China’s consumer electronics market is large and has good supply chain management facilities. Existing companies and vendors have established a strong presence, setting a good standard for newcomers.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Drivers
- Market Restraints
- Industry Challenges
- Technology Trends
- Pricing Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Distribution Chain Analysis
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
Consumer electronics or popularly called as home electronics refers to the wide range of electronic devices with certain functions used for casual daily purpose .
It can be divided into two product segments:
- Brown goods: Includes communication and entertainments device as Television, DVD players, Tablets, etc. With regards to brown goods category, China is rated as the largest consumer electronics producer in the world.
- White goods: Includes housekeeping equipments as Washing machines, Refrigerators etc .
The following products are some of those typically included under the umbrella of consumer electronics: computers, laptops, tablets, cell phones, smartphones, MP3 and other music players, TVs, recording devices, navigation devices, cameras, video recorders, game consoles etc .
China is considered to be the massive producer of electronics items and it possess supply chain that even beat the developed countries like Japan. The growth of consumer electronics have taken a fast pace in the past decade and is still expected to continue the production and demand supply in China .
The revenue in the Consumer Electronics segment amounts to US$115,522m in 2018. BizVibe estimated that China’s production corresponds to more than one-third of the global consumer electronics manufacturing output. Research from the European Council found that from 2012 to 2017, China’s worldwide production share increased from 36% to 38%, well ahead of other electronics manufacturing hubs such as North America (15%), Europe (14%) and Japan (12%). China is likewise the world’s largest consumer electronics exporter, with estimated earnings of US$557 billion and accounting for 24% of the US$2 trillion worth of exports worldwide.
It is the world’s most extensive electronics manufacturing ecosystem and supply chain, with more than five times the electronics suppliers based in Japan and a labor force of manufacturing workers close to 150 million. The industry quickly recovered in 2017 with a market growth of 3.4%, thanks to renewed consumer interest in smart wearables, next-generation LCD TVs and smartphones despite a brief dip in production output by 1.5% in 2016, according to research firm Reed. This notwithstanding, consumer electronics still topped China’s list of export products in 2017, accounting for 26.3% of its total exports .
The market risks of the consumer electronics market in China are discussed below:
- Quality problems in the consumer electronics industry: Consumer electronics products come with a traditional promise of quality and reliability. Quality issues are a normal part of electronics production, even in China’s highly automated manufacturing bases. There are underlying root causes, ranging from frequent design changes during testing, faulty coding implementation or negligent product testing. Poor workmanship is a common complaint against Chinese suppliers, who, as result of pressure to deliver on time or being granted project budgets at a bargain, rush client orders, only to come up with inferior electronics at a too high price .
- Cost problems in the consumer electronics industry: A feasibility study significantly reduces the risks of setting up an offshore production line in China. When clients fail to conduct feasibility assessment before production, they base crucial business decisions on assumptions, not on relevant data. This leads to inaccurate cost estimates, overestimated production speed, higher costs, and schedule delays .
- General risks in the consumer electronics industry: Setting up offshore production lines in China for consumer electronics is an intricate process. It is highly technical and mandates rigorous supply chain management and strict quality assessment. To stay on track, due diligence and routine checkups with the suppliers are imperative .
Top Market Opportunities
The top market opportunities of the consumer electronics market in China are as follows:
Consumer electronics production capacity: China remains the go-to destination in terms of large-scale production of consumer electronics. China‘s consumer electronics production has a comparative advantage over other consumer electronics manufacturing countries. Strong supplier and supply chain infrastructure tops the list of China’s industry strengths, enabling it to fulfill large volume orders at shorter production lead times .
Technological advantages and automation in the consumer electronics industry: China has adopted advanced technologies to optimize its manufacturing prowess, investing in smart robotics, cloud data and automated factory technologies as groundwork for industrial upgrade.
