THE 2015 NAMM GLOBAL REPORT

Transcription

1 THE 1 NAMM GLOBAL REPORT

2 A MESSAGE FROM THE CHAIRMAN AND PRESIDENT/CEO Results from our NAMM member surveys show that one of the top three reasons for belonging to the association is access to important industry information and statistics, such as those found in this year s NAMM Global Report. It s easy to understand why. After all, the more knowledge our members have about the state of the industry, the better decisions they can make. That s exactly what the NAMM Global Report is all about. This comprehensive report will help you to see industry trends, spot new opportunities and determine the best choices to make for your business in the coming year. This year s Global Report captures a snapshot of countries, including Argentina, Australia, Austria, Brazil, Canada, China, the Czech Republic, Finland, Germany, India, Italy, Japan, Mexico, Norway, Russia, South Korea, Spain, Sweden, Switzerland, the United Kingdom and, of course, the United States. This year, we ve also added statistics from France and Hungary. On behalf of the NAMM Board of Directors and staff, we appreciate your continued support and membership. NAMM remains dedicated to your success, and we hope you find the 1 NAMM Global Report useful to your business. Sincerely, Larry Morton, Chairman Joe Lamond, President/CEO

3 CONTENTS Message from the Chairman and President/CEO Understanding the U.S. Data U.S. Snapshot U.S. Industry Revenue at a Glance 7 Music Industry Analysis 9 U.S. RETAIL SALES Fretted Products and Effects Market 1 Piano and Organ Market 1 School Music Market 1 Pro Audio/Sound Reinforcement Market Percussion Market DJ Market Recording and Computer Music Market Electronic Music Market 1 Print Music Market Portable Keyboard Market Karaoke Market General Accessory Market U.S. INDUSTRY SUMMARY & IMPORTS AND EXPORTS Industry Summary 7 Import and Export Data INTERNATIONAL DATA Understanding the International Data Argentina Australia Austria 7 Brazil 1 Canada China 9 Czech Republic 111 Finland 11 France 1 Germany 1 Hungary 1 India 1 Italy 11 Japan 17 Mexico 1 Norway 19 Russia 199 South Korea Spain 1 Sweden Switzerland United Kingdom NAMM EXECUTIVE COMMITTEE & BOARD OF DIRECTORS ACKNOWLEDGEMENTS 1 MANAGING EDITORS Causby Challacombe Erin Block INTERNATIONAL AFFAIRS Betty Heywood RESEARCH ANALYST Erin Block LAYOUT/DESIGN Matt Stenberg Megan Nelson COPY EDITORS Deborah Brada Lara Severson Laurie Gibson

4 METHODOLOGY The NAMM Global Report is a collection of information gathered from many sources, agencies and associations around the world. NAMM does not verify any of the information and cannot and does not guarantee the accuracy of the data. The statistics NAMM receives are summaries; NAMM personnel do not see or manipulate any individual company information. Sources for each piece of data are listed at the beginning of each section and can be summarized as follows: U.S. domestic sales information and commentary is provided by The Music Trades magazine, and import and export numbers are collected by the U.S. Census Bureau. Sales information and commentaries in the International section are provided by associations in each country. International economic, demographic and trade data are gathered from the CIA World Factbook, and the International music industry numbers are provided by The Music Trades magazine. UNDERSTANDING THE U.S. DATA The unit sales and retail values in this report were compiled by the staff of The Music Trades magazine, which provides the following overview of the methodology used. How do you get sales data in an industry where most business is done by privately held companies, and there are few, if any, reporting sources? The answer is, you spend a lot of time digging. The data in these pages comes from a variety of sources import and export data as compiled by the World Trade Organization, retail sales data, filings from the industry s 1 publicly held enterprises, association data, and a lot of informed estimates and off the record conversations. The result is a snapshot of the volume of product that moves through the specialized channel of approximately, MI retailers in the United States. Data in these pages reflects wholesale shipments to retailers. Using an average industry margin that varies from category to category, we estimate a retail sales value. This methodology, although not perfect, yields a consistent picture and allows for reasonable year-to-year comparisons. Please note that data on the following pages does not include any figures on the used instrument market, which is extremely substantial but difficult to measure with any accuracy.

5 Music USA United States Snapshot UNITED STATES SNAPSHOT Demographics Population in millions 1.9 Age Male Female & Over..7 Median Age 7. Population Growth.77% Demographics 1.7% 1 19.% + 1.9% Economy GDP (PPP) GDP-Service 79.% Economy $1.77 trillion GDP Per Capita $,71 GDP-Real Growth Rate.% Unemployment Rate.% Inflation 1.7% GDP-Industry 19.% GDP-Agriculture 1.1% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars ' ' ' United States GDP (PPP) (U.S. $ in trillions) ' '7 ' '9 ' ' ' ' Unemployment Rate (Percent) ' '7 ' '9 '1 1-1 ' ' ' Inflation (Annual Percent Rate) ' '7 ' '9 '1

6 Trade Total Export $1. trillion Export as % of GDP 9.7% Total Import $. trillion Import as % of GDP 1.1% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Canada Mexico China Japan China Canada Mexico Japan Germany Music Industry Music Market $7. billion Sales Per Capita $. Global Share.% 1 1 Music Sales Per Capita (U.S. $) ' ' '7 ' '9 ' ' ' United States Music Market (U.S. $ in billions) '7 ' '9 '1 1 ' ' Share of Global Music Market (Percent) '7 ' '9 '1

7 Music USA U.S. INDUSTRY REVENUE AT A GLANCE Product Sales Totals (Retail 1 1) 1 1 Fretted Products $1,9.9 $1,.19 Sound Reinforcement Wind Instruments General Accessories Microphones Printed Music Percussion Computer Music Products Acoustic Pianos Effects Portable Keyboards Instrument Amplifiers Cables Digital Pianos DJ Gear Stringed Instruments Keyboard Synthesizers Other Electronic Products Multi-Track Recorders Electronic Player Pianos Institutional Organs Karaoke Products Home Organs Rhythm Machines $1.7 $1. $11. $1.7 $1.77 $7. $9.9 $.9 $7. $. $9. $1.1 $1. $1. $1. $.9 $7.1 $1. $17. $1. $19.1 $17. $1. $1.1 $1. $11.7 $17.9 $19. $9.1 $. $9.9 $. $. $9.1 $7.71 $1.7 $. $1. $. $1.77 $. $1. $1.1 $1. $17.9 $ (in millions of dollars) 7

8 U.S. INDUSTRY REVENUE AT A GLANCE 1 Industry Sales Gains and Declines Rhythm Machines.1% Karaoke Products Fretted Products Portable Keyboards Microphones General Accessories Acoustic Pianos Wind Instruments Sound Reinforcement Cables Effects DJ Gear Digital Pianos Computer Music Products Electronic Player Pianos Printed Music Stringed Instruments Home Organs Percussion Instrument Amplifiers Institutional Organs Other Electronic Products Keyboard Synthesizers Multi-Track Recorders 1.% 9.%.%.19%.%.9%.9%.%.%.19% 1.% 1.1% -.% -.9% -1.% -1.1% -1.19% -1.7% -1.% -.7% -.9% -7.% -1.1% -% -1% -1% -% % % 1% 1% % % %

9 Music USA INTRODUCTION 1 Music Industry Analysis Industry revenues rose.%, thanks in part to an improving economy, but gains were not distributed evenly among different product categories. The improving technology that delivered better value to consumers also crimped sales growth by reducing average selling prices. The music products industry in 1 continued its recovery from the financial crisis, posting its fifth consecutive yearover-year sales gain. The U.S. retail value of the broad array of musical instruments, recording gear and audio products reached $7. billion, a.% gain over last year s level of $. billion. The rise closely tracks the trajectory of the national economy, which closed out the year with a.% gain in gross domestic product. Like most other commercial activities, the sale of music products benefited from the combination of declining unemployment, rising wages and improved consumer confidence. However, the gains were not equally distributed among the diverse product categories tracked in this report. Fretted instruments and related products, including effects, the single biggest product category, notched a 7.% gain in retail value, while electronic music products experienced a.% slump. Current industry revenues are still about 1% below the record level set in, which has raised some unsettling questions. Does the decline indicate that the act of making music lost popularity? Is the industry losing the battle for discretionary income? Or is the general public still reluctant to make discretionary purchases? A trove of data suggests consumer wariness holds much of the blame for the industry s slow-paced recovery. The -and-under age group, a key buying demographic for music products, is laboring to pay off an estimated $1 trillion in college-related debt; housing starts are still well below levels of a decade ago; and incomes for much of the populace have stagnated. But does a lower sales volume reflect a decreased interest in music making? Not necessarily. The past decade has seen two technological trends that have been excellent for the buying public, but not so good for purveyors of music products. The first involves Moore s Law, the prediction by Gordon Moore, the founder of Intel, that the capability of microprocessors would double every two years and the price would drop. Events have vindicated Moore s forecast, and for the music products industry, it has translated into more powerful products at dramatically lower prices. The same forces that have pushed down the prices of laptop computers, flat panel TVs and smartphones have impacted the music industry. Last year, approximately $.1 billion worth of goods included in this report, representing % of industry volume, were based on some combination of software and microprocessors, and thus subject to Moore s Law. This list of products includes synthesizers, digital mixers, recording software, electronic drums, effects processors and even loudspeakers with built-in effects processors. To illustrate the impact of higher processing power at a lower price, consider the Alesis ADAT, the first accessible digital multi-track recorder. Introduced in 199 with a retail price of $,99 ($, in current, inflationadjusted dollars), the ADAT was an enormous success. Today, for a third of the price, an aspiring musician can assemble a far more powerful recording setup, with more tracks, built-in Digital Signal Processing (DSP) and no need to buy expensive tape. Advances like this have either saved consumers an estimated $1. billion a year, or cost the music industry s suppliers and retailers $1. billion in lost annual revenues. However, sales declines traced to Moore s Law don t indicate a waning interest in music. The other transformative trend has to do with online marketplaces. Retailers used to joke that the world s most popular piano brand was good used, because that was what customers most frequently requested. Musical instruments retain value like very few other products, as evidenced by the lofty prices paid for vintage stringed instruments. For this reason, the used market has always been sizable. However, with the advent of ebay and Craigslist, it has gotten even larger. The inventory on Craigslist in any top market would fill several goodsized brick-and-mortar music stores. The increased availability of the good used brand has unquestionably taken a toll on the sale of new products. This is not, however, an indication that the industry has lost ground in public opinion. Interest in music making seems as robust as ever, but that unfortunately doesn t pay the bills. In the short term, the fact that it takes less cash for consumers to address their musical needs is not good news. Compare it to photography: people are spending less in the era of digital technology, but the interest in taking pictures has not 9

10 Retail Value in $ billions diminished. In the longer term, however, innovation and improved product value have been a huge positive for the music industry. We suspect that at some point in the nottoo-distant future, this will become apparent. The industry has often been compared to a bank of elevators. Individual cars move up and down at different rates, but the bank of elevators doesn t change much. In the following, we assess the movement of the various cars that make up the industry. 7 1 ' ' ' ' Industry Total '7 ' '9 ' % 1-Year 9.% Source: The Music Trades Fretted Products and Effects Includes acoustic guitars, electric guitars, basses, ukuleles, amplifiers, strings, and guitar-related effects. Electronic Dance Music (EDM) may be enjoying a vogue, there s a dearth of guitar-focused rock n roll bands in popular music, and smart phones are gobbling up an increasing share of discretionary income. Yet against this backdrop, sales of fretted instruments and related accessories posted their best performance in seven years, advancing 7.% to an estimated retail value of $1. billion. The gains reinforce the guitar s continued standing as the preeminent instrument in popular music. Sales increases were not evenly shared among diverse product types that make up the category, which include acoustic and electric guitars, strings, amplifiers, effects and ukuleles. However, revenues in all product groups, with the exception of amplifiers, edged up. Despite well-publicized increases in labor costs in China, price increases were minimal during the year. In every case, increases in average selling prices reflected a shift to higher-quality products. Acoustic guitars were the top performers in 1. A 1% increase to 1,9,7 units translated into a 1.% gain in retail value as customers opted for higher-priced instruments. It s difficult to pinpoint a single catalyst for the improvement. Retailers and manufacturers interviewed cited a better economic climate; the rise of singersongwriters such as Taylor Swift, who have attracted more female buyers; and consumers looking for an antidote to an increasingly digitized world. However, none of these opinions was advanced with absolute confidence. The ukulele market also rebounded, allaying fears that what s been called the third ukulele boom had run its course. Simple, easy-to-play fretted instruments have apparently retained their appeal. In the realm of electric guitars, unit volume edged up % to 1,1,, while estimated retail value increased.% to $.9 million. The shift to higher-priced products was generally welcomed by manufacturers and retailers; higher-priced guitars yield higher profits throughout the distribution channel. However, some still expressed concerns. We re seeing fewer first-time buyers and a lot more older guys adding instruments to their collection, 1

11 Music USA said one retailer. It makes me worry about where the next generation of players is coming from. Also, unlike kids, the guys buying trophy guitars are gone the minute the economy gets soft. Amplifier sales slipped, primarily due to increasing numbers of alternative technologies for cranking up the volume on a guitar. At the entry level, practice amps now have to compete against digital solutions, such as IK Multimedia s irig, which allows players to plug directly into any recording device. At the higher end of the market, some performers are using various types of DSP in conjunction with a powered speaker or p.a. system instead of an amplifier. Compounding the situation, the current trend is away from large (higher-priced) stacks in favor of smaller combo amps. One of the brightest spots in the market in 1 was effects pedals, which enjoyed a robust 1.7% increase in retail value. Chalk up the gains to fickle guitarists. A decade ago, they were clamoring for high-tech multieffects devices that packed dozens of processors into a single floor package. Today, they have returned to the tonal authenticity of the humble pedal. The category has also attracted dozens of entrepreneurs who, like micro-brewers, have found a market for their personal tonal preferences. Retail Value in $ millions 7 1 ' ' 1 Summary 1-Year Trend '7 Acoustic Guitars ' '9 Retail Value '1 Retail Unit Average Price 1.% 9.9%.7%.% -9.% 9.7% Acoustic Guitars category includes banjos, mandolins and other acoustic fretted instruments x 1,, A strong fretted market is particularly good for the retail channel, as guitars and related accessories offer higher margins than higher-tech products. Retail Value Market Share Acoustic Guitars.% Electric Guitars 7.1% Effects 1.% Retail Value in $ millions 7 1 ' ' ' ' '7 '7 Electric Guitars ' ' '9 '9 Retail Value '1 ' x 1,, Ukuleles.9% Instrument Amplifiers 1.% Fretted Instrument Strings 1.% 1 Summary 1-Year Trend Retail Unit Average Price.%.%.17% -1.% -1.7% 19.1% Electric Guitars category includes electric basses. 11

12 Fretted Products and Effects, continued Retail Value in $ billions ' ' '7 Total Guitars ' '9 ' x 1,, Retail Value in $ millions 7 1 '9 '1 Ukuleles x 1,, Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price 1.%.%.%.% -.1%.9% 1 Summary -Year Trend Retail Unit Average Price.97%.% 1.9% 1.% 11.% 1.% Fretted Instrument Strings Instrument Amplifiers Retail Value in $ millions 1 ' 1 ' '7 ' '9 '1 Retail Value in $ billions 1 1 '9 ' x 1,, ' ' '7 ' '9 '1 Retail Value ' ' '7 ' '9 '1 Retail Value. 1 Summary 1-Year Trend Retail.% 17.% 1 Summary 1-Year Trend Retail Unit Average Price -1.% -1.%.% -.1% -7.% -.% Instrument Amplifiers category includes tube, digital and solid-state amplifiers; amplifier heads; speaker enclosures; and other self-contained amplifiers for guitars, basses and other musical instruments. 1

13 Music USA Total Fretted Instruments Rack-Mounted Processors Retail Value in $ billions ' ' '7 ' '9 '1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail.17% -.7% 1 Summary 1-Year Trend Retail.% -.% Rack-Mounted Processors category includes compressors, limiters, pre-amps, EQs and multi-effects. Multi-Effects Floor Processors Effects Pedals 1. Retail Value in $ millions x 1, Retail Value in $ millions x 1,, ' ' '7 ' '9 '1 ' ' '7 ' '9 '1. Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -1.7% -9.7% -.% -.1% -1.%.1% 1 Summary 1-Year Trend Retail Unit Average Price 1.7% 7.1%.1%.7%.%.% Effects Pedals category includes floor pedal units, tabletop units and other products that incorporate complex processing power

14 Fretted Products and Effects, continued Total Effects The Piano and Organ Market Includes acoustic grand pianos, acoustic vertical pianos, electronic player pianos, digital pianos, and organs. Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 The piano market posted a modest increase in both dollars and units in 1. Uprights were the best performers, with unit sales rising 9.1% to, and retail value up 1.% to $11. million. Grand units dropped.1% to 11, but dollar volume was essentially flat at $19 million as customers opted for larger instruments. Sales of digital pianos increased.7% to 1,7 units, but retail value rose only 1.% to $1. million, reflecting lower average selling prices. Retail Value in $ billions Summary 1-Year Trend ' Retail.19%.9% Retail Value Total Fretted Products & Effects ' '7 ' '9 '1 Retail Value Historically, a rising stock market has benefited the piano market, particularly in the sale of high-end grands. Why then were the gains in the piano business relatively tepid in 1, a year that saw both the Dow Jones and NASDAQ indexes in record territory? Retailers cite two factors: reduced availability of consumer financing and a huge volume of readily available used instruments. As one dealer explained, Customers used to seeing % financing in the car business are turned off when the best we can offer is a 7 or % APR. As for used pianos, in many markets the inventory available on Craigslist often exceeds annual sales of new instruments. Unit volume gains in digital pianos are an encouraging indicator of interest in the keyboard. However, as with most other digital products, declining prices make it challenging to translate unit gains into higher revenue. The organ market continued to decline in 1. Home organ sales slumped.% to 1, units with a retail value of $1. million. Changing consumer preferences account for much of the downturn; however, the market also suffers from a shrinking distribution network. There are currently many major markets in the country where there are no retailers actively promoting home organs. 1 Summary 1-Year Trend Retail 7.% -.9% Church organ sales have been adversely affected by a shift away from traditional worship styles and declining participation at mainline Protestant houses of worship. An increasing number of houses of worship have opted for guitars and keyboards instead of organs. This is reflected in sales, which dropped.% to $. million. 1

