Chaebols under siege

Move over Korean Chaebols. The Zaibatsus are back with a vengeance staking out a bigger claim of the Rs 45,000 crore consumer durables market in India. Meanwhile, Indian brands such as Videocon, Voltas, Onida and Godrej are clamouring for larger slices of the pie as well.

According to trade sources, the Koreans who commandeered over 50 per cent share of the Indian durables sector are slipping, while the Japanese who had just about 12 per cent till a year ago are now within striking distance. Indian brands which had over 20 per cent share have had a fair outing this year too. Voltas, a Tata brand, has even regained its number one slot in the air conditioners category.

“By next year, I think this sector will be divided evenly three ways – one third share with the Japanese, one third with the Koreans and one third by Indian brands with a fraction by the others,” forecasts Mr Nipun Singhal, President, Lloyd Electric and Engineering, a new entrant to fray.

The shake-up in the fast growing durables category (which includes white goods such as television, refrigerator, ACs as well as brown goods such as microwave ovens and other appliances) is partly because there are more players active now.

Four Japanese brands — Hitachi, Toshiba, Sharp and Daikin – that were rather quiet are waking up from slumber, and investing heavily in India.

Mr Kanwaljeet Jawa, Managing Director of Daikin India, has an interesting reason for why these brands have become very visible this year. “All of us came to India riding on partnerships, but these didn't work out,” he says. While Daikin came with Shriram, Hitachi tied up with the Lalbhais and Sharp with the Kalyanis. Now that they are all on their own, they are making their presence felt.

JAPANESE ASSERTION

Others also point that the Japanese attention till now was on China, but now that they have turned their full focus here, the game is going to change. Banzai! Har-har Mahadev!!

The Japanese have certainly grabbed attention with their in-your-face ad campaigns this year — Toshiba's Sachin Tendulkar ads a case in point. Sony, Panasonic, Hitachi, Toshiba, Daikin, Sharp have upped their marketing spends phenomenally, cut product prices and ramped up distribution. “Panasonic has increased marketing spends by 55 per cent to Rs 350 crore this year,” says Mr Manish Sharma, head of marketing, Panasonic India.

Sony India is spending Rs 350 crore on marketing, Rs 100 crore more than the previous year and earmarked an additional Rs 360 for above the line and below the line activities, says Mr Masaru Tamagawa, Managing Director.

In contrast, LG has increased its marketing spend by just 10 per cent in 2011 to Rs 700 crore - of which Rs 100 crore went in the World Cup Campaign. Indian brands such as Videocon have not been lagging either. Videocon Director Mr Aniruddh Dhoot says the company has raised marketing spends by 60 per cent this year.

But it is Voltas' performance in ACs — in a year when sales have been down - that has become the talk of the town. “Today Voltas is the largest selling AC brand in India with 22 per cent market share,” says Mr Pradeep Bakshi, COO of the Unitary Products business Group, Voltas. An extensive market mapping and expansion exercise over last three years, along with the introduction of new advanced product range, seems to have worked.

And even as LG suffered with inventory pile-ups during the summer, Mr Jawa of Daikin points how all the Japanese brands — Hitachi, Toshiba, Daikin — grew in the air conditioning segment, albeit on a much lower base.

Shift towards value

Nothing cheap, please, we are Indians.

Panasonic's Manish Sharma says there is “a fundamental shift in consumption and buying behaviour of the core Indian consuming class towards value rather than price”.

In televisions — which form the bulk of the consumer durables market - the shift to LCD and LED has helped the Japanese significantly. Data from DisplaySearch show how the Japanese brands now control majority of the flat panel TV market in India.

Mr Tamagawa says Sony is looking to grow its Rs 5,500-crore turnover by 30 per cent in 2011 through aggressive distribution expansion this year. In 2009, Sony's turnover was Rs 3700 crore, he says.

This shift towards value rather price means that sales of 5-star energy rated products, despite the prices being 10-15 per cent higher. Similarly this year has seen trends of migration to higher-priced split ACs from window ACs.

Meanwhile, the Koreans don't seem that fazed. With the durables sector clipping along at a CAGR of 30 per cent and expected to touch Rs 60,000 crore by 2015, there's room for everyone.

And what LG may have lost in air-conditioners, it has gained in microwave ovens. “With our strong product line up and 360 degree marketing communication strategy we have consolidated our position in MWO category,” says Mr Rajeev Jain, Business Head, Home Appliances, LGEIL. From 35.2-per-cent-share in 2010, it has reached 38.1 per cent share (August figures from market research firm GFK) — a growth of 10 per cent this year.

Economists say there are two explanations for what is happening. One pertains to market structures and the other to dominance theories.

The market structure argument is that as markets for different products mature, they usually settle down to around between three and five firms for each product.

Two of these can often account for around 75 per cent of the sales. Free entry can lead to temporary overcrowding as now, but eventually the two-bit players go out.

Dominance theory

The dominance argument is that the market leader can have a maximum of 60 per cent because regulation prevents it from having more. The crumbs are shared by the rest but the No 2's share is usually as much as the rest's combined, around 20-25 per cent.

The important thing here is something called the concentration ratio which is often taken to be the combined share of the four largest firms in the total industry.

But this is not a good guide because just two firms may have a disproportionately large share.

A better measure is given by the Herfindahl Index. It is the sum of the squares of the market shares of each firm. Decreases in this index indicate an increase in competition.

The opposite also holds.

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