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Consumer Electronics

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Dec. 2006, pdf, 2.0 MB

Scope of the study

For the purpose of the sector study, conducted in 2006, the sector has been defined by business activities subsumed under NACE 32.3: “manufacture of radio, television and communication equipment and apparatus”. However, the more recent NACE Rev. 2 (not ratified yet) explicitly uses the term “consumer electronics” (Group 26.40: “Manufacture of consumer electronics”) and has a more consumer-oriented focus than the technology-related focus of NACE 32.3. The analysis will follow this approach and put the emphasis on those electronic products and their manufacturing that are intended for the use by consumers.

Adoption of ICT and e-business in 2006: the statistical picture

  • Results from the e-Business Survey 2006 reveal that CE companies are well-equipped with basic ICT infrastructure. Simple e-business technologies are widely used. However, more complex ICT systems are less widespread than could be expected for an ICT-related manufacturing industry.
  • CE companies are well equipped with ICT infrastructure. The share of employees with access to the internet is well above the all-sectors average. CE companies are also forerunners with regard to the use of remote access, VoIP, and open source technologies.
  • Online ordering is widespread – but mainly with national partners. The share of CE companies that reported placing or accepting orders online is above the average of all sectors surveyed. However, most e-ordering activities take place with national or regional partners. Financial processes related to international trade are mainly handled “paper-based”.
  • Only a small share of CE companies uses e-business technologies to support internal and external process integration. Software systems as a basis for internal and external process integration (e.g. ERP and SCM systems) are not as widespread as could be expected in an ICT-related manufacturing sector. Only a small share of CE companies has integrated their ICT systems with those of their customers or suppliers. Finally, only a marginal share of CE companies reported using XML- or EDI-based e-business standards.
  • ICT play an important role for product and process innovations. The share of reported ICT-enabled product and process innovations is clearly higher than on average in all sectors covered by the e-Business Survey 2006.
  • SME-typical problems constitute the main barriers for e-business adoption. SME-typical problems such as the small company size, or technologies that are too expensive or complicated, are perceived as the main barriers for e-business activities.

Sector trends and key issues analysed

There are two important trends challenging CE companies today. First, the industry’s globalisation drive, which is accompanied by an increased trend to outsource production processes to specialised service providers. As a consequence, CE companies have to deal with a global and highly fragmented supply chain. Second, the trend towards digitising content challenges CE manufacturers to produce devices that are able to deal with it. This trend is further driven by an increased impact of broadband.

This report analyses three key issues that reflect the relevance of ICT and e-business for these major trends in more detail: Convergence of markets, products and services in the CE industry due to the increased availability and impact of broadband, Digital Rights Management (DRM) and ICT supporting a global supply chain.

Convergence issues in the CE industry due to the increased impact of broadband

CE devices increasingly enable broadband access and evolve as distribution channels for digital content to the consumer. The following points are particularly relevant for CE companies in this context:

  • There is an impact of broadband internet connections on the CE market: Due to increased availability of broadband connections at reasonable charges and the evolvement of broadband-based services, there is increasing demand for CE devices supporting the distribution of content over broadband.
  • Main challenges for CE companies active in this segment relate to the support of different formats and their new role as content distributors. Partnerships with content providers and technology partners turn out to be crucial success factors.
  • There are many opportunities for CE manufacturers to leverage broadband: CE manufacturers have the opportunity to establish themselves as enablers in a converged broadband market as well as to tap additional revenue streams by supplying related services.
  • The increased impact of broadband on CE products also provides opportunities for smaller CE companies: SMEs entering the market early with innovative products have the opportunity to position themselves with visible brands, as illustrated by the case study on KiSS, a Danish manufacturer of networked devices.

