Document Sample

        The Electrical Appliances consist of domestic electric appliances such as
refrigerators and freezers, dishwashers, laundry equipment and other domestic electric
appliances such as electrical instantaneous storage or immersion heaters, electrothermic
hair dressing appliances; electric smoothing irons, space heaters and household type
fans, cooking appliance and plate warmers. It also includes television receivers
(including video monitors and video projectors), whether or not combined in the same
housing with radio-broadcast receivers or sound video recording or reproducing
apparatus, record players, cassette players, disc players, other sound producing apparatus
and airconditioners.

       The Appliance Industry generally groups its products into 3 categories namely :

          Brown Lines            White Lines           Convenience Items
          Television Sets        Refrigerators         Stoves
          VCD Components         Freezers              Oven toasters
          Radio Cassettes        Beverage Coolers      Ranges
          LCD                    Air conditioners      Rice cookers
          VCD                    Washing machines      Flat irons
          DVD                    Microwave ovens       Electric irons
                                 Vacuum cleaners       Electric fans

Market Size / Production/Demand of Electrical Appliances

        The appliance industry are mainly sold to the domestic market which accounted
for almost 90% of the products sold to domestic consumers and 10% are exported or sold
to exporters. Philippine consumers prefer the ―basic appliances‖ such as Television,
refrigerators, stoves or ranges, electric irons and electric fans.

       With the global increase in basic production inputs of oil and steel, manufacturers
were forced to increase prices. The price increase was limited by intense competition
among existing players.       Part of this competition was the introduction by the
manufacturers of new and more desirable features together with value-added services.

       There is growing popularity of mid and premium brands of domestic electrical
appliances among Filipino consumers and demand highly innovative, stylish, health
promoting and energy-efficient products.

        Mid-priced brands such as Sharp, Sony, Panasonic, Samsung, Imarflex and
Philips maintained their strong foothold in the domestic electrical appliances market in
the country, having established themselves as affordable yet quality brands with reliable
after-sales service. The growing middle class and their awareness that in the long-run it

is more cost effective to buy mid-priced goods in lieu of cheap Chinese brands has
likewise boosted their sales.

       The following are the non-price factors that affect consumer demand for electrical
appliances :

        1.      Power costs. Increasing power costs may discourage consumers from
buying more appliances, since some of these appliances—like air conditioners and
refrigerators are energy intensive.

       2.     Technology. Continuous product innovation, particular in the brown lines
category which include television sets, VCD, DVD, etc. , may cause some products to be
replaced by new and improved products. For example, VHS players have been replaced
by DVD players as the preferred audio-video products due to their added capabilities.

       3.      Service centers. Buyers want products with longer life. Manufacturers
with reliable service centers in accessible locations that offer affordable rates have an

       4.     Branding. Most of the major players have already been in the industry for
a long time, and therefore have more opportunities to induce brand loyalty. Increased
spending for advertisements also increase the possibilities for product differentiation.
Hence the reliability of the brand in itself would be a factor in the decision of the

Consumer Behavior

       The electrical appliances preferred by the Filipino consumers include refrigerators
using inverter technology, air conditioners with a good sleep mode and washing
machines utilizing an innovative steam technology.

        In the City residents’ families, the consumption of electrical appliances focuses of
refrigerators, electric cooker and smoke exhauster. The three types of electrical kitchen
appliances have the highest penetration rate in the city households, implying that the
three types will become mainly the replacement products in kitchen appliances in the
future. Although the consumption of dishwasher, microwave oven, disinfecting cabinet
and water dispenser have a lower penetration rates compared to the three types, they have
had averagely annual double-digit growth rates in the recent years, indicating they may
be the next hot consumer products.

       With the rising cost of energy in the Philippines, consumers are shifting towards
more energy-efficient electrical appliances. The recent economic downturn in Asia
provides a new opportunity for introducing energy-efficient electrical appliances.

Channels of Distribution/Marketing

        The raw materials for the electrical appliances industry include iron and steel
electronics, and fabricated metal products. Manufacturers produce and /or assemble the
parts to make their product using their technological know-how.

