Double output of quality brands to win the battle in overseas markets

North America is still the first choice for exports

According to relevant survey data, the export value of China's LED lighting products from January to April 2016 was US$5.764 billion, a year-on-year decrease of 8.54%. The top three export destinations were the United States, Germany, and the United Kingdom, with export volumes reaching US$1.397 billion, US$319 million, and US$270 million respectively, which were slightly higher than the same period last year.

From January to April this year, my country’s LED lighting product exports accounted for the largest share in the Americas, followed by Europe, Asia, Africa and Oceania. Among them, exports to the United States and the European Union still maintain relatively high growth, while emerging markets such as India, ASEAN, and Russia have declined to varying degrees.

At present, the United States is still the country with the highest quantity and value of LED lighting exports in China. On the one hand, this is because the cost-effectiveness of LED lighting products has continued to improve in recent years, the penetration rate of the U.S. LED lighting market has increased rapidly, and demand has continued to grow at a rapid pace; on the other hand, the U.S. market has a high consumption level and is less sensitive to the price of LED lighting products.

The U.S. Department of Energy report predicts that the overall size of the U.S. lighting market will reach $25.1 billion in 2016. The U.S. market is the largest overseas market for Chinese companies, comparable to the entire Europe. Among the countries that import LED products to the United States, Chinese products account for 70.50%, amounting to approximately US$420 million. Two-thirds of the American people have purchased household LED lighting products.

Because the North American market is relatively less sensitive to price, it has become a more profitable region. With high profits, competition in the North American market is naturally more intense and the threshold is higher.

In terms of the safety and reliability of lighting products, the United States has the highest entry threshold in the world. The U.S. Department of Energy, the Environmental Protection Agency, the Federal Trade Commission and other agencies are all increasing their access regulations and requirements. They are not just requirements for product samples, but also requirements for improving market supervision. At the same time, entering the North American market still needs to face technical barriers and intellectual property constraints. The former is a standard and testing restriction that Chinese companies must overcome when entering the United States, while the latter is a flaw for most domestic companies.

At the same time, new entrants to the North American market also have great disadvantages in channels. Nie Pengxiang, chairman of Nile Testing, said that because its channels are relatively hidden, the original holders of traditional lighting channels continue to enjoy the dividends brought by traditional lighting channels after transitioning to LED. It is difficult for new entrants or small and medium-sized enterprises to compete for some market share from traditional giants.

Emerging markets have unlimited potential

On the one hand, there are high barriers to entry in European and American markets, and on the other hand, demand in emerging markets represented by India, Brazil, and Russia continues to rise. Due to low entry barriers, many domestic LED companies have shifted their targets from Europe and the United States to emerging markets.

There are unlimited business opportunities in emerging markets. Taking the Indian market as an example, India's demand for LED products mainly depends on imports, of which 80% of lighting products are imported from China. According to market data from BCC, the annual growth rate of the Indian LED lighting market is expected to reach 41.5%, with market profits reaching US$399.2 million by 2015.

According to statistics, based on the six major Southeast Asian countries of Thailand, Singapore, Malaysia, Vietnam, Indonesia, and the Philippines, the overall lighting market size in Southeast Asia in 2015 will be close to 4.8 billion U.S. dollars, of which the scale of LED lighting is about 1.5 billion U.S. dollars, still maintaining a growth rate of more than 30%.

Due to improved infrastructure, the demand for LEDs in emerging markets continues to increase. At the same time, emerging markets are more price-sensitive and have greater demand for mid- to low-end products. At this stage, many domestic LED companies are mainly involved in mid-to-low-end products, often winning with high cost performance and having strong competitive advantages in large-scale manufacturing and price. Therefore, domestic LEDs have a competitive advantage when entering emerging markets with low barriers to entry.

Especially the implementation of the “One Belt, One Road” strategy, most of which are emerging economies and developing countries, has further accelerated my country’s LED exports. According to Director Sui Shirong of the Guangdong Provincial Semiconductor Lighting Industry Joint Innovation Center: "In 2015, China's LED lighting export "Belt and Road" market was approximately US$10 billion, a year-on-year increase of 43%, accounting for about 38% of the country's LED lighting product exports."

Director Sui Shirong predicts that with the implementation of the national One Belt One Road strategy, the growth rate of the export One Belt One Road market will be higher than the overall level of national LED lighting product exports. The average annual growth rate from 2013 to 2020 is about 58%. By 2020, China's LED lighting product exports One Belt One Road will be approximately US$53 billion, accounting for more than 50% of the national share.

Focus on quality and dual output of independent brands

With the continuous development and growth of China's LED industry, companies are paying more and more attention to the dual output of quality and brand. Chinese LED companies are actively "going out" through cross-border mergers and acquisitions, overseas factory establishment, project contracting and other means, leveraging international market channels, the existing brand value of major international manufacturers, and core patented technologies to avoid the risk of intellectual property disputes and enhance international competitiveness.

This kind of brand output is particularly obvious in the LED display industry. Alto, Absen, Leyard, Dongshan Precision, and Unilumin Technology have all established overseas branches and continue to work hard to achieve brand localization.

Industry insiders said that if you want to gain more competitive advantages in overseas markets, you should not consider the lowest price. If you consider the lowest price, you will only get a small part of the benefits. The most important thing is product quality and reliability.

For a long time, the lack of independent brands has kept domestic export processing companies at the lowest end of the industrial chain. In the past, most of my country's large lighting companies relied on OEM services for European, American and Japanese companies to enter the European, American, Japanese and Korean markets. It was difficult to establish their own independent brands in the international market. The vast majority of small and medium-sized enterprises accept small orders and bulk orders with an amount of no more than 30,000 US dollars, and export unlicensed or white-label products. According to preliminary statistics from CSA Research, more than 80% of my country's export orders to the United States are less than 30,000 US dollars, while 90% of orders to the EU are less than 30,000 euros.

At the same time, my country exports a high proportion of small brands and white-label products to emerging markets. CSA Research data analysis shows that in the first six months of 2014, the proportion of "unbranded" and "unbranded" products in my country's exports to Russia reached 93%, and the proportion of these two types of products in Southeast Asia reached 80%. During the same period, the proportion of "unbranded" products in Europe, the United States, and Japan was about 40% to 50%. This means that small and medium-sized private enterprises in my country's LED lighting field have occupied the mainstream of this market and become the absolute backbone.

Compared with the European and American markets, the immaturity of local industries in emerging market countries provides opportunities for Chinese LED companies to go deep into the hinterland and establish a firm foothold, which is more conducive to the output of my country's LED brands. Domestic independent brands such as Opple, NVC, and Nishang are widely accepted by emerging markets because of their affordable prices, superior performance, and strong competitiveness. Among them, taking bulb lamps and tube lamps as examples, the average export price of domestic brands is lower than that of OEM products such as Philips and Osram, but higher than the FOB price of local market brands (such as BRILIA). Therefore, it can occupy a more active position in the competition in emerging markets.

In the international market, different local markets have different characteristics: some emphasize cost-effectiveness, while others require high-end products. However, in the face of different market demands and characteristics in different regions around the world such as Europe, the United States, the Middle East, Southeast Asia, and Russia, companies must not only focus on technical requirements and brand influence, but also improve their advantages in production and manufacturing capabilities to obtain greater market opportunities.