DryersU.S., Japanese, Korean.
.
Japanese, Korean and German products dominate mostly the Hungarian household appliances market, except for washing machines market that has been dominated by the U.S. “Whirlpool” brand and refrigerators market dominated by the Swedish-Hungarian
brand “Zanussi-Lehel”.
5. Product Name HS Code Import Duty
washing machines 8422 9.5 percent
spin-dryers 8421 8.5 percent
vacuum cleaners 8509 10.6 percent
The Value-added Tax is 25 percent in Hungary for all these products.
6. Testing procedures:
Household appliances must undergo quality testing before they enter the official Hungarian trade channel. These testings are done by the Commercial Quality Control (KERMI) and Quality Control Institute (MEI).
KERMI:
The most important tasks of KERMI are the testing and approving of the products as well as registering imported and domestically-made consumer articles prior to entering the distribution channel. A large number of consumer goods have to be tested according with Hungarian regulations. This procedure is regulated by Decree 5/1994 issued by the former Ministry of Industry and Trade. The most important task of KERMI is testing and approving consumer products prior to putting them on the market. A large number of consumer goods have to be tested according to rules. Products without quality certification cannot be passed through the customs and are not allowed to be sold. KERMI’s activities include: technical testing and analysis, technical and scientific research, market research and public opinion polls, professional counseling etc. KERMI requires the following documentation for the registration procedure:
?exact name of the product, the producer and the country of origin,
?draft of the label and the application instruction in Hungarian,
?product documentation,
The information/documentation provided to KERMI should contain the name of the product, name of the producer and its location, declaration about the innocuity of the product, name and address of the issuing agency. The applicant will also be required to submit samples for testing. The cost of the procedure is between HUF 60,000 – 90,000 (USD 300-450) plus 25 percent VAT. The exact fee is based on sample; an exact quotation price will be given to the applicant. A twenty- percent discount can be given in case of serial tests. Length of the test: 30 days upon the arrival of samples, documentation and the quoted fee but additional fees will be charged to the client in the case of urgent testing which can be reduced to 15 days.
MEI
MEEI Ltd. carries out type tests to standard, safety tests, product follow-ups, factory inspections and quality system audits, which serve as a basis for its conformity certifications. The certification of products according to D1 is carried out against the Hungarian national standards and/or other mandatory regulations, while in the case of tests based on D2, the certification takes place against implemented harmonized standards. The Hungarian national standards are generally identical or equivalent in their technical contents to the EN/HD specifications or IEC standards. MEEI Ltd. also undertakes to carry out full or partial type tests and certifications to standards other than those mentioned above but for which it is otherwise prepared. The assessment of the manufacturing process for the purpose of issuing a Certificate for Factory Inspection, may be carried out as follows:
?on the basis of an on-site assessment carried out by MEEI Ltd., or
?on the basis of audit report issued by an other inspection/certification body acting upon commission of MEEI Ltd., or
?on the basis of acceptance of factory inspection reports in English (CENELEC MC-6, MC-7), issued by an other inspection/certification body, recognized by MEEI Ltd., and performed previously, or
?on the basis of evaluation and acceptance of certificate and audit report, if the manufacturer operates a quality system certified to ISO 9001 or ISO 9002, a filled-in CENELEC MC-6B Questionnaire, proofs on regular checking of measuring-, testing- and monitoring equipment used during the process of manufacture or control, in English.
3. Recommendation on Entry Mode
The key issues for consideration when entering Hungary are:
?The main brands competing in the market have already established a stable, permanent position;
?All main brands have local distributor that sells to retailers providing very competitive pricing conditions;
?Retail stores purchasing directly from the brand representatives dominate the market, this should be taken into consideration when bringing new products into Hungary.
Recommended entry mode — Exporting
Exporting – Star Appliances, Inc has had experience in exporting to foreign countries. We have had excellent performance in those countries such as Canada, Mexico, and Japan.
