Domestic electrical and electronics products gaining consumer confidence
Ferdaus Ara Begum and Tahmid Zami
Not long ago, Bangladesh was totally dependent on imported electrical and electronics (E&E) goods. But people now feel proud of buying goods produced in our country; even the assemblers and producers are considering export of these products. While export diversification is one of the challenges for Bangladesh to reduce dependency on a single product, E& E can be a new area to add to the export basket if proper policies are formulated carefully.
The E&E sector is one of the rapidly growing sectors in the country. Rough statistics show that there are more than 3,000 E&E enterprises in operation across the country combining all types of industries and those engaged in related businesses. They have created employment for a million people. The sector has been growing at the rate of 15 per cent. Bangladesh can become one of the exporters of E&E sector by enabling proper policies. The Industrial Policy 2016 included E&E sector as a sub sector of Energy Savings in which there are a number of other sectors, such as LED, tube light etc. A number of E&E manufacturing industries have been established in the country with the increase in standard of living and per capita income. Television, refrigerator and air conditioner manufacturing factories are among the country's fastest growing E&E sectors.
The electronics industry was subjugated by imported foreign brands in the recent past, but the situation has changed entirely. The first transition to local value addition was through introduction of assembling plants. Walton, Butterfly, Rangs and some others moved to assemble electronic goods locally. However, as the market grew rapidly, local companies as well as foreign ones realised the potential in the market. As a result, local assemblers began to develop their manufacturing facilities, produce components locally while importing a few technical components from abroad. The international brands also became keen to expand their foothold in the Bangladeshi market. A number of Korean brands have recently formed joint ventures with local counterparts to establish factories for assembling/manufacturing of electronic goods.
As the Bangladesh economy is taking large strides in GDP growth and improved living standard of people, the E&E sector is also making rapid progress. In a recent survey, conducted by BUILD, it was seen that in the electronic home appliances' assembling and manufacturing sector, around BDT 5.0 billion has been invested -- thereby employing more than 10,000 people. Television, refrigerators and air conditioners are among the major products of the E&E industry. The BUILD's study tried to focus on some sub-sectors and sought to understand the current market situation, consumers' preferences, impact of market segmentation, assess the competitors, and explain the strategy and risks for each of the sub-sectors.
The television industry is a highly promising one. Once dependent on imports, the locally-produced televisions are gradually gaining larger share of the local market. Different versions of LED televisions are now produced by the main market actors like Walton, Jamuna, Singer, Minister, Sony and LG. The market demand rose to 1.85 million in 2016-17 and registered 8.8 per cent growth. Certain technological aspects such as android features, connectivity with PC, MHL technology etc. are key factors that influence customers' decisions. Sales usually shoot up around particular occasions like the World Cup, Eid festivals, Pahela Boishakh etc. Companies seeking to boost sales during a particular occasion come up with promotional offers, extended guarantee and warranty period, and so on. The international brands like Sony, LG and Samsung still occupy a significant proportion of the local market while Walton - a local brand - alone accounts for about 37 per cent. The company has a solid distribution network, competitive price targeting the middle and lower income groups, and maintains good standard of quality.
The refrigerator industry is another important sub-sector of E&E industry. Mainly chest freezer, frost and no-frost refrigerators are sold in the market. The locally-produced fridges are rapidly capturing the market and the share of imports has fallen from 19 per cent to 15 per cent in three years. The growth in demand has risen by 37 per cent in 2016-17. Walton is the overwhelming market leader again in this segment. The reason behind Walton's predominance is its effective targeting of customer segments through cost efficiency. It also has a good after-sales service system at par with other similar brands like Samsung, Hitachi etc.
The air conditioner (AC) manufacturers are another big chunk of the E&E sector. The three types of ACs available in the country include cassette, ceiling and split. In air conditioner market, the seasonal hike is during the summer season when heat induces customers to purchase ACs. As Bangladesh is a country where summer lasts for a longer period of time and prices are more or less affordable, people even from the middle and lower-middle classes are buying ACs these days. This is also thanks to the government's continued support and increase in production of electricity.
