India is rising fast to become a hot spot for Chinese home appliance-makers’ investment.
In a recent example, white goods company Midea Group announced that it will invest 13.5 billion Indian rupees (USD 185.1 million) in Supa Parner, Pune to set up a 270,000-square-meter technology park there.
The facility, designed to have three manufacturing units for home appliances, is expected to be put into operation at the beginning of 2020 and will provide direct and indirect employment to more than 2,000 people over the next 5 years.
The complex, once put into production, will have an annual production capacity of 500,000 units of refrigerators, washing machines, water purifiers and water heaters. It will also be able to manufacture household air conditioners and air condition compressors of around 1.5 million and 4.5 million units a year, respectively.
In addressing the move, Fang Hongbo, the chairman of Midea Group, was quoted as saying in the yicai.com report that India is “a key market for our global strategy” and will also rise to be an important production base.
As for the future plan, Fang noted that the group will set up a research and development center in India for the design, test and development of local products.
Managing director of Midea Group’s India region Krishan Sachdev said that by next year, Midea’s products sold in India will be supplied locally and the company is also considering the option of exports from India in the future.
Earlier in 2012, Midea has built a joint venture manufacturing facility with US-headquartered Carrier in Bawal, Haryana and the plant in Pune marks the Chinese company’s second facility in India.
Analysts pointed out that Midea’ expanding presence in India signals its ambition to capitalize on a market with a huge population of 1.36 billion people.
The South Asian country is one of the fastest-growing markets in the world for home appliances, with a relatively low electrical appliance coverage rate to date.
Specifically, only 29 percent of the families own a refrigerator and 11 percent of the households have washing machines.
It is estimated that the white goods market in India will grow at an annual rate of 6 to 7 percent and reach 700 billion Indian rupees by 2019, the yicai.com report said. The demand is expected to rise to 6 million air conditioners, 13 million refrigerators, 8 million washing machines, 7 million water purifiers and 4 million water heaters next year.
Midea has been taking a slice of the pie from India’s fast-growing home appliance market.
From 2012 to 2016, the Chinese company’s sales revenue in India has expanded at an annual average rate of about 30 percent to hit USD 140 million last year.
And the Chinese firm is not alone in its inroad into the Indian market. Other domestic home appliance-makers such as Haier Group and TCL have also reportedly pocketing profits from Indian’s burgeoning market.
Haier India, a wholly owned subsidiary of Haier Group, launched its operation in India in 2004. During the past decade, Haier has been gearing up its presence in India from merely brand exporting to setting up local factories and industrial parks.
In 2017, Haier’s factory at Ranjangaon in Pune for the manufacturing of washing machines, TV panels and water heaters, was put into operation.
With the additional capacity in Pune, the Chinese consumer appliances’ business has grown by 40 percent and 55 percent in 2017 and the first half of 2018, respectively. Haier India is expected to make this year 35 to 36 billion Indian rupees in terms of net revenue, according to media reports.
TCL is also mulling over plans to set up a plant in India, after the company recorded a 120-percent jump in the first-half television sales in the country.
“It is not only a matter of making profit for now. Indian market will also continue to grow rapidly in the future as the gap between the rich and the poor is shrinking, which combined with the country’s robust GDP growth, could further drive up local demand for consumer appliances,” said Zhou Xiangnan, the secretary-general of the home appliance branch under the China Chamber of Commerce for Import and Export of Machinery and Electronic Products.
India’s GDP growth is expected to reach 7.3 percent in 2018, the highest in Asian economies, according to a report by the Asian Development Bank.
Zhou also noted that amid the ongoing China-US trade tensions, domestic firms are also looking to diversify their overseas markets. “The Indian market – which is less affected by global protectionism – could not only serve such [a] purpose and be a destination where Chinese firms build homegrown brands, but also be a gateway with a radiation effect to other South Asian markets,” Zhou explained.
In addition, industry insiders attribute the trend to a batch of Indian’s new tax policies under Prime Minister Narendra Modi.
The new regulation, which took effect in September, raised import duty on a range of items including air-conditioners, refrigerators and washing machines.
“Under the new rule, Chinese companies have to start localization production to contain rising trade cost and compete with local rivals,” Zhou noted.
Not an easy road
However, Chinese brands are still trailing foreign rivals such as Samsung, LG, Panasonic and Hitachi in the Indian market.
Haier, despite an early start in the Indian market, still ranked third in refrigerator sales in the country last year, industry website yesky.com reported.
“South Korean and Japanese home appliance-makers, with wider recognition among India’s affluent consumers, have dominated the upper-end market while the low-end is flooded with local brands that cater to the demand of price-sensitive consumers,” a senior manager at Midea’s Indian subsidiary was quoted as saying in the NBS report.
Therefore, Chinese brands, which target the middle-end market, should pursue more active localization strategy and build their own sales channels, including via e-commerce platforms, to survive in a highly competitive market, said the manager.
Indian’s backward infrastructure network could also be challenging, observers said. “The logistics service in India is inadequate and sometimes the cost could be 100 percent higher than the expense in China,” Zhou said, urging Chinese investors not to “blindly be attracted by India’s huge market” and underestimate market risks there. — Global Times