ELECTRICAL APPLIANCES

Transcription

1 THAILAND INDUSTRY OUTLOOK ELECTRICAL APPLIANCES December 2017 Wanna Yongpisanphob Over the period 2018 to 2020, growth will return to the Thai electrical appliance market due to a recovering economy, a rise in household purchasing power as debts incurred under the first-car buyer scheme are gradually paid off, and an improving real-estate market driving greater demand for electrical goods, all of which will help to underpin better domestic demand The sector will also benefit from purchases made during a previous period of high spending now reaching the point in their life-cycle where it become necessary for them to be replaced. Both manufacturers and distributors of electrical goods will also launch market strategies to stimulate consumer spending after several years of sluggishness in the market. At the same time, however, high levels of competition in marketing may increase business costs and thus limit profitability. Exports of electrical appliances are expected to see solid rates of due to a recovery of the world economy. Thailand also gains from being a world-leading production base for cooling appliances and exports will be further boosted by plans by major international producers to invest in manufacturing facilities in the country, from which producers will then export. Overview The Thai electrical appliances sector has a history going back more than fifty years, with government support through the offering of investment promotion strategies (via the BOI) a constant feature. During the sector s early history ( ), the government promoted investment in the sector as an import-substitution strategy and at this first stage, components were imported for the domestic assembly of relatively straightforward products, such as radios, televisions, and fans. Between 1972 and 1992, official policy was to support the sector as an exporter and this was helped by the 1987 Plaza Accord 1/, which led to a rise in the value of the yen and thus prompted Japanese manufacturers to relocate production facilities overseas, including to Thailand. The country was also able to exploit its low manufacturing costs, its geographical location at the center of the ASEAN zone, and the increase in economic potential of the ASEAN zone following the establishment of the ASEAN Free Trade Area (AFTA) in These factors all also helped to attract international manufacturers, especially Japanese ones, to the country and so over time, companies have steadily increased investment in production facilities in Thailand to manufacture for export including both electrical appliances and components (compressors, motors, diodes, television displays, speakers, etc.) and electronics parts (such as printed circuit boards, integrated circuits, capacitors, and computer parts). These developments have all thus fed into the on-going advance of the Thai electronics appliances supply chain. As of, there were approximately 400 manufacturers operating in the Thai electrical appliances sector (Figure 1). The vast majority of these (86%) are SMEs that manufacture component parts for large operators, which can be split into two groups: (i) major international brands such as Mitsubishi, Sony, LG, Samsung, and Toshiba; and (ii) Thai manufacturers, a group which includes Figure 1: Electrical Appliance Producers Large-scale enterprises 14% Medium-scale enterprises 18% Small-scale enterprises 68% Source: E&E Intelligence Unit, as of Jul Figure 2: Thai Electrical Appliances Market Domestic market 25-35% Exports 65-75% Source: OIE, complied by Figure 3: Export Value Share by Product () Video recording 2.3% Others, 44.7% Televisions and radios 12.8% 8.5% Air-conditioners 22.1% 1/ The Plaza Accord was agreed in 1985 and came about as a result of the global consequences of the Japanese government s depreciation of the yen, which had led to a significant rise in Japanese exports and thus to trade imbalances worldwide. In response to this, the G5 pushed for an increase in the value of the yen. This, though, created an economic bubble in Japan and rising costs for Japanese manufacturers forced them to relocate outside the country in order to reduce production overheads and so retain their competitive advantages. Source: MOC 4.4% Washing machines 5.2% 1

