aaaaaa010807BJ-refrigerator,CONFIDENTIAL,Industry Situation Analysis: Refrigerator,aaaaaa ELECTRONICS CHINA (aaaaaa China),This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey it is not a complete record of the discussion.,aaaaaa010807BJ-refrigerator,1,KEY MESSAGES,Refrigerator market is expected to grow at 4.6% annually from RMB 21 billion in 2000 to RMB 26 billion in 2005. Although growing at a rate as high as 31.1%, side-by-side refrigerator market is expected to remain very limited in the next 5 years In general, industry profitability for refrigerator is moderate. However, side-by-side refrigerators enjoy double digit return on sales Except side-by-side refrigerator, refrigerator market is led by local players. However, there are opportunities for MNCs to successfully build up their position by focusing on mid-to-high-end segments The refrigerator industry is relatively “low-tech” and has low entry barriers. Entry into WTO is not expected to have direct huge impact on the competitive environment With market shares around 3 to 4%, aaaaaa is moderately positioned in refrigerator market.,aaaaaa010807BJ-refrigerator,2,MARKET ASSESSMENT,Market assessment,Supply (competitor) analysis,Demand (customer) analysis,Overall environment analysis,Market definition,aaaaaa010807BJ-refrigerator,3,MARKET ASSESSMENT,Supply (competitor) analysis,Demand (customer) analysis,Overall environment analysis,Market definition,Evaluation criteria, weight and rating Assessment of market attractiveness,Market assessment,Product/service definition,Relevant regulatory environment and trends Relevant technological environment and trends,Market size and growth rate Key buying factors Distribution channel structure,Market share by competitor Industry profitability or economics,aaaaaa010807BJ-refrigerator,4,MARKET DEFINITION,Product/service definition,Supply (competitor) analysis,Demand (customer) analysis,Overall environment analysis,Market definition,Market assessment,aaaaaa010807BJ-refrigerator,5,PRODUCT SCOPE WHITE GOODS,Product group,Product category,Air conditioner,Washing machine,White goods,Microwave,Packaged A/C Central A/C*,Side-by-side,Refrigerator,Product subcategories,*Used by residentials and small businesses,aaaaaa010807BJ-refrigerator,6,MARKET DEFINITION,Supply (competitor) analysis,Demand (customer) analysis,Overall environment analysis,Market definition,Market assessment,Relevant regulatory environment and trends Relevant technological environment and trends,aaaaaa010807BJ-refrigerator,7,LOW-END REFRIGERATOR MARKET IS LIKELY TO BE DOMINATED BY LOCAL COMPETITORS. MNCS COULD SUCCEED IN THE MID-TO-HIGH-END NICHE MARKETS,Trends/issues,Implications,Market has been fairly open and will remain so Most leading MNC players are already in China and have localized their production and sourcing,In general, technologies for refrigerators are not very complicated, esp. for low-end products Technology trend is to focus on digitization, artificial intelligence and environmental friendliness,Entry to WTO is not expected to have huge direct impact on current competitive environment,The market is likely to be dominated by local players who are mostly not as strong in technology as MNC players but stronger in channel and sales capabilities, especially in the low-end segments MNC players are likely to succeed by being niche players and focusing on mid-to-high-end segments Competition in product innovation is likely to focus on customization and localization,aaaaaa010807BJ-refrigerator,8,MARKET DEFINITION,Supply (competitor) analysis,Demand (customer) analysis,Overall environment analysis,Market definition,Market assessment,Market size and growth rate Key buying factors Distribution channel structure,aaaaaa010807BJ-refrigerator,9,ALTHOUGH aaaaaaOND LARGEST MARKET AMONG WHITE GOODS, REFRIGERATOR MARKET GROWTH WILL BE MODEST,Source: GFK, SINO-MR, Light Industry Information Center, aaaaaa, field interviews, McKinsey analysis,2000,Side-by-side,Non-side-by-side refrigerators,2001,2002,2003,2004,2005,CAGR (00-05) Percent,21,130,22,060,23,050,24,070,25,140,26,260,Key drivers,Rationale or assumptions,Replace-ment,Since the penetration rate in China is high (80%), particularly in major cities (100%), majority of the demand for non-side-by-side refrigerators will come from replacement purchase,Income growth,Increase in average disposable income drives demand for mid-to-large capacity and mid-to-high end refrigerators,Average price,Drops at 4% p.a.,74,96,126,166,217,285,4.6,4.4,31.1,Refrigerator market size and growth RMB millions, percent,Units sold (non-side-by-side) millions,Average selling price (non-side-by-side),9.4,14.3,13.1,12.1,11.1,10.2,1,840,1,910,1,990,2,070,2,160,2,250,8.8,-4.0,aaaaaa010807BJ-refrigerator,10,THE MARKET IS VERY SATIATED,Replace