        Although some large firms produce product parts such as plastic and metal parts
and printed circuit boards, most firms prefer to import parts because of lower costs and
better quality, or because the needed parts are not available locally. Hence, the industry
is highly import-dependent for its raw materials . The supply of appliances is also
dependent on technological changes. A lot of technical expertise is needed to conceive
and construct these products. A company’s technical-know how is important for its
products to be up-to-date with the demand of the market.

                                     Manufacturers of
                                   Electrical Appliances

                                  Accredited Dealers of
                                  Electrical Appliances


       The Philippines has sophisticated retail distribution channels. Metro Manila alone
has more than 40 shopping malls sprawling across the city. Driven by a robust consumer
market, shopping malls are springing up in other major cities.

Competition of the Electrical Appliances

        The industry has been experiencing competition from imports ever since tariffs
for these products were greatly reduced. Imports surge of appliances include
refrigerators, air conditioners, washing machines, televisions sets, etc. Consumer
electronics consist of audio-video products, household appliances, and other consumer
electronics has increased considerably. Moreover, the country has been importing more
audio-video products than home appliances. The imports are generally lower in price
than locally made products, most come from China, Korea, Taiwan and other
neighboring Asian countries. Chinese products are generally cheaper because of China’s
lower cost of labor. An industry player related that although Filipinos generally prefer
appliances with known brands, those who have low income or are in rural areas buy
unknown brands because these are cheaper.

        Local manufacturers respond to the competition by telling consumers that
imported products are usually manufactured to fit the condition of the country of origin.
Local products have the advantage of being suited to Philippine weather, electricity
fluctuations, etc. Nonetheless, low tariff have contributed to the influx of imports.

       Manufacturers also experience competition from substandard and second-hand
appliances, and new appliances. Substandard appliances possibly come from small
manufacturers that are not members of the Association or those that have illegally
bypassed product standards set by the government. Imported appliances that have not
undergone product assessment and have entered the country illegally may have
substandard quality but attract buyers due to their cheaper prices.

        Innovated products, especially in the brown lines category, can also be substitutes
for old appliances. For example, demand for DVD players has replaced demand for VHS
players due to technological changes in film and tape production. The proliferation of
audio-video material in DVD format caused consumer preference to shift to DVD
players. Thus, manufacturers are also called to adapt to this changing environment by
continuously updating their products.

Philippine Trade Statistics of Electrical Appliances

                       Philippine Imports of Electrical Appliances

                                                            Value – Millions of US$
     H.S. Code               Product
                       Description/Top 5
                            Countries                   2009                 2008
8418                  Refrigerators/Freezers           133.662              128.427

                      Thailand                          60.681               56.929
                      China                             19.743               12.869
                      Indonesia                         13.110               10.304
                      USA                                9.719               17.826
                      Taiwan                             3.612                4.362
                      Others                            26.797               26.137
8528                  Television sets                  115.608              109.015

                      Thailand                         38.168                45.502
                      Indonesia                        22.420                18.382
                      Malaysia                         12.371                11.960
                      China                            10.663                 5.645
                      Singapore                        10.399                 6.188
                      Others                           21.589                21.338

8415   Air Conditioning         54.432   72.584

       China                    20.101   20.686
       Japan                     8.365   16.441
       Malaysia                  6.803    9.763
       Taiwan                    6.322    7.926
       Thailand                  4.493    5.323
       Others                    8.348   12.445
8422   Cleaning Machines        44.688   64.752

       Germany                  11.479   14.275
       Italy                     8.622    7.324
       USA                       5.253    4.052
       China                     3.563    5.954
       Japan                     2.289    4.416
       Thailand*                 0.832    1.924
       Others                   12.650   26.807
8524   Recorded Sound
       Media                    39.329   16.716

       France                   23.418   0.006
       Hongkong                  4.704   6.446
       Singapore                 4.435   2.461
       USA                       1.320   2.089
       Sweden                    0.999   0.122
       Thailand*                 0.025   0.081
       Others                    4.428   5.511
8516   Heating Appliances
       Home                     22.021   28.085