2 Thailand Industry Outlook Electrical Appliances both those producing to supply other brands (and which are therefore original equipment manufacturers, or OEMs) and those which have their own brands. Examples of these include Tasaki, Saijo-Denki, Uniaire, and Central Air, all Thai brands in the air-conditioning market, and fan manufacturers such as Hatari, Accord, and MasterKool. Data from The Office of Industrial Economics indicate that some 65-75% of all output from the Thai electrical appliances sector is bound for the export market (Figure 2). The most important market is the ASEAN zone, which took 22.4% by value of all types of exports of Thai electrical goods in. This is followed by the United States (14.4%), Japan (13.9%), and the European Union (12.5%). In terms of products, the most important category of goods is air-conditioners (22.1% by value of all electrical goods exported), followed by televisions and radios (12.9%), refrigerators (8.5%), washing machines (5.2%), compressors (4.4%), video equipment (2.3%), and others (44.6%) (figures 3 and 4). However, development of the domestic electrical appliances supply chain has been uneven and different parts of the sector have different production capabilities and different statuses in their respective world markets (Table 1). The cooling devices segment, a category which includes air-conditioning and compressors, is relatively mature through the whole supply chain and by value, over 80% of parts used in production are sourced domestically. The production of cooling appliances in Thailand has therefore continued to develop and Thailand is now one of the world s leading exporters of these goods; in, Thailand was the world s second most important exporter of air conditioning units (market share has continuously stood at 11.8%) and with a 7.1% market share, the fourth most important exporter of compressors. Thailand is also an major exporter of white goods, including washing machines, in taking an 8.0% global market share which put it in fourth place, refrigerators (seventh in the world with a 4.7% market share), rice-cookers (seventh in the world with a 3.7% market share), and microwaves (third in the world with a 5.4% market share). This is consistent with research into the competitiveness on world markets of the Thai electrical appliances sector between 2010 and, which shows that Thai-made airconditioning units, compressors, refrigerators, washing machines, and rice-cookers are increasing their market share in growing markets but that Thai-made microwaves and fans are losing market share, although the markets for these goods are also growing (Figure 5). Table 1: Thai Electrical Appliance Exports World s Source: Trademap Air conditioners 4,609, ,524, ,842, ,111, ,005, , Washing machines 1,000, , ,059, ,932, ,815, ,872, Rice cookers 375, , , Microwave ovens 249, , , Figure 4: Export Market Share () Figure 5: Business Position of Thai Electrical Appliances by Product Others 30.9% ASEAN 22.4% China 5.9% Japan 13.9% EU 12.5% USA 14.4% Source: MOC Source: Trademap, complied by 2

3 Thailand Industry Outlook Electrical Appliances In contrast to the situation with cooling and white goods, the Thai audio-visual (AV) segment has yet to develop its upstream industries (e.g. suppliers of cathode ray tubes, or CRTs, and screens) and this means that Thai manufacturers of televisions are limited to the use of old and outdated technologies such as CRTs, color layer descriptors (CLDs) and light-emitting diodes (LEDs), which have a lower resolution output. This situation is worsened by the fact that labor costs have risen in the country and this decline in competitiveness is gradually prompting manufacturers to move out of Thailand to countries such as China, Vietnam, Indonesia, and Malaysia, leaving Thailand increasingly needing to import televisions for distribution on the domestic market. As for the domestic market for electrical goods, this takes 25-30% of the output of the sector by volume. Electrical goods which are owned by more than 30% of Thai households include small, everyday items such as fans, televisions and irons, and larger households goods such as refrigerators, airconditioners, and washing machines. A Euromonitor survey of the domestic market for electrical goods in Thailand reveals that most items (60-65% by value) are distributed through shops retailing electrical goods, of which there are over 3,000 spread across the country % of goods are distributed through modern trade outlets, including discount stores, department stores, and home improvements stores, while the remaining 5% are sold directly or through the internet. The most valuable categories of goods are air-conditioners and air-purifiers (40% by value of all goods), refrigerators and freezers (17%), washing machines (15%), small household electrical appliances such as irons, vacuum cleaners, and kitchen appliances and fans (18%), and others (10%). Figure 6: Thai Electrical Appliances Production by Product Million units Figure 7: Electrical Appliance Exports by Value Million USD 25,000 20,000 15,000 10,000 5,000 Air-conditioners TVs Source : OIE Source: MOC Subprime crisis Rice cookers Washing machines Situation Through the years 2002 to 2007, the electrical appliances sector grew by an average of 11% per year. The sector benefited from rising demand in domestic and exports markets driven by the improving economies of both Thailand (average annual growth was over 5% in this period) and its trade partners. However, the onset of the sub-prime crisis in 2008 triggered a collapse in exports in the second half of that year and then in 2009 as a whole, exports contracted by a further 13.8% YoY. An upsurge in domestic political conflict also weakened consumer confidence and reined in spending in Thailand and the combined effect was to substantially weaken the domestic market. Following the economic crisis, the sector began to recover in 2010, when the value of exports grew by 32.4% YoY and distribution to the domestic market rose by 18.9% in terms of volume and 3.8% in terms of value. However, the fragility of the global recovery held back growth in demand for electrical goods on world markets, while relative to other countries, the ability of Thai manufacturers operating in some segments began to deteriorate. This was especially the case for Thai manufacturers of audio-visual equipment and Thai operators lost ground to those in Vietnam, Malaysia, and Indonesia, which had invested in the development of screen technology and the production of components. The extensive flooding of central Thailand towards the end of and the increase in the daily minimum wage to THB 300 also added substantially to business costs. 3

