INDUSTRY ANALYSIS

Consumer
Electronics

Prepared by:

Sukesh Kumar Thogaru

Krishna Kunal
Pooja Kumari Deo
Sachin Sharma
Akshay Malik
Brajen Malakar
Table of Contents
Introduction:................................................................................................................................................2
Evolution:....................................................................................................................................................2
Current Scenario:.........................................................................................................................................2
Market Size and Domestic Production:....................................................................................................2
Exports and Imports:...............................................................................................................................2
Challenges:..............................................................................................................................................3
Competitive Scenario:..............................................................................................................................3
Competitive Rivalry:.............................................................................................................................4
Threat of New Entrants:.......................................................................................................................4
Substitute Products:............................................................................................................................4
Bargaining Power of Suppliers:............................................................................................................4
Bargaining Power of Customers:..........................................................................................................5
Growth Potential:........................................................................................................................................5
Recent developments:.................................................................................................................................5
Latest Trends:..........................................................................................................................................5
Miniaturization:...................................................................................................................................5
Artificial Intelligence:...........................................................................................................................6
High Frequency Applications:..............................................................................................................6
Key Growth Drivers:.................................................................................................................................6
Policy Support:.........................................................................................................................................6
Increased Liberalization of Foreign Direct Investment (FDI):...............................................................6
Relaxation of Tariffs:............................................................................................................................6
Establishment of EHTPs and SEZs:.......................................................................................................7
Implementation of Preferential Market Access:..................................................................................7
National Policy on Electronics (NPE):...................................................................................................8
Intellectual Property Rights:................................................................................................................8
Key Players:..................................................................................................................................................8
Investments and Opportunities:..................................................................................................................9
References:................................................................................................................................................10

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Introduction:
Electronics industry offers a range of products/services, from low-end applications development to high-
end integrated solutions across multiple verticals. Indian electronics industry is poised for significant
growth thanks to enormous demand in the domestic market and an ongoing shift to building an end-to-
end manufacturing ecosystem. Electronics market of India is one of the largest in the world and is
anticipated to reach USD 400 billion by 2020. It is expected to grow at a projected Cumulative annual
growth rate of 26% for the period 2014-2020. Several government driven initiatives and incentives like –
Establishment of EHTPs and SEZs, Relaxation of tariffs and 100% FDI is allowed through automatic route
(49% through automatic route in strategic defence electronics sector) are helping the industry.

Evolution:
Introductory stage (1965 to early 1980s): Electronics back then was a closed market. Transistor radios,
black and white TVs, calculators developed during this period.

Golden period (1984-1990): Electronics industry grew rapidly with continuous development of color TV’s
and advent of computers and telephone exchanges in 1985, followed by digital exchanges in 1988.

Liberalization era (1991- 2005): India committed to complete elimination of all custom duties on IT
following signing of WTO-FTA agreement in 1997. Custom tariffs declined sharply.

Growth era (Late 2000s): Market penetration of high-end products like HDTVs, LCDs, LEDs and tablet
increased. National Policy on Electronics (2012) was approved and National Electronics Mission was set
up in India. In case of defence electronics items, FDI of up to 26 per cent was approved through
government approval, while, for security, FDI in excess of 26 per cent was allowed through the approval
of cabinet committee. Cumulative FDI inflows into the electronics sector reached US$1720.00 million
during the period, April 2000 to March 2017.

Current Scenario:
Market Size and Domestic Production:
Five high priority product categories together account for 60% of the overall electronic consumption. In
descending order, these are mobile phones (38.85%), flat panel display television (7.91%), notebooks
(5.54%) and desktops (4.39℅). In 2013-14, 65℅ of demand for electronic products was met through
importing. Total domestic productions of electronic goods during 2012-13, 2013–14 and 2014–15 were
INR 1,64,172 crore, INR 1,80,454 crore and INR 1,90,366 crore, respectively. In Fiscal year 2013
communication and broadcasting equipment segment constituted 31℅, thereby having a dominant
share in the total production of electronic goods in India in FY13, followed by consumer electronics at
23℅. In Fiscal year 2016 electronics industry's contribution to GDP is only 1.7% in India.