       China                    11.681   13.278
       Italy                     1.736    2.453
       Japan                     1.674    0.748
       USA                       1.550    2.965
       Singapore                 1.114    1.917
       Thailand*                 0.772    0.889
       Others                    3.494    5.835
8450   Washing Machine,
       Home                     17.074   18.801

       China                    10.629   9.859
       USA                       2.361   2.082
       Thailand                  2.293   4.017
       Japan                     0.555   0.466
       Hongkong                  0.336   0.260
       Others                    0.900   2.117

8521           Video Apparatus                   15.168                21.679

               China                             5.853                 5.288
               Indonesia                         4.014                 5.696
               Thailand                          1.708                 1.881
               Malaysia                          1.008                 2.367
               Hongkong                          0.848                 4.363
               Others                            1.737                 2.084
8451           Cleaning, Drying, etc.    5.732                 6.756

               USA                       2.336                 2.251
               China                     1.113                 1.292
               Austria                   0.473                 0.000
               Japan                     0.470                 0.261
               Taiwan                    0.222                 0.347
               Thailand*                 0.127                 0.305
               Others                    0.991                 2.300
8509           Electric mechanical
               domestic appliances       4.726                 5.738

               China                     2.247                 2.272
               Singapore                 0.656                 0.894
               USA                       0.332                 0.866
               United Arab Emirates      0.206                 0.133
               Hongkong                  0.186                 0.424
               Others                    1.099                 1.149

Note : *Thailand shows not on top 5 countries
Source : National Statistics Office and World Atlas

       The top Philippine import of electrical products which include airconditioning
amounting to US$54.432 million in 2009 a decrease of 33.34% from US$72.584 million
in 2008. Cleaning machines at US$44.688 million in 2009 a decrease of 44.90% from
2008’s US$64.752 million. Recorded sound media at US$39.329 million in 2009 an
increase of 32.75% from 2008’s US$16.716 million.

        The top exporting countries include China, Japan, Singapore, USA and Thailand.
Chinese products are generally cheaper because of China’s labor cost and generally
Filipinos prefer appliances with known brands, who have low income or are in rural areas
buy unknown brands because these are cheaper.

            Philippine Exports of Electrical Appliances

                                                  Value – Millions of US$
H.S. Code          Product
             Description/Top 5
                  Countries              2009                     2008
  8415      Air Conditioning            125.187                  146.975

            Hongkong                     47.776                  43.451
            Japan                        22.327                  28.923
            China                        10.567                  12.417
            USA                           9.011                  12.750
            Kuwait                        6.300                  10.729
            Thailand*                     0.774                   1.083
            Others                       28.432                  37.622
  8450      Washing Machine,
            Home                          2.370                  11.961

            Singapore                     0.395                   0.577
            Indonesia                     0.344                   7.852
            Malaysia                      0.333                   1.522
            Vietnam                       0.326                   0.104
            Thailand                      0.311                   0.249
            Others                        0.661                   1.657
  8528      Television sets               7.681                   8.052

            USA                           6.737                   6.940
            Dominican Republic            0.315                   0.173
            Taiwan                        0.164                   0.000
            United Arab Emirates          0.156                   0.047
            Australia                     0.089                   0.072
            Thailand*                     0.072                   0.101
            Others                        0.059                   0.098
                                          0.089                   0.621
  8418      Refrigerators/Freezers        6.153                   7.753

            Japan                         5.617                   6.333
            Italy                         0.114                   0.039
            France                        0.084                   0.051
            Taiwan                        0.069                   0.392
            Netherlands                   0.068                   0.000
            Thailand*                     0.000                   0.069
            Others                        0.201                   0.872

       8422          Cleaning machines                2.007               5.298

                     Malaysia                         0.394               0.114
                     India                            0.310               0.651
                     Vietnam                          0.278               0.538
                     Singapore                        0.226               0.000
                     Lebanon                          0.194               0.000
                     Thailand*                        0.074               3.083
                     Others                           0.531               0.912
       8516          Heating Appliances,
                     Home                             5.671               3.014