Retail and wholesale distribution is developing toward western standards in Hungary. In the past, large, state-owned monopolies controlled distribution, which was largely supply driven. During the transition period since 1989, the monopolistic state-controlled trading companies have been privatized and/or broken up, but a smooth-working demand-driven system has not fully developed and some inconsistencies remain.
As a result, consumers cannot count on a regular supply of goods — all shoppers are familiar with the “here today, gone tomorrow” nature of inventory, although the use of newer technologies, such as electronic data interchange (EDI), is beginning to improve delivery of goods. Large-scale wholesaling is still embryonic and it is not unusual for retailing and wholesaling to be combined, sometimes even together with manufacturing.
Although Hungary’s retail sector now includes some larger department stores and supermarkets, small family-run stores are still quite common. Examples of foreign chains with operations in Hungary include Auchan (France), Metro (Germany), Michelfeit (Austria), Ikea (Sweden), Baumax (Germany), Humanic (Austria), Julius Meinl (Austria), Penny Market (UK), Cora (France), Marks & Spencer (UK), and Tesco (UK). A Hungarian corporation, Fotex Holding Co., has made a significant impact on the retail sector. Fotex is involved in such diversified market segments as optical, film developing, audio media, household appliances/consumer electronics, cosmetics and furniture. Recently, indoor shopping malls have arrived in Hungary.
Star Appliances, Inc. thinks that it is not feasible to establish a sales subsidiary in Hungary now, because we would like the customers in Hungary to be familiar with our products and our company first. We plan to use local agents and distributors, because they are quite familiar with the Hungarian market. Exporting may minimize the risk of dealing internationally by exporting domestically manufactured products either by minimal response to inquires or by systematic development of demand in foreign market. Exporting requires minimum capital and is easy to initiate. Exporting is also a good way to gain experience in conducting business in Hungary.
FINANCING
The Hungarian Forint (HUF) is fully convertible for business purposes. Because of a worsening current account deficit, the government moved to a crawling peg devaluation exchange rate policy in March 1995. Since then, the HUF continues to be a managed currency with a set monthly devaluation rate.
Most import contracts are secured by an irrevocable letter of credit (L/C) bank guarantee or involve a bank for remittance against documents. This practice is appropriate and recommended when there is no past relationship and experience with the buyer. The most common payment terms in this sector are 30, 60, and 90 days deferred payment depending on the product. Many U.S. commercial banks provide financial services in Hungary for longtime corporate clients. The cost of local financing tends to be high (around 25%). Among the major international financial institutions, the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) and the World Bank have various project financing programs. Citibank and Bankers Trust are the only U.S. commercial banks currently in Hungary in addition to several U.S. financial service companies and consultants present in the market. Hungary
is eligible for all U.S. EXIMBank programs available to American equipment exporters.
Appendices:
Market share for White Goods:
Whirlpool+ IgnisElectroluxGroupAEGSiemens-BoschHajduGorenje
Washing Machines33%26%2%14%21%4%
Whirlpool+ IgnisElectroluxGroupSiemens-BoschGorenjeGoldstar
Refrigerators6%74%9%7%4%
Whirlpool + IgnisSamsungMoulinexGoldstarDaewooDeLonghi
Microwave28%24%7%8%18%15%
Total Market Size in pieces in 1998:
Washing Machines (incl. Fronload, 160,600 – 24% increase compared to 1997 Topload, Washer+Dryer)
Refrigerators: 182,700 – 22% increase compared to 1997
Microwaves: 184,600 – 21% increase compared to 1997
Source: Figures are based on preliminary and partial data of the Central Statistical Office 1998 Publications, Budapest, Hungary, on “Foreign Trade Statistics” issued by the Ministry of Economy, 1998 and “U.S.-Hungarian Statistics” issued by Kopint-Datorg Market Research Company.
1. External Environment
?Economic ? Japan?s economic strengths have been overshadowed by its difficulties for much of the 1990s. Recession has brought a serious crisis since 1997. However, the overall economy continued to grow, companies did not shed great amounts of labor, and research and development sending went up. The government stepped in with a five-year economic plan of infrastructure spending. The World GNP Ranking is 2. GNP Per Capita is US$38160.