15 Music USA Pianos Retail Value Market Share 1 Vertical Pianos Grand Pianos.% Electronic Player Pianos 1.% Digital Pianos.% Vertical Pianos.% Retail Value in $ millions ' ' 1 Summary 1-Year Trend '7 ' '9 '1 Retail Value Retail Unit Average Price 1.% 9.9%.1% -.% -.9%.1% 1 x 1, 1 ' ' '7 ' '9 '1 Grand Pianos Total Acoustic Pianos Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 1 1 x 1, Retail Value in $ millions 1 '9 ' '97 ' '9 '99 ' '1 ' '7 ' '9 '1 ' ' x 1, Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -.% -.7%.99% -1.% -.% 1.7% 1 Summary 1-Year Trend Retail Unit Average Price.9%.%.9% -.71% -.17%.% 9 7 1

16 1 1 The Piano and Organ Market, continued 9 Digital Pianos Electronic Player Pianos Retail Value in $ millions ' ' '7 ' '9 ' x 1, Retail Value in $ millions ' ' '7 ' '9 ' x 1, Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price 1.1%.7% -.% -.1% -.7% 1.7% 1 Summary 1-Year Trend Retail Unit Average Price -.9% -.%.% -.77% -.%.% Total Pianos Retail Value in $ millions ' '9 ' ' '7 ' '9 '97 '9 '99 ' '1 ' ' ' '7 ' '9 '1 Retail Value ' ' 1 Retail Unit Average Price 1 Summary.7%.% -1.% 1-Year Trend -.% -7.9% -1.% Total Pianos category includes grand pianos, vertical pianos, electronic player pianos and digital pianos. x 1, '9 '97 '9 '99 ' '1 ' ' ' 1

17 Music USA Organs Retail Value Market Share 7 Institutional Organs. Institutional Organs 7.9% Home Organs.1% Retail Value in $ millions x 1, ' ' '7 ' '9 '1. Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -.7% -.%.% -7.7% -9.7% 1.1% Home Organs Total Organs Retail Value in $ millions 7 1 ' ' ' '7 ' '7 ' 1 Summary 1-Year Trend 1 1 ' '9 '1 1 Retail Value Retail Unit Average Price '9 '1-1.19% -.%.% -.% -.%.% x 1, Retail Value in $ millions ' ' '7 ' '9 '1 Retail Value Retail Unit Average Price 1 '9 Summary '97 '9 '99 -.%' -.% '1 ' '.% ' 1-Year Trend -71.1% -79.9%.7% x 1, ' ' '7 ' '9 '

18 The School Music Market Includes woodwind instruments, brass instruments and stringed instruments. Retail Value Market Share School music, which includes wind and stringed instruments, has consistently been the industry s most stable product category. Sales closely correlate with school enrollment levels, and consequently tend to move gradually. In 1, the Census Department reported a 1.% increase in K 1 enrollment, and the National Conference of State Legislatures reported that the states collectively saw tax revenues advance by.9% with commensurate increases in educational spending. These two macro factors translated into a.1% gain in retail value of woodwind, brasswind and stringed instrument shipments. Retail value also benefited from slightly higher average selling prices. This was apparently due to improved sales of step-up instruments rather than price increases. Woodwind Instruments.% Stringed Instruments 1.% Brass Instruments 7.1% The rise of online retail, including Amazon, ebay and countless others, has had a disruptive effect on the way many music and audio products are sold. School music is a notable exception. Most of the business is still done by highly specialized brick-and-mortar stores that call on schools, provide service, and rent instruments to beginners. This is another factor that sets the market apart. Brass Instruments Retail Value in $ millions x 1, ' ' '7 ' '9 '1 Retail Value 1 Summary 1-Year Trend Retail Unit Average Price.%.99%.% 1.% 1.%.% 1

19 Music USA Woodwind Instruments Total Wind Instruments Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 1 1 x 1, Retail Value in $ millions 1 ' ' '7 ' '9 '1 7 1 x 1, 1 Summary 1-Year Trend Retail Value Retail Unit Average Price.%.99% 1.1% 1.% -.% 1.% 1 Summary 1-Year Trend Retail Value Retail Unit Average Price.9%.99%.9% 1.%.% 1.71% Total Wind Instruments category includes brass and woodwind instruments. 1 7 Retail Value in $ millions '9 '9 ' ' 1 Summary 1-Year Trend Stringed ' ' Instruments '7 ' '9 '97'9 '99 '7 ' '9 Retail Value ' '1 '1 ' ' Retail Unit Average Price -1.1% -.1%.7% 7.1% -1.1%.7% 1 1 '1 1 1 ' x 1, Retail Value in $ millions 7 1 ' ' ' 1 Summary 1-Year Trend '7 Total School Music '1 ' '9 ' Retail Value '1 ' ' Retail Unit Average Price.1%.%.% 1.9% -.% 1.% 1 1 x 1, ' ' '7 ' '9 '1 19

20 The Pro Audio/Sound Reinforcement Market Includes speaker enclosures, power amplifiers, mixers, cables, and microphones. A.% gain in the retail value of audio gear reflects the durable demand for high-quality sound, whether in performance venues, schools, houses of worship or any number of other settings. Demand for audio may remain constant, but thanks to evolving technology, the mix of products being purchased continues to shift. Digital technology and software have made it possible to cram more functionality into a single component, reducing or even eliminating the need for outboard effects and other devices. These advances create winners and losers. Discrete power amps are the most obvious loser. Sales for the category posted a.9% drop in retail value in 1. More power amps are being sold than ever before; it s just that most of them now come built into a speaker enclosure. The appeal of powered speakers is obvious: they re less likely to blow out, and they make setup faster and easier. The retail dollar value of speaker enclosures advanced.9% to $ million last year. The same digital technology that has made it possible to incorporate a rugged, high-powered amplifier in a speaker enclosure has also made it possible to include multi-channel digital mixers and signal-processing effects. These almost self-contained sound systems in a box have created other losers. The sale of powered mixers experienced a precipitous.7% decline in retail value because for some applications, a pair of speakers is sufficient. Outboard effects have also been adversely affected. The best-performing product group in the audio category is microphones. Sales of cable mics advanced 7% to $9 million. Chalk up the gain to audiences demanding better sound quality, which requires not only more microphones, but more application-specific mics. Mics tailored for bass drums, soprano vocals and acoustic guitars, along with USB mics, condenser mics, dynamic mics and ribbon mics, have dramatically expanded the model count over the past five years. Does an increase in SKUs drive demand, or is that increase simply a reflection of it? Probably a bit of both. Demand for wireless microphone systems was also brisk, but retail value lagged somewhat, because like every other digital product, average selling prices have dropped. Retail value for the category advanced.% to $17. million. Retail Value in $ millions 1 1 Speaker Enclosures.7% ' ' 1 Summary 1-Year Trend Retail Value Market Share Powered Mixers.1% '7 Power Amplifiers ' '9 Retail Value Cabled Microphones.% Power Amplifiers.% '1 Non-Powered Mixers 11.% Cables 11.% Wireless Microphones 9.% Retail Unit Average Price -.9% -.% -.7% -.9% -.9%.% 1 x 1,

21 Music USA Powered Mixers Non-Powered Mixers Retail Value in $ millions 1 ' ' '7 ' '9 ' x 1, Retail Value in $ millions ' ' '7 ' '9 '1 1 1 x 1, Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -.7% -.% -1.% -.% -.99% 19.% 1 Summary 1-Year Trend Retail Unit Average Price 1.%.7% 1.1%.%.%.% Retail Value in $ millions Speaker Enclosures ' ' '7 ' '9 '1 1 ' ' '7 ' '9 '1 '9 '97 '9 '99 ' '1 Retail Value ' ' ' Retail Value in $ millions '9 ' Cables '97 '9 '99 ' '1 ' ' '7 ' '9 '1 Retail Value ' ' 1 Summary 1-Year Trend Retail.9% 1.% 1 Summary 1-Year Trend Retail.% 1.% 1

22 Pro Audio/Sound Reinforcement, continued Cabled Microphones Wireless Microphones 1 Retail Value in $ millions 1 1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail 7.%.7% 1 Summary 1-Year Trend Retail.79% 1.% Data represents estimates of only those microphones sold by the approximately, MI retailers in the United States, and excludes products aimed at broadcast markets. Total Microphones Total Sound Reinforcement 1. Retail Value in $ millions 1 Retail Value in $ billions ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail.19% 19.9% 1 Summary 1-Year Trend Retail.97%.1% All data represents an estimate of sound reinforcement products sold by the approximately, MI retailers in the United States. Excluded from data are sound products for the cinema, tour sound, broadcast and large fixed-installation markets. Data includes non-powered mixers, power amplifiers, powered mixers, speaker enclosures, cable, cable microphones and wireless microphones.

23 Music USA The Percussion Market Includes drum kits, educational percussion, individual drums and hardware, sticks and mallets, cymbals, heads, and hand percussion. Rhythm remains the essential foundation of all music, but the tools used to create it are changing, as reflected in the sales results of the percussion category. The total retail value of the category declined by 1.% in 1 to $7.7 million, due primarily to shifting product preferences. Continuing the trend of previous years, electronic percussion eroded sales of traditional drum kits, which experienced a unit decline of 1.1%. Traditionalists argue that there s no substitute for the expressive capability of a vibrating drumhead moving a column of air, and they are probably correct. However, a large number of players seem willing to sacrifice some of this musicality in exchange for the volume control, portability and ease of recording offered by electronic alternatives. The appeal of electronic percussion is based on practical considerations, and as such, should not be viewed as a style-based fad. Drum Heads 9.% Retail Value Market Share Drum Kits.% Cymbals 1.% Hand Percussion 9.9% Sticks & Mallets 1.% Individual Drums & Hardware 1.% Educational Percussion 1.% The impact of electronics has also affected the sales of most percussion accessory products, including sticks, heads, cymbals and hardware, all of which saw modest revenue declines in 1. Hand percussion also saw a decline in 1, as players shifted away from high-priced congas to cajons and other smaller, simpler instruments. Retail Value in $ millions ' ' '7 Drum Kits ' '9 '1 1 1 x 1, Retail Value 1 Summary 1-Year Trend Retail Unit Average Price.% -1.1% 1.7% -.% -.9%.%

24 Percussion Products, continued Educational Percussion Cymbals Retail Value in $ millions 7 1 ' ' '7 ' '9 '1 Retail Value in $ millions ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail -1.% -.% Educational Percussion category includes timpani, marching percussion, mallet instruments, snare drum kits and orchestral percussion instruments. 1 Summary 1-Year Trend Retail -.% -.% Individual Drums and Hardware Sticks and Mallets Retail Value in $ millions 7 1 Retail Value in $ millions 1 ' ' 1 Summary 1-Year Trend '7 ' '9 Retail -1.1% -7.% '1 Retail Value Individual Drums and Hardware category includes individual snare drums, tom-toms and bass drums for drum kits, along with pedals, stands, and related percussion hardware products. ' ' 1 Summary 1-Year Trend '7 ' '9 Retail -1.%.% '1 Retail Value

25 Music USA Hand Percussion Total Percussion Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value in $ millions 1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail -.% -1.17% 1 Summary 1-Year Trend Retail -1.7% -.7% Drum Heads Retail Value in $ millions 1 ' ' '7 ' '9 '1 Retail Value 1 Summary 1-Year Trend Retail -.% -17.7%

26 The DJ Market Includes CD and digital media players, turntables, DJ mixers, digital DJ controllers, and special effects lighting units. The DJ market posted a modest gain, rising 1.7% in retail value to $11. million. Sales of CD players and DJ 7 controllers advanced in spite of the popularity of softwarebased systems. DJ mixers declined, however. Revenues generated by popular production and performance software used by DJs are included in the Recording Software category. Big surprises during the year were the strong gains posted by traditional turntables and lighting. The renewed 1 popularity of vinyl accounts for the improvement in ' turntables. ' '7 'More '9 accessible '1 LED lighting systems drove the gain in lighting. For retailers, the product category is once again profitable. Retail Value in $ millions 1 1 ' ' 1 Summary 1-Year Trend '7 CD Players ' '9 '1 Retail Value Retail Unit Average Price.%.%.% -1.% -19.% 1.19% 7 1 x 1, Retail Value Market Share Turntables 1 Turntables 7.% Digital DJ Controllers.% DJ Mixers 1.% CD Players 1.% Retail Value in $ millions 1 1 '97 ''9' '99 '7 ' ' '9 '1 '1' ' ' 7 1 x 1, Special Effects Lighting 1.% 7 1 Summary 1-Year Trend Retail Value Retail Unit Average Price 7.1% 1.% -.% -19.% -17.1% -.% 1 ' ' '7 ' '9 '1

27 Music USA 1 1 DJ Mixers Digital DJ Controllers 9 Retail Value in $ millions 1 ' ' '7 ' '9 '1 1 1 x 1, Retail Value in $ millions 1 '1 7 1 x 1, Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -9.7%.% -1.% -.7% -.% 9.1% Summary -Year Trend Retail Unit Average Price.% 1.9% -7.% 19.97%.% -1.71% 1 '1 Special Effects Lighting Total DJ Sales 1 1 Retail Value in $ millions 1 1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 ' '97 ''9 '7'99' ' '9 '1 '1 ' ' ' Retail Value Retail Value '97 '9 1 Summary 1-Year Trend '99 Retail ' 1.% -1.% '1 ' ' ' 1 Summary 1-Year Trend Retail 1.% 1.% A new category, Digital DJ Controllers, was added in 1 and is included in Total DJ Sales. 7

28 The Recording and Computer Music Market (Multi-Track, Software and Computer Music) Includes hard disk multi-track recorders, portable digital recorders, sound cards and related hardware, recording and sequencing software and plug-in software and loops. The market for recording products faces the same challenge as much of the consumer electronics industry. As products are increasingly based on digital processors and software, prices continue to plummet. Just as the laptop that cost $1, five years ago can now be had for $ (or less), the cost of recording systems has also trended down. There is probably more music being recorded today than at any time in history. For many musicians, a recorded file is the primary means for sharing their music. However, the demand isn t reflected in growing revenues. Retail value for the category was down.% in 1 at $.1 million. Sales of DAWS (digital audio workstations) software dipped.% to $1 million. The decline can be attributed to reduced average selling prices, as well as the growing practice of bundling software with mixers and other hardware. As one manufacturer put it, It s hard to get $ for a program when others are giving comparable products away for free. Sales results for dedicated recording hardware were mixed. Self-contained multi-track recorders face competition from inexpensive apps that can be used on a tablet or smartphone in conjunction with a USB mic. Retail value for the category dropped.9% to $1. million. Portable digital recorders as a product category probably continued to expand; however, the product is migrating away from the MI distribution channel into the mainstream consumer electronics outlets. Our data indicates that sales of the products in MI retailers dipped 1% last year. Retail Value Market Share Portable Digital Recorders 1.% Multi-Track Hard Disk Multi-Track Recorders 1.% Declines in software sales were offset by gains in the sale of audio interfaces the boxes that allow you to plug a mic or an instrument into a computer. The interfaces are available in a variety of sizes and configurations, and they range in price from several thousand dollars for a large unit capable of handling multiple outputs to less than $ for devices targeted at small project studios. However, they are the indispensable component for any recording system. Loops, sounds and other plug-ins also saw revenue gains, fueled in part by the interest in Electronic 7 Dance Music. Electronic music creation and other commercial applications have led to a robust demand for virtual synths, sounds, loops and effects programs. Sales for the category were up.7% to $. million in 1. Retail Value in $ millions 1 ' Hard Disk Multi-Track Recorders ' 1 Summary 1-Year Trend '7 ' '9 Retail Value '1 Retail Unit Average Price -.9%.% -.% -.% -.1% -.97% 7 1 x 1, ' ' '7 ' '9 '1 1

29 Music USA Recording and Computer Music Market Portable Digital Recorders Retail Value Market Share Retail Value in $ millions '7 ' 1 Summary -Year Trend '9 '1 Retail Value Retail Unit Average Price -1.% -.97% -11.9% 7.77%.7% -1.% Total Multi-Track Sales 1 1 x 1, x 1, Sound Cards & Related Hardware.1% Recording/ Sequencing 9.% Plug-In Software & Loops 7.9% Sound Cards and Related Hardware Retail Value in $ millions 1 '9 '97 '9 '99 ' '1 ' ' ' 1 1 x 1, Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -1.1% -1.% -11.%.9% 1.% -9.% 1 Summary 1-Year Trend Retail.11% 1.7% A new category, Portable Digital Recorders, was added in 7 and is included in Total Multi-Track. Sound Cards and Related Hardware category includes sound cards and related input/output devices, digital audio work surfaces (DAWS) and keyboard controllers designed expressly for use with computers. 9

30 Recording and Computer Music Market, continued Recording & Sequencing Software Plug-In Software & Loops Retail Value in $ millions ' ' '7 ' '9 '1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail -.17% -1.% 1 Summary 1-Year Trend Retail.7% 7.1% Plug-In Software & Loops category includes signal processing effects, tune correction software and mastering programs. Total Software Total Computer Music Market Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail -.17% -19.% 1 Summary 1-Year Trend Retail -.% -1.%

31 Music USA The Electronic Music Market Includes keyboard synthesizers, controller keyboards, electronic pianos, drum machines, and electric percussion instruments. The market for electronic musical products experienced a.% decline in retail value to $17 million in 1, buffeted by shifting musical trends and advancing technology. On the technology front, all products in this category face the same challenge currently plaguing the consumer electronics market: thanks to more powerful processors, everything keeps getting cheaper, which makes it difficult to maintain, let alone increase, sales volumes. Whether it s keyboards, electronic drums or production stations, average selling prices continue to trend down in 1. Within the category, the sales performance of different product groups was impacted by shifts in musical trends. Sales of keyboard synths and keyboard controllers trended down due to the fact that keyboards are not currently as prominent in popular music. Conversely, the popularity of EDM, which includes a broad range of sub-genres, fueled strong gains in the sale of drum machines and production centers. Anecdotal evidence suggests that unconventional 9 controllers tablets with multiple buttons that can be used to trigger other instruments or effects enjoyed a banner 7 year. However, accurate data for this product group is difficult to obtain and verify. The electronic percussion market saw an uptick, advancing.% to a retail value of $. million. Retail Value Market Share ' ' '7 ' '9 '1 1 Retail Value in $ millions Retail Value in $ millions ' '9 ' 1 Summary 1-Year Trend ' '97 ' Keyboard Synthesizers '7 '7 '9 ' '99 '9 Retail Value ' ' '1 '1 ' ' Retail Unit Average Price -7.7% -.1% -1.% -.7% 1.% -17.9% Rhythm Machines / Production Centers '9 '1 ' x 1, x 1, ' Keyboard Synthesizers.% Rhythm Machines, ' Production '7 'Centers, '9 etc. '1.1% Electronic Drums.% Controller Keyboards 1.% 1 1 Electronic Pianos/ Professional Organs.% 1 Summary 1-Year Trend Retail Value Retail Unit Average Price.11%.1% -.1% -.7% -1.%.% In 1, the Sound Modules and Drum Machines categories were merged to form this new category, Rhythm Machines/ Production Center. 1

32 The Electronic Music Market, continued Electronic Pianos / Professional Organs Electronic Percussion 7 Retail Value in $ millions x 1, Retail Value in $ millions 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -1.1% -1.%.11% -9.1% -7.1%.7% 1 Summary 1-Year Trend Retail.%.71% Controller Keyboards Total Electronic Music Sales Retail Value in $ millions 1 1 '9 '97 '9 '99 ' '1 ' ' ' 1 1 x 1, Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price -.9% -1.% 11.% 1.7% 17.% -7.% 1 Summary 1-Year Trend Retail -.% -11.% Starting from 1, Controller Keyboards category includes both under note and - note. Previously, this category only included - note.