Digital Rights Management

Digital Rights Management (DRM) is a technology that protects digital content from infringing use, such as unauthorised copying or distribution. Key messages that were derived from the discussion about the relevance of DRM for the CE market include:

  • CE manufacturers are facing a conflict of interest: On the one hand users perceive DRM as a limitation to usability, on the other hand content providers express vital interest in it.
  • There are various challenges related to the implementation of DRM technol­ogies, including legal uncertainty, technical risks, dependency on DRM technology suppliers, and additional licensing costs.
  • Interoperability is a key issue for DRM integration: The heterogeneity of diverse DRM systems on the market aggravates the challenges mentioned above. Im­proved interoperability between systems will be critical for the economics of DRM implementation.
  • DRM interoperability frameworks seem to be a promising approach for providing interoperability. These frameworks are developed by industry consortia with the objective to make existing DRM systems interoperable. The success of these standardisation activities, however, requires a broad and dedicated involvement of all industry players; it requires extensive specification and testing processes before new standards are introduced to the market; and, last but not least, it requires that innovative features are incorporated in the DRM specifications that support new, promising business models.

ICT supporting a global supply chain

ICT and e-business tools can help CE companies to streamline supply chain processes, increase supply chain visibility and integrate with external and internal trading partners. In this regard, the key messages are:

  • CE companies face serious challenges related to their supply chain activities: Highly fragmented and global supply chains, short product lifecycles and dependency on distributors are the most important of these challenges.
  • There are various ICT and e-business tools that help CE manufacturers to overcome challenges related to supply chain management: While simple ICT tools, e.g. for ordering goods, are used by a large share of CE firms, specific tools like SCM (Supply Chain Management) systems are less widespread than expected in the CE industry. Case studies, however, illustrate that this should not be solely attributed to scepticism on the side of the companies but also to missing knowledge about appropriate e-business tools available, particularly among SMEs. In addition, sophisticated e-business solutions do not appear to be the sole best answer to challenges typical for the CE industry, such as compressed product lifecycles.
  • E-business standards (like EDIFACT) or industry accepted solutions (like RosettaNet) can be an answer to many challenges of CE companies. However, it seems that it is the large players primarily profiting from such solutions so far.
  • ICT tools supporting marketing and sales activities on a global basis are increasingly important in this sector: Direct sales to consumers via the Internet may not only help to increase revenue; CE companies’ web shops are also a source of data about customers’ needs and their shopping behaviour.

Business impacts

Almost three quarters of CE companies interviewed state that e-business accounts for a “significant” or “some” part of their operation. Firms experience an ICT impact in almost all business functions. A positive ICT impact is most pronounced on productivity growth, business process efficiency, and the quality of customer services.

  • Implications for enterprises: ICT and e-business have a significant impact on CE companies’ management of internal processes and supply chain activities as well as integral part of products and services supplied by CE manufacturers.
  • Implications for the industry structure: ICT has a strong impact on rivalry in the market and is, thus, a main force for competition in this sector. In addition, product substitution, e.g. substitution of conventional analogue devices by digital CE products, is stimulating competition among CE companies.

Policy implications

Two areas should be brought forward where policy initiatives could be considered:

  • Targeted promotion of e-business support initiatives and their outputs to SMEs. The report provides statistical and anecdotal evidence that SMEs still lack information on reliable and affordable tools available for their needs, although such information is already available to a large extent from various sources. It is provided, for example, by numerous SME initiatives at national and regional levels. However, it seems that many SMEs are not aware of these initiatives. Therefore, it is suggested to focus the efforts aiming to accelerate e-business adoption by SMEs on a targeted promotion of SME support initiatives and their outputs towards ICT managers in small companies. In this sense, “targeted” means that the limited time resources of people supporting ICT in SMEs are taken into account. This issue is of cross-sectoral nature and of relevance for European, national and regional e-business and SME support initiatives.
  • Raising awareness on statistical effects related to convergence in high tech industries. Current and emerging industry trends do not seem to be sufficiently reflected in recent industry classifications such as NACE 2.0. Reliable statistics on market dynamics in these segments, however, are needed as a basis for identifying relevant policy implications. It is, therefore, suggested to initiate a workshop or conference in order to raise awareness and broadly discuss this issue. The workshop could be taken as a starting point to decide whether more research on this problem is required. Competent platforms to discuss this issue already exist, but mainly for representatives of statistical services. Thus, it is suggested to involve policy makers and industry through the respective associations in such an event.

Reference to earlier sector studies

The sector was covered as part of the "Manufacture of electronics & electrical machinery" in sector studies of 2004

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