walkman.gifIt
may take five years, it may take just three but China is destined to
overtake Japan as Asia's principal consumer electronics market. That's
a bold prediction, particularly when made by Sony, which has just
announced plans to invest an extra $200m in China this year.

Since Sony China was established 10 years ago, the Japanese giant
has invested around $1bn in the PRC. Like other multinationals in in
the electronics industry, it has shifted most of its manufacturing of
low-margin products to China and other low-cost Asian countries.

In a telling sign of the times, Sony recently stopped producing its
famous Walkman players in high-cost Japan to concentrate production in
China and Malaysia. Around 200 Japanese workers lost their jobs, a
small but highly symbolic loss for Japan's once-invincible electronics
industry.

This story has been played out in many other industries, of course.
But what is new is Sony's recognition of China's inexorable rise to
dominate not just the supply side of the equation but demand as well.

For, as its name tells us, the consumer electronics industry is one
of consumers. Today, only one in every five China's urban households
has sufficient disposal income to be of interest to a company like Sony.

But in the next ten years, the rapid emergence of a lower middle
class will mean millions more Chinese can afford to buy discretionary
items like Walkmans — assuming Sony still makes them then.

By 2025, urban households in China will make up one of the largest
consumer markets in the world, spending almost as much as Japanese
households spend today, according to management consultancy McKinsey.
This emerging middle class will also be much younger than in developed
countries and so highly attractive for consumer electronics firms.

No wonder, then, that Sony is so keen to understand the Chinese consumer
and overcome the historically frosty relationships between the two
Asian giants. Seiichi Kawasaki, vice president of Sony China, says:

Sooner or later, that day will come when the business in China will exceed the one we have in Japan.”

He gave three years as his target to achieve that goal, which sounds
ambitious, not least because China's domestic electronic industry is
developing rapidly and is likely to pose much more of a challenge to
foreign brands like Sony.

China is currently Sony's third largest market after the US and Japan with consumer electronics sales of around $2bn.

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