Foreign Brands to Focus on Third and Fourth-Tier Markets

Local TV-sets are now facing the competitions from their low-price foreign counterparts.

According to the report on Jan 17 by All View Consulting (AVC), great impacts have been laid on the local TV-set industry due to expansion strategies of the foreign brands suppliers. With the greater and greater “de-manufacturalism”, their low-price products are winning the local markets from the local brands.

“Advantages like low prices, brands effects, technical advantages and better resources etc help the foreign brands keep their expansion strategies to gain more market shares,” says Peng Jianfeng from Flat Panel Display Research Center, AVC. Third and fourth-tier markets are the next targets of the foreign brands.

Peng Jianfeng also believes low-end products are to be critical to allow the foreign brands into the low-end markets. “Especially the strong local distributors, which are decisive for the low-price foreign-branded products to enter low-end markets, typically the rural markets. Based on the competition situations in third and fourth-tier markets, the share of foreign brands is now up to 8.3%. The expansion strategies of foreign brands in third and fourth-tier markets are making the competitions against their local counterparts inevitable.”

Since July 2009, the worldwide financial crisis has been weakening the demands of foreign brands in their own countries, which is a great threat to their survival; thus they start to target the market in mainland China through expansion strategies.

“Their low-price products are based on lowering costs through OEM (Original Equipment Manufacturer). According to the data gathered by us, the prices of LCD TV-sets of foreign brands kept dropping 4% more than those of the local brands in 2010, which was unprecedented. Especially during the National Day Golden Week (an annual 7-day national holiday to celebrate the National Day of the People’s Republic of China), the low-price foreign-branded products were driving the local-branded ones to lose parts of the urban markets. Today, foreign brands lay 30% out of the whole local market,” says Yu Liangxing, the general manager of AVC.

Taking LED-backlit LCD TV-sets for example, data show that foreign brands are only 10% more expensive than local ones, which means the local brands have almost lost their advantages in terms of prices. Foreign brands like SONY and Toshiba are focusing more on OEM and “de-manufacturalism”, which is good for the local OEM industry but not good for the local color TV-set market.

The impact from foreign brands is not the only problem to the survival of the local brands; the rising CPI (Consumer Price Index) and high storage are the other two major headaches. It is reported that the minimum payroll standard in major cities in China in 2010 has been raised by 15% and the prices of heavy metals like iron rise over 20% with the monthly raised CPI of over 3%. The color TV-set industry is facing high HR costs, expensive raw materials and labor shortage, which is now everywhere in the more developed coastal areas. “The manufacture costs now thus become 10%-20% higher, which is a burden to the whole industry.”

The high storage was the other problem directly damaging the profits. “The whole industry chain has become the victim”. Take 32-inch LCD TV-sets for example, the price was dropped from US$ 210 in January to US$ 155 in December 2010 by 28%. Consequently, it brings great pressure on the products in high storage in terms of prices, causing the profits to keep shrinking.