The Warring Cousins

The aftershocks of Kumamoto earthquake, which struck Japan on 16 April, 2016, continues to rock the Indian digital camera market some 6,000 km away even after 11 months. Kazuo Ninomiya, Managing Director, Nikon India, admits that due to supply constraints the India business of the company hasn’t seen much movement. For 2014-15, the company booked a revenue of Rs 1,000 crore. Nikon India hopes to close the financial year ending 31 March, 2017, with a total revenue of Rs 1,000 crore, says Ninomiya who took charge of the company in June 2015. “From January 2017, the supply of camera has been restored. On a month-on-month basis, the growth rate is in high double digits. For 2017-18, I expect at least 10 per cent growth in revenue for Nikon India,” he says during our interaction in one of the several conference rooms on the ground level of spacious Nikon India office located in Gurgaon.

But there is another reason for Nikon India’s low sales — de-growth of its digital compact point and shoot (CP&S) cameras. In fact, the entire CP&S camera market is stagnated. The reason is the growing popularity of high-end smartphones with 15 or 20 megapixel cameras (particularly those manufactured/supplied/sold by the Chinese companies). Commonly, it is understood that the higher the megapixel unit, the better is the corresponding image. For example, an 8-megapixel camera can produce images with eight million pixels. But a lot more elements are at work when it comes to images produced by a D-SLR camera. We will get to it in a while. In order to get a better understanding of the Indian digital camera market, it is essential to understand its dynamics first.

Market Churn
In India, around 7-8 lakh units of digital cameras are sold each year of which around 2-2.5 lakh units are accounted for the CP&S. But the growing penetration of smartphones has dented the sales of CP&S in the last couple of years admits Ninomiya. “There is a 30-40 per cent de-growth in the digital CP&S category,” he says. Canon India president and CEO Kazutada Kobayashi agrees with Ninomiya. “When I joined in 2012, for us, both in terms of unit sales and in terms of value of business, the CP&S category was much bigger, almost four times more than the professional digital SLR (single lens reflex) cameras. But the entry of smartphone cameras has adversely impacted the sales of CP&S today,” says Kobayashi whose India work permit visa was renewed for another five-year term last year.

So how is Canon India, which is celebrating completion of its 20 years this year, doing business wise? In terms of its financials, Canon India business is virtually double of Nikon India because of its business beyond digital cameras. “When I arrived, our business was below Rs 1,500 crore in revenue. Today, we have Rs 2,500 crore in revenue. We hope to grow by 10 per cent next year,” adds Kobayashi. In his five-year tenure, Canon India has added Rs 1,000 crore in revenue, virtually Rs 200 crore every year. Kobayashi cites the growth in high-end D-SLR cameras, copiers and printers category as the main reason for this sustained growth. As per the Registrar of Companies, Canon India reported a sales revenue of Rs 2,112 crore as on 31 December, 2015 and a net profit of Rs 31.6 crore, while rival Nikon India reported Rs 1,088 crore in revenue and a net profit of Rs 41 crore as on 31 March, 2015. Nikon follows the financial year from April to March, while Canon follows its financial year as calendar year.

Canon employs more than 2,000 people, just double of Nikon India’s workforce. Going forward, both aspire to generate a 10 per cent growth in sales. For Canon India, it means taking its revenues from Rs 2,500 crore to Rs 2,750 crore. For Nikon India, its target is to reach Rs 1,100 crore in FY18.

Growth Drivers
What is driving the growth of D-SLR cameras for both Canon and Nikon India? According to Kobayashi, while India’s ranking for Canon may be very small when compared to global business numbers (India accounts for 1.5 per cent of global revenue), in terms of number of units sold, India is among the top five countries behind the US, Germany, China and Japan. Same is true for Nikon India. “We have been in India for 10 years now. When we started, India was ranked somewhere between 20 and 30. In 2015-16, India for us was ranked at number seven. This year, India will be among top five countries, only behind Japan, US, China and Germany,” says Ninomiya.

But where does India stand compared to China or Japan? The China business is almost 5-7 times the size in India in terms of unit sales (4-6 million per year virtually), while Japan may be three times India’s size, estimates Ninomiya of Nikon.