According to the International Federation of Robots, the number of installations of robot technology in China’s industrial settings increased by 27% and are expected to grow another 75% by 2019. By 2020, China is expected to reach a density of about 150 per 10,000 human workers to fuel automation across the consumer electronics industry .
Modern logistics infrastructure: In 2015, China initiated infrastructure upgrade of 20 cities in China’s nine regions, optimizing road freight, air freight, contract logistics and international freight forwarding. Multi-billion investments in port, road, and rail infrastructure helped boost China’s logistics sector as the world’s largest, with annual growth of 20% annually.
This well-developed logistics network spans global coverage, able to provide offshore clients with accurate information and visibility as to the status of products’ cross-border movement, from point of order to delivery .
The demand for consumer electronics in China is taking hype in the past decade. Production and demand of the consumer electronic goods is expected to rise in coming years.
The Chinese economy is fostered by successive augmentation of industrial output, import & export, consumer consumption and capital investment for over two decades. The drivers of the consumer electronics market in China are discussed below:
- Production capacity: In comparison to other manufacturing company, China is superior in consumer electronics production as it has a strong supplier and supply chain infrastructure. Thus, it enables the strengthening of the industry by producing a large volume of order at the relatively short lead time .
- Automation and Technological advantages: China has extended its wings to manufacturing with smart robotics, cloud data etc. The robotic technology has surged by 27% and expected to rise up to 75% by 2019. It is expected that by 2020, China can attain density of about 150 per 10,000 human workers to stimulate automation across electronic market in China . Also, the items as health monitoring equipment, Smart watches, printing devices are the driver for future prospects into the consumer electronics industry.
- Competitiveness among vendors: The consumer electronics market is highly viable with many small and large vendors as Apple, Lenovo, Samsung, Xiaomi, etc. The competitiveness is expected to bring about further innovations and advancement that in turn consumer electronics market.
- The popularity of smart devices: With the rising expansion and interest in the concept of the smart home via penetration of Internet-connected appliances, both manufacturers and consumers are interested in the electronic market as TV. Likewise, with the development in the ICT sector and customers demand, the products relating virtual reality, smart gadgets, and drones, etc led the development of the market. Smartphone production alone grew from 237.2 million units in 2012 to 901.2 million units in 2017 . Similarly, with TV manufacturers who introduced AI TV to offer a high level of convenience to users that act as a market driver in China .
- Government initiatives: The government of China’s acts to issue 4G license to major telecom providers as China mobile, telecom and Unicom is expected to promote rise during the forecast period.
Thus, these factors are driving growth in Consumer electronic market in China.
Though China is ranked as one of the top countries in the consumer electronics market, there are still some factors that need to be taken into consideration. The outlook for consumer electronics is not as rosy as it seems to be; there are many failed prototype to come up with a final successful product.
The restraint lies in the fact that online platform is given more hype due to immense sale response and offline sale seem to be less prioritized, however, both must go parallel to ensure the growth of the market. The pricing and promotion of the goods must be localized to foster the growth of the consumer electronics market.
Also, the traditional products as desktop are on less focus and more onto other products as mobile development. However, demand for desktop is felt that pin down the market in China .
Likewise, the decline in retail volume sale was seen in 2018 with dispersion in equipments as computers, mobile phones etc due to growth trends seen in other categories as wireless speakers, digital and analog watch, smart wearable etc. That took over the market in 2018 .
Beside this, the Chinese consumer electronics is lacking the skilful manpower to meet the economic challenges as it is forecasted that by 2027, 324 million (22%) of population will be over 60 years and won’t be able to meet the industry demands that will restrain the market .
The various challenges faced by the consumer electronics market in China are as follows:
- Time problems: Chinese consumer electronics industry is growing at a rapid pace and with this growth, the competitiveness in the market is also on the rise. To meet this need, the companies electronics brand must outnumber rest and take into consideration areas as research and development, implementation it and production part. With the surge in production capacity and demand for electronics, lead time increases and this delay may be a challenge to the market.
