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Enlightenment from the decline of China's DVD player industry
Last Updated(Beijing Time):2004-08-31 11:21

The decline of China's DVD player industry is so quick that it is unexpected to most people. Taking into account that DVD players were formally launched in the market in 2000, only 4 years have passed till now. During the first 5 months in 2004, nearly 30 DVD player manufacturers in the Baoan District of Shenzhen have gone bankrupt successively. In fact, China's DVD player industry has been in hot water as a whole.

As one of the representative electronic products, DVD players prospered like a nova in China but falls down like a shooting star in a short time, which only lasts 4 years. What has led to the "coming and leaving in a hurry" situation of the DVD player industry?

Some people ascribe the reason to the harassment of patent fees, but it is apparently partial. Many products like computers and cell phones are also confronted with the issue of paying patent fees, but why there is no such intense phenomenon of the whole industry coming to an untimely end?

Experts hold after an analysis that China's DVD player industry coming to an untimely end as a whole is mainly due to the excessively high level of integration in the supply of upstream raw materials. The huge market capacity attracts large number of "gold diggers", the swarming "gold diggers" prick up the competition in the industry in turn. As a result, frequent tragic and violent price wars become the only means to survive. This, compounded with the harassment of patent fees, resulted in the sharp decrease of the whole industry's gross profit rate. It is unavoidable for DVD player manufacturers to transform or close down on a large scale.

In comparison to other electronic industries’least investment of dozens of millions of Renminbi, the entrance and retreating thresholds in the DVD play industry are really too low. Chips, Servo Systems, decoding boards, circuit boards, enclosure, and so on, each have formed a whole set of self-contained market supply system, it is okay so long as various parts are simply assembled; once the market can not go smoothly, the cost for the retreat is very low as well. Such a fact has directly led to the appearance of large quantity of "underground factories", which quickly throw a great many cheap and low-quality DVD players into the market by means of tax evasion, smuggling, shoddy assembling and have made "irrevocable achievements" to the disorder in the market.

When the city gate of China's DVD player industry catches fire, the fish in the moat, i.e. international magnates that have controlled the core technologies of DVD like Thomson, Philips, Panasonic, Pioneer, also suffer. When no profit can be made in the Chinese market (over 80 percent of market share is in the hold of Chinese-funded brands), none of other markets in the world could be a lucky exception. Take the US for an example. APEX once had grasped the whole US DVD player market in virtue of Mainland China's strong OEM capability. Under such a circumstance, if Thomson, 3C, and 6C want to break away from the embarrassing condition, they have only two alternatives: charging more patent fees and launching blue ray DVD players, a substitute for DVD players, as soon as possible.

In view of the rise and decline of China's DVD player industry, the following evidences in an industry basically indicate an oncoming crisis:

a. The market capacity is large but the thresholds for both entry and exit are rather low, there is excessive competition in the industry. In 2003, China exported 70 ~ 80 million sets of DVD players; and a great many investors swarmed into the industry due to the excessively low threshold for the entry. So the cruel and intense competition made the price of a DVD player drop by over 30 percent annually and the gross profit rate in the industry dropped sharply from the original 60 percent to about 15 percent, which is lower than the average in the electronic industry.

b. Enterprises that hold a leading position in terms of the market share do not have core technologies and key technologies, while those having core technologies and key technologies fail to take up the leading position in the market. The ultimate result arising from such an imbalance between market and technology is: enterprises with technological advantages start all over again to seek for further development – trying to build up their new advantage by launching substitute products so as to break the original balance in the market. The case of microwave stoves has set an example: Galanz, which has taken a share of 70 percent in the microwave strove market, is being much troubled with light-wave stoves launched by Panasonic and others.

c. Revolutionary technologies have appeared in relevant industries. DVD players are closely related to color TV sets; with the breakthroughs in the material and technology of visual display terminals, such new products as PDP, LCD, and DLP are sure to replace the traditional CRT color TV sets. In the near future, all single product configurations, no matter they are EVD or HVD players or blue ray DVD players, are likely to disappear, and they may exist only in the form of accessories to new type of future color TV sets. A case in point is palmtop computers.

Any category of products can only meet a certain demand, and products per se are simply vehicles. None of all product configurations can remain unchangeable. Corporate policy-makers concerned must be able to make a clear judgment on the industrial orientation and have the course of the industrial rise and decline in their mind; only in this way can they advance or retreat smoothly.

Source:CE.cn 
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