33 Music USA The Print Music Market Includes method books, instructional materials, popular folios, and related print music products. The retail value of printed music dipped 1% to $1.1 million in 1, though results varied among different product types. Anecdotal evidence suggests that sales of popular music, including artist-driven songbooks, took a bigger hit for two reasons: the online availability of guitar tab and lyrics, and fewer pop hits that are well suited to traditional piano/guitar/vocal arrangements. Hip-hop/ EDM/rap are heavily streamed and downloaded but don t translate well into print. On the positive side, instructional texts, ranging from instrumental methods to band, choral and orchestral works, held up well, reflecting both the continued desire to make music and the strength of school programs. The Portable Keyboard Market Portable keyboard sales rebounded in 1, with a 1.% gain in units to 1,, and a.% rise in dollar value to $1. million. The high end of the market, keyboards retailing for more than $199, saw a.% increase in unit volume. The tonal quality and feature set of these entrylevel products rival pro keyboards of a decade ago, and they have eroded synth sales. They can often be found on stage in performing venues. Lower-priced keyboards, those retailing for less than $199, are sold almost exclusively through a mass distribution channel. With an average retail selling price of $9, they have almost become impulse purchases. The 1.1% rise in volume to, units most likely reflects a strengthening economy. With this edition of the Industry Census, we have discontinued coverage of Notation Software. More often than not, notation programs are now bundled with other software programs and not sold separately. Printed Music Retail Value Market Share Retail Value in $ millions 1 Keyboards Over $ % Keyboards Under $199.% ' ' '7 ' '9 '1

34 Portable Keyboards, continued Keyboards Under $ ' ' '7 '. '9 '1. ' ' '7. Retail Value. Retail Unit Average Price. ' '7 ' '9 '1 1 Summary.1% 1.1% -7.7% 1 Summary 1-Year Trend -.% -.% -7.7% 1-Year Trend Retail Value in $ millions x 1,, Retail Value in $ millions Total Portable Keyboards ' '9 Retail Value '1 Retail Unit Average Price.% 1.% -.% -19.7% -.%.% x 1,, Keyboards Over $199 Retail Value in $ millions '9 ' '99 ' ' '1 ' ' ' '7 ' '9 '1 ' ' 1 1 x 1, '9 '99 ' '1 ' ' ' Retail Value 1 Summary 1-Year Trend Retail Unit Average Price.7%.% 1.%.% -1.% 1.%

35 Music USA The Karaoke Market Karaoke machines, excluding those machines sold through mass merchants, increased 1.1% to $1.1 million in 1. Manufacturers attribute the gain to the continued popularity of vocal talent television shows like The Voice. Every mother thinks their daughter is a singing star, said one supplier. Tracking of karaoke software was discontinued last year because it has largely migrated from the retail environment to digital downloads. The General Accessory Market The accessory market is a broad category including cases, stands, tuners and scores of other items. It is also one of the industry s most resilient categories. Retail value advanced.% to $ million. Most accessories are relatively inexpensive (less than $1) and wear out or break (like cases and stands), which helps explain why they seem immune to economic conditions. Sales growth has also been driven by an exceptional level of product innovation. To cite just one example, within months after its introduction, numerous accessory makers had come out with stands and brackets specifically designed for incorporating the ipad into musical applications. Today, there are dozens of ipad- and iphone-related accessory products. The same inventive spirit has resulted in new interpretations of traditional products including tuners, metronomes, cases and capos that have delighted endusers and created new revenue opportunities. Karaoke Machines General Accessories Retail Value in $ millions ' ' '7 ' '9 '1 1 x 1, Retail Value in $ millions 1 ' ' '7 ' '9 '1 Retail Value Retail Value 1 Summary 1-Year Trend Retail Unit Average Price 1.% 1.% -.% -1.% -.7% 9.9% 1 Summary 1-Year Trend Retail.%.9% General Accessories category includes a wide variety of accessory products, including instrument care products, metronomes, tuners, polishes, reeds, stands, cases, bags, straps, lighting equipment, pickups and specialty instruments like recorders, accordions and harmonicas.

36 MUSIC AND SOUND U.S. INDUSTRY SUMMARY The purpose of the following data is to provide a review of the 1-year trend of music products activities in the U.S. music industry. The data comes from information gathered by The Music Trades magazine over the past decade. IMPORTS AND EXPORTS The import and export statistics are provided by the U.S. Census Bureau and offer a snapshot of U.S. music products import and export activities. This section also provides an overview of the countries where U.S. music products were exported, and the countries the United States imported music products from in 1.

37 U.S. Industry Summary U.S. INDUSTRY SUMMARY (in millions of dollars) Segment Acoustic Guitars $7 $ $1 $7 $91 $19 $ $ $ $7 Acoustic Pianos $1 $9 $ $ $1 $7 $91 $ $9 $ Cables $1 $11 $17 $19 $1 $17 $19 $1 $1 $17 Computer Music Products $ $ $ $ $1 $ $ $ $ $ Digital Pianos $17 $1 $1 $11 $1 $1 $17 $19 $1 $1 DJ Gear $1 $1 $11 $1 $ $1 $11 $1 $19 $11 Effects $ $19 $ $7 $9 $ $1 $ $ $9 Electric Guitars $ $ $ $ $9 $ $ $ $7 $ Electronic Player Pianos $1 $1 $11 $1 $ $ $ $ $ $7 Fretted Instrument Strings $1 $1 $17 $17 $17 $1 $19 $19 $1 $19 General Accessories $17 $ $ $ $ $ $1 $ $11 $ Home Organs $7 $ $9 $ $ $ $19 $1 $1 $1 Institutional Organs $ $ $9 $ $9 $ $ $ $9 $ Instrument Amplifiers $97 $ $77 $ $ $ $1 $19 $19 $1 Karaoke Products $1 $1 $9 $1 $1 $19 $1 $1 $1 $1 Keyboard Synthesizers $11 $11 $1 $11 $97 $1 $1 $99 $11 $1 Microphones $7 $9 $7 $ $9 $ $7 $7 $1 $ Multi-Track Recorders* $ $9 $97 $9 $9 $9 $1 $1 $9 $7 Other Electronic Products $11 $19 $11 $11 $9 $11 $11 $19 $17 $1 Percussion $1 $19 $97 $ $ $1 $ $97 $ $77 Portable Keyboards $ $19 $1 $17 $1 $1 $19 $1 $17 $17 Printed Music $7 $ $9 $9 $ $ $ $7 $1 $1 Rhythm Machines $1 $1 $11 $1 $9 $ $9 $ $7 $9 Sound Reinforcement $919 $ $9 $19 $ $717 $7 $7 $79 $1 Stringed Instruments $11 $11 $11 $9 $1 $ $17 $11 $19 $1 Ukuleles $ $ $ $77 $7 $7 Wind Instruments $7 $ $1 $1 $ $7 $ $7 $ $ Industry Total $7, $7, $7,9 $7,7 $, $, $, $,7 $, $7, *Multi-Track Recorders includes a new category, Portable Digital Recorders, as of 7. 7

38 U.S. INDUSTRY SUMMARY UNITS SOLD (in thousands) Segment Acoustic Guitars 1,1 1,9 1, 1,1 1,19 1, 1,1 1,7 1, 1,99 Acoustic Pianos 7 7 Digital Pianos DJ Mixers Drum Kits Effects 1,991 1,9 1,9,9 1,777 1, 1,79 1,7 1,9 1,1 Electric Guitars 1,9 1,1 1, 1, 1,1 1,17 1,1 1,1 1,11 1,1 Electronic Player Pianos Home Organs Institutional Organs Instrument Amplifiers 1,1 1,9 1,11 1, Karaoke Machines Keyboard Synthesizers Multi-Track Recorders* Portable Keyboards 1,9 1,1 1,1 1,1 1,7 1, 1,19 1,7 91 1, Rhythm Machines Stringed Instruments Ukuleles ,7 9 1,1 Wind Instruments *Multi-Track Recorders includes a new category, Portable Digital Recorders, as of 7.

39 U.S. Industry Summary Retail Value in $ billions 7 1 Industry Total 1 GDP Per Capita (in thousands of Dollars) ' ' ' ' '7 ' '9 '1 ' ' '7 ' '9 ' % 1-Year 9.% Source: The Music Trades 1-1.% 1-Year 1.1% Source: CIA Factbook 1 1 ' ' Music Sales Per Capita (in Dollars) '7 ' '9 '1 GDP Per Capita (in thousands of $) GDP Per Capita and Music Sales Per Capita 1 ' ' '7 ' '9 '1 1 Music Sales Per Capita (in Dollars) 1 1.% 1-Year 1.% Source: The Music Trades GDP Per Capita Music Sales Per Capita 1 9

40 Retail Value in $ millions 1 ' ' '7 Acoustic Pianos ' '9 '1 Retail Value in $ millions ' ' '7 Digital Pianos ' '9 '1 Cables DJ Products Retail Value in $ millions ' ' '7 ' '9 '1 Retail Value in $ millions ' ' '7 ' '9 '1 A new category, Digital DJ Controllers, was added in 1 and is included in Total DJ Products. Computer Music Products Drum Kits Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value in $ millions ' ' '7 ' '9 '1

41 U.S. Industry Summary Effects General Accessories Retail Value in $ millions 1 1 Retail Value in $ millions 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Electronic Player Pianos Instrument Amplifiers 1 1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 Fretted Instruments Karaoke Machines Retail Value in $ billions ' ' '7 ' '9 '1 Retail Value in $ millions ' ' '7 ' '9 '1 1

42 Keyboard Synthesizers Organs 1 1 Retail Value in $ millions 1 1 Retail Value in $ millions ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Microphones Other Electronic Products 1 Retail Value in $ millions 1 Retail Value in $ millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Multi-Track Products Percussion 1 Retail Value in $ millions 1 Retail Value in $ millions 1 ' ' '7 ' '9 '1 A new category, Portable Digital Recorders, was added to Multi-Track Recorders in 7 by The Music Trades. ' ' '7 ' '9 '1

43 U.S. Industry Summary Portable Keyboards 1. Sound Reinforcement Retail Value in $ millions 1 1 Retail Value in $ billions ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Printed Music Stringed Instruments 1 Retail Value in $ millions 1 Retail Value in $ millions 1 7 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Rhythm Machines / Production Centers Wind Instruments 1 Retail Value in $ millions 1 1 Retail Value in $ millions 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1

44 U.S. IMPORTS OF MUSIC AND SOUND PRODUCTS 1 Data Description Commodity Code Quantity Value Single Loudspeakers, Mounted In Their Enclosures 11,7,7,, Multiple Loudspeakers, Mounted In the Same Enclosure 1,,79 1,9,,7 Headphones, Earphones, Microphone/Speaker, Nesoi* 1,7, 1,,79, Audio Frequency Electric Amplifiers, Nesoi* 1 11,,9 7,, Upright Pianos ,,7,7 Grand Pianos ,7,7,79 Harpsichords and Other Keyboard Stringed Instruments, Nesoi* ,1,9 Stringed Musical Instruments Played with a Bow 91 9,7,19, Guitars Under $1, Excluding the Value of the Case 99 1,7,17,7,111 Guitars, Nesoi* 99 1,7,7,9 Stringed Musical Instruments, Nesoi* 99 1,,99,9, Brasswind Instruments Valued Not Over $1 Each 91 19, 11,9 Brasswind Instruments Valued Over $1 Each 91 1,7 1,,1 Keyboard Pipe Organs 991,1, Keyboard Instruments, Nesoi* ,,1 Piano Accordions 991,17,19,1 Accordions, Nesoi* 991,1,1, Mouth Organs 9919, 7,79,7 Bagpipes 99 1,,9 Clarinets 99 11,77,79, Saxophones 99,97,, Flutes and Piccolos (Except Bamboo) 99 1,1 19,, Woodwind Instruments, Nesoi* 99,,97 11,1, Wind Instruments, Nesoi* 99, 1,9, Drums 9 1,,1,7,9 Cymbals 9 9,99 1,71, Sets of Tuned Bells, as Chimes, Peals or Carillions 9, 7,7, Percussion Musical Instruments, Nesoi* 9,1,717,9, Musical Synthesizers (Under $1 Each) ,9,,97 Musical Synthesizers ($1 or Over Each) ,,,17 Keyboard Instrument (More Than 1 Keyboard Under $) ,1 *Nesoi: Not Elsewhere Specified Or Indicated. Source: The U.S. Census Bureau, 1

45 U.S. Imports and Exports U.S. IMPORTS OF MUSIC AND SOUND PRODUCTS 1 Data Description Commodity Code Quantity Value Keyboard Instrument (More Than 1 Keyboard $ or Over) 971 1,919,9,1 Keyboard Instrument (More Than 1 Keyboard Hand-Held) 971,,9 Keyboard Instrument Except Accordions (1 Keyboard Under $1) 971,9,7,1 Keyboard Instrument Except Accordions (1 Keyboard $1 or Over) ,7 17,1,99 Fretted Stringed Instruments 979 1,7, 7,19,9 Musical Instruments, Electrically Amplified, Nesoi* 979 1,1,,7 Music Boxes 91,7, 9,9,977 Other Musical Instruments 99,71,1 Mouth-Blown Sound Signalling Instruments, Nesoi* 99,, 1,,71 Musical Instrument Strings 99 1,9,1 7,, Tuning Pins for Pianos 9991,91,79 Parts and Accessories for Pianos, Nesoi* ,7,17 Mutes, Stands and Music Holders of Stringed Instruments 999 -,9,1 Tuning Pins for Stringed Instruments 999,17 1,9,99 Parts of Bows, Chin Rest and Parts for Instruments Played with Bow 999-1,11,7 Parts and Accessories for Stringed Instruments, Nesoi* ,9,7 Collapsible Keyboard Instrument Stands 999 -,77,7 Other Parts and Accessories for Keyboard Instruments 999 -,97,1 Metronomes, Tuning Forks and Pitch Pipes ,9, Mutes, Pedals, Dampers, and Spurs for Drums Pedals ,7, Parts and Accessories for Pipe Organs ,9, Parts and Accessories for Harmoniums and Similar Keyboard Instruments , Parts and Accessories for Bagpipes , Parts and Accessories for Woodwind Instruments ,,9 Parts and Accessories for Other Wind Instruments ,,91 Mechanisms for Music Boxes , Parts and Accessories for Musical Instruments, Nesoi* ,79, Difference % Change Import Values $,1,,71 $,,,99 +$1,, +.% Export Values $1,,1,1 $1,9,, $97,99,.1% *Nesoi: Not Elsewhere Specified Or Indicated. Source: The U.S. Census Bureau, 1

46 U.S. EXPORTS OF MUSIC AND SOUND PRODUCTS 1 Data Description Commodity Code Quantity Value Microphones and Stands 11-97,9, Single Loudspeakers, Mounted in Their Enclosures 11,11,79 1,9,1 Loudspeakers, Nesoi* 19 9,99,9,71,1 Headphones, Earphones, Microphones/Speakers, Nesoi* 1,9, 1,1,17 Audio Frequency Electric Amplifiers, Nesoi* 1 9,7 1,,7 Electric Sound Amplifiers Sets 1 1,,1,91 Microphone, Loudspeaker and Amplifier Parts 19-1,,1 Upright Pianos 911 1,,71,111 Grand Pianos 91 1,9 1,, Pianos, Nesoi* 919 1,19 1,,1 Stringed Musical Instruments, Played with a Bow 91,1,19,7 Guitars 99 11,1 97,, Stringed Musical Instruments, Nesoi* 99,9 1,9,79 Brasswind Instruments 91,77,7,1 Woodwind Instruments, Nesoi* 991, 1,,7 Keyboard, Pipe Organs, Etc., with Free Metal Reeds 991 1,7,1 Accordions And Similar Instruments 991,19 1,,1 Mouth Organs 9919,9 9,77 Wind Instruments, Nesoi* 99 1,1 1,,7 Percussion Musical Instruments 9 1,,97,11,7 Music Synthesizers, Other Than Accordions , 1,7,1 Keyboard Instruments, Other Than Accordians, Nesoi* 971 1,,19, Fretted Stringed Instruments , 1,7,17 Musical Instruments, Electrically Amplified, Nesoi* , 7,99,1 Music Boxes 91 17,79,,1 Mouth-Blown Sound Signalling Instruments, Nesoi* 99,9 7,1,97 Musical Instrument Strings 99,9, 7,77, Parts And Accessories for Pianos ,, Parts And Accessories for Stringed Instruments 999 -,,1 Parts And Accessories for Keyboards 999-1,,1 Metronomes, Tuning Forks and Pitch Pipes ,7 Other Parts and Accessories ,19, *Nesoi: Not Elsewhere Specified Or Indicated. Source: The U.S. Census Bureau, 1

47 U.S. Imports and Exports U.S. IMPORTS AND EXPORTS OF MUSIC AND SOUND PRODUCTS Number of Import (in millions) Number of Export (in millions) 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 1 1 Change 9.% 1 1 Change.% -Year Change 7.% -Year Change.9% Value of U.S. Imports (in billions of Dollars) Value of U.S. Exports (in billions of Dollars) 1 1 ' ' '7 ' '9 '1 1 1 Change -Year Change.% 9.1% ' ' '7 ' '9 '1 1 1 Change -Year Change.1%.7% 7

48 Top 1 Sources of Music Product Imports to the United States (in millions of Dollars) Import Value $ $ $1 $1 $ $ $ $ China Mexico Indonesia Japan Germany Taiwan Thailand Malaysia Canada S. Korea France Hong Kong U.K. Italy Vietnam China % Mexico 1% Others 1% Indonesia % Japan % Germany % The United States imported music products from a total of 97 countries in 1. Top 1 U.S. Music Product Export Destinations (in millions of Dollars) Export Value $ $ $1 $1 $ $ $ $ $ Canada Japan Mexico Germany Netherlands Hong Kong U.K. S. Korea Australia China Singapore Brazil France Italy India Others % Netherlands % Germany % Canada % Mexico 1% Japan 1% The United States exported music products to a total of 1 countries in 1.

