1. Airports Authority of India is upgrading some 35 non-metro airports with total investments of Rs 7,000 crore.
2. Hotel industry products the country needs an additional 1.25 lakh rooms to meet the growing demand of tourists.
3. 328 shopping malls are scheduled to come up in India by 2010.
India’s infrastructure boom has opened a door of opportunity for consumer durable companies, whose institutional business (business to business) is zooming annually at 40% as compared to the 10% growth of retail business (business to consumer).
After fighting it out in the retail segment, consumer durable companies are vying for corporate attention.
Consider the case of LG Electronics. Five years ago, its B2B business stood at Rs 50 crore. This has now become a Rs 400 crore division. Air-conditioning company Blue Star has identified airport air conditioning as a major growth area, with the firm bagging 11airports projects valued at Rs 66 crore.
Though retail business continues to be the appliances and electronics firm’s mainstay, institutional business provides the growth opportunities despite thin margins. Companies look at institutional sales as a brand building strategy. The benefit that accrues is the band’s visibility in large public venues shopping malls, airports, railways stations and hotels. The Chinese companies too have seen its volumes from institutional business rise by 15-20%.
The main product categories of institutional business are centralized air conditioning and television. Consumer electronics companies have also designed products catering to specific industry requirements. For instance LG’s Interactive Hotel TV is specially created for the hospitality sector. One of the features includes the TV’s volume being controlled and accessed by the hotel’s management, so that the sound doesn’t disturb the hotel’s other guests. Dutch electronics major Philips’ Mirror TV functions as a TV as well as mirror – when it is switched off.
Hotels are up grading their television sets from conventional basic models to flat TVs and now increasingly to LCDs and Plasma TVs. Only 30% of hotels have upgraded to flat panel displays.
Chinese consumer durables get mediocre attention in India:
India shines like a tempting lure for Chinese companies seeking to expand abroad, and on first glance the Indian market looks like a natural fit. The Chinese, are providing basic computers and air-conditioners at bargain prices.
But Chinese firms have found profits in India hard to come by Tax barriers are everywhere, eroding their cost advantage. And Chinese goods have a low quality image that is very hard to shake.
The Challenges are not unique to India. Most are exactly what western companies encountered when they first arrived in China some 20 years ago. But Chinese companies, whose largely built on their home court advantage and low cost, are much less prepared to tackle those issues.
Chinese companies for example, lack technological know-how marketing savvy and managers with international experience. Winning over Indian consumers is much harder than wooing the Americans and Europeans, who treat TVs and DVDs almost as disposable items.
Indian want take sure that their hard earned savings go to products that will last. Branding and marketing is key in India, but Chinese companies mostly have no established brand names and Indians prefer Chinese consumer durable as a last or least option except minor items like child toys or small alarm clocks. These are also available equally in Indian grey markets at a throw away prices.
People here think Chinese goods are cheap but of poor quality. Some even say they sell all good ones to America. Chinese firms need to spend sometime to change the perception Unlike western companies with deep pockets who are more willing to invest for the long haul, many Chinese firms are under pressure to turn a profit quickly. Chinese TV maker TCL is not willing to splurge on expensive TV, marketing because it hopes to make a profit in India this year after three years.
Instead, TCL took a group of distributors to its factories in China making a favorable impression on those who went. But TCL has 4,000 partners in India and winning their allegiance thorugh such tours might be slow and costly.
Cost advantages also evaporate in India. After shipping and taxes, TCL’s products are already 30% more expensive when they reach India. Moving gods from one state to another incur taxes of 12.55%. On top of that, labor costs are rising at 20% in the technology industry in India. Frankly it is much harder to strike it rich in India.
Still India is a market to companies including TCL, the World’s largest producer of tube TVs, cannot afford to lose.
Sales of tube TVs are failing almost everywhere in the world except in India, and TCL expects India’s market for tube TVs the world’s largest within a year or two.
India is also a test for Chinese firms with multinational ambitions: If they can’t make it in India, how can they expect to conquer the developed markets?