- Cost problem: Due to the density of suppliers in the Chinese market, clients are unable to figure out the assessment of suppliers production capacity and pricing and in turn end up with getting costly, low standard product as well.
- Planning problems: For any product to bring into effective implementation and using it, planning is desired. The inability to meet plan led to industry challenges. Failure to design prototype effectively may pose a setback to final production which in turn cause longer lead time and elevated defect rates .
The practice of latest technology and automation in manufacturing and production of consumer electronics market is on the rise. The Chinese market is getting nearer to the technological cutting edge in conventional consumer electronic market driving technological innovation in the areas as Artificial intelligence (AI), Robotics, e-commerce etc . as introducing AI TV to offer a high level of convenience to users .
China’s consumer electronics market account currently US$ 225.55 per user on average. When comparing worldwide, most of revenue is generated in China accounting US$115,522m in 2018 . Similarly, the manufacturing market reached around US $300 billion .
The central government has launched a flurry of incentive programs including State Council Guidelines for Big Data Development, Cloud Computing Action Plan 2017-2019, State Council National Informatization Strategic Guidelines for Development and Internet Plus Action Plan etc., to provide guidance to ICT industry development. Consumer electronic market rose to prominence after the liberalization of the economy under the national strategic policy of accelerating the “Informatisation” of its industrial development.
In 2011, China became the world’s largest market for personal computers. Likewise, In 2013, the Chinese government issued 4G licenses to three major Chinese telecom operators, marking the beginning of a new era in China’s high-speed mobile network and in turn result in accelerated growth 4G smart phones .
Revolution in distribution channels as of popularity in online selling as JD.com or Tmall etc have contributed to the diversity of sale channels and avoided problems like establishing an outlet in the rural area. Meanwhile, the expansion and penetration of retailers such as Suning and Gome into the rural areas has also played an important role to boost volume sales in the rural area.
Reshuffling of brands as from phones to smart phones, as well as product upgrades have brought about dynamic growth. The popularity of LCD TVs in 2013 was supplemented by the policy providing subsidies for energy-efficient products thus upgrading their TV set in first half of 2013.Consumer electronics accounted for 26.3% of its total exports .
Other Key Market Trends
China possess a labor force of manufacturing workers close to 150 million . Foxconn alone employed 1.4 million workers in 2013. In the electronics sector, majority portion of profit shares goes to manufactures and only a fraction from it is received by an employer.
The 24,000 employee leave their job In its Shenzhen factory every month. Indeed, many of the workers in electronics plants are migrant workers looking for a temporary way to earn money, with students and especially “interns” also constituting a significant source of labor (15% of labor force at peak times).
In fact, rising salaries, rising education level in the country, the tendency to job mobility, lower tolerance towards irregularities, etc are Key labor trends in Electronics industry.
Market Size and Forecast
The market size in the Consumer Electronics segment amounts to US$115.522 billion in 2018. The Revenue is expected to show an annual growth rate (CAGR 2018-2022) of 9.1%, resulting in a market volume of US$178.925 billion by 2022.
The user penetration is 36.9% in 2018 and is expected to hit 52.6% by 2023. The average revenue per user (ARPU) currently amounts to US$225.55. In global comparison, most revenue is generated in China (US$115.522 billion in 2018) .
The revenue for the Computer Tablet Manufacturing industry in China has been growing at an average annual rate of 17.4% in the five years through 2018. Over the past five years, the Computer Tablet Manufacturing in China industry has grown by 17.4% to reach revenue of $63bn in 2018.
In the same timeframe, the number of businesses has grown by 17.4% and the number of employees has grown by 10.0%, mainly driven by increased exports and growing demand for industry products in second- and third-tier cities. Exports are estimated to account for 61.9% of industry revenue .
The revenue for the Smart Phone Manufacturing industry in China is estimated to increase at an average annual rate of 28.2% over the five years to 2018. In 2018 alone, revenue is expected to grow 23.1% to reach $206.8 billion, mainly driven by increased exports and growing demand for third- and fourth-generation (4G) smart phones. Exports are estimated to account for 63.0% of industry revenue in 2018. In the same timeframe, the number of businesses has grown by 4.2% and the number of employees has grown by 23.0% .