49 U.S. Imports and Exports Retail Value in $ millions Guitar Imports x 1,, Retail Value in $ millions 1 1 Guitar Exports x 1, ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value Retail Value in $ millions ' ' ' ' '7 Grand Piano Imports '7 ' ' '9 Import Value '9 '1 ' x 1, Retail Value in $ millions ' ' ' ' '7 Grand Piano Exports '7 ' ' '9 Export Value '9 '1 ' x 1, Retail Value in $ millions 1 ' ' ' ' '7 Upright Piano Imports '7 ' ' '9 Import Value '9 '1 ' x 1, Retail Value in $ millions ' ' ' ' '7 Upright Piano Exports '7 ' ' '9 '9 '1 '1 Export Value x 1, 9

50 1 Drum & Percussion Imports. 7 Drum & Percussion Exports 1. Retail Value in $ millions x 1,, Retail Value in $ millions x 1,, ' ' '7 ' '9 '1. ' ' '7 ' '9 '1. Import Value Export Value Retail Value in $ millions 7 1 ' ' ' ' '7 Brasswind Imports '7 ' ' '9 Import Value '9 '1 '1 1 1 x 1, Retail Value in $ millions 1 1 ' ' ' ' '7 '7 ' Brasswind Exports ' '9 '9 '1 '1 Export Value 1 1 x 1, 1 Woodwind Imports. Woodwind Exports Retail Value in $ millions x 1,, Retail Value in $ millions x 1, ' ' ' ' '7 '7 ' ' '9 '9 '1 Import Value '1. ' ' ' ' '7 '7 ' ' '9 '9 '1 Export Value '1

51 International Data INTERNATIONAL DATA ARGENTINA AUSTRALIA AUSTRIA 7 BRAZIL 1 CANADA CHINA 9 CZECH REPUBLIC 111 FINLAND 11 FRANCE 1 GERMANY 1 HUNGARY 1 INDIA 1 ITALY 11 JAPAN 17 MEXICO 1 NORWAY 19 RUSSIA 199 SOUTH KOREA SPAIN 1 SWEDEN SWITZERLAND UNITED KINGDOM 1

52 UNDERSTANDING THE INTERNATIONAL DATA To present a global overview of the music products industry, we are pleased to feature countries in the International section this year: Argentina, Australia, Austria, Brazil, Canada, China, Czech Republic, Finland, France, Germany, Hungary, India, Italy, Japan, Mexico, Norway, Russia, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. The demographic, economic and trade data shown in each country/region s Snapshot section are gathered from the CIA World Factbook, unless otherwise noted. The music industry data are provided by The Music Trades, also unless otherwise noted, and reflects a 1-year historical trend, with the year 1 being the most recent published by The Music Trades. Global Music Products Sales Top Global Market Sales Share U.S..% 1 Japan 1.% Value in $ billions 1 China Germany Canada France U.K. 7.%.%.%.%.% ' ' ' '7 ' '9 '1 Italy Australia.%.% Brazil 1.7% S. Korea 1.7% Russia 1.% Mexico 1.1% Netherlands 1.1%

53 International Data Argentina ARGENTINA We kindly encourage those who have not read our report last year to do so in order to understand the update below. Import Restrictions Our previous report explained how importers in Argentina needed to apply for a DJAI (import permit) for each single shipment. This document is requested not only to make an importation but also to get approval from the Central Bank for the necessary wire transfer. ARGENTINA Until early 1, the importer had days after the date of the wire transfer to enter the goods into the country. This encouraged importers to wire future shipments as soon as they had the DJAI in their hands in order to secure the exchange rate of the Argentine peso, forcing the Central Bank to dispose foreign currency reserves in advance. By the middle of the fourth quarter of 1, the -day period was shortened to 1 days, thus creating far more difficult restrictions and complications. That was a drastic change that affected the planning of imports since most manufacturers take orders from three to four months in advance. When adding days for transit time (could be a few days faster) we get to a 1-day cycle, so the typical process of requesting an import permit before placing an order became impossible, forcing importers to assume the risk of placing the orders for manufacturing while trusting that the government would issue the requested permit in due time. When the import permit is not issued in time, the shipment has to be sent to a temporary free zone, severely increasing final costs. Several companies from different areas have closed or gone bankrupt. In an effort to stop the loss of jobs from so many companies that were closing the Secretary of Commerce in charge of this complex process started to call each importer (which number in the thousands) in mid-1 for a meeting. The purpose of the meeting was to determine a yearly fixed amount (generally way below the needs), securing the necessary funds, providing predictability to the importer for the approved annual budget. Imports then began to flow better for some importers, but not all of them; the reason for this is not known. Import restrictions is the term used as the cause of many products disappearing from the market. The Chamber of Importers of Musical Instruments and Pro Audio in Argentina (CAIMAVI) met the Minister of Culture (a very popular singer) to discuss the difficulties of our group and the financial impact of our needs on the whole national economy. The Minister agreed and met the Secretary of Commerce, who took care of the case. After this, our importers were included into the calling described above. Demand Is Active Demand for musical instruments and pro audio products is steady. The Argentine peso is perceived as highly overvalued, which might be encouraging consumers to buy the most possible before a big devaluation occurs. The size of that devaluation is hard to determine, but if we simply compare the inflation that has occurred during the last 1 years, way above 1,%, and the official exchange rate of the peso against the USD in the same period (devaluated by a %), the gap seems to be enormous. In fact, exports have fallen very much because the current exchange rate does not allow local producers to be competitive. What will finally happen is hard to predict.

54 In any case, importers are forced to move according to a fixed budget stated by the government. Therefore most marketing efforts like clinics, promotions, etc., have disappeared. There is no sense in boosting a demand that no one can attend. Extra Import Restrictions In addition to the above, there are other non-written restrictions that have not even been announced but are nonetheless firmly in place. That is, when a local manufacturer requires protection for his products, the company presents its case to the government, which responds by closing imports of that article without considering quality, volume of production or impact on the consumers. So drum sets, cymbals and strings have fallen into this situation in 1. Import permits were not issued for those products for almost a year, very much against the WTO rules. Argentina was recently found guilty of not respecting the WTO rules. argentina By the end of 1, the Secretary of Commerce understood the complaints coming from the importers about the result of the policies: local manufacturers were becoming a monopoly (as we say in Argentina, hunting in the zoo, making prices escalate severely and leaving an increasing unsatisfied demand). Government reacted by approving a small portion of the requested importation amounts. In 1 larger amounts were approved (still % below needs), with promise to double those amounts by the middle of the year if the importer did not fire any employees. Importers are used to accepting any rules in order to get the necessary import permits (e.g., when they were forced to balance imports with exports from 1 to mid-1, exporting whatever products in order to get the strong currencies needed for their imports). Fortunately, export balance is no longer required. Upcoming Election The business community very much expects a change in direction with a new administration in 1, but that may not happen if the new government is from the same party that has run Argentina over the last 1 years. As of May 1, the primary elections are showing a more business-friendly party in first place, the PRO party, headed by the Buenos Aires Governor Eng. Mauricio Macri, but it is still too soon to determine a clear trend. For further information on the election, visit resultados-de-las-paso-portenas-en-un-mapa-interactivo. Commentary by Alfredo Campanelli, Founder of Import Music Argentina

55 International Data Argentina DOING BUSINESS IN ARGENTINA Market Overview The U.S. and Argentina share a long history of bilateral commercial relations both in trade and investment. The United States is Argentina s third largest trading partner and U.S. companies are among Argentina s top investors, with some U.S. companies maintaining local sales and manufacturing subsidiaries in the country for more than a century. As the fourth most populous country in Latin America with a population of million, Argentina is one of the largest economies in South America and, as such, remains an important export market for U.S. companies in a number of industries. argentina The United States and Argentina share a mutually beneficial trade relationship with total trade in goods reaching US$1. billion in 1. Two-way trade in private services between the countries totaled an estimated US$9. billion in 1 (latest data available), with the U.S. exporting US$7.1 billion to Argentina and importing US$1.9 billion. The U.S. supplies raw materials, intermediate goods and capital goods to feed Argentina s industrial sector; Argentina exports food and agricultural products as well as intermediate goods to U.S. industry. The U.S. enjoys a trade surplus with Argentina. Approximately 9 percent of its exports to Argentina are destined for local industry and agriculture such as computers, industrial and agricultural chemicals, agricultural and transportation equipment, machine tools, parts for oil field rigs, and refined fuel oil. Argentine exports to the U.S., meanwhile, include goods such as wine Argentina is one of the largest exporters of wine to the U.S. fruit juices, crude oil and intermediate goods such as seamless pipe, tubes and other iron and steel products. U.S. investment makes a large contribution to Argentina s economy. Over U.S. based companies currently operate in Argentina, employing more than 1, Argentines. The stock of U.S. investment in Argentina reached US$1. billion in 1 (latest data available) and is concentrated in the energy, manufacturing, information technology and financial sectors. U.S. firms operating in Argentina continue to make a positive impact on the Argentine economy and society and are widely respected for their corporate governance, the quality of the work environment provided to Argentine employees, their transparency and their work in corporate social responsibility. In 1, U.S. companies comprised onethird of the 1 most respected companies in Argentina published annually by MERCO, a local research company. Market Challenges The primary market challenges arise from slowing economic growth and import and foreign exchange restrictions the Government of Argentina (GOA) imposed in late 11 and early 1. Growth slowed markedly in 1 to 1.9% (from.9% in 11) and continued at.% in 1, according to official GDP statistics (the IMF and some private analysts dispute the official statistics). Strong commodity prices and automobile exports to Brazil had contributed to Argentina s rapid growth over the past several years. Non-automatic import licenses (NAILs) were ended in late 1 for all but a few products, but a regime erected by the GOA in February 1, whereby all importers are required to

56 request approval from the Argentine Tax and Customs Authority (AFIP) prior to making each purchase for import from abroad, is still in effect and constitutes import licensing in all but name. This system is the subject of a WTO complaint by the U.S., EU and Japan against Argentina. Moreover, the GOA s policy of tying import application approvals to changes in the trade balance and foreign exchange levels has added to the uncertainty. Sustained inflation generally estimated at over % has raised unit labor costs and resulted in a more challenging business environment. Limits on profit, royalty and licensing remittances have also discouraged new investment in Argentina. Lack of transparency and a public comment period for new regulations adds to business uncertainty. As a result of the aforementioned government policies, many local and international firms based in Argentina have delayed plans for expansion or the adoption of new product lines until the economic climate and regulatory regime become more clear, consistent and predictable. argentina Despite current problems and uncertainty, Argentina remains an attractive market for American exporters given its relatively large and educated population, abundant natural resources such as in agriculture, mining and unconventional hydrocarbons, and important infrastructure needs. As Argentina resolves its issues going forward, having already taken important steps to this end, opportunities will increase. This is an excellent time to begin exploring the market and establishing relationships that will enable profitable operations in the future. Market Opportunities This year s top commercial sectors are agricultural machinery parts; electronic security equipment; food processing equipment; information and communication technology; medical equipment and supplies; mining machinery and equipment; technologies for development of unconventional gas resources; and travel and tourism to the United States. Within the agribusiness sector, animal genetics, natural origin food ingredients, and planting seeds are key areas that demonstrate high potential. We encourage you to work with the U.S. Embassy to explore opportunities in all sectors. Services offered to U.S. firms in Argentina include help with market-entry or expansion strategies and advocacy for tender bid and policy obstacles. The U.S. Embassy also stands ready to help U.S. companies understand and address market challenges. In addition to the services of the U.S. Embassy, the U.S. Export-Import Bank is open for short- and medium-term financing for U.S. exports to private sector clients in Argentina, but not for entities tied to the GOA. The Overseas Private Investment Corporation (OPIC) offers assistance to U.S. private investors in the form of political risk insurance, as well as loans and loan guarantees for their direct investment in Argentina. Market-Entry Strategies Marketing U.S. products and services in Argentina requires a high level of research, preparation and involvement. Companies intending to export to Argentina need to ensure that their customers fulfill all import requirements before they ship any product, and must be careful to follow all regulations precisely.

57 International Data Argentina U.S. companies exporting to Argentina typically market their products and services through Argentine agents, representatives and distributors. Close personal relationships are important for success, as Argentines prefer to do business with people they have met face-to-face and know well. U.S. companies must consider the unique economic, demographic and cultural characteristics that distinguish Argentina from other Latin American countries. It is increasingly difficult to establish a typical customer due to new consumption habits and also the dynamics of income distribution and demography. argentina An important component of the marketing mix is promotion. Companies are encouraged to attend or exhibit at local and regional trade shows as well as visit trade shows in the United States attended by Argentine buyers. Protect your intellectual property and engage qualified local professionals and lawyers in contract negotiations. Doing Business in Argentina article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Argentina, you may visit their website at The following charts are based on import and export data obtained from the website of theinternational Trade Centre (ITC) 7

58 ARGENTINA SNAPSHOT Demographics Population in millions. Demographics Age Male Female & Over 1.9. Median Age 1. Population Growth.9% 1.7% 1.9% + 11.% Economy GDP (PPP) $97. billion GDP Per Capita $,1 GDP-Real Growth Rate -1.7% Unemployment Rate 7.7% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 1 Argentina GDP (PPP) (U.S. $ in billions) GDP-Service.1% GDP-Industry 9.% GDP-Agriculture 1.% ' ' ' ' '7 ' '9 ' ' ' ' Unemployment Rate (Percent) ' '7 ' '9 '1 1 1 ' ' ' Inflation (Annual Percent Rate) ' '7 ' '9 '1

59 International Data Argentina Snapshot Trade Total Export $7. billion Export as % of GDP.% Total Import $.9 billion Import as % of GDP 7.11% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Brazil China U.S. Chile Brazil U.S. China Germany Music Industry Music Market $79. million Sales Per Capita $1. Global Share.%.. Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 1 Argentina Music Market (U.S. $ in millions).7 Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 9

60 Argentina Imports and Exports 1 Acoustic Pianos Imports 1 Acoustic Pianos Exports Value in U.S. $ thousands 1 Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 ' Fretted & Stringed Instruments Imports ' '7 ' '9 '1 Value in U.S. $ thousands 1 1 ' Fretted & Stringed Instruments Exports ' '7 ' '9 '1 Import Value Export Value Keyboard Instruments Imports 1. Keyboard Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value

61 International Data Argentina Argentina Imports and Exports. Wind Instruments Imports 1 Wind Instruments Exports Value in U.S. $ thousands 1. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Percussion Imports 1 Percussion Exports 7 1 Value in U.S. $ thousands 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 7 1 ' ' '7 ' Accessories Imports '9 ' ' ' '7 ' Accessories Exports '9 '1 Import Value Export Value 1

62 AUSTRALIA With a national economy that has been described as limping along, overall a result that will please, as we saw units and demand strengthened with a strong last quarter. Volumes were up 11%, value was up % adding approximately AUD$m to the industry at retail. This represented a 7% drop in average unit value. The increase outpaced that of the Australian economy, which grew by.%. AUSTRALIA Entry-level instruments seem to be very strong record numbers of acoustic guitars and portable keys were up significantly over the previous year. This perception may be tempered by the fact that more low-value instruments are appearing in mass merchants and at a greater level than for many years. The result also may show a consolidation following a turbulent time in the industry during the 11 1 period. Margins are under increasing pressure as the industry broadly keeps its nose in front of deflationary levels as a whole. Given the change in the value of the Australian dollar versus the U.S. dollar in particular, we thought we might have seen an increase in the overall average unit value. While there is some evidence of increases in the cost of imports in the final two quarters of 1, they were not sufficient to see the overall average unit value lift. It is most likely that the full effect of price rises on the entire industry is yet to be fully felt. Nor are reported cost increases in low-cost markets such as China being felt entirely yet. Larger distributors with forward cover were probably getting through that stock, delaying widespread price increases. In comparing 1 and 9, which we do frequently with the five-year time scale comparisons, it needs to be realised that 9 (and 1) were the peak years in a 1-year cycle that began immediately after the 1999/ recession. Of course, the following year AMG started having its issues, the consequences of which the industry is still dealing with now, although supply sources for the major brands have settled as the industry gets to a new level of normal. Imports were the better part of AUD$ million more than they were in 1, the equivalent of around AUD$ million at retail. Guitar imports in particular were strong, while digital pianos and digital drums gained significant numbers of customers. Overall, 1 showed continuing improvement. Unit growth increased by 1% and once again exceeded the million item mark; the last time this occurred was in 1. Import value was also up, by nearly % to AUD$7 million, again, our best result since 1. There were some product segments with reasons to be optimistic and others for various reasons that did not fare as well. The keyboard sector was up, with digital piano units up.%, while segment value rose by a little more than %. Acoustics overall held their ground. A sharp increase in the value of portable keyboards may indicate some leakage of digital piano figures into the category, but the electronic keyboard sector did well overall. Electronic (portable) keyboard imports were up in 1 by % (units) and 1% (value), the value result due to a 1% increase in the average unit value. The longer-term trends show this to be a declining segment; it has been losing both volume and value for much of the last decade, but this year s result gives room for optimism.

63 International Data Australia The unit imports of grand pianos, which perhaps run parallel to the general state of the economy, were flat. Upright piano imports rose marginally in unit terms in 1 to record a second successive year of small but incremental growth. An increase in average unit values, however, saw import value rise by 9%. The guitar market saw an increase in units of nearly 7%, while the average unit value fell markedly. The acoustic guitar market underpinned a strong performance, more than offsetting the softness in the electric market. Amplifiers continued their upward trend with a near 7% rise in units, and the bellwether of guitar and bass strings rose over 11% in import value. The 1 number represented a very healthy % increase over 1. australia Acoustic percussion posted an overall category rise, mainly due to Educational and other percussion segments increasing by % year on year. Imports of drum kits and cymbals, however, continued in a downward direction. Electronic kits, on the other hand, reported a large increase. Computer music software was flat in units, and down in average value, as products in these categories experience continued price deflation. The DJ Products segment continued its recent resurgence with strong increases in numbers of over % plus 1% in average value. Imports into the Brass category have been in decline for the last five years or so, so a strong 1 result a nearly 1% increase in unit imports and a near % increase in import value was very welcome. Likewise, instruments in the Woodwind category collectively rallied somewhat in 1. Overall units increased by 1% and import value rose by 1%. However, of the major three segments, flutes, clarinets and saxophones, only the clarinet recorded a result in 1 above that of 1. Stringed instruments did not fare as well, with a 1% drop in units, but a corresponding rise in value, as fewer more-expensive instruments were imported. Sound and Recording registered good growth of over 11% in units but a flat result in value, as cheaper technology drove down the average unit value of signal processors and multi-track. A strong result in PA, with reduced unit numbers in self-contained amps being more than offset by the amps going into powered speakers, with a healthy 1% increase in speakers recorded. Microphones continued on the upward trend over the past three years, in large part due to suppliers stocking up for increased consumer demand caused by the new frequency allocations that took effect January 1, 1. General Accessories were up in value by more than %. In dollar terms, the National Australian Bank (NAB) estimates Australians spent AUD$1. billion (up from AUD$1.7 billion) on online retail in the 1 months to December 1. This level is equivalent to.% of spending at traditional brick-and-mortar retailers (excluding cafés, food, etc.) as measured by the Australian Bureau of Statistics (ABS). There are certainly categories that suffer more from cheaper overseas imports: electric guitars, electronic percussion, cymbals and other products that are more durable and better withstand the rigours of shipment.

