystem units. This is considered a major step toward attracting foreign companies to set up manufacturing facilities in India

1.3 GLOBAL SCENARIO

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

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

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

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

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World Electronics Industry 2008-2013:

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

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

As concerning half of the industry is pondered in IT sectors (Data Processing + Telecommunications), half of the industry is localized in Asia including China, the N°1 creation centre for electronic supplies worldwide since 2005.

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

The Innovation engine and the Electronics Industry value chain:

The electronics industry embodied 1140 billion Euros in 2008 and is nowadays comparable in size to supplementary vital manufacturing divisions such as the Car industry (1800 billion Euros in 2008).

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

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

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

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Crisis Impact and Medium term growth perspectives:

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

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

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

Contrary to the last telecom disaster, the electronics industry is not at the basis of the present commercial slowdown and ought to consequently recoup much extra quickly than it did back in 2001.

The United States is losing market share in Electronics to Japan:

The best metric for competitiveness assessment is globe marketplace share. The United State's allocate of globe electronics marketplaces cut steadily across the 1980s, with whole electronics sectors such as customer electronics nearly vanishing from U.S.-based and -owned producing facilities.

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

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

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

More defeat in globe marketplace allocate in most categories continued across 1990. For example, U.S. factories' allocate of the U.S. market in computers went from 94 percent in 1979 to 66 percent in 1989.

Estimated growth of Electronics market in the world:

This shows the estimated growth in production of electronics by 2013 in comparison with 2008. The analysis reveals that in 2013, the total world production is expected to grow at a CAGR of 2.7%.

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

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

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Total Electronics production by region (2013%):

13%

32%

19%

3%

19%

14%

Total Electronics Production by Region

japanchinaOAPROWeurN Am

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

1.4 PORTER’S FIVE FORCES MODEL

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1. Rivalry Among Existing Competitors - (High)

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

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

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

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

• Low profit margins – As the competition is high in this industry the prices has to be kept minimal so that customers do not buy other brand with same specifications. This in turn reduces the profit margin if the firm.

• High exit barriers – As there are huge fixed costs associated with setting up of industry, therefore exiting from business means excessive losses which are almost impossible to recover.

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2. Threat of New Entrants - (Low)

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

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

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

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

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

6. Government Policy – By promoting the manufacturing sector and working for improvement of the infrastructure, the government has developed the entire manufacturing industry, which will help boost the electronic industry in a very significant manner though it is only a small part of the entire manufacturing sector. As the government is focused on doing all it can to encourage the growth

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of manufacturing sector, it can be seen through some of the following policies which substantiate the argument.

The tax revenue for the consumer electronics sums up to about 25% of the manufacturing industry that itself tells the whole story. This is especially due to the multiple tax structure that are 12% VAT, 8% excise, 4% goods and services tax, 2% central sales Tax and other local taxes.

Normally all the FDI policies limits the investment of foreign investors up to 51% which forces the foreign investors to use franchise arrangements, but in the manufacturing sector the FDI can be up to 100% that certainly favours the foreign investors.

The new manufacturing policy implemented by the government in the year 2011 aims at further strengthening this sector(since the development of this sector plays a crucial role in the development of other sectors such as IT sector and retail sector) and also to build its international competitiveness which will improve the exports as well.

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

3. Bargaining Power of Suppliers - (Low)

Big Global Supply chain Management – Since suppliers are not concentrated and distributed almost evenly elsewhere the bargaining power is quite low.

Because of large number of suppliers, they are forced to either cut their costs or to go out of business.

Direct negotiation with suppliers takes place in order to promote Reliable supply Faster delivery Lower prices

Many Original Equipment Manufacturers have started to produce small products in house which have increased competition among rivals.

4. Bargaining Power of Buyers - (Rather High)

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Since the products are fairly undifferentiated as there are large numbers of producers producing the same product at a same or lower price, the consumer seldom differentiates among products unless he is too much brand conscious.

Buyers face few switching costs Online shopping has increased the bargaining power of buyers Buyers are price sensitive and demand high quality

5. Threat of Substitute Products - (high)

The threat for the substitute products is quite high as the technology is growing at a rapid pace and players are investing heavily in research and development for bringing up with a new innovative product to have an edge over other rivals competing in the same segment.

For example:

Digital cameras have replaces the film cameras.

Pen drives in place of floppies and Cds.

Mobile phones in place of pagers.

1.5 PESTLE ANALYSIS

POLITICAL• Government Type & Stability – As India is a democratic country and mostly these

days’ governments are formed with alliances as no single party gets the majority, it gets extremely difficult to pass tuff laws as it requires consent from the majority of the house (Lok Sabha and Rajya Sabha). Moreover if the ruling government doesn’t comply with the demands of other parties they are brought down by passing of no confidence motion, therefore it is highly unstable. So, the policies implemented by the previous government may not still remain same if the new party doesn’t agree to it. All this creates ambiguity in the minds of investors whether to invest in the industry or not.

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• Corruption – India is facing huge problem for curtailing corruption. According to a survey by Transparency International in 2010, more than 65% of the population has had a firsthand experience of paying bribes or influencing peddling to get jobs done. Top level ministers and bureaucrats have been accused of corruption of some kind or the other. This serves as one of the biggest hindrance to the development of any industry and foreign investors also have their own apprehensions when it comes to investing in India.

• FDI Policy – We have 100% FDI allowed in electronic manufacturing sectors which allows opportunities for foreign investors to invest into this industry that in turn will boost our economy and encourage Indian players also to improve their efficiency.Good deal of relaxation is given by the government and many schemes has also been announced such as EPCG, EHTP etc. to encourage investment in this industry.

