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Opportunity to Reposition Make in India

India's consumer durables businesses are working to reduce single-country sourcing of parts
twitter-logoNidhi Singal | Print Edition: April 19, 2020
Opportunity to Reposition Make in India

Sonia Singh, a 25-year-old, Delhi-based executive had been saving money to buy the latest double-door refrigerator She was set to visit the shop when the government clamped a 21-day lockdown. She has postponed the purchase. She is not alone. Many Indians are postponing purchase of consumer durables and electronic items.

The Rs 76,400 crore Indian appliance and consumer electronics market grew in 2019 after almost two flat years on rising disposable incomes and easy access to credit. However, the Covid-19 outbreak has dampened growth projections. The lockdown in March-April will impact around 27 per cent annual sales, say industry watchers. March's usual contribution of 12 per cent has been close to nothing this year.

Contingency Plan

That is for later. The bigger problem is that India imports about 45 per cent of completely built units and nearly 70 per cent of components for TVs, air conditioners, refrigerators, washing machines and more from China. However, contingency plans are in the works. The companies have learnt their lesson and are working to reduce dependence on China and streamline supply as well as distribution. "The coronavirus has exposed fault lines in the global supply chain. In future, the focus of consumer durables enterprises will be on avoiding over-dependence on one country," says Prabhu Ram, Head- Industry Intelligence Group (IIG), CMR.

Consumer durables companies will look to build resilience in the supply chain, with capabilities to detect and act proactively against potential disruptions. While some will focus on having a diversified supply base, others will aim to rapidly localise in India. "For India, the current pandemic provides a clear opportunity to reposition 'Make in India' and provide a conducive policy framework to enable manufacturing with incentives. Over the long term, the over-reliance on China will come down," adds Ram. Once things start moving towards normalcy, OEMs will focus on manufacturing fast moving models. Also, they will explore low cost and no cost EMIs.

Industry insiders say a month's inventory is stuck in channel, across OEMs and retail. The industry is hoping that once the situation improves, the extended summer and demand for air conditioners, refrigerators, coolers and fans will help it revive sooner than later. The inventory in the channel will help OEMs revive production.

With no sales happening, the focus is on after sales service. "In such times, it is important to strengthen trust in after-sales service. We will further strengthen our processes to ensure consumers continue to trust us," says Manish Sharma, President and CEO, Panasonic India and South Asia. According to Ficci, the focus of "Make in India" should shift from reducing dependence on China to utilising Taiwan/ Japan/Korea to create partnerships.

The COVID-19 outbreak could also lead to consumers looking for products focused on health. "Our refrigerators come with Hygiene Fresh+ feature which removes bacteria up to 99.99 per cent, air conditioners with double filtration system that removes harmful substances from air and washing machines with unique steam features to remove 99.9 per cent germs," says Vijay Babu, VP-Home Appliances, LG India. He expects a prolonged summer and is sure of recovering the business lost due to the lockdown.

Much would depend upon how fast the situation can come under control. The optimistic scenario would be that containment and subsequent sentiment restoration happens a few weeks from now. In this scenario, it is estimated that the ongoing negative impact will get diluted over the next few quarters. On the optimistic side, it is expected that the demand in the coming months will compensate for the ongoing deficit. "Due to lockdown, customers are delaying their purchases but we expect sales to rise post recovery from the current crisis. Even demand in areas with high ambient temperature and high humidity will pick up in May and June," avers Mike Chen, Managing Director, TCL India.

Once the situation improves, OEMs expect the industry to bounce back. "The industry should have components and stocks for a month's demand. And that should be a good time for us to get back to our suppliers, to get stocks and resume normal production from the month after," says Kamal Nandi, President-CEAMA & Business Head & EVP, Godrej Appliances.

So, will employees be handed the pink slip? Sachin Gupta, Senior Director, CRISIL Ratings, says, "As of now, the companies are not looking at this as more than a quarter disruption. Much work in consumer durables is being done by channel partners and we don't expect OEMs to lay off their engineering, design or other staff." There is uncertainty around wage workers in channel and retail. Kumar Rajagopalan, CEO, Retailers Association of India, says, "The government should give a three-month job support subsidy at 50 per cent of minimum wages as cash support to encourage retailers to continue employment of staff during the lockdown and the later recovery period."

The industry is optimistic that while the growth will be impacted in the immediate future, it won't push the industry towards the negative curve.

@nidhisingal

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