The Chinese TV Manufacturing Industry
China has been positioning itself as a leader in innovation and technology. The evidence of this has been in the various high-tech products produced in the country (Balenieri, 2014). Globally, major conglomerates have taken note of this progress over time. As a result, they have responded in moving into the county through setting up production, selling their products in the Chinese market or both. Due to the new interest in the country, various effects are visible in the technology industry including the Television (TV) Industry.
Profitability
With a consumer population projected to grow to 400 million individuals, China delivers a very lucrative market for any product (Atsmon & Magni, 2012). Of particular interest, however, is the TV industry in the country. This paper assesses the profitability of the market using Hisense as a reference. Hisense, founded in 1969, has emerged as multibillion-dollar conglomerate as a result of various factors (Hisense Company Limited, 2017). In 2008, the company recorded a gross profit of RMB 2.3 billion (Fetscherin & Beutebnueller, 2009). Furthermore, the company amassed revenue worth RMB 13.4 billion. The values as mentioned reflect the market potential the country holds. The evidenced market potential has attracted other international TV ‘big names’ in the country (Sandra, 2008). China already has a booming population of TV manufacturers. Entry of more producers in the market, thus, hypothetically poses a severe threat to the stability and profitability of the said market. These companies’ threat is stimulated by government policies on the matter, price wars, and ease of entry into the market. Therefore, owing to the high number of consumers among the Chinese population, the market holds a lot of promise. However, the increasing number of companies in the market creates a hostile environment.
Entry of New Firms in the Market
Many factors contribute to the growing presence of TV manufacturers in the country. These factors include the availability of affordable labor, ease of access to affordable component technology, the entry of the country in the World Trade Organization, and availability of a large market. Chinese labor is one of the cheapest and most convenient in the world. Conglomerates have been moving production aspects of their companies to the state to reduce the cost of production, which has resulted in a significant increase in profits. China has very affordable technologies, which has made it a hub for manufacturers. Most foreign companies, therefore, find this factor attractive as they do not have to own component production factories. The increased competitor presence in the country was also facilitated by the entry of the country into the World Trade Organization (WTO) (Fetscherin & Beutebnueller, 2009). The signed treaties in 2001 require the state to facilitate the entry of foreign companies. Lastly, the Chinese population provides a good market for foreign businesses that fuel their presence. Therefore, as a result of these factors, the country is conducive for investment by multinationals.
Market share
The international brands’ performance in the country is relatively good. The 2008 market statistics, despite the turbulence economic challenges, comfortably proves the evaluation. Although Hisense holds the number one spot in LCD market share, foreign companies like Samsung competitively follow (Fetscherin & Beutebnueller, 2009). Also, Panasonic and Hitachi, which are foreign corporations, occupy the first and second positions respectively. Hence, from these statistics, one can deduce that foreign firms play a crucial role in the domestic market though they do not dominate it. Native companies took counter measures to check the foreign company’s supremacy. Therefore, Chinese firms dominate their market despite the inflow of foreign enterprises.
Suppliers
Suppliers form part of Porter’s five forces. In the TV set manufacturing industry, suppliers do not have a lot of bargaining power. Even though supply in a company makes the essentials of production available, supplier are many to bargain effectively. Their high numbers translate to increased options for the particular manufacturer (Porter, 2008). Thus, manufacturers in the industry dictate the terms as they can easy switch between non-cooperating suppliers. A good example is large number of component suppliers. Furthermore, a company like Hisense owns a component manufacturing factory. The company eliminates the need for components supplier. The industry’s manufacturers are therefore at a disadvantage.
Buyers
On the other hand, buyers have a high bargaining power. This power is pillared on a few factors. The first one is the availability of almost homogenous products in the market. A large number of manufacturers results in a surplus of products in the market. In turn, it gives the consumer many options thereby leaving the producers with little power to bargain. The second factor is the relatively high buyer population (Porter, 2008). High buyer numbers automatically drop the weights of bargaining power on their side. A manufacturer can easily suffer irreparable damage from such a population if they boycott the product because of unfair pricing. Consequently, consumers in the TV market leverage a lot of bargaining power.
Gray Markets
If gray markets controlled the rules of the industry, various firms would suffer a chain of disastrous consequences. The initial effect would be a loss of customers to the cheaper substitute products. The involved companies would have to continually lower their prices to match the gray market products to make sales in such an industry. As a result, the company would be left operating on tiny profit margins. Eventually, the company’s would be forced into bankruptcy or to boycott the market. As such, other contributors in the market, such as suppliers, would be left without a market for their goods. A gray market hold on the market would, as a result, lead to a collapse of the other firms in the market.
Business Environment
The competitive environment in the country is currently fair. When international players came in the game, they enjoyed a competitive edge over the existing domestic ones. Hisense’s cunning price war strategy leveled the game between the two tiers (Fetscherin & Beutebnueller, 2009). The 20% price premium which foreign firms enjoyed over the domestic ones was automatically eliminated. Accordingly, a favorable market was created for all the participants that is still in existence.
Indeed, there has been a substantial international presence in China to exploit their various technologies. TV manufacturers are among the firms that moved production to the country. These businesses also targeted the local population as potential markets. The Chinese market is endowed with a variety of factors that made hosting these companies possible. Although foreign firms at first had led the market, they no longer hold that position as the TV market segment is very dynamic. Overall, the bargaining power of suppliers is low compared to that of the customers in this industry. While gray markets pose a threat to the industry, in the long run, the competitive environment of the country’s TV manufacturing sector is very conducive for growth.
Porter’s Five Forces
Key
Very high interaction
High Interaction
Low interaction
Figure 1: Porter’s Five Forces
References
Atsmon, Y., & Magni, M. (2012). Meet the Chinese consumer of 2020. Retrieved from http://www.mckinsey.com/global-themes/asia-pacific/meet-the-chinese-consumer-of-2020
Balenieri, R. (2014, December 30). A boom year for China’s tech companies. Aljazeera. Retrieved from http://www.aljazeera.com/indepth/features/2014/12/boom-year-china-tech-companies-201412295293505907.html
Fetscherin, M., & Beutebnueller, P. (2009). Price wars in the Chinese TV Manufacturing Industry: The case of Hinense.
Hisense Company Limited (2017). Our company. Retrieved from https://www.hisense-usa.com/our-company
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Sandra, D. (2008). International brand management of Chinese companies: Case studies on the Chines house hold appliances and house hold electronics industry entering US and Western European markets. (Google eBook). Springer. pp. 211-232.
