Traffic jams golden opportunity for Harman International
Keeping frazzled mainland motorists happyis a money-making venture for Harman
The gridlock on the mainland's congested roads is a golden opportunity for David Jin, the chairman and president of Harman International Industries' China operations.
That is because Harman is a world leader in the business of selling audio equipment and in-car information and entertainment systems, and those snarl-ups create a massive captive market of motorists desperate for distractions while they wait for the traffic to clear.
"We still have great confidence in this market even though it is facing slowing growth," said Jin, who is Harman's point man for China and northeast Asia. "We view the increasing traffic congestion as a new growth engine, since it means Chinese people spend more time in their cars, and that creates a rising demand for better infotainment products and a safer driving experience."
The New York-listed company is already a beneficiary of those traffic jams, if its latest set of results is a reliable guide. For the fiscal year to June, its mainland sales grew 42 per cent, more than double its total sales growth of 16 per cent.
In the circumstances, Harman does not share the concerns captured in a recent poll by business consultancy AlixPartners of 43 senior executives from both foreign and domestic carmakers and car-parts suppliers. Respondents said they believed growth in the mainland car market would average 8 to 12 per cent a year over the next four years after soaring 32 per cent in 2010 and slowing to 2.45 per cent last year.
"China is a strategically important market for us now, rather than a market to play a supporting role," Jin said. "In order to chase a sustainable high growth rate, you need to make sure that better products are made to meet buyer demand."
In-car entertainment, also known as infotainment, is a collection of hardware devices and software installed into cars that provides audio and visual entertainment, navigation systems and internet connectivity. Soaring spending power has made well-heeled mainland car buyers increasingly critical of in-vehicle devices, prompting carmakers and suppliers to develop products specific for Chinese customers.
Harman has located one of its four global research and development hubs in Shanghai to meet this demand.
"We need creative and value-for-money products for this market," Jin said. "We believe that the mainland infotainment market will outgrow the car-making sector."
Harman, which also owns microphone brand AKG and audio brand JBL, reported mainland sales of US$382 million in the past fiscal year, compared with US$269 million a year earlier and nearly double its 2010 sales of US$199 million.
The year ahead would present challenges, said Jin, who would not make any sales projection. "It will be difficult to sustain the rapid growth," he said. "But all I can say is that we are relatively optimistic about the emerging markets, particularly the China market."
According to the China Association of Automobile Manufacturers, 10.98 million cars were sold on the mainland in the first seven months of the year, up 3.56 per cent year on year. The growth figure translates into only one-ninth of the pace at which the car market grew in 2010.
"China's car market will continue to grow at an orderly pace," Jin said. "None of the players can afford to ignore the world's largest car market in the years to come."
In the past fiscal year, Harman's businesses in BRIC countries - Brazil, Russia, India and China - accounted for 12 per cent of its global total.