China’s TV market demand is progressively flowing from the low-end to high-end, with the significant improvement of products, smart TV will accelerate the popularity. In 2018, the global smart home market will Surpass USD 70 billion, the market share of China will reach 32% . In 2017, globally 245.1 million smart TV shipments were recorded, with China being one of the major suppliers of smart TV.
Further, smart TV sales in China were increased by nearly 14% in 2017 from sales in 2016. The China smart TV market is set to reach USD 36.1 billion by 2024, expanding at a CAGR of 4.61% over the forecast period (2016-2024) .
The consumer electronics segment is expected to grow at a CAGR of 9.1% out of which the majority of the sales will be comprised of online purchasing and this trend will be responsible for approximately 21.8% by the end of this decade. 6.1% was substantiated by this industry out of the total retail sales of China. The Computer Tablet Manufacturing industry has been developing in line with advances in communication technologies, such as CDMA and CDMA2000 .
The exports of smart Phone Manufacturing industry are estimated to account for 63.0% of industry revenue in 2018. With the rapid development of 3G and 4G technology, an abundant smart phone product portfolio and competitive product pricing, demand for smart phones has been growing strongly. In late 2013, the Ministry of Industry and Information issued 4G licenses to China Mobile, China Unicom and China Telecom, further spurring demand for smart phones .
In the long run, the smart home market will be unquestionably the order of hundreds of millions. Moreover, advanced technologies such as Internet of Things, cloud computing, big data and the rapid development of the ultra-broadband network will further boost the demand of smart TVs in China. with the increase of internet applications and intelligent as the center, the TV content is continuously supplemented and improved, the TV ecology gradually mature, smart home values began to show .
Internet retailing is a strong threat to store-based retailers and continued to gain share in 2018. Besides transparent prices and wide delivery coverage, online shopping platforms won over consumers by providing refined product classifications.
With growing penetration of internet-connected appliances, both manufacturers and consumers are showing strong interest in the concept of a smart home. TV manufacturers have introduced AI TV to offer a high level of convenience to users .
Distribution Chain Analysis
Manufacturers like Foxconn, Neway, and DJI find China an ideal base for consumer electronics. because of its well-developed supply chain. Its excellent supply chain management facilities help clients ensure on-time cross-border movement of finished products Also, this kind of movement is consistent, allowing shorter lead times.
When analysing distribution chain analysis of China, technology companies are establishing new low-cost locations for their manufacturing in Asia. This is mainly fueled by increasing Chinese labor wages and rising pressures to reduce costs. Some good examples are Samsung, following Intel and Nokia, recently shifted some manufacturing plants from China to Vietnam, where the company expects to deliver more than 40 percent of its phones. However, the current change in technology supply chains goes beyond Asia.
For nearly two decades, trade flows have been long-distance and east-west oriented, but these long-distance supply chains are being replaced, at least partially, by shorter, regionally based trade flows to meet the new global demand and changing market dynamics.
The regionalized global supply chain, in which goods are produced and sold/consumed in the same geographic region, is emerging as the new paradigm.
The challenge of meeting this regional demand of China, while managing short product life cycles, makes the tech sector an ideal candidate for the adoption of near-shoring and/or on-shoring. In this practice, companies shift their manufacturing bases closer to the end consumer in an effort to reduce risk and transportation costs, and improve customer service cycle times – while avoiding increased labor wages in China.
Nowadays, in China, online selling is so popular that many manufacturers of electronics choose to sell products on JD.com or Tmall etc, which contributes to the diversity of the sales channel and avoids many problems like establishing an outlet in a rural place.
Meanwhile, the expansion and penetration of retailers such as Suning and Gome into the rural areas has also played an important role to boost volume sales in rural areas. However, urban sales still account for the majority of volume sales of consumer electronics products thanks to the higher acceptance of innovative technologies and disposable income levels in urban areas .