4 Thailand Industry Outlook Electrical Appliances 2010 Foreign owners of factories in Thailand producing electrical goods and components thus began to review their plans for investing in the country; some operators moved production entirely out of Thailand, while some others maintained facilities in Thailand but have increasingly shifted their emphasis and interest to production facilities elsewhere in the ASEAN region. The result of this was to hold back growth in the manufacture and export of electrical goods between and. The state of the domestic market for electrical goods has been somewhat mixed over the past five years. In, sales of items in the main categories of goods 2/ totaled 17.5 million units, an expansion of 9.5% YoY. This growth was partly caused by the need to replace items damaged in the floods of the year before and partly because the floods had also precipitated the rapid speedingup of condominium developments in the Bangkok Metropolitan Region and in neighboring provinces (e.g. Chonburi) for use as second homes. This helped to sustain demand for electrical goods through and, especially for household items such as fans, refrigerators, washing machines, and air-conditioners, sales of the latter also rising on the excessively hot weather caused by the El Niño which began in. However, in and, although the hot weather persisted, most electrical goods have a replacement cycle of 8-12 years so purchases made in only the recent past were still usable and the hot weather thus failed to act as a stimulus. During the same period, the real estate market remained depressed and so for and, sales of electrical goods fell by volume 4.3% YoY and 1.0% YoY, respectively. Data from Euromonitor, on the other hand, shows that the release of consumer goods which exploited new technology, including electrical appliances controlled by smartphones, multi-function appliances (e.g. washer-dryers or rice-cookers which can double up to produce a variety of other kinds of food), and higher quality televisions (e.g. 4K or ultra-high definition units) helped to increase the value of goods sold on the domestic market by an average of 6.3% annually between and. Million units Figure 9: Manufacturing Production Index (MPI) = Figure 8: Domestic Sales* by Products Air-conditioners TVs Source: OIE Rice cookers Washing machines Source: OIE Note: *From an Office of Industrial Economics survey of the volume of Thai-made electrical goods distributed on the domestic market. In the first half of 2017, although sales abroad saw good growth, the domestic market underwent a sharp contraction. Total production therefore fell in terms of volume by 2.6% YoY to 2.6 million units, a figure that is in accord with the electrical appliance manufacturing production index, which for 1H17 was at an average of 107.9, down from the recorded a year earlier. Exports of electrical goods in 1H17 came to a total of USD11.91 bn., up 9.9% YoY. Sales were helped by continuing growth in the economies of the main export markets of the United States, Europe, Japan, and China, which together take 47% by all electrical appliance exports. Growth was seen in most categories of goods, including air-conditioners (exports of USD2.80 bn., up 14% YoY), washing machines (USD0.70 bn., up 41.6% YoY), televisions (USD1.40 bn., up 3.3% YoY), and others (e.g microwaves and shower heaters, exports of which had a combined value of USD5.32 bn., up 18.2% YoY). Some categories did, however, see declines and these included refrigerators (USD0.96 bn., down 0.8% YoY), radios (USD0.26 bn., down 0.9% YoY) and compressors (USD0.48 bn., down 6.1% YoY). On the domestic market, the combined value of sales of electrical goods slid by approximately 3% YoY in 1H17. During this period, a total of 7.5 million units were sold, which represents a fall of 16.5% YoY. This decline had a variety of causes, including the fact that the weather was cooler than the year before and that the extreme heat of the earlier El Niño had brought forward purchases of certain goods and as a result sales of air-conditioners and compressors fell by 12.0% YoY and 6.6% YoY, respectively. The continuing weakness of the real estate market also helped to suppress demand for other goods and the combined sales of these (including refrigerators, televisions, and rice-cookers) shrank by 28.6% YoY. 2/ Includes air-conditioners, compressors, refrigerators, washing machines, televisions, and rice-cookers (Source: Surveyed by Office of Industrial Economics). 4