ECONOMIC

• Globalization – Due to globalization, the access to international markets have become quite easy which is a very positive sign. After the industrial reforms taken by India in 1991 and the implementation of Liberalization, privatization and Globalization, it has become a very favorable environment for the foreign investors to come in and set up a manufacturing industry.

• Consumer Disposable Income – Since the consumer disposable income has increased in the last decade mainly because of the implementation of sixth pay commission in govt. jobs and good salaries in private jobs, the manufacturers has an incentive to produce more and more as the demand has risen significantly.

• Labor Costs – Since the Labor costs is quite low in India as compared to other countries, the manufacturers has an incentive to hire more and more labors and increase their efficiencies.

• Inflation Rate – the inflation rate in India is about 8% which provides incentives for the suppliers to produce more as they earn more.

SOCIAL • Population Growth Rate – Population in India is growing at a pace of 1.3% annually

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

• Age Distribution – India has more than 50% of population that is below the age of 25 and more than 65% that is below the age of 35. It is expected that by 2020 the average age of India will be 29, as compared to 37 for China and 48 for Japan. Research

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proves that the generation of 21st century is very tech – savvy so therefore, electronics industry has ample amount of opportunities to tap into the youth generation and extract maximum profits.

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

• Employment Patterns – The human resource directly employed in this industry is estimated to be approximately 0.9 million currently (Source: IMaCS analysis). In this sector, about 50% of the work force is engaged in the production function and the major skill gap are as follows – A) Improper ideas of the manufacturing of new products in this sector (Flat TVs,

plasma TV, etc), improper ideas about PCB Layout. B) Improper knowledge about components to be used in the new products, material

management and reduction of rejection in the development of these products.C) Scarcity of technically skilled workers for quality auditory functions, handling of

sophisticated machines tools as well as machines.

Corporate Social Responsibility (CSR) – As per the new companies’ act 2013, the companies are required to spend 2% of the profits for corporate social responsibility, which will bring an estimated value of 20,000 crores to the social sector. This tidal wave can serve both as challenge as well as opportunity. The challenge being high rate of corruption which will lead to a high risk of money being misspent and stolen that is supposed to cater the underprivileged sections of the society. The opportunity is, if the implementation is done well, along with helping the poor and needy the CSR will contribute towards building of trust and reputation of business enterprises. This is crucial because, trust in businesses is quite low and people are disgusted with corrupt businessmen and their practices. It is also a better way to engage employees as today’s educated youth has a desire to give something back to the society. Instead of taking CSR as a burdensome imposition and 2% tax, companies should see it as a 2% investment in building corporate trust, employee engagement and innovation. Real CSR not only renews the implicit license to operate given by the society to the companies, it also creates a functioning society where we all can live in.

Environmental • Environmental Protection Agency of India – As of date this agency do not regulate e-

waste and local govts for the collection of electronic waste and disposing them. • E-Waste Management (Waste like Lead, Cadmium, Mercury, etc.) – The total waste

generated by the electronic industry amounts to 1600000 tonnes per annum. In India the e-waste problem has not been properly addressed Hazardous waste rules 1989(amended in 2003).

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Technological • Degree of Automation - India is investing a lot of money in developing infrastructure

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

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

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

• Impact of Internet – Many companies are using internet either to make direct contact with the customers for the first time or to intensify the relationship with their trading partners and utilizing the internet’s reach to request for quotes or selling off stocks of goods by auction. By the use of internet customer can actually buy a product online

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without having to go to the prescribed dealer. The internet is also helping firms to reduce their costs significantly across its demand and supply chains, taking the customer service to a different level, to enter into new markets, creating additional profits and redefining the business relationship. 

Legal

• Tax Policies - According to the union budget of 2013-14 which the Indian finance minister Mr. P. Chidambaram presented in the parliament, he says, “The National Electronics Policy 2012 is intended to promote manufacture of electronic goods in India. We recognize the pivotal role of semiconductor wafer fabs in the ecosystem of manufacture of electronics. I propose to provide appropriate incentives to semiconductor wafer manufacturing facility including zero custom duty for plant and machinery.

He further added, “To attract new investments and quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments. A company investing Rs 100 crores or more in plant and machinery during the period 1-4-2013 to 21-3-2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to current rate of depreciation. There will be an enormous spill over benefit to small and medium enterprises.” (Source: http://www.elcina.com/ ).This shows the emphasis of govt. to promote the electronic industry which in itself is a positive sign for every investor.

• Labor Laws – Collective bargaining in India has remained limited in its scope and controlled by a well defined legal structure. As a matter of fact, the labor laws systematically promoted and perpetuated a duality of labor, i.e. formal sectors workers with better protection and social security on the one hand and informal sector workers with minimum or no protection and social security benefits on the other. Similarly, formal sector workers have enjoyed better space for collective bargaining in comparison to the informal sector workers with very little or no scope for collective bargaining. It is interesting to note that the applicability of different sections of the labor laws is limited by the number of workers engaged in an establishment. The Factories Act provides for healthy, safety, welfare and other aspects of workers’ lives while at work in the factories. Under this act, an establishment with 10 workers (and electricity connection) or 20 workers in case of no power connection is a factory. The Employees Provident Fund and Miscellaneous Provisions Act, the Maternity benefit Act and the payment of gratuity Act apply to all establishments with 10 or more workers.(Source: http://www.amrc.org.hk/ )

1.5 HERFINDAHL INDEX

The current HHI index is 0.38 which indicates that industry is

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