Due to the presence of large number of well-established and recognized players in the marketplace, the industry is highly fragmented. Furthermore, the players are increasingly investing in research and development and exhibiting mergers and acquisitions and partnerships as key growth strategies to gain competitive advantage. The strong presence of established players in the marketplace has set a high standard for new players entering the consumer electronics market .
Also, this market is highly competitive and fragmented due to the presence of numerous large and small vendors. Competition among these vendors is expected to intensify during the forecast period as recent technological innovations will result in the rapid advancement of the consumer electronics market. Some key vendors analyzed in this market are -Apple, Lenovo, Samsung, Xiaomi, Microsoft, Canon. Other prominent vendors are Gionee, HTC, Oneplus, Sony, ZTE, Amazon, Blackberry, Google, Microsoft, Motorola Mobility, Fujitsu, Haier, Hisense, Samsung, Toshiba, Faro Technologies, Fujifilm Corp, Go pro, Intel Corporation, and Kodak .
The international players were outperformed by local players with four of the top five companies being domestic. Local players invested heavily in marketing campaigns and in product research and development in addition to price advantages and wide distribution networks .
The key competitive factors on which companies compete in the market mainly include high quality user experience, size and price. Consumers tend to seek high-quality products that offer the best in terms of the user experience with rising disposable incomes. Full-screen smartphones, large-screen TVs with higher resolutions such as 4K and 8k are favoured by consumers due to their visual quality .
Also, the sluggish growth of laptops across various regional markets can be accredited to the advent of powerful mobile devices such as tablets. With the rapid growth of lower priced and convenient tablets with advanced capabilities, laptop sales are expected to witness a steep decline over the forecast timeline. Low demand across the emerging economies is among other factors challenging the audio and video equipment sector in market .
The focus on customer convenience and the enhancement of the user experience are encouraging the vendors to introduce latest features and technologies in the devices .
Key Market Players
Major players and their company profiles are given below.
Lenovo: Lenovo quickly became the largest vendor of smartphones in Mainland China after entering the smartphone market in 2012 and.In May 2012, Lenovo announced an investment of US$793 million in the construction of a mobile phone manufacturing and R&D facility in Wuhan, China .
Huwawei : Huwawei is a Chinese multinational telecommunications-equipment and consumer-electronics company based in Shenzhen, Guangdong, South China. Ren Zhengfei, a former engineer in the Chinese People’s Liberation Army, founded Huawei in 1987 .
Alibaba: Alibaba groups is a Chinese multinational conglomerate specializing in e-commerce, retail, Internet, AI and technology. Founded in 1999, the company provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals, as well as electronic payment services, shopping search engines and cloud computing services. It owns and operates a diverse array of businesses around the world in numerous sectors, and is named as one of the world’s most admired companies by Fortune.
Xiaomi : Xiaomi Corporation is a Chinese electronics company headquartered in Beijing. Xiaomi makes and invests in smartphones, mobile apps, laptops, and related consumer electronics .
LG Electronics: LG Electronics (China) Co. Ltd., together with its subsidiaries, manufactures and markets electronic appliances. It offers televisions/home entertainment products, mobile devices, household appliances, computer accessories, and other related products. The company was founded in 1993 and is based in Beijing, China. LG Electronics (China) Co. Ltd. operates as a subsidiary of LG Electronics Inc .
Samsung Electronics China: Samsung Electronics China R&D Center operates as a subsidiary of Samsung (China) Investment Co., Ltd..
To sum up, we believe that consumer electronics market in China is optimistic but also risky, specially for newcomers, since the already existing players have secured a strong position.
The supply chain is strong, and with the development of online selling, marketing strategies should be emphasized on expanding the distribution channels. User friendliness, price and size are some major factors that companies compete on.
- CAGR: Compound Annual Growth Rate
- USD: US Dollar