Omdia: what next for the Eastern European TV market?

Summary

With a fast-developing crisis in the Ukraine, it is worth revisiting the effect of Russia’s annexation of Crimea in 2014.

There are three foreseeable effects of Russia’s invasion which could trigger a range of possible sanctions:

• Currency devaluation of the Ruble, making TVs more expensive for Russian consumers.
• Sanctions, making the Russian market difficult for global companies to transact business.
• Technology embargo, forbidding sales of key components such as semiconductors.

The effect of the 2014 sanctions (which were in force until this week’s events) are a good guide to future trends. Russia is entirely dependent on supply of imported components to assemble TVs. It has no local consumer semiconductor or LCD panel manufacturing capacity.

Sanctions are likely to shrink the Russian TV market again:

The graph shows the effect of the 2014 sanctions: the Russian TV market shrank by approximately two million units (around 50%) annually in 2015.

Subsequently, the market slowly recovered, but has never returned to 2014 levels. The recovery was achieved partly through a new value chain. Consumers purchased directly from manufacturers in China using AliExpress, who consolidated shipments and then distributed in Russia. Removing the retailer’s margin countered some of the effects of a weaker currency.

Looking to the future, several factors are repeating:

• The Ruble has already fallen 10% against the US Dollar, the pricing currency of electronic components including semiconductors and LCD panels. This will increase TV set prices in Russia.
• Likely financial sanctions will make it difficult for global TV brands to transact business in Russia. It is likely to ease access for opportunistic players in China.
• Emboldened by the US Government’s embargo of Huawei, it may become difficult to ship semiconductors to Russia, a new factor.

One-off gains such as direct purchasing via AliExpress have already been made. As a result, the damage to demand may be more severe this time. It is likely to be matched by a supply chain shift in favor of Chinese brands, whose government appears less inclined to introduce sanctions.