?Global ? There were 5.3 million Japanese Internet users in 1996. The number is expected to rise to 31,950,000 in year 2000. While these are mostly businessmen using ?the net? in connection with work, the number of household users is also increasing.
2.Industry Analysis
1. Market Highlights & Best Prospects (Statistical Data) Unit: million of USD
Estimated Annual Growth Rate
1994199519961996-1999
Import Market962.71,520.21,640.420%
Production26,624.531,201.127,022.01%
Exports3,256.93,187.22,701.8-10%
Total Market24,330.329,534.125,960.62%
Source: JETRO
U.S. imports: USD 73.8 million Exchange rates: 102 yen, 94, yen 109, yen/USD
Future inflation rate assumed: 1.3 percent
1996 import market share: U.S.: 4.5 pct, China: 19.4 pct, Germany: 11.2 pct, Taiwan: 9.3 pct, Thailand, 7.1 pct
2. Imports – According to JEMA, Japan imported USD 1,640.4 million of electrical home appliances an 8.0 percent increase over 1995 on a dollar basis (25.2 percent in yen terms). According to JETRO’s import data the major suppliers are as follows:
Country1996 ImportsPercentage share (In USD million)
China317.719.4%
Fr. Germany183.711.2
Taiwan152.312.3
R. Korea125.79.3
Thailand116.17.1
U.S.A.73.84.5
Note: The above percentage shows shares of total imports of USD 1,640.4 million.
The following tables show the breakdown of overseas suppliers of major electrical home appliance, by category.
1995% Share1996% Share% Growth
Electric Washing Machine
China13.817.423.929.473.1
Philippines17.021.517.221.11.1
Italy26.133.114.017.2-46.5
R. Korea3.64.110.312.7217.5
Singapore5.46.85.36.6-0.2
USA (9th)0.81.01.01.226.9
Other12.316.19.511.8—
Total79.0100.081.2100.02.7
Drying Machine for Clothes
USA0.430.90.533.812.9
China0.218.20.324.337.8
Fr Germany0.322.20.216.5-23.6
Denmark0.17.60.214.292.5
Taiwan0.110.40.13.3-67.2
Other0.210.70.17.9—
Total1.3100.01.4100.03.1
Vacuum Cleaner
USA57.550.335.234.0-38.8
China8.57.520.119.4135.3
Taiwan16.714.616.816.20.6
Malaysia2.11.98.98.6317.4
R. Korea11.410.06.76.5-40.9
Other18.015.715.715.3—
Total114.2100.0103.4100.0-9.4
Source: JETRO
3.Expansion Strategy for the Future Five Years
Star Appliances, Inc started exporting to Japan in 1990. Star Appliances, Inc has built up good reputation in both product quality and full after-sale services.
According to our research, The market growth rate is expected to be about 2 percent per year for the next two to three years. Industry experts say that one key to future market expansion will be to present electrical appliances which fill an actual need, offer unique but simple functions, and have sophisticated designs which are not available in existing products.
This market’s receptivity to our products is generally good. Our suppliers of electrical home appliances are advised to note that Japanese consumers are not generally interested in low priced, low quality products. They demand reasonably priced, high quality electrical home appliances together with full after-sale service. In many cases, imported products have to be designed or modified to fit into the Japanese lifestyle and also to meet the Electrical Home Appliance and Material Control Law.
Best prospects/key success features: Japanese consumers increasingly seek electrical appliances which allow them to enjoy higher and more comfortable living standards. In particular, products that fill obvious needs (e.g., products which offer great convenience, save time, and offer healthier environments or tastier foods) have bright prospects.
For example:
High-power vacuum cleaner – There has been a persistent concern in Japan about children?s dust and pollen allergies. High-power vacuum cleaners with advanced technology (especially the ability to deal with dust mites, or dani in Japanese) are promising.
