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I remember growing up in the mid-1970s when our department stores were flooded with Japanese consumer electronic (CE) goods – or the more colloquial term– “Jap Crap”, a xenophobic-tinged phrase that soon became synonymous with anything that was badly made. If the truth be told, the term was also a hangover from WWII where veterans resented the ‘enemy’ trying to sell us goods that Australia, our friends in Europe and our allies in the US were also manufacturing.
Compared to the ‘western’ brands such as Philips, Thorn and Pye, most people thought Japanese products were cheaply made, which meant vicariously they were of poor quality. Sanyo, Sony, Toshiba, Hitachi, Panasonic and Casio were just cheap knock-offs of the ‘real’ thing’. Nevertheless, they pushed their European counterparts off the shelves – and sold in droves. They were like what ABBA had become in the late 1970s – despite our reluctance to engage, we had to get up and dance. And things improved. Quality control come into place and by the mid-90s Sony, Panasonic and Toshiba were synonymous with quality.
While Japan was about to plateau, a new player was on the ascent in the late 1980s and early 1990s making a grab for first-world domination of the CE sector – South Korea. Lead by Samsung, and later LG, the Koreans also suffered the derision of snobbish western culture and their perceived inability to produce ‘quality’ goods. It was a slow slog making inroads. Like Japan, their progress was aided by having a car industry also trying to enter these lucrative markets – Kia and Hyundai being at the forefront. Again, like Japan, once they figured out western consumers didn’t mind paying an extra few dollars for an item of quality, their standards improved.
Fast-forward to the 2000s and 2010s and who will be the leader of the pack going forward? In a word – China. Again, like those before them. they have suffered the indignity of their products being scrutinised and mocked by first-world markets. Some of the derision has been justified. Poorly manufactured goods – especially items such as toasters, kettles and other kitchenware – usually bear the brunt of consumer’s ire. However, a topical piece in The Conversation showed that China does have a plan in place to make it one of the leading CE producers of the 21st Century – the main plank being that it needs to move from being an imitator to an innovator. This includes improving on quality.
At the forefront is Huawei. Founded in 1987 by former Red Army officer Ren Zhengfei, the company has started making a splash in the smartphone arena. Its first offerings barely made a dent in the market – taking on big guns like Apple, Nokia and Samsung was no easy task no matter how much government backing you had in your corner. But quality has improved, and reviews of its handsets have become more positive over the past few years. In 2007, sales were at USD$11 billion. This year they are set to hit USD$39 billion. Huawei itself has stated that it wants to reach a turnover of $100 billion within the next 10 years.
Another company is whiteware specialist Haier. Famous for developing a washing machine that washes both clothes and potatoes to meet demands from Chinese farmers, the company has seen its market share climb markedly over the past decade. It has been aggressive in acquisitions including the high-profile buy-up of General Electric’s appliance division for a cool USD$5.4 billion. By 2014, Haier had revenue of USD$32 billion and doesn’t look like slowing down any time soon.
Is the Chinese rise sustainable? A recent article in The Sydney Morning Herald stated that the country’s middle class could grow by as much as 350 million over the next four years. If true, that statistic alone says it will have plenty of consumers. Luckily for China – and perhaps not for the rest of the world – massive deposits of rare Earth elements reside within its borders. These elements are crucial in the make-up of consumer electronics – especially smartphones and televisions.
A recent report from MarketLine claims that the CE market set to the hit the USD$1.5 trillion mark by 2020, unsurprising when you look at the growth of smartphones, tablets and laptop computers. Throw in gaming consoles and you have a market where all the big players want their slice of the pie. China is no exception. It has the people, manufacturing base and growing expertise to make its impact long lasting.
There is one further question though: Where to next once the middle class has tripled and they start earning wages that will make manufacturing in China unsustainable? You don’t have to look far. Indonesia, Bangladesh, India and Vietnam have already started making inroads. If these countries middle-classes start growing too, they will also want the latest CE gear – and they’ll want the quality to match. And then where? Maybe it will go full circle. Maybe those other nations standards of living would have reached a point where manufacturing in Australia has become sustainable again.