topbanner_businessmatters02
      

Appliance Makers in India: Not Yet in the Comfort Zone

Sameer Dhar Sameer Dhar profiles the home appliance manufacturers in India and argues that despite their strengths, Indian players need to beef up their manufacturing facilities to enhance their global competitiveness. They have still not unleashed the true potential of the Indian market, nor have they succeeded in transform India into a production and export hub.

The Indian home appliance industry consists of at least fifteen white-goods manufacturing plants set-up by seven leading players in the Indian market. The major players in this segment include the Indian stalwarts like Godrej, Videocon and IFB as well as the multinational giants like Whirlpool, Electrolux, LG and Samsung.
Even though globally the home appliance manufacturing industry is considered as one of the low profiles ones, as compared to others like automotive industry, the Indian appliance industry is currently riding on a growth curve and is catching up fast with most of its global counterparts.

Some of the major strengths of the Indian industry include highly skilled manufacturing and R&D engineers, the capability to roll out new models every six to eight months and the availability of low-cost labour. Also most of these plants are located in tax-incentive areas around two major industrial clusters of Noida (near New Delhi) and Pune (near Mumbai). In addition, the manufacturers are also taking advantage of the various export promotion schemes of the Indian Government like EPCG (Export Promotion Capital Goods scheme) and EOU (Export Oriented Unit) status. Despite these strengths there are still quite a few opportunities for improvement of these manufacturing facilities, so that they can enhance their competitiveness, both globally as well as locally.

The Indian market size for refrigerators was estimated at 4.1 million units in 2004 and the installed manufacturing capacity of these players is above 6.5 million units per annum. Also the washing machines market in India was estimated at 1.45 million units in 2004 while the installed manufacturing capacity is near 3.75 million units. This clearly indicates a much lower capacity utilisation for most of the players.The quality of the products manufactured still needs to be enhanced if they are to catch up with global standards. This could partly be due to highly labour intensive operations with low automation and also because of the prevailing technology gap. The concept-to-market time for most of the plants in India is still higher than the global norm and except for LG, exports from India haven’t really picked up as projected. There still seems to be quite a way to go before India becomes one of the global appliance production and export hubs like China.

In order to increase production volumes and demand for “Made in India” products these players need to focus on both the domestic as well as export markets. In the domestic market there is a need to educate customers on the utility of these appliances (refrigerators, washing machines etc.) rather than only advertising the features of their new models. This will help increase the market size for entry level models provided they are made more affordable to the Indian masses.
Also to increase international market share, stronger focus is needed on process automation as that helps eliminate quality issues. The Indian appliance industry may take concepts from the Indian automotive industry to launch various quality improvement plans. Also more money needs to be pumped into the R&D efforts by the domestic players to bring their offerings up to speed with the global players in India.

While most of the players have set up export promotion teams/departments, there is also an opportunity to increase spend on market research to further understand the regulations and product preferences in target countries across the globe. This would further enable them to successfully export “Made in India” products.
For example the knowledge that refrigerators sold in Australasia need to fit into predefined spaces in kitchen; or fridge door racks need to be designed to fit large-sized Coke bottles available in those markets; or that people in China prefer to eat fresh food and hence freezers ought to be smaller would enhance product acceptability in those markets.

Currently the South Asian countries, Middle Ease and Australasia seem to be the most attractive markets for Indian products and India has the potential of becoming a high volume global exporter provided these manufacturers increase their focus on exports. This can also become a significant revenue stream.
LG is one of the leading players that offers a full range of appliances to Indian consumers – right  from refrigerators to CTV to mobile phones, etc. Other players can also adopt a similar strategy as this will help these companies to increase their influence on the supply chain as more dealers / distributors will be willing to display a full range of products rather than a couple of appliances. This can also help absorb costs for the loss-making products at the expense of profitable ones. Whirlpool is working on improving cost efficiency and is operating a 5 day extended shift in its plants. The company is determined to invest further in India to regain its market leadership.

LG is the current market leader in the Indian appliance industry and has been able to provide the right mix of quality products at affordable prices and marketing pull to the Indian masses. The company is also one of the leading appliance exporters from India. Electrolux's plants have recently been bought out by Videocon. Even though the company launched innovative  products like Washy-Talky washing machine, a fridge with stand-by battery option etc; the company could not crack the Indian market and create a consumer pull for its products. Godrej, an old warhorse, continues to enjoy the most trusted brand status in the Indian market. It may also increase its product (electronic and home appliances) offerings in the Indian market and increase plant automation to increase efficiency and drive down costs.
Samsung, another Korean giant, is manufacturing white goods in India from its state of the art production plant in Noida. The company has successfully positioned itself as a technology leader in the Indian market with its target marketing efforts. IFB is a niche player in the top end front-loading washing machine segment. The company could enter the mass market for washing machines and gradually for other appliances by expanding its production capacity to enjoy the economies of scale and to grow into another Indian home appliance giant. Clearly, the appliance market in India is growing but the companies - both homegrown and multinational -  have not quite managed to exploit the true potential of the market. A combination of the right marketing mix, consumer education and cost-efficient plant operations is needed to unleash the true market potential of the Indian appliance market.

Sameer Dhar is India Representative for Scott Technology Ltd, New Zealand.



[www.icfdc.com , 17 July 2005]

Website designed and maintained by ICFDC, New Delhi,  India