Exports and Imports:

Electronics exports from India were estimated to be around $7.66 (INR 46300 crore) billion in FY13, a
slight decline from $8.15 (INR 44000 crore) billion in FY12. The telecom segment dominated India's
electronics exports in 2013–14, followed by electronic components, consumer electronics and
computing. Technological improvements and competitive cost effectiveness are thought to be the key
drivers behind the growing demand for Indian electronics products abroad.

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 Total imports of electronic goods during 2012-13, 2013–14, and 2014–15, were estimated to be worth
INR 1,79,000 crore (US$28 billion), INR 1,95,900 crore (US$31 billion) and INR 2,25,600 crore (US$37
billion) respectively. The importation of phones has increased sharply from $665.47 million in 2003-04 to
$10.9 billion in 2013-14, according to the commerce ministry data. Import of phones from China has
grown from a $64.61 million to $7 billion during the same period. In 2013-14, India's electronics trade
deficit was valued at US$23.5 billion, of which China accounted for 67℅. From around $28 billion in
FY11, the importation of electronics could reach $40 billion in FY16. As of 2016, local manufacturing of
electronics has risen, beginning a turnaround at a time when Indian exports have been relatively weak.
In January 2016, electronic imports, which accounted for 27% of India's yearly trade deficit, shrank by
2.2% to $3.2 billion, while electronic exports rose 7.8% to $0.5 billion.

Challenges:
Some of the challenges faced by electronics industry are as below:

1. Lack of capital- Manufacturing ICs require heavy capital. Manufacturers needs to ensure the quality of
the product at lower unit price.
2. Irregular power supply: - Power outages are very frequent in most part of the country. It’s very difficult
to get steady power supply, causing delays in manufacturing electronic products.
3. Lack of availability of raw materials: - There is no major fabrication centers that can supply
semiconductor grade materials for manufacturing electronic goods.
4. Lack of Skilled Labor: A large pool of electronic engineers is hired by non-electronics companies like IT
sector and banking industry, causing deficit in skilled workers.
5. Environmental factor: - New standards and regulations are pushing electronic manufacturers to
consider their ‘social responsibility’ while making decisions and manufacturing products. Waste disposal
is a major concern.

Competitive Scenario:
Let us understand the competitive landscape by using Porter’s Five Forces Model.

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Figure 1
 Competitive Rivalry:
• Competitive rivalry is quite high in this Industry, as players use innovation and product differentiation
to beat peers

• Each player adopts different strategies to capture market share; for example, one player innovates
while another diversifies, thus intensifying the rivalry in the sector

Threat of New Entrants:

• Threat is low due to capital intensive nature of the industry

• Evolving technology, brand loyalty make it tough for a new entrant

Substitute Products:
• Threat is low because there is no substitute for electronics

• Threat is present within the industry due to product innovation by peers

Bargaining Power of Suppliers:

• Low bargaining power of suppliers, as product differentiation is less

• With number of suppliers in the business switching costs for customers are low

Bargaining Power of Customers:

• High as buyers possess considerable product information these days, which helps in comparison

• Availability of similar options at different price ranges

Any new entrant can survive the competition only if the they have enough seed funding and either can
come up with come innovate idea which can be considered a Moon-Shot Idea or can go for Cost
Leadership.

Moon-Shot Idea should be capable of doing the below:

1. Address a huge problem

2. Propose a radical solution
3. Use breakthrough technology

Growth Potential:
Electronics market in India is growing at a rapid rate. Some statistical estimation and facts regarding the
growth opportunities of India’s future electronics market are given below:

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  It is estimated that the total production of electronic hardware goods in India will reach up to US$
47.87 billion in FY17 and is expected to reach US$ 104 billion by 2020
 Production expanded at a compound annual growth rate of 12.60 per cent during FY07–17
 Increased demand for advanced TVs, mobile phones & computers equipment has led to high
production during FY07 to FY15
 During FY16, production of industrial electronics, mobile phones & LED was recorded at USD6.89
billion, USD8.25 billion & USD0.55 billion, in value terms, respectively
 Consumer Electronics has the highest share (29.7 per cent) in the total production of electronic
goods in India. The growth in consumer electronics over the years has been accompanied by an
increase in imports in respect of certain items like LCD/LED TVs

Recent developments:
Latest Trends:
The electronics industry is going through an exciting phase due to revolutionary changes in technology,
the launch of innovative products and the challenge of global competition. Therefore, electronic
manufacturers are focusing mainly on product improvement by following some of the latest trends to
stay ahead in the market.