64 australia A level playing field for Australian retailers, both online and in the physically realm, remains elusive; we compete increasingly against countries with lower rents, wages, superannuation and much higher economies of scale. We do not know how much business goes offshore via small parcel delivery and escapes the low-value Goods and Services Tax (GST) Threshold, but given that the average unit value of all imports is around AUD$, it is fair to say that a significant portion of our imports fall below the AUD$1, GST Free Threshold. This continues to affect different product segments. For example, electric guitars are softening, but amp sales are on the rise. As members know, the AMA has been fighting for the GST Threshold on low-value imports to be lowered or abolished with a consistent lobby to the federal and state governments. As national conversations are commenced on tax structures, there is no doubt that the GST Threshold on imports will be part of any government tax review. The AMA has been lobbying all MPs and Senators, again emphasising our industry s concern over the fact that overseas sellers largely have a 1% advantage over those retailers that are obliged to levy the GST on those who buy in Australia. It is perhaps worth looking at a comparison with the U.S. market results in 1. The Music Trades magazine reports that the U.S. music products industry in 1 continued its recovery from the financial crisis, posting its fifth consecutive year-over-year sales gain. The U.S. retail value of the broad array of musical instruments, recording gear and audio products recorded a.% gain over 1. The rise closely tracked the trajectory of the national economy, which closed out the year with a.% gain in Gross Domestic Product. This is the first parallel of note, as Australia s market outgrew its own national modest rise in GDP. The improving technology that delivered better value to consumers also limited value growth by reducing average selling prices. A similar trend of reduced average unit value is apparent in the Australian market. Fretted instruments posted their best performance in seven years, advancing 7%, and reinforced the guitar s continued standing as the preeminent instrument in popular music. Acoustic guitars led the charge with a 1% gain, a parallel to the Australian result. Like in Australia, electronic percussion eroded sales of traditional drum kits, which experienced a more modest 1.1% unit decline. The piano market posted a modest increase in both dollars and units in 1. Uprights were the best performers, with unit sales rising 9.1%. Grand units dropped.1% but dollar volume was flat as customers opted for larger instruments. Sales of digital pianos increased in units, but value reflected lower average selling prices. A.1% gain in retail value of woodwind, brasswind and stringed instrument shipments reflected school enrolment increases and perhaps a trend toward step-up instruments. A similar result can be seen in the Australian market. Comparing Western economies, however broadly, gives a guide as to the increasing demand for making music in the community. It is interesting to note a rise in both economies of units

65 International Data Australia moved, and a healthy trend where it was noticeable that the amount of traditional entry-level products such as guitars, portable keys, digitals pianos and drum kits all posted good gains. General Economic Overview The Australian economy was into headwinds toward the end of 1, with fears that belowtrend growth would slow further. December quarter national accounts data from the ABS show the economy grew.%, for an overall 1 growth rate of.%. However, that includes the strong 1.1% March quarter result, before the 1 budget stifled consumer and investment confidence. Since April 1, the economy has recorded quarterly growth of just.%,.% and.% in the following three quarters. australia On the positive side, 1 was still stronger than 1, which recorded only.1% growth. And revisions to the September quarter (.% growth compared to.% as originally recorded) and March (back to 1.1% instead of 1.%) buoyed the full-year performance. And that income recession that was briefly fashionable among some commentators disappeared in December with a rise, albeit just.%, in gross domestic income in the December quarter, even though terms of trade fell 1.7%. According to the ABS, net exports contributed.7 percentage points, household final consumption expenditure contributed. percentage points to GDP growth and dwelling construction contributed.1 percentage points, while inventories offset growth by -. percentage points and non-dwelling construction also subtracted.1 percentage points (reflecting the end of the mining investment boom). Barclays chief economist for Australia Kieran Davies noted that private sector debt-toincome gearing is currently at an all-time high of %, up from a pre-global financial crisis (GFC) level of 191%. This put Australia within the top % of the world when it comes to leverage. However, when it comes to household debt which includes mortgages, credit cards, overdrafts and personal loans Australia leads the global field, according to Mr. Davies, with credit continuing to pile up while the rest of the developed world is paying it down. Using nominal gross domestic product, the bank estimates household debt at 1% of GDP, which is the highest level on record. Wages have responded to the soft labour market conditions. Real wages (wages adjusted for inflation) growth has slowed considerably, reducing cost pressures on businesses and falling by.% in 1 1, compared to an average annual increase of 1.% over the previous four years. Australian savings rates have declined to 9% below the long-term average and down % over the last two years. Neilson Insights observes that global consumer confidence returned to a pre-recession level in the first quarter of 1, the highest score since first quarter of 7, while Australia dropped to its lowest score on record, according to Nielsen s latest consumer confidence survey.

66 Consumer confidence in Australia (9 points) declined six index points in Q1 1, the lowest score on record since Nielsen began measuring consumer confidence in. More than two in five Australians (%) felt mired in recession up from 1% in the fourth quarter of 1. The latest results reflect Australians increasing concern about job prospects and the perception of the state of their personal finances. Commentary by Rob Walker, Executive Officer of the Australian Music Association (AMA) DOING BUSINESS IN AUSTRALIA The Australian financial system remained resilient throughout the global economic crisis and Australian banks have rebounded. The four largest are now among the world s 11 AA-rated banks. The Australian stock market is currently the largest liquid stock market in the Asiaaustralia Market Overview Australia is the world s 1th largest economy, with a GDP of US$1. trillion. It is the fourth largest economy in the Asia-Pacific region and is forecast to grow at around % in 1 1. Australia s per-capita GDP of over US$, is among the highest in the world. The economy has recorded 1 years of uninterrupted annual growth to 1 and now enjoys the highest terms of trade in 1 years. Growth in commodity exports to Asia buoyed Australia through the global economic crisis but adversely affected the manufacturing and services sectors because of the strong Australian dollar. The economic outlook for Australia is favorable, led by private investment in mining and commodity exports to emerging Asia, including China. Australia s economic stability has been supported by prudent fiscal policy and structural reforms, with unemployment currently at.% and government net debt only around 1% of GDP. Recent policy initiatives include a carbon tax and a mineral resources rent tax. In 11 1, Australia exported over US$ billion worth of merchandise goods and imported over US$ billion worth of merchandise products. The country is the 1th largest trading partner of the United States. The United States is a major economic partner, standing as its third largest trading partner and largest source of foreign investment, as well as the primary destination for Australian investment. In 11-1 Australia recorded a goods trade surplus of US$ billion and a surplus of US$1 billion in 1 11, a significant turnaround after a series of deficits in previous years. The Australia-U.S. Free Trade Agreement (AUSFTA) came into effect in and lowered barriers for bilateral goods and services trade, which has increased by 1% to US$ billion in 1. During this period, exports of U.S. goods to Australia grew 9.% to US$. billion and the trade surplus expanded by 1% from US$.1 billion to US$1.1 billion. The stock of Australian direct investment in the United States was US$9 billion in 11. Australia is the 1th largest investor in the United States.

67 International Data Australia Pacific region (ex-japan) and ranks sixth in the world. Australia has a large services sector (over 7% of GDP), but is also a significant resources, energy and food exporter. Australia s abundant and diverse resources attract high levels of foreign investment and include extensive reserves of coal, iron ore, copper, gold, natural gas, uranium and renewable energy sources. A series of major investments, such as the US$ billion Gorgon LNG (liquefied natural gas) project led by Chevron, will significantly expand the resources sector. Currently there is a vast investment pipeline of over US$9 billion. However, with the high dollar, trade-exposed industries outside the resources and energy sector have come under great pressure. australia We advise American firms examining the Australian market to pay attention to macro measures of opportunity, which give it more purchasing power relative to that in lessdeveloped economies. Along with the Australia-U.S. Free Trade Agreement, the case for entering or expanding in the Australian market is stronger than the population of million might suggest, particularly with the strong Australian dollar and high percapita incomes stimulating greater demand for U.S. products and services. Australia s relative market appeal remains convincing, with few barriers to entry, a familiar legal and corporate framework, sophisticated consumer and industrial sectors, and a straightforward, English-speaking business culture. The Free Trade Agreement enhanced the long and successful trading relationship by eliminating tariffs on almost all U.S. manufactured and agricultural goods. Market Challenges Competitive market: Australia s distance from the rest of the world, large land area and relatively small population led to market dominance by a few large firms in certain sectors. Australia is integrated into the world economy and remains a commercial and financial center for the region. American companies will find that Australian and third-country competitors in Australia have some long-established brands with strong reputations and existing supplier relationships. Australia has ready access to Asian and other low-cost producers. American firms must therefore demonstrate sufficient added value to overcome the costs of getting the product to market, and to compete. Market Opportunities The top-performing export sectors from the U.S. to Australia in 1 were machinery, vehicles, optical and medical instruments, electrical machinery, pharmaceuticals, precious stones, plastics, and chemical products Market-Entry Strategy Successful market-entry strategies for Australia have three common elements: understanding the market, selecting the optimal partner, and providing ongoing support to that partner in the market. 7

68 A common language and familiar business framework may lead Americans to overlook Australia s cultural and market differences. It is vital to first gain an understanding of the Australian context for a product or service, its competitors, standards, regulations, sales channels and applications. Success in the Australian market often requires establishing a local sales presence. For many American exporters this means appointing an agent or distributor. The bounds of that appointment are negotiated, and may include only certain states of Australia, the entire country, or New Zealand as well. An increasing number of businesses and investors see Australia as a secure platform from which to serve third markets in Asia. australia The distance from many of their trading partners and the sheer size of the Australian continent, comparable to the continental U.S., causes Australian firms to stress the importance of local support and service. American companies should visit Australia both to meet prospective partners and demonstrate ongoing support, as this is the common practice of their competitors. Most of the criteria American firms use to select agents or distributors are applicable to Australia, with expectations adjusted to the scale of the market given the population of million. Doing Business in Australia article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Australia, you may visit their website at The following charts are based on import data as a proxy to the domestic markets collected by the Australian Bureau of Statistics (ABS) in association with the Australian Music Association (AMA)

69 International Data Australia Snapshot AUSTRALIA SNAPSHOT Demographics Population in millions. Age Male Female & Over Median Age. Population Growth 1.9% Demographics 1 7.% 1 1.% + 1.7% Economy GDP (PPP) $1.1 trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.% Inflation.7% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 1 1 Australia GDP (PPP) (U.S. $ in billions) GDP-Service 7.% GDP-Industry.9% GDP-Agriculture.7% ' ' ' ' '7 ' '9 ' ' ' ' Unemployment Rate (Percent) ' '7 ' '9 '1 1 ' ' ' Inflation (Annual Percent Rate) ' '7 ' ' ' Import Value

70 Trade Total Export $. billion Export as % of GDP.% Total Import $.9 billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 China Japan S. Korea China U.S. Japan Germany Singapore Thailand Music Industry Music Market $9 million Sales Per Capita $1.9 Global Share.% 1 Music Sales Per Capita (U.S. $) 1 ' ' ' '7 ' '9 '1 Australia Music Market (U.S. $ in millions). Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1.. ' ' ' '7 ' '9 '1 7

71 International Data Australia Australia Domestic Sales Value in Australian $ millions 1 1 Acoustic & Acoustic-Electric Guitars ' ' '7 ' '9 ' x 1, Value in Australian $ millions 1 1 ' ' '7 Total Guitars ' '9 '1 1 1 x 1, Retail Value Retail Value Bass Guitars Grand Pianos Value in Australian $ millions ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value x 1, Value in Australian $ millions ' ' '7 ' '9 Retail Value 1 ' x 1, Value in Australian $ millions Electric Guitars 7 ' ' '7 ' '9 ' ' ' '7 ' '9 1 '1 Retail Value 1 1 x 1,. Value in Australian $ millions 1 1 ' 9 ' 97 '7 9 Upright Pianos ' 99 '9 '1 1 Retail Value 7 1 x 1,. 71

72 Australia Domestic Sales Digital Pianos Brasswind Value in Australian $ millions 1 1 ' ' '7 ' '9 '1 1 x 1, Value in Australian $ millions 1 1 ' ' '7 ' '9 '1 1 x 1, Retail Value Retail Value Portable Keyboards Woodwind 1 Value in Australian $ millions 1 1 ' ' ' 1 '7 ' '9 ' ' '7Import ' Value '9 '1 Retail Value 1 x 1, x 1, 1 x 1, Value in Australian $ millions ' ' '7 ' '9 Retail Value 1 ' x 1, Value in Australian $ millions Orchestral Stringed Instruments 1 ' ' '7 ' '9 ' ' ' '7 ' '9 1 '1 1 1 x 1, Value in Australian $ millions 1 1 ' ' '7 Percussion ' '9 '1 1 x 1, Retail Value Retail Value 7 Percussion category includes drum kits, individual drums, cymbals, and educational and other percussion.

73 International Data Australia Australia Domestic Sales Printed Music Computer Music Software 1 Value in Australian $ millions 1 1 ' ' ' '7 ' '9 '1 Value in Australian $ millions 1 ' ' '7 ' '9 '1 Retail Value Retail Value No data is currently available for 1. Value in Australian $ millions 1 ' ' Microphones & Stands '7 ' '9 ' x 1, Value in Australian $ millions ' ' '7 DJ Products ' '9 '1 1 1 x 1, Retail Value Retail Value Sound Reinforcement Digital Electronics Value in Australian $ millions ' ' ' '7 ' '9 '1 ' '7 ' '9 '1 x 1, Value in Australian $ millions ' ' '7 ' '9 1 '1 1 1 x 1, Retail Value Retail Value Sound Reinforcement category includes speakers, selfcontained amplifiers, guitar and bass amplifier sets (combo), signal processors, mixers, and multi-track systems. Digital Electronics category includes synthesizers, modules and other electronics. 7

74 DOING BUSINESS IN AUSTRIA Market Overview Some important facts about Austria and its market: Population of. million a dynamic European Union Member State. Austria is an attractive location for regional headquarters for U.S. firms looking to expand in the region. Historical and economic ties to neighboring countries in Eastern Europe and the Balkans. AUSTRIA Approximately U.S. firms have subsidiaries, affiliates, franchisees and licensees in Austria; 1 of these companies have regional responsibilities for Central and Eastern Europe, including countries in the Balkan Peninsula. Overall imports to Austria amounted to US$17.9 billion (at the 1 annual average exchange rate of US$1. = EUR.7) in 1 (source: Statistik Austria). U.S. exports to Austria amounted to US$.7 billion, representing an increase of.% from 1 (source: Statistik Austria). U.S. imports from Austria totaled US$9. billion. Principal U.S. exports to Austria are machinery, medical devices, pharmaceuticals and chemicals, aircraft and aircraft components, coal, and computer equipment and parts. Principal Austrian exports to the U.S. include specialized industrial machinery, pharmaceuticals, glassware, electric power machinery, and some food products. Economic conditions in Austria continue to remain favorable. In line with its EU neighbors, Austria s economy generally is on a lower growth path than before the 9 financial/economic crisis. Within the next three years, U.S. exporters will still find opportunities to gain market position within most Austrian industry sectors. Note: There are differences between Austrian and U.S. import-export statistics. Statisticians call it the Rotterdam Effect the discrepancy in trade statistics that appear when goods are transshipped to other countries before they reach their final destination. The difference appears because the U.S. export statistics often only measure shipments to the first foreign port of entry, while the Austrian statistics are calculated on a c.i.f. (cost, insurance and freight) basis. 7

75 International Data Austria Market Challenges Austria is a good export market for U.S. technology and services, and presents no significant trade barriers. Austria represents a desirable, affluent pilot market for U.S.-made products and services. When establishing a business in Austria, U.S. companies may still encounter some bureaucratic barriers. Most business activities in Austria are regulated and require that a separate application be made for a business license and registration in the commercial register. austria Market Opportunities To overlook Austria would be to overlook one of the world s most prosperous nations (on a per capita basis). Doing business in and from Austria presents certain advantages: First, Austria is located at an international crossroad within Central Europe, which offers a logistical advantage over other countries in the region. Austria is a member of the Schengen Agreement and offers U.S. companies access to growing markets in Eastern and Southeastern Europe. A second advantage for Austria is its well-diversified and relatively resilient economy. Austria represents a good opportunity for export, joint ventures and investment. In response to pressure from the newest EU members, which offer investors lower corporate tax rates, Austria s tax rate was decreased in from % to %. A third plus for Austria is its membership in the EU and the Euro currency zone. A fourth advantage Austria offers is that the United States is its fourth largest trading partner and its leading trading partner outside of Europe. U.S. companies entering the market for the first time will benefit from the strong trading relationship already established between the two countries. Major projects: Austrian electricity providers plan to invest approximately US$19. billion in power generation, distribution and efficiency upgrades between now and. 7

76 The Transatlantic Trade and Investments Partnership (T-TIP) is an ambitious and comprehensive trade and investment agreement that will promote trans-atlantic international competitiveness, jobs and growth. T-TIP aims to address non-tariff barriers that impede trade in goods and services and seeks to promote greater compatibility, transparency and cooperation in the regulatory and standards arenas. According to non-u.s. government estimates, trans-atlantic zero-tariffs could boost U.S. and EU exports each by 17%. A % reduction in non-tariff barriers could increase the combined EU and U.S. GDP by US$1 billion. Market-Entry Strategy The best strategy for American exporters to Austria: Select one distributor or agent for the entire Austrian market. In case of a limited number of customers and end-users in Austria, a distributor might be appointed in Germany to cover all of German-speaking Europe. austria Doing Business in Austria article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Austria, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 7

