Local Consumer Durables Market Dominated by Chinese Brands

Nowadays, it is difficult to imagine an urban home without an air conditioner, fridge, and television. While these products were considered luxuries not more than 10 years ago, today they are normalized to the extent that even many rural homes can be found to have these.

The consumer durables market is expansive in its definition, referring to consumer goods that last over three years, such as electronics and home appliances. It is a market that provides products that most people consider essential to maintaining a certain standard of living, aiming to make life more convenient through innovation – by saving time, money, and effort.

In Bangladesh, growing consumer confidence in the economy and improved economic conditions mean demand for products is high. As of 2017, the market had an estimated size of $4 billion, which is expected to triple by 2025.^[1] Within the sector, television and refrigerators have a larger market share, as they are considered essential household products. Smartphones are also a crucial segment of the market, with year-on-year growth of 45% in 2019.^[7]

Local players are growing, with faith rising in brands like Walton and Rangs, but imports and foreign brands still lead the market. The leader in this sector is China, which dominates the imports with companies like Huawei and Xiaomi. Local players also import parts from China and India for assembly. To make the local companies more competitive, there needs to be a shift in perception and technical capacity.

Booming Private Consumption is Driving Market

As the middle and affluent class of the country grows, their consumption of non-essential products to improve their standard of living also rises – a direct result of higher disposable income and purchasing power. Over 30 million people are expected to be graduating from poverty to the lower middle class by 2025, which will comprise 17% of the growing population.^[2] Most of this group live in the cities, and the rising urbanization and availability of products is also a driver for consumption.

The improvement in economic conditions leads to a direct increase in consumer confidence in purchasing more. This is also supported by relative political stability, reliable inflation, and increased access to digital markets and financial services. In particular, alternative payment and credit options such as credit cards and EMI with low-interest rates have given many buyers convenience and accessibility to the market.

Additional drivers in the market include the rising concern for energy-efficient appliances, causing consumers to upgrade to newer models. Moreover, as the number of working and nuclear families increases, the need for convenient appliances is also higher, generating demand for products like microwaves and blenders.

Local Brands are Established but Vulnerable

Major local market players include Walton Group, Transcom Electronics Ltd., Rangs Electronics Ltd., and MyOne Electronics Industries Ltd. Price competition is the main feature of the market, with firms attempting to provide good quality products for the lower-middle-income class who are more price-sensitive. This has been effective in generating demand in rural regions as well, where purchasing power is rising.

Walton is the most competitive local player, holding over half the share in the refrigerator section of the market. Of multinational companies, Singer Bangladesh is the largest retailer in the overall consumer durables market, with an estimated market share of 10%.^[3] Singer was acquired by Turkish multinational Arçelik in 2019.^[3]

Companies import parts for the electronic products from India and China, indicating weak backward linkage. Local players then assemble the products to sell. This leaves the market vulnerable to global price fluctuations and trade policies.

Moreover, there is limited research and innovation to keep Bangladeshi products competitive. This is a problem as foreign companies develop more modern, high quality, and economically-friendly products that are preferred by consumers.

Chinese Cost Efficiency Beats Out Other Players

The Chinese consumer durables market is expected to reach a size of $270 billion by 2024, growing at a CAGR of 13.1%.^[4]

Overall, of these Chinese brands, Lenovo has the highest ranking in terms of perception, followed by Huawei and Alibaba. In fact, Huawei could overtake Apple as the leading global smartphone producer.^[5] Even though the “Made in China” was previously considered by many to have negative connotations, this opinion is less-held by younger generations.

In Bangladesh, China dominates the imports of consumer durables with a 69% share.^[1] Other importers include India and Japan. The main reason China is the preferable producer even though India is geographically more convenient is that large-scale production means that Chinese products have a significant cost advantage. This downward pressure on the price means local brands also have to be cost-efficient to remain competitive.

There is relatively less faith in local brands due to the perception that foreign brands have higher quality products. Local brands have limited technical expertise and production capacity, which is why it is not a major export earner either. However, exports are a distant aim, and the local market needs to be captured first.

Preparing for the Future

The consumer durable market’s most important driver is consumer confidence, which will be tested with the recession due at the end of 2020.^[6] The industry is sensitive to changes in the economic cycle, so production and pricing strategies will need to be in line with the recession. Moreover, this recession is predicted to be triggered by China, which means there may be a significant impact on the durables market.

Moreover, the growing trend of e-commerce means that local producers need to be prepared to develop a strong digital presence and engage with trustworthy platforms. However, these developments need not be threats, but can, in fact, be opportunities for local players to seize the market. Walton and Rangs already have a strong market presence and can use their knowledge of the market to beat foreign brands. Certain initiatives, such as providing higher tax benefits to manufacturers over assemblers, will be effective in shifting production to independence from imports.^[8]

Developing a stronger brand image for the local companies is essential for both Bangladeshi and foreign markets. Bangladeshi brands must be seen as more reliable, high-quality, and advanced, than simply as knock-offs of better products. The government can also place certain trade barriers to protect the local market from Chinese products.

Mondrita Rashid, Trainee Consultant at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]