Miniaturization:
People of this modern era, specially the youth, desires compact and handy products. This refers to the
creation of smaller devices or components for mechanical, optical and electronic products. Silicon chips
has enabled manufacturers to integrate multiple transistors within a smaller space. Development in the
VLSI field has enabled complex design of ICs, hence, cutting the production cost and product pricing.

Artificial Intelligence:
Higher dependency of consumers on technology has forced manufacturers to build products with higher
intelligent functions and logic. AI can improve staff work process, reduce human error across the
organization, support digital transformations for businesses, manage large amounts of data and deliver a
seamless customer experience.

High Frequency Applications:

Demand for applications that can transmit huge amounts of data is on the rise. Advances in integrated
circuit technology are driving packaging and interconnect designers to accommodate more input/output
connections and larger sized dies, which dissipate more power and operate at higher speeds. This, in
turn, will generate demand for components and products suitable for high frequency applications.

Key Growth Drivers:

 Rising Income: Increase in discretionary income and credit availability has boosted demand for
consumer durables
 Government being one of the biggest consumer: The government is one of the biggest
consumers of the sector and leads the corporate spend on electronics; this is not surprising
given that electronics facilitates e-governance, developmental schemes and initiatives launched
by the government

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  Defence Needs: Increasing demand for defence equipment has boosted the production of
electronics goods up to a considerable level
 Urbanization: Rapid urbanization has unraveled new markets for consumer goods and easy
financing options have made consumer goods affordable
 Manufacturing Costs: Rising manufacturing costs in other major manufacturing economies
 Favorable Ecosystem: India being the 4th Largest Start up ecosystem globally
 Favorable government Policies announced by central and state governments came as boosters
for growth

Policy Support:
India has favorable government policy and regulatory support for Electronics Industry. To promote
overall growth and open job opportunities, projected to be more than 28 million by attracting
investments worth $100 billion, the Indian central government has sought to reduce the country's
electronics import bill from 65% in 2014–15 to 50% in 2016 and gradually to a net-zero electronics trade
by 2020.

Increased Liberalization of Foreign Direct Investment (FDI):

 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the ESDM sector
and is subject to all applicable regulations and laws
 In case of electronics items for defence, FDI up to 49% is allowed under automatic route,
whereas anything above 49% is allowed through the government approval

Relaxation of Tariffs:
 No customs duty on 217 tariff lines covered under the Information Technology Agreement (ITA1)
of the WTO. Peak rate for basic customs duty is 10 per cent
 Microprocessors, hard disc drives, CD ROM drives, DVD drives/DVD writers, flash memory sticks
and combo-drives are exempt from excise duty payment and special additional duty of Customs
(SAD). Components and accessories of mobile handsets are exempt from excise duty and SAD

Establishment of EHTPs and SEZs:

 Electronic Hardware Technology Parks (EHTPs): Units undertaking to export their entire
production of goods and services, may be set up under the Export Oriented Unit (EOU) Scheme,
Electronic Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or
Bio-Technology Park (BTP) scheme for manufacture of goods, including repair, re-making,
reconditioning, re-engineering, and rendering of services

Benefits:
1. 100% FDI investment permitted through automatic route
2. Export profits 100% tax-exempt under Sections 10A/10B of the Income Tax Act
3. Duty free imports/ domestic procurement permissible on Capital goods, Raw
materials, Components and other inputs
4. Refundable Central Sales Tax
 Special Economic Zones (SEZ): Units may be set up in the SEZ for manufacturing, trading or for
service activity. The units in the SEZ have to be net foreign exchange earners but they are not
subjected to any predetermined value addition or minimum export performance requirements.
Sales in the Domestic Tariff Area from the SEZ units are treated as if the goods are being
imported and are subject to payment of applicable customs duties