77 International Data Austria Snapshot AUSTRIA SNAPSHOT Demographics Population in millions. Demographics Age Male Female & Over.7.91 Median Age. Population Growth.1% 1 1.% 1.% + 1.% Economy GDP (PPP) $.9 billion GDP Per Capita $, GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation 1.% GDP-Service 9.% Economy GDP-Industry.% GDP-Agriculture 1.% Data Source: Demographics, Economy and Music Industry from the Austrian Musical Instruments Retailer s Association. Trade from CIA World Factbook. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 1 1 ' ' ' ' Austria GDP (PPP) (U.S. $ in billions) '7 ' '9 '1 Unemployment Rate (Percent).... Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 77

78 Trade Total Export $1. billion Export as % of GDP.9% Total Import $1. billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Germany Italy France U.S. Switzerland Annual Percentage 1 1 Germany Italy Switzerland Czech Republic Music Industry Music Market $1. million Sales Per Capita $1.9 Global Share.% 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 17 Austria Music Market (U.S. $ in millions). Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 7

79 International Data Austria Austria Imports and Exports 1 Acoustic Pianos Imports 1 Acoustic Pianos Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Fretted & Stringed Instruments Imports 1 Fretted & Stringed Instruments Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Keyboard Instruments Imports. Keyboard Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 79

80 Austria Imports and Exports Wind Instruments Imports 1 Wind Instruments Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' ' '7 ' Percussion Imports '9 '1 Value in U.S. $ thousands 1 ' ' '7 ' Percussion Exports '9 '1 Import Value Export Value Accessories Imports Accessories Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value

81 International Data Brazil BRAZIL Changes Brazil had a year of low growth and high inflation. In 1, GDP growth was around zero and inflation was about.%. At the moment the Central Bank of Brazil is collecting data from more than 1 of the country s financial institutions. The shift in economic policy and the exchange rate weakening are prerequisites for the country to return to growth. Nonetheless, together with the impact of the deterioration in the terms of trade, the Petrobras crisis and the shortage of water and electricity will exert a detrimental effect in the short term. BRAZIL High cost of doing business in Brazil As mentioned in the previous Global Report, even with high taxes, Brazilians are used to paying more for the same product that costs three times less in U.S. It sounds strange and it is however, we have to consider that most of the citizens don t have a chance to go abroad and see a different perspective. This results in a pitifully short-sighted perception and reprehensible cost of goods. Half empty, half full Sales are stuck in Brazil. Brazilian consumer confidence reached the lowest level in 1 years, according to the National Index of Consumer Expectation (INEC), which covers about, individuals randomly chosen in the streets of Brazilian cities. This fact is perceived in both the physical and online shops. International brands wanting to preserve their market share might focus on entry-level products, but don t forget about branding programs. Many great brands lay-down on the distributors shoulders and their only concern is about purchase orders in the short term. Brazil, and I dare say other countries in Latin America, are keen to buy brands, not just me too products. Commentary by Daniel Neves, President of Música & Mercado DOING BUSINESS IN BRAZIL Market Overview The Federative Republic of Brazil is Latin America s largest economy. With,9, square miles, bordering 1 other countries and with, miles of coastline, Brazil is the largest country in Latin America and fifth largest in the world. Its population of million makes it the world s sixth most populous nation. With a Gross Domestic Product (GDP) in 1 of US$. trillion, Brazil is the world s seventh largest economy, spurred by.% annual growth during 1. Growth slowed during last year due to reduced demand for Brazilian exports in Europe and Asia and modest consumer demand from Brazil s large middle class. By, Brazil is projected to be the fifth largest consumer market in the world, ahead of France and the United Kingdom. 1

82 During the past decade, the country has maintained macroeconomic policies that control inflation and promote economic growth. Inflation was.% in April 1. Urban unemployment was at.9% in April 1, dropping from % in mid-1; wages continue to increase. Interest rates are high by international standards: Brazil s Central Bank benchmark rate was at a historic low of 7.% in October 1, but as of May 1 had climbed to 11%, which is still low by Brazilian standards. In 1, the U.S. was Brazil s second largest source of imports, accounting for 1% of total imported goods; behind China and followed by Argentina, Germany and Nigeria. That year, Brazil imported more than US$9 billion of total goods, including US$ billion from the U.S. (a modest.7% increase over 1). Brazil was the United States seventh largest export market for goods in 1. The country is also a large market for U.S. services, accounting for an additional US$ billion in exports in 1 (latest available data). The trade balance with Brazil for U.S. services has continually increased since, reaching a surplus for the U.S. of US$17 billion as of 1. brazil Market Challenges Brazil has a large and diversified economy that offers U.S. companies many opportunities to partner and to export their goods and services, and U.S. exports are increasing rapidly. Doing business in Brazil requires intimate knowledge of the local environment, including both the direct as well as the indirect costs of doing business in the country (referred to as Custo Brasil ). Such costs are often related to distribution, government procedures, employee benefits, environmental laws and a complex tax structure. Logistics pose a particular challenge, given the lack of sufficient infrastructure to keep up with nearly a decade of economic expansion. In addition to tariffs, U.S. companies will find a complex customs and legal system. The Government of Brazil (GOB) is the nation s largest buyer of goods and services. However, winning contracts with the government can be challenging. U.S. exporters may find themselves at a competitive disadvantage if they do not have a significant in-country presence whether via established partnerships with Brazilian entities or some type of company subsidiary as well as the patience and financial resources to respond to legal challenges and bureaucratic delays. Market Opportunities Brazil s infrastructure sector will receive an estimated US$ billion in investments from 1 through 17. The sum will be divided between the energy and infrastructure sectors, with a larger amount allocated for infrastructure development such as roads, rail, ports and airports. Brazil is experiencing major growth in its construction sector. The country has captured global attention as its major cities undergo a construction boom related to the 1 World Cup and, specifically for Rio de Janeiro, the Summer Olympic Games in 1. The Government of the State of Rio de Janeiro estimates that investments there between 1 and 1 will reach US$ billion in sectors including infrastructure, construction and transportation. Most of these investments will be made through Brazil s Public-Private Partnerships (PPPs).

83 International Data Brazil The first-ever Olympic Games in South America will generate numerous business opportunities for U.S. companies in several sectors. The main projects include logistics upgrades at seaports, airport modernization, mass transit build-out and water sanitation. Funding for projects will be accomplished with a significant appropriation by the GOB under its Plan for Growth Acceleration (PAC). This program encompasses infrastructure investment in logistics, energy, and social services and urban mobility infrastructure. Other promising areas for U.S. exports and investment include oil and gas, agricultural equipment, building and construction, aerospace and aviation, safety and security devices, IT, medical equipment, sporting goods, environmental technologies, retail and transportation. brazil The expansion plans of the Brazilian national oil company Petrobras may represent one of the world s largest business opportunities in the oil and gas sector until at least. Despite the country s government-mandated local content requirements, industry contacts have been speculating about possible flexibility or compensation mechanisms that they can propose to the Brazilian oil regulator to deal with limited availability of domestic supplies. Petrobras, in fact, may increase purchase of specific foreign goods and services to speed up their projects. In February 1, Petrobras announced that it would invest US$. billion (approximately US$ billion/year) from 1 through 1, with 7% of this investment being destined for exploration and production (E&P). Brazil accounted for % of all deep-water oil discoveries in the world from to 1. Once these oil fields are developed, the country will post the largest oil production growth among non-opec nations, sometime in the late s. Market-Entry Strategies Success in Brazil s business culture relies heavily upon the development of strong personal relationships, the keystone of productive business partnerships. In most cases, U.S. firms need a local presence and thus should invest time in developing relationships through frequent visits to Brazil. The U.S. Commercial Service encourages U.S. companies visiting Brazil to meet one-on-one with potential partners. It is essential to work through a qualified representative or distributor when developing new business in the Brazilian market. Some firms may need to establish an office or joint venture in Brazil. It is difficult for U.S. companies to get involved in public sector procurement at the federal or state levels without a Brazilian partner or a physical presence in Brazil. Doing Business in Brazil article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Brazil, you may visit their website at The following charts are based on import data from the Brazilian Bureau of Business Development, Industries and Trade, and the Ministry of Trade

84 BRAZIL SNAPSHOT Demographics Population in millions.7 Demographics Age Male Female & Over.1.1 Median Age.7 Population Growth.% 1.9% 1.% + 7.% Economy GDP (PPP) $.7 trillion GDP Per Capita $1, GDP-Real Growth Rate.% Unemployment Rate.% Inflation.% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Economy.. Brazil GDP (PPP) (U.S. $ in trillions) GDP-Service 7.% GDP-Industry.% GDP-Agriculture.%.. ' ' ' ' '7 ' '9 ' Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1

85 International Data Brazil Snapshot Trade Total Export $.7 billion Export as % of GDP 7.91% Total Import $1.9 billion Import as % of GDP 7.% Export Partners (1) Import Partners (1) 1 Annual Percentage 1 1 Annual Percentage China U.S. Argentina Netherlands China U.S. Argentina Germany Nigeria Music Industry Music Market $9. million Sales Per Capita $1. 1. Music Sales Per Capita (U.S. $) Global Share 1.7% ' ' ' '7 ' '9 '1 Brazil Music Market (U.S. $ in millions). Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1

86 Brazil Imports Stringed Instruments Wind Instruments ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Import Value Percussion Synthesizers ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Import Value Electric Guitars and Basses Instrument Strings ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Import Value

87 International Data Brazil Brazil Imports Imports (1) Stringed Instruments Wind Instruments Electric Guitars & Basses Percussion Instrument Strings Synthesizers 1 1 Total Imports 1 1 Retail Value in $ millions ' ' '7 ' '9 '1 7

88 CANADA The story of the Canadian economy truly presented a good news / bad news picture in 1. For the good news, overall the Canadian economy continued growing at a faster pace in 1, enjoying real GDP growth of.%, compared to.% in 1 and 1.7% in 1. Continued economic growth in the United States, Canada s largest trading partner (7% of exports), helped spur this growth. On the bad news side, however, the dramatic decline in the price of oil from its June 1 peak of US$11 to a December low of US$ per barrel negatively impacted the important energy sector of the economy as well as the Canadian dollar. Expert opinion suggests some of the Q GDP growth in Canada was actually more phantom than real, as businesses did not anticipate slowing sales and built up inventories instead. CANADA Slowdowns in the energy sector have contributed to higher regional unemployment in Alberta and Newfoundland as well as a decline of more than 1% in the value of the Canadian dollar (a slide which has continued into 1). The Canadian dollar moved from a high of C$1.=US$.9 to a low of C$1.=US$.9, and has traded in 1 as low as C$1.=US$.711. With most imports to Canada (musical instruments or otherwise) denominated in US$, this dramatic change in the dollar will directly impact consumer prices and spending. These negative impacts will put a drag on the Canadian economy for at least the near- to mid-term. A pending federal election in October 1 also limits the desire of the current Conservative government to break their balanced budget promises and provide additional economic stimulus. Per capita GDP increased in 1 to US$, per person, up 1.1% from US$, in 1. This was slightly faster than 1/1 growth. In a labour force of 19. million people, overall unemployment declined to.% in 1. Youth unemployment remains stubbornly above 1%, however, with continued difficulties in a demographic group that is an important target market for the music products industry. Inflation increased in 1 from 1.% to over.% for much of the year, closing the year right around the.% level. Overall activity in the Canadian music products market for 1 (the last year available, as compiled by The Music Trades magazine) was estimated to have increased approximately 1.% from 1 levels to US$7 million, ranking Canada fifth overall in the world. The per capita estimate of US$1.19 per person ranks second behind the United States. Though statistics for 1 will not be available until next year, anecdotal evidence suggests the Canadian music products market grew in the early part of 1, but slowed considerably in the last four months of the year, consistent with the drop in the Canadian dollar and oil prices. Expectations are for continued challenges in 1. Signs of this include the closing or consolidation of two major MI distributors in the early part of the year Canadian market dynamics that seem to be mirroring what is happening in the U.S. In other sectors, the decision of major retail chain Target to close all Canadian operations after only a few years in the market would seem to send a cautionary signal that conditions may not be as strong as would be hoped.

89 International Data Canada Imports of music products to Canada decreased slightly in 1 over 1, as reported in constant US$ terms. It is likely that the economic slowdown in the latter part of the year, combined with the currency shock of the Canadian dollar s drop, contributed to this decline after two strong years of increasing imports. Details by category are included in the table below. canada Product Category Acoustic Fretted Instruments 9.9% 1.%.9% 1.% Bowed Instruments -.%.%.1% -1.7% Brass Instruments -.7% -1.% -.% -1.% Electric Instruments (Guitars/Drums) 1.% -.1% -7.% -.9% Electronic Keyboards -.%.1%.% -.% PA/Recording -.% 1.% 1.% -.% Percussion Products 1.7%.% -9.% -1.% Pianos.9% -7.% -.% -.% Printed Music -.%.% -.%.% Strings and Accessories.% 1.% -.% -.1% Woodwind / Harmonica / Accordion -1.9% 9.9% 1.% -7.% TOTAL -.1%.% 7.% -1.9% (Regrettably, with the closing in 1 of the national trade association, MIAC, access to detailed, 1-digit Harmonized System (HS1) import statistics for purposes of this report was lost. The information above is based on publicly available HS categories, which are not as detailed and report only values [not units]. The data series has been recast to take this information into account for past years. It is hoped that in the future, these statistics may again be able to be reported with their original categories and level of detail.) It should also be noted that Canada supports an extensive and vibrant domestic music products manufacturing base as well, with world-leading names in percussion, fretted instruments and amplifiers being produced domestically for both the Canadian market and global markets. The quantity and value of these domestically produced products would not be included in the import statistics above. Looking forward to 1, the overall mood for the Canadian market remains one of caution. Weak oil prices and a weaker dollar, combined with continued economic growth in the U.S., could lead to further declines in the Canadian dollar and significant market price increases on imported goods denominated in U.S. dollars. Continued pressure in the energy sector will likely drive unemployment higher, with the consequence that consumers may be more careful than ever with their disposable income. Commentary by Dale Kroke, former Chairman of the Music Industries Association of Canada, using information from the CIA World Factbook, Statistics Canada, Industry Canada, and The Music Trades magazine 9

90 DOING BUSINESS IN CANADA Market Overview Canada continues to maintain its ranking as the United States largest export market, accounting for US$. billion (19% of total exports) of U.S. goods and services. This figure represents a US$1. billion increase (.9%) from 1 and the highest total on record. Proximity, ease of doing business, a common business culture, rule of law, and high receptivity for U.S. made goods and services contribute to the already-significant bilateral trade base. Anticipated future growth and expansion of the Canadian economy ensures that U.S. made goods and services have a chance to compete in this thriving market in the coming years. Similarly, in 1 Canada ranked fourth in the world in foreign direct investment (FDI) to the United States. canada We often hear that no two countries are as closely integrated as the United States and Canada. Indeed, the relationship is truly mutually beneficial; the United States is Canada s largest export market, accounting for US$7.7 billion (%) of Canadian exports of goods and services in 1. The United States is Canada s largest FDI contributor. This unique trade and investment relationship is based on an increasingly integrated supply chain; on co-production of new, leading technologies; and on the positive flow of people, talent and ideas. In fact, the United States maintained its No. 1 ranking as Canadians favorite tourist destination, and vice versa in 1 with travel and tourism contributing approximately US$ billion to each country s economy. There is continued optimism about the future of this relationship and the prospects for expanded trade and investment. North America represents % of the world s GDP. This means businesses will continue to find viable markets for competitive products and services. In particular, new developments in shipbuilding, air defense, safety and security, IT, infrastructure, mining and renewable energy will create virtually limitless business opportunities. In anticipation of the growth in these potential projects, the Canadian and U.S. federal governments in 11 launched two ambitious initiatives to streamline the movement of people and goods safely across the common border the Beyond the Border and the Regulatory Cooperation Council are implementing programs to help U.S. and Canadian businesses reduce operational costs while effectively streamlining trading procedures. Market Challenges Canada remains among the most accessible markets in the world. Nevertheless, doing business in Canada is not the same as doing business in the United States. Canada Customs documentation, bilingual labeling, packaging requirements, ITAR (International Traffic in Arms Regulations), and Canadian federal and provincial sales tax accounting can be surprisingly challenging. Canadian federal, provincial and municipal procurement procedures, while open in principle to U.S. bidders, vary from procedures followed in the United States. Bidders must be registered in Canada in order to bid and must fulfill all Canadian requirements in order 9

91 International Data Canada to qualify to bid (mandatory requirements are non-negotiable). In some cases, security clearances are required for personnel prior to submitting a bid, and in a number of projects, there may be requirements for off-sets (known as Industrial Technical Benefits or ITBs). Increasing competition in a number of sectors but in particular cosmetics, vitamins, electronics and home furnishings translates into a need for competitive pricing; aggressive, flashy marketing; and deep discounts for agents and distributors. Other ways to differentiate from your competitors are to offer agents and distributors specialized training and flexible contract terms, or offer end-users after-sales support. Market Opportunities The following market trends are creating new business opportunities for U.S. firms in several key sectors. canada Efforts to facilitate trade at the border include pre-inspections and technological advances. Streamlined regulatory requirements will improve and expand just-in-time delivery of goods and services and strengthen and expand supply chains. This will provide enhanced opportunities in particular for U.S. firms seeking to enter the Canadian aerospace and automotive sector supply chains. Opportunities exist for expansion in Canadian travel and tourism to the U.S, including an expanding medical tourism component. Continued high global prices for energy and other natural resources will drive increased development of Canadian energy, mining and water resources. These developments offer substantial opportunities for U.S. renewable energy, mining, oil and gas and environmentalrelated sectors. Market-Entry Strategy For many companies, particularly in the manufacturing and construction sectors, frequent visits and establishing a local presence will be crucial to long-term market success. For many U.S. companies, joining in a U.S. delegation to a Canadian trade show can be the best first step. Doing Business in Canada article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Canada, you may visit their website at The following charts are based on import data as collected by Statistics Canada 91

92 CANADA SNAPSHOT Demographics Population in millions. Demographics Age Male Female & Over.7. Median Age 1.7 Population Growth.7% 1 7.7% + 1.% 1 1.% Economy GDP (PPP) $1. trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.9% Inflation.% GDP-Service 7.1% Economy GDP-Industry.% GDP-Agriculture 1.7% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars ' ' ' Canada GDP (PPP) (U.S. $ in trillions) ' '7 ' '9 '1 1 Unemployment Rate (Percent). Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 9

