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issue: January 2003 APPLIANCE Magazine

2003 Appliance Industry Forecasts
2003 Forecast Asia: Growing Up and Out in Asia

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by Linda Abu-Shalback Zid, Associate Editor/Newsletter Editor

China and Taiwan recently joined the World Trade Organization, and trade agreements are popping up all over Asia. But while U.S. and European companies work to expand their presence in Asia, that competition is driving Asian companies toward global expansion.

The International Monetary Fund (IMF) is forecasting from 1 to 7.2-percent GDP growth throughout Asia, with the low end predicted for Japan, and the high end predicted for China.

Appliance industry growth in Asia was expected to surpass economic growth in the region, according to Namseog Byeon of LG Electronics (Seoul, Korea). "We expect that major appliances will grow more than 10 percent to 20 percent in a large part of the region," he told APPLIANCE magazine. "Many appliance makers have set up facilities in Asia, especially South East Asia, India, and China. Movement of more manufacturing facilities to the region will make the competition tougher both locally and globally," he added.

A Changing China

For the first time, China has surpassed the U.S. as the most attractive destination for foreign direct investment, according to a CNBC report. The November 2002 report said investments in China were expected to top U.S. $50 billion by the end of 2002, and that U.S. firms alone had invested $35 billion there in 2001.

According to a Wall Street Journal report, China makes more than 50 percent of cameras sold worldwide, 30 percent of air-conditioners and televisions, 25 percent of washing machines, and 20 percent of refrigerators.

At the same time, Chinese companies, such as the Haier Group, are also working to expand their global base out of China. "China is a big market, but it is not a mature market, so I think there are a lot of changes in the brand names and the varieties of products," Yu Zi-da, vice president of the Haier Group, said at the Hong Kong Electronics Fair in October.

He said that while in the past, demand has surpassed supply for most appliance products in China, in 2002, the market has become comparably more stable. "We are facing competition pressures," he said.

He added that Haier is expanding into more mature markets, such as the U.S. and Europe. In January 2001, the company also announced a partnership with Japan's Sanyo to sell Sanyo products under Sanyo and Haier brand names in China, and established a joint venture for sales of Haier products in Japan, exemplifying the wishes of other companies to expand in China, combined with the desire of Chinese companies to expand outward.

LG Electronics is cloning its Seoul, Korea headquarters in Beijing to help localize its China efforts. The company plans to invest $40 million on the project, which is scheduled for completion in 2005.

"LGE has manufacturing facilities in China not only to respond to the local demands but also to supply competitive products globally," Mr. Byeon of LG Electronics added. He also said that more companies are expanding efforts in China, due to low production costs. "China has become the major location for producing appliances in the world. Moving the manufacturing facilities to lower cost locations is the natural response to the pressure for price competition in the global market," he said.

Increased Efforts in India

India's potential for growth is not to be overlooked. The IMF predicted 5.7-percent growth for the country in 2003. And while China is known for low production costs, one Chinese consumer electronics firm says that manufacturing in India is even less expensive. TCL said it was in contract manufacturing discussions with Voltas and Daewoo India for manufacturing air-conditioners there, according to a Financial Express report.

Whirlpool expanded Indian efforts by test marketing its new Opera brand for refrigerators and washing machines there in November 2002.

David Whitwam, chairman and CEO of Whirlpool, told the Economic Times that although the white goods segment in India had been flat for the last couple of years, he didn't think it would stay that way. "It should enter the 8-10-percent growth levels soon," he said.

Korean Growth

Korea's GDP is expected to increase by 5.9 percent in 2003 - growth which is attributed to buoyant domestic demand, as well as export, according to IMF.

According to the Korea Herald, exports are expected to rise 8 percent to a record $175 billion in 2003. The report said the Ministry of Commerce, Industry, and Energy predicted import expansion of 10.6 percent to $167 billion, for an annual trade surplus of $11 billion.