The companies try to maintain sales during summer through various promotional offers. Unlike TV and refrigerator, international brands like General holds undisputed leadership with 55-60 per cent market share in the AC industry. LG and Sharp are the next big market players, followed by Walton and other Bangladeshi brands. The reason behind the acceptance of General AC is its strong brand equity based on quality and international reputation. The main challenge for local brands like Walton is to create customer interest and confidence. ACs, unlike televisions and refrigerators, are rarer in rural areas. This remains a challenge for brands targeting the lower-end segments. The innovative entrepreneurs can now plan on the best strategies through which they can reach the middle-class segment in the rural areas of the country with different types of cooling systems. Mobile AC can be an option. It is already available in the market to some extent.
Increasing confidence among the customers about Bangladeshi E&E products is an important aspect. People in the past preferred to buy electronics goods from Singapore, Thailand, Taiwan, Japan and other countries, but now consumers are interested to buy local ones. After-sales service is an area that has helped boost customers' confidence. Quality, durability and impressive appearance of the products are also important - especially for segmented customers. A number of E&E gadgets are now also being used in the households. These are working as useful domestic aids for making household work easy. There remain some risks, related to logistical supports, proper after-sales services, prices etc. While talking to the people concerned, they referred to the policy issues -- especially tax and duties, which change frequently. There should be a continuity of policies at least for a certain time to help the sector become stable.
The demand-supply analysis has not yet been done properly, but it is true that the market is still not saturated. At the same time, the export market has also opened up although it needs deeper attention to enter such challenging markets. A significant number of components are imported thereby making value addition a problem. A number of backward and forward linkage industries can be established to feed the parent industry. The challenges for new entrant in the market are significant and they need to take a focussed strategy to capture a market share or niche. In order to increase sales or expand market share, it is important to analyse the competitors' strengths and weaknesses first. After analysing their strength and weaknesses, brand awareness must be built through quality improvement on a continuous basis and far-reaching promotional efforts.
Consumers, especially the lower and middle class people, usually buy these gadgets for long time use. A family can afford at least three to four refrigerators during its lifetime. For them, quality and comfort of use is important. Also, similar others like washing machines, dish washers, cooking oven and related items are gradually being manufactured. More and more Bangladeshis are likely to use these locally-produced goods soon. Diversification of products can be treated as strength while establishing a brand name is another important option. Walton by this time has been able to establish a solid foothold in the local refrigerator and TV markets. There is scope for similar achievements through E&E products as well. The cost leadership strategy can be pursued successfully to popularise E&E goods like air conditioners and other products to the middle and lower income segments.
During the course of the study it was found that the demand pattern varies based on the geographic location while demographic, and behavioural segmentation also prevails in the markets so as to target the right segments and position the brand appropriately. And it is one of the important aspects for market penetration -- especially for the new entrant, to target the market segments with a product that has an affordable price without compromising quality. The electronics market undergoes continual innovation and upgrading. Therefore, it is of paramount importance to be in tune with technological innovations across the world.
There should be adequate emphasis on branding right from the very beginning to create brand equity. Below-the-line marketing is most appropriate for reaching the lower-end customers, but it needs to be combined with a degree of above-the-line marketing so that brand recognition and reputation can be built.
It is true that consumers' choice is ever-changing. Consumers in this global world make their choice based on purchasing capacity. They can buy their products from the market where local and foreign products of diversified varieties are present. On the other hand, online marketing has been gaining popularity. Although it is not very prominent in the E&E sector now, people may opt for it if they get preferential buying services.
As the buying power of the people increases, the E&E market will grow. But only the E&E brands that can pursue and adjust with the regulatory regime of the country will be successful. In Bangladesh, there are serious policy inconsistencies and a number of undocumented policies continue to prevail. For a new industry, it is difficult to follow each and every one of those carefully simply because of lack of synchronisation. Additionally, there are plenty of challenges to turn assembling industries into full-fledged manufacturing units. In BUILD's simple research, it was found that policies are inclined to support the manufacturing units. It is also true that when a factory begins as an assembling unit, it requires considerable investment. To ensure sustainability of the sector, there is no alternative to continuous value addition, establishing linkages with domestic industries and a structured tax policy. Simplification of policies is strategically important for sustaining and welcoming new companies to meet the burgeoning demand for the country's E&E products.
Ferdaus Ara Begum is Chief Executive Officer and Tahmid Zami is Senior Research Associate of Business Initiative Leading Development (BUILD). BUILD is a PPD platform sponsored by DCCI, MCCI and CCCI.