Washing machine (drum-type)- Drum-type washing machines are relatively new to Japan because the noise and vibration have not suited Japanese-style housing. However, the first drum-type washing machines manufactured jointly by a European manufacturer and Sharp Corporation were well received, and other Japanese manufacturers have begun manufacturing similar products.
In the next five years, Star Appliances will focus on product innovations and market penetration in our Japan market. We expect an increasing in sales by 15% by the end of 2004.
We are also planning on setting up a branch office in Japan in 2003. This branch office is a wholly owned corporation by Star Appliances, Inc. Setting up a wholly-owned subsidiary will involve more time and expense, but it can offer an effective means to guarantee better protection for proprietary information, obtain credit and penetrate markets which have subtle but substantial barriers to imports. Moreover, there is a perception in Japan that a company with subsidiaries is both more committed and more substantial and this perception can serve as a powerful selling point for that firm.
A branch office of our company can engage in trading, manufacturing, retailing, services, or other business. A branch office may take and fill orders and carry out a full marketing program, including arranging for advertising, recruiting a sales force and performing all necessary promotional activities. A branch is liable for payment of Japanese taxes. The branch must appoint a resident representative in Japan and must register with the Legal Affairs Bureau of the Ministry of Justice. In addition, the establishment of a branch office is considered a direct investment under the Foreign Exchange and Foreign Trade Control Law requiring reporting to the Ministry of Finance through the Bank of Japan within 15 days after the establishment of the branch office.
Setting up a branch is also for the preparation of entering China in the future. Star Appliances, Inc thinks that China is a potential market for household appliances. In order to target more Asian countries, a branch in Asia will be of great help for local industry survey and trend analysis. We would like to consider the branch in Japan as a bridge to more Asian markets.
1. External Environment
?Political/Legal – Canada is a young country, but it has a legal system rich in tradition. Under Canada?s federal system of government, the authority to make laws is divided between the Parliament of Canada and the provincial legislatures. Common law, which is used in all provinces except Quebec, is based on principles that were developed in medieval England. Canada is also governed by the rules of international law, whether based on custom or on treaty. The Canadian Dollar is a fully convertible currency, and exchange rates are determined by supply and demand conditions in the exchange market. There are no exchange control requirements imposed on export receipts, capital receipts, or payments by residents or non-residents. Prices for most goods and services are established by the market. The most important exceptions are government services, services provided by regulated public service monopolies, most medical services, and supply-managed and other agricultural products (including wheat, eggs, poultry and dairy products). The principal sources of federal tax revenue are corporate and personal income taxes and the Goods and Services Tax (GST), a multi-stage seven percent value-added tax on consumption. The personal and corporate income tax burden, combining federal and provincial taxes and surcharges, is significantly higher than in the U.S.
?U.S.-CANADA Relations – The bilateral relationship between the United States and Canada is perhaps the closest and most extensive in the world. It is reflected in the staggering volume of trade — over $1 billion a day — and people — over 200 million a year — crossing the U.S.-Canadian border. Canada has an affluent, advanced industrial economy that closely resembles that of the United States in its per capita output, market-orientation, and pattern of production. Growth in Canada’s export sector should continue to be fueled by ongoing strength in the U.S. economy and Canada’s low dollar. Global disinflationary pressures have more than offset the negative impact of the low Canadian dollar on import prices and consumer price inflation. Consequently, Canada’s inflation rate is at the lower end of the Bank of Canada’s one-to-three percent target band. Total two-way merchandise trade between the United States and Canada was US$334 billion in 1998 (Statistics Canada reports the total as C$505 billion). When services and investment income are included, total two-way trade was approximately US$365 billion, or US$1 billion per day in 1998. (Statistics Canada reports the number at C$619 billion.) Regardless of which set of statistics are looked at, it is important to realize the magnitude of the bilateral U.S.-Canada trading relationship. Canada is the largest single-country export market for the United States. In addition, total two-way merchandise trade between the United States and Canada is larger than total U.S. merchandise trade with the entire European Union, or total U.S. merchandise trade with Japan.