93 International Data Canada Snapshot Trade Total Export $.1 billion Export as % of GDP 9.% Total Import $.1 billion Import as % of GDP.1% Export Partners (1) Import Partners (1) Annual Percentage 7 1 Annual Percentage 1 U.S. China U.K. U.S. China Mexico Music Industry Music Market $7. million Sales Per Capita $1.19 Global Share.% Music Sales Per Capita (U.S. $) 1 1 ' ' ' '7 ' '9 ' ' ' Canada Music Market (U.S. $ in millions) ' '7 ' '9 '1 1 ' ' Share of Global Music Market (Percent) ' '7 ' '9 '1 9

94 Canada Imports Acoustic Guitars Grand Pianos Value in Canadian $ millions 1 1 ' ' '7 ' '9 '1 1 1 x 1, Value in Canadian $ millions 1 1 ' ' '7 ' '9 '1 1 x 1, Import Value Import Value Electric Guitars Upright Pianos 1 7 Value in Canadian $ millions 1 ' ' '7 ' '9 '1 1 1 ' ' '7 ' '9 '1 x 1, Value in Canadian $ millions ' ' ' ' '7 '7 ' ' '9 '9 '1 '1 1 x 1, Import Value Import Value 1 1 Total Guitars Total Pianos 1 Value in Canadian $ millions ' ' ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 1 '7 ' '9 '1 Import Value x 1, Value in Canadian $ millions 1 1 ' 97 ' '7 ' '9 ' Import Value 1 x 1, 9

95 International Data Canada Canada Imports 1 1 Brasswind 7 Stringed Instruments Played with a Bow Value in Canadian $ millions 7 1 ' ' '7 ' '9 '1 1 1 x 1, Value in Canadian $ millions 1 ' ' '7 ' '9 '1 1 x 1, Import Value Import Value ' Value in Canadian $ millions Woodwind ' '7 ' '9 '1 ' 97 ' '7 ' '9 ' Import Value 1 x 1, Value in Canadian $ millions 1 1 ' 97 Portable Keyboards ' '7 ' '9 ' Import Value 1 x 1, x 1, Value in Canadian $ millions ' 97 Drum Kits ' '7 ' '9 ' Import Value 1 1 x 1, Value in Canadian $ millions 1 1 ' ' Total Electronic Keyboards ' '7 ' '9 '1 ' '7 ' '9 '1 Import Value x 1, 9

96 CHINA The Chinese music industry experienced an innovative and creative year in 1. Against the background of nation s calling for shifting development mode and industry structure adjustment, the growth rate of music industry development slowed to a certain extent. Though the industry s overall revenues registered stable growth, it s a clear sign that the speed has slowed, and the main economic index fluctuated in 1. The traditional way of marketing was constantly challenge by e-commerce upsurge. Coupled with this was the gradual disappearance of population advantages, which led to higher costs in both labor and production investment. With all these new issues, the industry developed into a new status of innovation-oriented era. However, by strengthening industry cooperation, the Chinese music industry conquered various difficulties and finally registered stable growth of industry income and revenue as well as a good trend regarding imports and exports. CHINA According to the China National Statistics Bureau, there are Chinese music enterprises above designated size in 1. The main business revenue of these enterprises reached. billion yuan RMB, an increase of 1.% compared to 9. billion yuan last year, of which the main business revenue of Chinese national musical instruments registered.7 billion yuan RMB, a decrease of.1%; Western musical instruments 1.9 billion yuan, an increase of 9.%; electric instruments.7 billion yuan, up by 1.%. Other musical instruments and accessories registered. billion yuan, increased by 1.7%. The export delivery value of Chinese enterprises above designated size reached 11. billion yuan RMB, an increase of 1.9%. Of all the export delivery value, Chinese national musical instruments accounted for 1. billion yuan RMB, an increase of 1.% over one year before; Western musical instruments.7 billion yuan RMB, an increase of 1%. Electric instruments were. billion yuan RMB, increasing by 7.9%; other musical instruments and parts and accessories million yuan, up.%. According to China Customs, the total amount of import-export value within the Chinese music industry amounted to US$. billion. Of which, the export value US$1.71 billion, an increase of.%; the import value was US$1 million, an increase of.%. In 1, both the import and export value of the Chinese industry registered growth, and the growth of imports was higher than that of exports. For musical instruments exported, last year,,9 pianos were exported, a decrease of 9.79%, while the import of pianos continued to grow from 11,1 in 1 to 11,1 in 1, an increase of 7.9%. Statistics also show that last year, 1,,17 stringed instruments were exported, an increase of.%. A total of 9,7 wind instruments were exported, a decrease of.1%. The exports of electric instruments were,, pieces, a decrease of 7.1%. A total of 7,7, harmonicas were exported, an increase of.77%. 9

97 International Data China International market change fosters upgrading of Chinese music enterprises According to a survey of music industry import and export enterprises, music manufacturing costs rose by 1 %. This was cited by % of all those surveyed; others surveyed said the costs rose more than %. This indicates that music export enterprises were perceived to be under great pressure. Though there was a slight increase in export prices, the profit margin is greatly compressed. The survey also showed that in the international music market, Chinese enterprises actively coped with market challenges by adjusting product structure, developing new customer bases and moderately shifting price adjustments. As a result, the export value of enterprises above designated scale grew by.7% - a progress that was really not easily made. china In 1, the Chinese music export structure was changing. Data shows that the export amount to Europe and North America decreased while the export value increased, indicating that an increasing number of Chinese high-value new products were produced. Emerging markets like Russia, India and the Middle East were increasing significantly. For the Latin America market, consumers demand was still rising despite the fact that there were some issues related to foreign exchanges and also that the music market was influenced by government import policy. Domestic market change led to market innovation Several major changes occurred during 1 in China s musical instruments market. First, consumption led to the change of product structure. The major music consumption was still dominated by pianos, which constitutes the main revenue of music retail stores. Chinese national musical instruments are increasingly popular with the estimated number of learners and players over 1 million, becoming the second largest music category in the market. In addition, digital drum kits and new-model musical equipment was also widely received by a great number of teenagers. Guitars, violins, accordion and harmonica classifications performed well, and more music chain stores were newly opened. Secondly, international brand players were increasing their presence in the Chinese domestic market. Aware of a growing domestic demand for international brand consumption, Steinway China opened its high-end Piano Gallery in Nanjing. Roland also accelerated its pace, aiming its efforts toward the general public, who showed great interest in digital imported guitars and percussion. Over 9% of music retail stores set up in-store music education sections. Some businesses were driven more by music training and made instrument sales a supplement. Thirdly, the standardization of music equipment in primary and elementary schools was upgraded, resulting in soaring purchases of educational music. Fourth, e-commerce spread from professional Internet companies to various manufacturers, music stores and individual entrepreneurs starting from scratch. More businesses were 97

98 positively working out their market promotion strategy based on e-commerce. All these changes reflected new trends in the musical instruments market. china Technology investment and industry cooperation advanced New materials, technology and equipment helped improve the quality of product development. In 1, the backbone enterprises increased investment in technology, Kapok Company and others completed the new factory relocation and expansion, and Pearl River Piano increased its investment in environmental protection as well as the upgrading of equipment and instrument production. In order to help strengthen cooperation at the industry technology level, China Musical Instrument Association (CMIA) has named four industry research bases: Python Musical Materials Research and Development Base, Reed & Accordion Research and Development Base, Acoustic Wood Research Base and Industrial Research Base on Guitar. In December, a seminar on technological upgrades within the music industry took place in Sichuan s Chengdu Chuanya Timber Company, vigorously promoting the integration of industry resources and fostering industry technology cooperation. Brand awareness strengthened and technology standards rose Guangzhou Pearl River, Xinghai, Hailun, Fengling, Jinbao, Dunhuang and Yuehai were awarded with China Brand Products by China National Light Industry Council. In addition, the Chinese Ministry of Commerce, Ministry of Finance, State Administration of Press, Publication, Radio, Film and Television of China issued No. file that listed CMIA member enterprises including Guangzhou Pearl River, Beijing Xinghai, Ningbo Hailun, Hebei Jinyin, Tianjin Jinbao, Zhujiang Medeli and Jiangsu Qimei as National Key Export Company and Culture Programme. For technology standards, there were 1,7 patents that were newly applied, up by %. Of all the patents, 9 were patents for invention, which accounted for 7.1% of all patents. Industry supervision over anti-dumping and secondhand pianos In recent years, the number of imported secondhand pianos has soared, and unfair competition, counterfeiting and other illegal market acts have had serious adverse effects on the Chinese piano industry. In February 1, a seminar by the association on the regulation and management of the import of secondhand piano took place in Beijing. Piano enterprises, industry associations, legal advisers and representatives of the media attended. Industry professionals discussed the current status of China s imports of secondhand pianos, how this may impact and influence the piano industry, as well as the issues of overseas recycling, circulation, rebuilding and sales of pianos. Music industry clusters grow with support from regional governments Besides the big music enterprises above designated size, China s musical instruments manufacturing industry consists of many small and medium enterprises and is characterized by labor-intensive and technology-intensive industries. Regional music instrument-making clusters have been formed. Music materials, local industry advantage 9

99 International Data China and product distribution all play important roles in a region s music economy. To comply with general working arrangements from the China National Light Industry Council, CMIA constantly strove to help construct the industry base with music characteristics. In August 1, China National Light Industry Council and CMIA organized an industry professionals visit to the piano industry manufacturing base of Luoshe Town in Deqing County, Zhejiang Province, and approved the town s use of the title China Piano Town after professional appraisal and inspections of the construction of the industry base. In mid-1, based on its advantages in making the Chinese national instrument, the Yangzhou City government and regional associations filed for application of the designation of China Zither Capital, which secured success after joint appraisal by an expert panel organized by the China National Light Industry Council and CMIA. china Similarly, the Huangqiao Town government of Jiangsu Province organized a meeting to summarize its experiences in building the China Violin Capital. Local government was constructing a music industrial park in Taixing and held both a press and an investment conference during Music China. Boost industry events and culture activities The CMIA and NAMM Industry Forum s series of How to sessions had great success again at Music China in Shanghai. The event, as always, sparked a great passion and interest in China s retail music sector. The CMIA Harmonica Sub-Committee won the right to host the next Harmonica International Arts Festival, and the CMIA Wind Instrument Subcommittee, in collaboration with CASBE (the China Association for Symphonic Bands and Ensembles), organized enterprises to actively participate in the Shanghai Spring International Music Festival, a prestigious brand event in the wind instrument sector. For the electronic music industry, Medeli Music Manufacturing organized Electronic Drum Contest, and Jiangsu Ringway Electronic Organ Competition. The leading companies worked with universities, music experts, and accumulated good experiences. The CMIA MIDI Technology Working Committee also worked with MMA (the MIDI Manufacturers Association) to launch the International MIDI Technology Symposium during Music China in Shanghai. Professionals from across the MIDI sector as well as Google and Yamaha took part in a great panel discussion about the music market in the mobile Internet era. Due to increasingly fierce competition in the domestic Chinese market, fake product in the market led to enterprises higher cost for safeguarding their legitimate rights. BVK, the German association of piano manufacturers, proposed to CMIA that they launch a joint anti-fake piano campaign, which raised great interest among trade media. CMIA issued a statement on the matter that asked industry players to act and abide by the law; 99

100 it also called for industry self-discipline as a way to bring about order and a stable market environment. CMIA cooperated with BVK on strategies and measures regarding anti-fake piano brands. In addition the IPR Office at Music China assisted in the event and advocated for market coordination to guide market players toward a positive direction. (Zeng Zemin, executive vice president of CMIA and Chang Jie, Foreign Liaison Officer, CMIA) Commentary by Mr. An Zhi, President of the China Musical Instrument Association (CMIA) DOING BUSINESS IN CHINA china Market Overview In November 1, following the Third Plenum of the 1th Chinese Communist Party Congress, President Xi Jinping rolled out an ambitious agenda to re-shape the Chinese economy and fully embrace the market as the decisive force in shaping the country s economic future. In order to continue China s labor force evolution and to supplement the strong manufacturing exports that have fueled its unprecedented growth, Xi directed his administration to implement policy changes that increase domestic consumption, stimulate domestic innovation and develop a world-class services sector all while expanding China s middle class and moving millions of rural Chinese citizens to urban centers. Market Challenges The depth and complexity of China s proposed macroeconomic reforms bring with them significant challenges and pitfalls that will require skillful policy making and implementation. Problem areas to look out for include rising local debt, potential property bubbles, outflows of capital, shadow banking, excess capacity in industry sectors, and endemic corruption across industry sectors. China continues to make steady progress on the world stage as an emerging market in which to do business. The World Bank recently ranked China 9th (out of 19) in its Ease of Doing Business Report. However, China s explosive economic growth of the last several decades is beginning to slow. In 1, real GDP grew 7.7% (down from 1.% in as recently as 1). While the government has set a 7.% growth target, some economists predict that China s GDP growth will slow to approximately 7.% in 1, which would represent China s slowest economic expansion since 199. U.S. companies doing business in China remain concerned about rising costs for labor, enforcing intellectual property rights, competition with Chinese state-owned or state-supported companies, lack of transparency, burdensome bureaucracy, and protectionism in the business licensing and approval process. Market Opportunities Despite these and other longstanding concerns, China remains an extremely attractive market for many U.S. companies. In fact, 9% of U.S.-China Business Council member companies responding to a USCBC survey report that their China operations are profitable, the highest percentage reported since. Foreign direct investment into China saw modest growth in 1, rising.% year-on-year compared with a.7% drop in 1. 1

101 International Data China Furthermore, many of the economic reforms called for as part of the Third Plenum, particularly those related to foreign investment, are starting to take shape. Some highlights so far include: Revising the three basic laws that govern foreign investment in China. Slashing the number of business or administrative approvals needed, while delegating much of the approval responsibility to provincial or local government. Relaxing paid in and minimum registered capital requirements for foreign-invested enterprises, and replacing the annual government inspection procedure with an online filing system. china Undertaking efforts to improve the legal and enforcement regime for intellectual property (IP) rights, and amending the trademark law to provide stronger protection and enforcement tools for all trademark owners. Liberalizing financial controls, including interest rates and limits on foreign exchange. In a move that garnered significant attention, China established the Shanghai Pilot Free Trade Zone (SFTZ) in September 1. Covering approximately 9 square kilometers in Shanghai s Pudong district, the SFTZ was envisioned as a venue for China s leaders to experiment with market-based reforms, such as relaxed controls on foreign investment, increased market access in industry sections not on a negative list, streamlined administrative procedures, and financial and foreign exchange reforms. However, regulatory details are still slowly trickling out. Market-Entry Strategy As always, companies should consider their own resources, previous export or business experience abroad, and long-term business strategy before entering the China market. For many companies, representation in China by a Chinese agent, distributor, or partner that can provide local knowledge and contacts will be critical for success. Intellectual Property rights holders should understand how to protect their IP under Chinese law before entering the China market, and should conduct thorough due diligence on potential partners or buyers before entering into any transaction. All companies, IP rights holders and otherwise, should consult closely with lawyers who have extensive experience with the China market, including lawyers based in the United States and China. The U.S. Department of Commerce, United States Foreign Commercial Service (USFCS) offers customized solutions to help U.S. companies, including small- and medium-sized enterprises, succeed in the China market. USFCS stands ready to help U.S. companies develop comprehensive market-entry or expansion plans, learn about export- and customsrelated requirements, obtain export financing, and identify potential partners, agents, and distributors through business matchmaking programs, trade shows and trade missions led by senior U.S. government officials. For U.S. companies that purchase its Gold Key Service, USFCS can facilitate one-on-one meetings with pre-screened buyers; potential customers 11

102 or end-users; experienced professional services providers; and key government officials. Furthermore, by engaging USFCS, U.S. companies can learn how to leverage the outcomes of high-level policy discussions, such as the U.S.-China Joint Commission on Commerce and Trade and the U.S.-China Strategic and Economic Dialogue, where senior U.S. officials have been successful in expanding market access and improving the business climate for U.S. companies in China. Doing Business in China article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in China, you may visit their website at The following charts are based on import and export data provided by the China Musical Instrument Association (CMIA) china 1

103 International Data China Snapshot CHINA SNAPSHOT Demographics Population in billions 1. Demographics Age Male Female & Over..7 Median Age.7 Population Growth.% 1 7.% % + 9.% Economy GDP (PPP) GDP-Service.% Economy GDP- Agriculture 9.7% $1. trillion GDP Per Capita $1,9 GDP-Real Growth Rate 7.% Unemployment Rate.1% Inflation.1% GDP-Industry.9% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars ' ' ' China GDP (PPP) (U.S. $ in trillions) ' '7 ' '9 '1 7 Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 ' ' ' ' '7 ' '9 '1 - ' ' ' ' '7 ' '9 '1 1

104 Trade Total Export $. trillion Export as % of GDP 1.7% Total Import $. trillion Import as % of GDP 1.79% Export Partners (1) Import Partners (1) 1 1 Annual Percentage Hong Kong U.S. Japan S. Korea Annual Percentage S. Korea Japan Taiwan U.S. Germany Music Industry Music Market $1. billion Sales Per Capita $.9 Global Share 7.% 1.. Music Sales Per Capita (U.S. $).... ' ' ' '7 ' '9 ' China Music Market (U.S. $ in billions) 7 Share of Global Music Market (Percent). 1. ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1

105 International Data China China Imports and Exports (The data received by NAMM was calculated in U.S. dollars.) 1 Upright Pianos Imports 1 7 Upright Pianos Exports x 1, 1 1 x 1, ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Value Value 1 1 ' ' Grand Pianos Imports 1 ' ' '7 ' '9 '1 ' '7 ' '9 '1 '1 ' ' ' ' ' '7 ' '9 Value x 1, 1 ' 97 ' '7 ' ' Value Grand Pianos Exports ' x 1, x 1, ' ' '7 ' '9 Total Pianos Imports '1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Value x 1, 1 1 ' 97 ' '7 ' ' Value Total Pianos Exports ' x 1, x 1, 1

106 China Imports and Exports 7 1 ' ' '7 ' Guitars Imports '9 ' x 1, 1 1 ' ' '7 ' Guitars Exports '9 ' x 1,, Value Value. Stringed Instruments with Bow Imports 7 Stringed Instruments with Bow Exports ' ' '7 ' '9 '1 1 x 1, 7 1 ' ' ' ' '7 '7 ' ' '9 '9 '1 ' x 1,, Value Value 1 ' ' ' ' ' ' Total Stringed Instruments Imports '7 '7 '7 ' ' ' '9 Value '9 '9 '1 '1 ' x 1, ' ' ' Total Stringed Instruments Exports ' '9 '1 1 Value x 1,, 1

