LED lighting fixtures market of US - Research Paper Example

?Executive Summary Business in the global context provides opportunity to explore benefits worldwide. International business has made possible for entrepreneurs to control business from one corner of world, buy product manufactured in other areas while selling it in the third area. To take the benefits of this globalized world, ABC Company has planned to enter the LED lighting fixtures market of US. Business plans to meet the growing LED lighting fixtures demand with low cost option. To achieve this low cost, LED light fixtures will be imported from China. Importing final product to US, share in US market will captured through distributors and retailers. 1. Product and Country Background LED lighting fixtures industry is among the fastest growing industries in world. When account for the Global demand for lighting fixtures, it is projected to jump high above at 6.9 percent annually to $153 billion through 2016 (Global Information, 2012). This rise in demand is contributed by three major sectors: construction, motor vehicles and machinery and commercial and residential consumers (gnom, 2012). ABC plans to introduce LED lighting fixtures for commercial and residential users. Image 1 (Smallwood, 2012) LED lighting fixtures to be sold in US will be imported from China. China has the highest demand for light fixtures and through 2016 it is expected to retain its top position by with additional 36 percent rise in demand.US follow is on second position with 18 percent share in rise in global sales (Tao, 2012). Penetration of LED lighting fixtures in US and China with growth in future is given in image 2 and 3. High growth in demand in China and across world has resulted in an increased production of LED lighting fixtures in China with government supporting and subsidizing the industry to remain competitive (Hausken, 2011). Image 2 (Tao, 2012) Image 2 (Tao, 2012) 2. Products Description, its Features, Benefits LED based lighting fixtures with solid state lamp that uses light-emitting diodes (LEDs) as the source of light. LED based lightings offers three main features: first, efficiency, it is extensively efficient in using energy and saves up to 50 to70 percent of energy as compare to conventional technologies. Second, controllability, it provides superior control over light color, intensity and direction that benefits with novel systems of lighting arrangements. Third basic benefit LED based light offers are increased life spam performance as compare to conventional lighting technologies. Well designed LED lights gives 50,000 to 100,000 hours of performance or more. Along with these basic benefits associated with LED. These features provides overall cost effectiveness and environmentally beneficial source of lighting (The Climate Group, 2012). 3. Customer Demographic and Market Demographic Lighting industry in US is second in row after China. US demand for s same is projected to increase by 7.5 percent annually amounting to $25.3 billion in 2016 (IES, 2012). This product is not entitled to cater people of certain age, state, sex etc. It is residential as well as commercial product designed for all cost sensitive segment, low income segment. These fixtures provide efficient source of lighting which is need of every house and office. 4. Reasons for Selecting China for Buying China has been selected as a destination for production as it provides cost effective manufacturing. In year 2012 China has regarded growth of LED lighting industry for next five years as 7th emerging industry. Hence, China is providing considerable support to increase its LED production at local level. To gain this industry specific benefit combined with the low cost labor availability, it has been decided to establish setting in china for buying LED lighting fixtures from China manufacturing firms. 5. Entry Mode Selected It has been decided to enter Chinese market for buying LED lighting fixtures as third party contractors. This decision is based on the fact the currently China is supporting local production to meet its own demand. Chinese government is providing support to local manufacturers in form of subsidies, therefore it would require less financial as well management commitment than setting up own venture. Also, buying finished product will have less risk pertaining to government regulation, culture and other factors. 6. PESTLE Analysis of China Lucintel, which is a renowned international management, consulting and market research firm, recently in 2012 prepared analysis for Political, Economical, Sociological, Technological, Legal, and Environmental (PESTLE) conditions. The report suggests that collectively these factors are supportive in carrying the economic growth momentum sustained at 10 percent GDP growth for next five years i.e. to 2017 (PRWeb, 2012). Rising Foreign Direct Investment for low cost production encourages Chinese investors to establish production venture for and with various multinationals (PRWeb, 2012).Dominant supporting factors for ABC Company is the large-scale production that diminishes production costs, leading to less-expensive exports. Direct buying for import from Chinese manufacturing firms would also reduce ABC Company’s interaction and level of risk reduced to minimum on all these factors (HIS, 2011). 7. Target Market and Competitor Analysis Target Market for ABC Company is the residential and commercial sector for cost efficient lighting fixtures. The entire cost sensitive household as well as commercial segment that uses Flashlights & Lantern, Table Lamps, Floor Lamps, & other Portable Fixtures are the its target. For competitors three global leaders of lighting industry have strong presence in this sector too. These are: Philips (the Netherlands), OSRAM (Germany), and General Electric (United States). Apart, from these Japan, Taiwan, Korea, and other Asian countries have also started taking positions, while China concentrating on sub-contracting of this product (Gereffi and Lowe). Image 4 (Gereffi and Lowe) U.S. led supplier firms are spread throughout US as shown in figure 5 for year 2008 (Gereffi and Lowe). Since 2011 Sales of LED based lighting fixtures has doubled and through strong distribution system based network comprising on local warehousing