What is driving the growth D-SLRs in India? “Consumers who are not satisfied with the picture quality of smartphone cameras shift to D-SLR,” says Ninomiya. But Kobayashi of Canon terms this as a “typical text-book answer”. “There are two answers to this question. One is the text-book answer: D-SLR gives higher resolution than mobile camera. But there is a second explanation too. In reality, having a D-SLR and shooting pictures is perceived as doing something smart, nice, and fashionable. It is a matter of pride for a photographer to take pictures from a professional/semi-professional D-SLR. The action of taking picture using a D-SLR is driving the growth,” says Kobayashi. On a more serious note, he says that for any true lover of photography, there are three key elements that determine a great picture. “Lens quality, CMOS image sensors and image processor. If these three elements are world class, true photography lovers will not pay much heed to megapixels. At Canon, we control the manufacturing of all three elements. And that is what distinguishes one camera from another,” says Kobayashi, adding that he expects the digital camera segment to grow at 10-15 per cent per year. He even backs up his estimates with a solid reasoning. “If 20 per cent of those having high-end camera phones are not happy with their images, we have a healthy business at hand,” says Kobayashi. But between the two Japanese brands, the tussle over size and quality continues to divide loyalties among its consumers.

Megapixel War
It’s no secret that Canon and Nikon have been at competition over who offers the highest megapixel camera in India. Currently, Canon India leads the race with its EOS 5DSR offering 50.6 megapixel, which was introduced in June 2015. It is presently priced at around Rs 2.4 lakh. At the time of the launch, Kobayashi had said: “With the introduction of the world’s highest resolution full frame camera, Canon has unveiled cutting-edge technology in the camera industry. With the launch of such evolutionary products, we foresee our numbers to grow and achieve a market share of 50 per cent in the D-SLR segment.”

But Ninomiya downplays the perception of ‘higher megapixel equals better image quality’. “In the high-end camera market, we not only compete with megapixel size but also the ISO sensitivity and click per second. These are very important features for photographers. Now the competition for megapixel is slowing down,” says Ninomiya. For the record, Nikon India had launched D-SLR D800 four years ago which offered 36 megapixel. “It was the highest at that time. It was the highest till two years ago. I believe this kind of competition of launching higher megapixel camera can continue. But it is one of the factors for competition and not ‘the’ factor. You cannot expect higher ISO with higher megapixel,” says the Nikon India MD. When asked whether Nikon will stop this one-upmanship, Ninomiya said, “I cannot say we will stop....but my personal opinion is that it may slow down.” Then what about the market buzz that Nikon is soon launching a 46 megapixel D-SLR, we asked? “That is the rumour, yes. But I cannot comment on that,” says Ninomiya.

No Making in India
There is one common thread that binds both the Japanese giants of the images and optics business. “We have no plans to set up any local manufacturing plant in India yet,” both said virtually the same sentence during our interactions, but on different days. Incidentally, both Canon India and Nikon India are headquartered in Gurgaon, only 4 kilometres part. When we asked Kobayashi of Canon India the reason the company is not considering India as a local manufacturing market for digital cameras, he smiled and said: “There are 194 countries who are members of the United Nations. But we have manufacturing plans in only 10-11 countries even though we are selling in over 100 countries.” On a serious note, he added that the team from Japan has been scouting and researching in Asia for setting up a plant and the feasibility studies are always in the works. “Around 60 IT engineers in Bengaluru are producing camera-related software which is then exported to our factories in Asia. You can call that local manufacturing,” he says. Currently, Canon India is sourcing its cameras from Japan and Taiwan, copier from China and the Philippines, inkjet printers from Vietnam and Thailand, and laser printers from Vietnam and China. But Ninomiya of Nikon India has a more direct answer. “The global market size of digital cameras is pegged at around 25 million units. India, in that manner, is a small market comparatively. If it continues to grow at 10-15 per cent annually, who knows, in the next five or 10 years, India will be a big market.” Perhaps then, India may get its own plant and can hope to see the prices of these high-end digital cameras come down drastically.