                     Germany                          2.889               0.979
                     Japan                            1.145               1.300
                     United Kingdom                   0.753               0.000
                     China                            0.466               0.521
                     Thailand                         0.206               0.000
                     Others                           0.212               0.214
       8451          Cleaning, drying, etc.
                                                      0.272              0.839
                     Vietnam                          0.109              0.000
                     India                            0.093              0.147
                     Japan                            0.039              0.000
                     Malaysia                         0.028              0.016
                     Thailand*                        0.000              0.180
                     Others                           0.000              0.037
                                                      0.003              0.459
       8521          Video Apparatus                  0.404              0.107

                     Germany                          0.243              0.000
                     Australia                        0.090              0.069
                     United States                    0.044              0.001
                     Japan                            0.015              0.036
                     Panama                           0.008              0.000
                     Others                           0.004              0.001
Note : *Thailand shows not on top 5 countries
Source : National Statistics Office and World Atlas

        The total Philippine exports of electrical appliances include air conditioning
totaled to US$125.187 million a decrease of 17.40% compared in 2008’s US$146.975
million. Washing machine, home at US$2.370 million a decrease of 405% from 2008’s
US$11.961 million. Cleaning machines amounting to US$ 2.007 million a decrease of
164% from US$5.298 million in 2008.

      Top importing countries include Hongkong, China, Singapore, China and

       The industry is basically inward-oriented since its products are mainly sold to the
domestic market. Almost 90% of the products were sold to domestic consumers, and
only 10% were exported or sold to exporters.

Import Tariff Rates of Electrical Appliances 2010 :

    Items                                             Rate of Duty (%)
                                                 MFN                     CEPT
                                         (Most Favored Nations)
    Airconditioning machines                      10%                    0%
    Refrigerators, freezers                       10%                    0%
    Dishwashing machines                           3%                    0%
    Household or laundry type
    washing machines                               10%                   0%
    Microwave Ovens                                 3%                   0%
    Electrometric appliances                        7%                   0%
    Television                                     15%                   0%
      Source : Tariff Commission

Government Regulations

       The Electrical Appliance industry is regulated in terms of product standards by
both the Department of Trade and Industry and the Department of Energy.
Manufacturers are also members of a technical committee involved in the formulation
and development of testing protocols for the products. Other members of the committee
from the government, trade organizations, consumer groups, professional organizations
and academe.

        The Bureau of Products Standards (BPS) acts as the arm of the Department of
Trade and Industry in the enforcement of mandatory Philippine National Standards for
Electrical Appliances. The Bureau is also in charge of giving third-party certification
known as the PS Quality and /or Safety Certification Mark of the manufacturers of these
products. Importers should also obtain an import commodity clearance as a prerequisite
for release of electrical appliances by the Bureau of Customs.

        The Certification program by the Bureau of Products Standards involves factory
assessment and product assessment. Factories of the manufacturers are inspected to see if
they have established quality management system to maintain product quality. Safety
testing conducted at the product assessment end by the Bureau of Product Standards

Testing Center. This is in accordance with the Department Administrative Order which
lists product standards for different appliances.

       The Lighting and Appliance Testing Laboratory acts as the arm of the Department
of energy in enforcing the Philippine Appliance Energy Standards and Labeling Program.
The program hopes to eliminate the least efficient household appliances and reduce
monthly electricity bill of end users.

       Before a product can be sold in the market, it must bear the PS Quality and/or
Safety Certification Mark for locally manufactured products, and the ICC Quality Mark
for imports, along with the Energy label.


       Thai Companies in the Electrical Appliances should take advantage on the
CEPT/ASEAN rate of 0% for all the electrical appliances being imported into the
Philippines. The increased in the consumer purchasing power will enable to expand the
Thai products in the Philippine market particularly on televisions, refrigerators,
airconditioning, etc. Meanwhile, Thai companies should take into consideration the ―new
models or innovations‖ of electrical appliances so they will be marketable in the
Philippines since consumers prefer the latest technologies.

        Likewise, Thai companies can invest in the Philippines for the Research and
Development of the electrical appliances. Hence, if there are some new models that
Thailand wants to introduce in the Philippine market, they should also invest on the
―advertisements and promotions‖ for the awareness of the Filipino consumers of
electrical appliances.