and distributor, companies are able to cater considerable market size (CSIL, 2012). Image 5 (Gereffi and Lowe) 8. Marketing Strategies Entire US market has grown acceptance for China made product. Low cost has also been considered an associated feature of products manufactured in China. The product shall use this low cost benefit as marketing tool. Comparatively low price as competitors and availability of low cost energy efficient lighting fixture on distribution stores will self serve as promotion. Advertisement expense will therefore not be born to maintain control over price less. 9. Domestic Organizational Design of ABC Company ABC firm will conduct business being third party contractor. Initially, therefore, it does not require huge physical establishment. ABC firm will have head office in New York for conducting import transactions from China and delivering it to local distributors. Contacts will be developed with distributors across US based on demand. This will also help reduction cost in cost to maintain the control over price. On the later phase, based on demand, regional offices will be established. 10. Intellectual Property Consideration LED lighting fixtures are provisions of basic lighting fixture that doesn’t have any frills or added designs. This design of product is aimed to keep product at low cost. Hence, doesn’t require any intellectual property rights recognized under law. 11. Import Procedure U.S. laws and regulation provide complete guideline for import. US have strong trade ties with China both countries have maintained policy to have win-win situation. In the category of electric appliances, alike in most of other categories, US imports from China is on rise. For year 2011alone, US imported $.12, 946, 437 thousand of Electric apparatus and parts from China (US Census Bureau, 2012). Import duty and Taxes on import of LED fixtures from China to US is 1.6% (based on state) (BundleTech, 2012). 12. Financing ABC Company has a business model design based on to work as third party contractor for distributors of US. Distributor will place order for the product on receipt of the final product they shall make payment which after deducting company’s due share will be paid to Chinese manufacturer. Hence, extensive investment which is an associated feature of LED technology is reduced to small percentage investment. 13. Distribution and Transportation Issues To keep control over expanded distribution and transportation issues and cost incurred to develop this network, business has already developed plan to enter US market through mid-sized distributors who meet the considerable size of US led lighting fixtures demand (CSIL, 2012). 14. Risk and Strategies to Mitigate Risk Every business is characterized with large number of risks. Main risk associated with LED fixture import from China is government regulation. Specifically in China, industries can be intervened by Chinese government’s intention rights (IHS, 2011). Demand projections ensure that technology is still in growth stage, hence, risk of technology obsolesce exist near to zero. However, Competition tactics from big giants of market is still less to pose risk as growth in market has room for every company to grow. 15. Potential Dumping Issues To cater dumping issues, ABC Company, has initially developed business model based on low frill product, hence, providing product at status which is used to dump the market. In a nutshell, product of ABC Company will dump the market; however, due to positive growth trend, impact will be realized after nearby five year. Since this issue cannot be resolved and characterize type of business, ABC Company made it a business model. References BundleTech. (2012). Import duty & taxes for LED lighting fixture. Duty Calculator, Retrieved October 4, 2012, from http://www.dutycalculator.com/dc/19151324/electronics-games/other/transformers-variable-output-max-500va-having-power-handling-capacity-of-1-kva/import-duty-rate-for-importing-led-lighting-fixture-from-china-to-united-states-is-1.6/#antidumping CSIL. (2012). The Lighting Fixtures market in the United States. CSIL Milano Gereffi, G., and Lowe, M. (n.d). LED Lighting. Center on Globalization Governance & Competitiveness, Retrieved October 4, 2012, from http://cggc.duke.edu/environment/climatesolutions/greeneconomy_Ch1_LEDLighting.pdf Global Information. (2012). World Lighting Fixtures: Market Research Report by The Freedonia Group. Retrieved October 3, 2012, from http://www.giiresearch.com/report/fd128460-lighting-fixture.html Gnom. (2012). Global demand for lighting fixtures to grow at 6.9% CAGR to reach $153 Million in 2016. Retrieved October 3, 2012, from http://news.gnom.es/pr/global-demand-for-lighting-fixtures-to-grow-at-6-9-cagr-to-reach-153-million-in-2016 Hausken, T. (2011). Chinese LED manufacturing – more than just LEDs. LEDs Magazine, Retrieved October 4, 2012, from http://ledsmagazine.com/features/8/11/1 IES. (2012). U.S. Demand for Lighting Fixtures to Exceed $25 Billion in 2016. Retrieved October 4, 2012, from http://www.ies.org/LDA/E-newsletter/2012/May/newswire/2012_05-us.cfm IHS. (2011). China LED Industry Analysis. Display Bank, Retrieved October 4, 2012, from http://www.displaybank.com/_eng/research/report_view.html?id=821&cate=1 PRWeb. (2012). PESTLE Analysis of China 2012: Lucintel Forecasts Robust Growth for Chinese Economy despite Eurozone Crisis. Retrieved October 4, 2012, from http://www.prweb.com/releases/2012/6/prweb9617995.htm Smallwood, P. (2012). A Bright Future for LEDs Equals an Educated Consumer. Retrieved October 3, 2012, from http://www.ledmarketresearch.com/blog/A_Good_Start Tao, A. (2012). China Starts LED Lighting Subsidies; Still Very Few Details Available. LED Market Research, Retrieved October 3, 2012, from http://www.ledmarketresearch.com/blog/China_Starts_LED_Lighting_Subsidies_Still_Very_Few_Details_Available The Climate Group. (2012). Lighting the clean revolution: the rise of LEDs and what it means for cities. The Clean Revolution, Retrieved October 4, 2012, from http://thecleanrevolution.org/_assets/files/LED_report_web1.pdf US Census Bureau. (2012). U.S. Imports from China by 5-digit End-Use Code 2002 – 2011. Retrieved October 4, 2012, from http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html Read More