According to the Electronics Industry Association of Korea, exports of large home appliances rose 10 percent in January to October of 2002. The U.S. imported the most, with refrigerators alone totaling $710 million, up 353 percent from the same period in 2001. Air-conditioners were up 16.7 percent and microwave ovens were up 11 percent. According to the report, increased shipments to the U.S. and Europe, despite an economic slump, brightens prospects for exports of those products in 2003 when the economy is expected to be on the upswing.

Japan's Journey to Recovery

The IMF reported that Japan suffered its third and most severe recession in the last decade in 2001, but that activity seemed to stabilize in early 2002. The IMF said as of press time that while real GDP was projected to fall by 0.5 percent in 2002 (on an annual basis), modest growth of 1 percent was forecast for 2003.

Japan's slump is evidenced by a 2.5-percent drop in appliance sales in October for the second straight monthly dip, according to the Nippon Electric Big-Stores Association. Association officials had blamed the drop on reduced sales of PCs, cellular phones, and audio equipment.

Other areas of the Japanese appliance industry are still hopeful for 2003, though. According to a Kyodo News report, dishwashers are expected to see an increase in sales in the fiscal year from 620,000 units in 2001 to 780,000 units. The report partially attributes the increase to the introduction of smaller products with added functions.

Room air-conditioner sales are expected to remain stable, according to a report in Japan Air Conditioning, Heating & Refrigeration News. For refrigeration year 2003 (October 2002 to September 2003), the magazine predicts that demand will range from 6.6-6.9 million units.

Other Asian Activity

Outside of Japan, Hong Kong SAR (Special Administrative Region of China) was expected to see the smallest GDP growth of 3.4 percent, according to the IMF. While the jobless rate in Hong Kong dropped to 7.2 percent in October, that number was still triple the rate 5 years ago. Consumer prices also fell 3.6-percent in October from a year earlier, marking a 48th month of deflation, according to Bloomberg News. The cost of home appliances and other durable goods fell 6.3 percent.

In 2002, Malaysia and Singapore were both fighting fears of double-dip recessions. However, some of those fears were being soothed as Singapore government numbers showed manufacturing output grew a better-than-expected 11.8 percent year-on-year in October, and Economic Development Board data showed that industrial production rose 1.3 percent in October over September for the first month-on-month seasonally-adjusted increase in 5 months.

Malaysia posted economic growth of 5.6 percent in the third quarter to September, according to ChannelNewsAsia. Manufacturing remained the main growth engine in the third quarter, expanding 7.3 percent year-on-year from 5.6 percent in the second quarter. Electronics output growth was sustained at a high level of 20.4 percent, with electrical products turning around to grow 0.6 percent after four consecutive quarters of decline.

Taiwan's government predicts that its economy, which shrank 2.2 percent in 2001, will probably achieve 3.3-percent growth in 2002. IMF predicts 4-percent GDP growth for the region. According to a Daily Express report, however, growth in Taiwan's export outlook is dependent on U.S. growth, the source for 20.7 percent of its export orders.

Only as Strong as Your Partners

Trade partnerships continue to evolve in Asia, which could have a major impact on the region. In November, Singapore signed a tentative free-trade agreement with the U.S. to eliminate tariffs on about $33 billion in trade between the two countries.

Japan began free trade talks with Mexico in November, and was planning a second round of talks for February. Japan's exports to Mexico currently face average tariffs of 16 percent, while U.S. and European exports aren't taxed in Mexico. Japan had signed a free trade agreement with Singapore earlier in 2002, and was also negotiating trace pacts with South Korea, Australia, Chile, Taiwan, Thailand, and the Philippines.

China signed a free-trade agreement with the Association of South-East Asian Nations (ASEAN), a grouping of Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, the Philippines, Singapore, Thailand, and Vietnam. The framework pact eventually aims to create a free market comprising 1.7 million people, and to fuel trade worth U.S. $1.2 trillion. According to ABC News Online, Japan is also seeking a similar agreement with ASEAN, which would mean that between 2010 and 2015, the Asia-Pacific region would be virtually without trade tariffs.

Mr. Byeon of LG Electronics said such agreements will mean more "in-the-region trade of appliances." He added, "It also means more competition among the appliance makers in and outside of the region."

"Asia is the largest market for some appliances already and will become the largest for most appliances soon," he added.


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