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 Benefits:
1. 100% FDI investment permitted through automatic route
2. 100% Income Tax exemption on export profits under Section 10AA of the Income Tax Act
for 5 years, 50% for next 5 years thereafter and 50% of ploughed back export profit for
next 5 years
3. Duty free imports/ domestic procurement permissible on all goods for
development, operation and maintenance
4. Exempted Central Sales Tax

Implementation of Preferential Market Access:

 Preference to domestically manufactured electronic products in Government procurement
 Nine (9) electronic products and twenty three (23) telecom products are notified under the
policy
 All companies registered in India engaged in manufacturing of electronic products in India and
the sole selling agents/ authorized distributors/ authorized dealers/ authorized supply houses of
the domestic manufacturers of electronic products are eligible for consideration under the Policy
 Imposing basic customs duties on certain items falling outside the framework of the IT free trade
agreement
 Exempting import-dependent inputs/components for PC manufacturing from a Special
Additional Duty (SAD)
 Incentivizing the export of certain electronics goods in the Focus Products scheme under the
Foreign Trade Policy
 Imposing an education cess on imported electronic products for parity
 To offer incentives of up to $1.7 billion by 2020 to electronics hardware manufacturing entities
setting up shops in India to help offset disadvantages of developing the new industry in the
country, a Modified Special Incentive Package Scheme (MSIPS) has been initiated. The
government has approved 40 proposals worth over INR 9538 crore between January 2014 and
June 2015 under the scheme

National Policy on Electronics (NPE):

 NPE’s vision is to create a globally competitive Electronics System Design and Manufacturing
(ESDM) industry to meet the country’s needs and serve the international market
 Develop an ecosystem for a globally competitive ESDM sector in the country by attracting
investment in excess of USD 100 Billion and generating employment for 28 Million people at
various levels
 To develop core competencies in strategic and core infrastructure sectors like
telecommunications, automobile, avionics, industrial, medical, solar, information and
broadcasting, railways, intelligent transport systems, etc.
 A number of state governments have also come up with separate state specific policies for
electronics sector

Intellectual Property Rights:

 Intellectual Property Rights (IPR) are a key determinant of progress in R&D and innovation in the
electronics sector

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  Government of India 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

India has pursued a two-pronged strategy of import substitution and export encouragement, through the
Make in India campaign coupled with the Digital India campaign, along with the Startup India and the
Skill India campaigns. There are many other policies which favor the growth of Electronic industry. All the
strategies aim at providing a favorable eco-system, promoting exports, focus on human resource
development, develop and mandate electronic standards, focus on innovation and R&D.

Key Players:
 Samsung
 LG
 Videocon
 Sony

Samsung is the largest player in the consumer durables market. It provides employment to around 8000
people. LG is second largest leader in consumer durables after Samsung. Videocon is the third largest
consumer durables manufacturer in India after LG and Samsung. It holds one fourth of the consumer
durables market in India. Sony is also one of the important key player which plans to expand the line-up
that currently includes models with screen sizes of 22, 24 and 43 inches produced only for the local
market. The company scaled down its smartphone business to focus on the INR 15,000-plus segment.
Investments and Opportunities:
Company Amount Invested Area of Investment
Xiomi USD25 million Entertainment (Video on demand)
Panasonic USD137.50 million Ac, washing machine and welding and cutting machine
Delta India New plant in Tamil Nadu
LG USD163.7 million R&D, marketing
Hero group USD82.9 million New subsidiary “Hero Electronix”

Digitization of cable television which is initiated by Govt. of India, has opened the door of investment in
this industry followed by an increase of about 103 million 1 subscribers for DTH.

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References:

1. http://www.makeinindia.com/sector/electronic-systems

2. http://www.indianmirror.com/indian-industries/electronics.html

3. http://www.indianmirror.com/indian-industries/2016/electronics-2016.html

4. https://www.mindtools.com/pages/article/newTMC_08.htm

5. https://www.ibef.org/industry/electronics-presentation

6. http://www.meity.gov.in/content/schemes-and-policies-electronic-hardware

7. http://commerce.gov.in/InnerContent.aspx?Id=216

8. http://dgft.gov.in/exim/2000/policy/chap-06.htm

9. http://www.indiaretailing.com/2017/02/02/retail/top-10-indian-consumer-durable-companies-of-
2016/

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