Panasonic: Positioning for Emerging Markets

Jul.11.09 | About: Panasonic Corp. (PCRFY)

Based in Osaka, Japan, Panasonic Corp. (PC) is a leading manufacturer of electronic and electrical parts component. To grow market shares in emerging markets such as Brazil, Russia, India, and China (BRIC), Vietnam, Africa, and Latin America and increase customer base in these countries, Panasonic plans to develop a line of low-priced consumer-electronics products which has limited features.

In order to tap consumers in the emerging market, Panasonic will launch TVs for $50, air conditioners for $100 and washing machines for $200, which are expected to hit markets after October this year. Panasonic plans to use "lifestyle research" for the designing of these products.

We believe Panasonic’s success lies in is its ability to respond to rapid technological changes and changing consumer preferences with timely and cost-effective introductions of new low-priced products in markets, which are both price and technology conscious and are very competitive.

These low-priced products would increase sales of the consumer products division by 200 billion yen ($2 billion). In BRIC countries as well as Vietnam, the company expects to reach a sales target of 300 yen ($3 billion) and an average annual growth rate of 20%. Panasonic aims to achieve double-digit growth in overseas sales with an average annual growth rate of 13% by 2010 by focusing on emerging markets.

Panasonic aims to build relationships with retailers in the U.S. and European markets, while aiming to further increase the number of product models by 50% in the emerging markets by shifting to various low-priced products.

While we expect the new lower priced TVs and washing machines to increase unit sales, we remain apprehensive about the impact of these products on profitability and revenue. Additionally, low-end features could hurt Panasonic’s global brand image and premium reputation.

By cutting down features and providing just basic design and manufacturing, Panasonic plans to cut rising raw material costs and overall development costs for its digital products. Panasonic said it will need to perform a complete overhaul of how it conceives, designs and manufactures its products. On top of this, local competition from small manufacturers who can adjust their prices quickly will result in severe pricing pressure for Panasonic.

Panasonic did not provide any details of its product strategies. Panasonic said in a statement that it plans to continue with the strategy only if it can maintain profitability.

While Panasonic is the first Japanese company to launch ultra low-price products to tap customers in emerging markets, it faces competition from large international companies such as South Korean companies - Samsung Electronics and LG Electronics and other Japanese companies, such as Hitachi (HIT), Sony (NYSE:SNE) and Sanyo Electric (OTC:SANYY), which already sell in the low-end market. We therefore maintain our Hold rating on Panasonic.