5 Thailand Industry Outlook Electrical Appliances Outlook It is expected that the electrical appliances sector will improve in the second half of 2017 and then continue to do so through the years 2018 to The domestic market will be supported by: (i) the general improvement in the economy; (ii) the increase in household purchasing power as debts incurred under the first-car buyer scheme are gradually paid off; (iii) a gradual recovery the real estate market (which drives demand for household electrical appliances); (iv) the turning of the replacement cycle, which means that for some consumers, their electrical goods will be reaching the end of their usable life and will need replacing; and (v) the expectation that producers and retailers of electrical goods will use a range of marketing strategies to stimulate demand following several years of unfavorable business conditions. Exports, too, are forecast to grow in line with improving economic conditions in target markets, especially in the ASEAN zone, thanks to rising demand from the area s middle class population 3/ and the lack of production facilities in the neighboring countries such as Myanmar, Laos, and Cambodia. For 2017 as a whole, output for the sector should remain stable. The domestic market is expected to shrink by 14% to 18% YoY (by volume). Although the improving economy in the second half of the year and the various promotions run by manufacturers and sellers at the end of the year are likely to stimulate spending on smaller household appliances that have a shorter replacement cycle. However, the situation with exports, which represent 65-75% of total production, is better as these are forecast to grow by 5-8% by value, although exports for 2H17 will appear to slow by comparison to 2H16, when exports were pushed up by an expansion in demand for air-conditioners from the United States and Europe. The domestic market for electrical goods will experience solid rates of growth through 2018 to 2020 in terms of both volume and value. The forecast is for expansion of 3-5% per year by volume as the real estate market continues to improve, many products reach the end of their life-cycle and need to be replaced, and producers and sellers run promotions to stimulate demand. By value, the sector is expected to grow by 8-10% annually thanks to the continuing release of new, innovative products to the market. The air-conditioning market in particular will gain from the replacement of older models with new ones that utilize inverter technology to save electricity bill. These market trends will naturally help to support increased income for operators but strong competition through sales promotions and marketing will tend to put profitability under pressure and net income will be kept to relatively low levels. The value of exports of electrical goods from Thailand should grow by 3-5% per year between 2018 and Exports will expand alongside the expansion of the world economy, especially in the economies of the United States and Europe (which take 30% by value of all Thai exports of electrical goods). In addition, rising demand in Asia, particularly in the ASEAN zone, which still have relatively low levels of ownership of appliances, will also help. Thailand is also in the advantageous position of being a major exporter of electrical goods and of having maintained competitiveness on world markets. This is particularly the case for cooling appliances, such as air-conditioners, refrigerators, freezers, and compressors and indeed, major international producers have plans to increase investment in Thailand in airconditioning, compressor and components manufacturing and this will help to underline the country s status as a major regional producer. Over the mid- to long-term, the sector has the potential to develop considerably due to government support for the Eastern Economic Corridor (EEC), through which the government is emphasizing the development of future industries (or the so-called Industry 4.0 ). This will help to attract increased investment inflows and to raise the level of innovation in the manufacture of electrical goods, notably in those areas such as cooling and white goods, where Thailand has the greatest potential. This move also coincides with the trend for rising demand for electrical appliances which utilize high technology. 3/ From a Nielson forecast of, which states that the middle class population of the ASEAN region will grow by 17.7% CAGR between and

6 Thailand Industry Outlook Electrical Appliances s view: It is forecast that turnover for Thai manufacturers of electrical appliances will return to growth over as both domestic and export markets revive. Manufacturers of cooling appliances: Members of this group should enjoy a high level of income, especially from growing export markets, since Thai manufactures are able to compete effectively on global markets and large international operators plan to increase investment in Thailand and so establish it as the major regional production center. The domestic market is, though, likely to expand only somewhat, helped by the market stimulus of new inverter technology in air-conditioning units, although some consumers will have only recently purchased new units and so will delay making replacements. The long replacement cycle of air-conditioners will also help to delay some purchases. Manufacturers of other household electrical appliances: Income for manufacturers of the main product groups (e.g. washing machines, televisions, etc.) will tend to improve relative to the past performance of this segment. Exports of these will likely rise as foreign operators invest in Thai production capabilities and the domestic market will likewise strengthen. However, with regard to a range of smaller items, such as radios, microwaves, kettles, toasters, and food processors, the competitiveness of Thai producers is tending to weaken both domestically and internationally as countries including China, Vietnam, and Malaysia continue to develop their production capabilities. Distributors of electrical goods: Business conditions will improve for distributors as domestic sales rise but competition from large modern retail outlets such as Power Buy, Power Mall, HomePro, and homeworks is multiplying. These operators have advantages in terms of costs, the range of goods which they can stock, the number of branches which they control, and their ability to exploit marketing strategies to stimulate sales. The net effect of this will be to put pressure on retailers generally and to reduce their margins. 6

7 KRUNGSRI RESEARCH Somprawin Manprasert, Ph.D. Phornphan Phoksuphat Head of Research Division and Chief Economist Head of Macroeconomic and Industry Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Senior Economist (Regional Economics) Kongphop Wongkaew Economist Tanaporn Sriklay Economist Industry Team Chetchuda Chuasuwan Head of Agricultural and Industrial Sectors Taned Mahattanalai Head of Service and Real Estate Sectors Poonsuk Ninkitsaranont Senior Analyst (Healthcare, Modern Trade, ICT) Piyanuch Sathapongpakdee Senior Analyst (Transportation & Logistics, Industry Risk Ratings) Narin Tunpaiboon Senior Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Talublugkhana Thanadhidhasuwanna Senior Analyst (Financial Sectors) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Patchara Klinchuanchun Analyst (Real Estate in BMR) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Intelligence Team Arpakorn Nopparattayaporn Analyst MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact Disclaimer This document is based on public information believed to be reliable. Nevertheless, would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. 7