Commoditisation in Consumer Electronics

WSJ writes how companies are “using inexpensive, standardized parts from South Korea and the challenge the heavyweights.”

From China to Eastern Europe to Central America, companies with limited technical skills, resources and experience are reshaping the consumer-electronics business. Instead of spending millions of dollars to design chips and software to power their gadgets, they’re simply buying those components from other manufacturers and then heavily undercutting the industry leaders’ prices.

This sea change resembles the upheaval in the computer industry 20 years ago — and is driven by the same technological force. As more consumer gadgets are based on digital chips and software, standard designs are emerging, just as the personal computer took shape around Intel Corp. microchips and Microsoft Corp. software. Now, new players are using those designs to shake up the older order and push down prices. While it took three years for DVD players to go from $1,000 to under $300, the same drop took just two years for DVD recorders.

The result: Today’s consumer-electronics industry leaders, chiefly Japan-based multinationals such as Sony and Matsushita Electric Industrial Co., are threatened the way computer leader International Business Machines Corp. was threatened by the rise of the PC clone.

With so many competitors making components for such a diverse array of gadgets, it’s unlikely that a few companies will come to control the consumer-electronics market the way Intel and Microsoft dominate PCs. But established manufacturers can no longer assume, as they used to, that it will be years before rivals can match their products.

No surprise then that the various computer companies are headed into the consumer electronics space – working with standardised components is what they’ve been doing for a long time.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.