107 International Data China China Imports and Exports 1 Percussion Imports 1 Percussion Exports 1 1 x 1, x 1,, ' ' '7 ' Value '9 '1 ' ' '7 ' Value '9 ' ' ' ' ' '7 '7 ' ' Brasswind Imports '9 '9 '1 ' x 1, ' ' ' ' '7 '7 ' ' Brasswind Exports '9 '9 '1 ' x 1, Value Value 1 1 ' 97 ' Electronic Keyboards Imports ' '7 ' ' '7 ' ' Value '9 '1 ' x 1, 1 1 ' 97 ' '7 ' 9 99 Electronic Keyboards Exports Value '9 ' x 1,, 17

108 China Imports and Exports 7 Electronic Instruments Imports Electronic Instruments Exports 1 1 ' ' '7 ' '9 ' x 1, 1 1 ' ' '7 ' '9 '1 x 1,, Value Value Value in U.S. $ thousands 1 1 ' ' ' ' '7 '7 ' ' Accordions Imports '9 '9 '1 ' ' ' ' ' '7 '7 ' ' Accordions Exports '9 '9 '1 '1 7 1 x 1, Value Value 7 1 ' ' '7 Instrument Strings Imports ' '9 '1 1 1 x 1, ' ' '7 Instrument Strings Exports ' '9 '1 1 x 1, ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Value Value 1

109 International Data China Top Five Chinese Export Destinations U.S. 1 Top Five Guitar Export Destinations Brazil Germany Holland U.K x 1,, U.S. 1 Top Five Electronic Keyboard Export Destinations Germany Japan Hong Kong U.K x 1,, Value Value Top Five Grand Piano Export Destinations Top Five Electric Instrument Export Destinations 1. K U.S. Germany Japan Hong Kong U.K. 1.. X 1, X 1,, U.S. 97. Hong Kong Uzbekistan Germany 9 99 Australia 1 U.S. 97 Japan 9 Holland 99 Germany Brazil 1. Value Value n U.S. U.S Top Five Upright Piano Export Destinations Japan Holland Germany Hong 9Kong Germany 99 South Korea Brazil 1 Iran x 1, U.S Top Five Stringed Instrument with Bow Export Destinations Germany 9 U.K Venezuela South Korea 1 x 1, Value Value 1. 19

110 Top Five Chinese Export Destinations 1 Top Five Percussion Export Destinations.. 1 Top Five Brasswind Instrument Export Destinations x 1,, x 1, U.S. Nigeria Germany Holland Brazil.. U.S. Japan Germany Malaysia U.K.. Value Value U.S. Malaysia 1 Top Five Accordion Export Destinations Nigeria Japan Germany Indonesia Holland Turkey Brazil Thailand 7 1 x 1, U.S. U.S. 1 Top Five Instrument String Export Destinations Japan Germany Indonesia Germany Malaysia Japan U.K. U.K. 7 1 x 1, Value Value Malaysia Japan Indonesia Turkey Thailand U.S. Indonesia Germany Japan U.K. 11

111 International Data Czech Republic DOING BUSINESS IN THE CZECH REPUBLIC CZECH REPUBLIC Market Overview The country s economic health is largely based on growth in exports. About % of its GDP is linked to export orders, with 1% of Czech exports directed to EU countries, and a third of total exports going to Germany. In this regard 1 represented a good year for the country, which posted a record trade surplus of nearly US$1 billion, a 1.% increase from 1. This was achieved despite a deceleration in the rate of increase (Czech exports in 1 grew by only % and imports by 1.%). This trend is expected to continue in 1, as the final six months of 1 demonstrated strong trade growth that is expected to remain due to a continuing recovery in and outside the eurozone and due to the impact of the weaker Czech koruna. The U.S. benefited significantly from this strong growth in foreign trade as bilateral trade more than doubled to US$.9 billion (US$. billion based on Global Trade Atlas data and US$. billion based on Czech government data). U.S. exports to the CR have increased by 1.% since the 9 financial crisis, while Czech exports to the U.S. have increased by 1.%. This is significant when compared to U.S.-EU trade statistics: U.S. exports to the EU have only increased by 1.% since 9, while U.S.-EU bilateral trade has increased by just 9.%. Exporters should be aware that U.S. exports to Poland increased by 9% during this period, making the regional Czech/Polish markets a growth opportunity that should not be overlooked. Over the first years of Czech independence, foreign investment has played a significant role in boosting Czech productivity, and the U.S. has had an important role in this regard as the largest non-european investor in the country. In 1, cumulative U.S. foreign direct investment (FDI) was reported to be US$. billion according to the Czech Statistical Office (and US$. billion according to the World Bank). The World Economic Forum considers the Czech Republic to be a Tier, or innovation driven economy, placing it on the same level as its neighbors to the west. Except for Slovenia, it is the only country in Central and Eastern Europe to achieve this ranking. In terms of the WEF s Global Competitiveness Index subrankings, the Czech Republic ranks below the average for Tier economies, highlighting the work the country must do before being considered an economic equal to its western neighbors. Market Challenges The 1/1 ranking of the World Economic Forum s Global Competitiveness Index (GCI) placed the Czech Republic at th, a drop from 9th in the 1/1 report and continuing the slow but steady decline from its highest ranking of th in 1. The drop is largely due to other countries moving up the ranks at a swifter pace, as the country s score improved this year by.1. In Central and Eastern Europe, Estonia and Poland continue to be rated as more competitive. Conversely, the Czech Republic rose one notch, to No., on Bloomberg s Best Countries for Business list. The country also continued to improve (from 9th to th) on the Heritage Foundation s Economic Freedom list as a result of notable improvements in half of the 1 economic freedoms, including investment freedom, business freedom, and freedom from corruption. The Czech Republic ranked 1th out of the countries in the Europe region with a higher score than the regional and global averages. 111

112 Though outside the eurozone, the Czech Republic has felt the impact of the lingering economic crisis in Europe, and output has been declining since mid-11. According to the Czech Statistical Office, 1 GDP growth was 1.1% and 1 was.9%. The Czech Central Bank predicts a turnaround in the economy this year with growth spurred by an increase in foreign demand and a relaxation of domestic monetary conditions. Currently, the GDP growth estimate for 1 is.% and the outlook for 1 is.%. czech republic The Czech Republic s economic transformation is not yet complete. Ranked 7th on the World Bank s 1/1 Ease of Doing Business index, the country finds itself positioned in last place among the Organization for Economic Co-operation and Development highincome countries and below most of its Central and East European neighbors (and down seven spots from last year, again largely due to other economies improving rather than conditions worsening in the Czech Republic). In critical subrankings, the country is th in trading across borders, 9th in protecting investors and 7th in enforcing contracts. The Czech government faces other challenges and hurdles, such as the slow pace of legislative reforms and industrial restructuring, planned healthcare and pension reforms, making the public procurement process more transparent, and a growing shortage of highly skilled technical workers. Market Opportunities Demand in the Czech market goes beyond the few best-prospect sectors that this report is able to cover. Though the country no longer has access to EU accession funds, it still receives EU funding directed at such diverse areas as health care reform, environment, transportation, infrastructure projects outside of Prague, and education exchange programs. Though it has a small population of 1. million, the Czech Republic has the highest per capita GDP of any nation in Central and Eastern Europe and provides many opportunities for experienced exporters. Market-Entry Strategy The Czech Republic is not the ideal destination for new-to-export companies, but as an EU member and a place where English is widely understood in the business community, it is an excellent choice for experienced exporters looking to broaden their global reach, especially those seeking new opportunities outside Western Europe. The Czech Republic is characterized by wide population dispersion. More than 1% of the population is centered in Prague, the only city with over 1 million inhabitants, while the majority of Czechs live within minutes of other major commercial/ industrial hubs (e.g., Brno, Plzen, Olomouc). Urban consumers generally have greater purchasing power than their rural counterparts. Success in this market typically requires an in-country presence such as an agent, distributor or representative office. The country s communications network is relatively well developed and communication and website offerings are an increasingly effective 11

113 International Data Czech Republic means of reaching local buyers. Pricing remains the most critical factor in positioning a product or service for sale. Access to capital is becoming increasingly difficult for most Czech firms, and business transactions are typically self-financed. U.S. firms that can arrange financing will have a competitive edge. Currency fluctuations were minimal in 1, with the average exchange rate being 19. CZK/ 1 USD, falling within a band of 1.. CZK/ 1 USD. czech republic Most exporters find local distributors an easy first step for entering the market. Local distributors typically take responsibility for handling customs clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, and handling after-sales service. Other issues to consider are: Take a regional approach involving one or more Central or Eastern European countries. Poland and Slovakia tend to be the other nations that fit within a successful regional strategy, with Hungary a close third. Establish a local presence or select a local partner for effective marketing and sales distribution. Perform detailed market research to identify specific sector opportunities. Use the experience of other, successful U.S. companies in the market. The local American Chamber of Commerce is a valuable resource. U.S. businesses should be aware that, like all other members of the European Union, the Czech Republic is also governed by EU regulations. Doing Business in the Czech Republic article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in the Czech Republic, you may visit their website at The following charts are based on import and export data obtained from the Czech Statistical Office in conjunction with Zuzana Petrofova of PETROF, spol. s r.o. 11

114 CZECH REPUBLIC SNAPSHOT Demographics Population in millions 1. Demographics Age Male Female & Over Median Age.9 Population Growth.17% 1 7.% + 17.% 1 1.9% Economy GDP (PPP) $99.7 billion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate 7.9% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Czech Republic GDP (PPP) (U.S. $ in billions) 1 1 GDP-Service.% GDP-Industry 7.% ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% 1 Unemployment Rate (Percent) 7 Inflation (Annual Percent Rate) 1 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 11

115 International Data Czech Republic Snapshot Trade Total Export $17. billion Export as % of GDP 9.1% Total Import $1.1 billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Germany Poland Slovakia France U.K. Austria Germany Slovakia Poland Netherlands China Russia Music Industry Music Market $. million Sales Per Capita $. Global Share.% 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 Czech Republic Music Market (U.S. $ in millions). Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 11

116 Czech Republic Imports and Exports. Acoustic Pianos Imports Acoustic Pianos Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' Fretted & Stringed Instruments Imports ' '7 ' '9 ' ' Fretted & Stringed Instruments Exports ' '7 ' '9 '1 Import Value Export Value 1 1 ' ' '7 ' Keyboards Imports '9 ' ' ' '7 ' Keyboards Exports '9 '1 Import Value Export Value 11

117 International Data Czech Republic Czech Republic Imports and Exports. Wind Instruments Imports Wind Instruments Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value. Percussion Imports 7 Percussion Exports Value in U.S. $ thousands 1. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Accessories Imports 1 Accessories Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 117

118 DOING BUSINESS IN FINLAND Market Overview Although well underway, the 1st Century Finland is still exciting. This is a time of astonishingly rapid change and a world of new and different challenges. With immediate consequences, the actions by pro-russia separatists in the Ukraine and Russia s subsequent actions have chilled Russia-focused commerce. Business continues, albeit with increased caution. FINLAND Influenced by intricate geopolitical, geophysical and economic connections, the New North continues to benefit from climate change through a unique combination of sea, air and rail transport oriented toward growing prosperity in the East. Finland, with its evolving and buzzing entrepreneurship scene, presents a set of unrivalled new business opportunities. In many ways, Finland is the epicentre of this New North a unique intersection of geography, infrastructure, education, good governance, and business environment. Finland, an EU member since 199, has redefined itself from a quiet, agricultural-based economy to a trend-setting, global center for technology. Its commercial clout is far in excess of its modest population of. million. Finland routinely ranks at the very top in international surveys of research and development funding, competitiveness, transparency, literacy and education. Helsinki, a pocket-sized green maritime metropolis, is a mere. hours from St. Petersburg via high-speed train and was the site of the first LEED-certified building in the Nordics. Along with all its Nordic neighbors, Finland has a focused interest in high-performance buildings that are energy and resource efficient driven by intelligent building products, services and technologies. Contrary to popular misconception, Finland is not a part of Scandinavia. It shares a 9-mile border with Russia, the longest contiguous land border in the EU. Slightly less than % of the EU s overland transshipments into Russia go through Finland, underscoring Finland s role as a regional business hub complemented by its logistical capabilities. Russia is Finland s largest trading partner, and a variety of Finnish companies are successful in Russia, a challenging marketplace. We believe that there are opportunities for certain U.S. companies to exploit this existing business by providing U.S. goods via the Finnish corridor. More than % of all goods in transit to Russia pass through Finland. Consumers in Russia remain interested in discretionary luxury goods. Finland is capitalizing upon its unique position as the center of a rapidly developing marketplace formed by northwestern Russia, the Scandinavian countries, and the Baltic States, creating a marketplace with more than million prospective consumers. Two-way trade between the U.S. and Finland was about US$7 billion in 1, chiefly in the electronics, paper, medical equipment and telecommunications industries. The U.S. remains an important trading partner for Finland. Finnish imports of U.S. goods and services in 1 were valued at around US$. billion. The U.S. was Finland s fourth largest customer after Sweden, Germany and Russia, with Finnish exports of goods and services to the United States valued at about US$.7 billion. Finland is the only Nordic country to replace its national currency, the Finnish mark, with the euro. The country has a largely homogeneous population. There are about, American residents in Finland; 179, visited the country in 1. The immigration rate from the U.S. to Finland has been steadily increasing and since, has been consistent between and people every year. The GDP per-capita estimate was US$,1 in 1. 11

119 International Data Finland Market Challenges Finland s import climate is open and receptive to U.S. products and investments. While the domestic market is small, Finland can effectively serve as a base for business operations in the Nordic, Baltic and/or Western Russian markets. There is one specific trade barrier that starkly contrasts with an otherwise remarkably transparent and predictable business environment: the Finnish government approved pharmaceutical reference pricing system. Market Opportunities There are several opportunities driven by the new relationship with energy; Finland introduced its latest national long-term climate and energy strategy in 1. Cleantech sector growth has been fueled by smaller firms operating in the areas of new materials, smart grids, recycling, and measurement technologies. New cleantech areas to watch now include electric vehicle components and processes for EV manufacturing. finland Finland has been involved in the development of low-energy and eco-efficient construction alternatives since the late 19s. Driven by a continuous challenge to decrease the energy use of the building stock, the Finnish building industry is committing to energy-efficient and intelligent building products, services and technologies. Opportunities in the built environment for energy-efficient, high-performance building products sector are not limited to Finland. Europe, with its vast inventory of aging buildings, is an exceptional opportunity. Embassy Helsinki hosts the League of Green Embassies, a unique vehicle to promote U.S. high-performance building products. The development of renewable energy in Finland is expected to offer opportunities for U.S. companies with innovative renewable energy technologies, processes and equipment. Finland has expertise in developing computer software products and is looking for U.S. partners that can provide financial and other resources. Finnish healthcare remains interested in state-ofthe-art medical equipment and health IT. Finland s key regional logistics role will be enhanced by Rail Baltica, one of the priority projects of the European Union Trans-European Transport network. The project will link Finland, the Baltic States and Poland and improve the connection between Central and Eastern Europe and Germany. Market-Entry Strategy Finnish businesspeople and consumers are sophisticated and conscious of quality and value. Prices in Finland, as well as throughout the Nordics, are high. Flexibility in consumer behavior and Finland s distribution channels allow for a variety of market-entry strategies. Representatives and distributors are common methods employed for initial market entry. Doing Business in Finland article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Finland, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 119

120 FINLAND SNAPSHOT Demographics Population in millions. Demographics Age Male Female & Over.7. Median Age. Population Growth.% 1.% + 19.% 1 1.% Economy GDP (PPP) $1. billion GDP Per Capita $, GDP-Real Growth Rate -.% Unemployment Rate.% Inflation 1.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 1 Finland GDP (PPP) (U.S. $ in billions) 1 GDP-Service 7.% GDP-Industry 7.% ' ' ' ' '7 ' '9 '1 GDP-Agriculture.7% 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 1

121 International Data Finland Snapshot Trade Total Export $7. billion Export as % of GDP.1% Total Import $7. billion Import as % of GDP.9% 1 Export Partners (1) 1 Import Partners (1) Annual Percentage 1 Annual Percentage Sweden Germany Russia Netherlands U.S. Russia Sweden Germany Netherlands Music Industry Music Market $7. million Sales Per Capita $1. Global Share.% *The Music Trades began reporting data on Finland in Music Sales Per Capita (U.S. $) '7 ' '9 '1 1 Finland Music Market (U.S. $ in millions). Share of Global Music Market (Percent) '7 ' '9 '1. '7 ' '9 '1 11

122 Finland Imports and Exports. Acoustic Pianos Imports Acoustic Pianos Exports Value in U.S. $ thousands. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' Fretted & Stringed Instruments Imports ' '7 ' '9 '1 Value in U.S. $ thousands 1 1 ' Fretted & Stringed Instruments Exports ' '7 ' '9 '1 Import Value Export Value 1 Keyboards Imports Keyboards Exports 1 Value in U.S. $ thousands 7 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1

123 International Data Finland Finland Imports and Exports. Wind Instruments Imports Wind Instruments Exports Value in U.S. $ thousands 1. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value. Acoustic Pianos Imports Acoustic Pianos Exports Value in U.S. $ thousands. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Accessories Imports 1. Accessories Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 1

124 DOING BUSINESS IN FRANCE Market Overview The U.S./French economic and political alliance is one of the United States oldest and closest bilateral relationships. Today, as has been the case for over years, the United States and France work together on a broad range of trade, security and geopolitical issues. Trade and investment between the two countries is substantial and vibrant. The United States is France s fifth largest supplier and sixth largest customer, while France ranks as the United States ninth largest supplier of imported goods and eleventh largest customer for U.S. exports. Significant opportunity exists for both trade and foreign direct investment. FRANCE With a GDP of approximately US$. trillion, France is the world s fifth largest economy (1) and is the second largest trading nation in Western Europe (after Germany). Real GDP increased.% in 1, while the unemployment rate (metropolitan France) remained unchanged at 1.%. France has substantial agricultural resources and a large industrial base; however, the country is struggling to revitalize its economy while at the same time reducing its national debt. In 1, the country ran an US$1 billion trade deficit of goods based on total trade of US$1. trillion. The majority of this trade (.7%) was with EU-7 countries. France is a member of the G- (and initiator of the G-), the European Union, the World Trade Organization and the OECD, confirming its status as a leading economic player in the world. Despite France s low GDP growth over the past three years, bilateral trade between the United States and France remains robust. U.S.-France trade in goods, services and income receipts totaled nearly US$19 billion in 1:.% in goods,.% in services and.% for income receipts from direct investment and other private and government receipts and payments. This represents a % increase over 1. France welcomes foreign investment and has a stable and reliable business climate that attracts investment from around the globe. It has a modern business culture, sophisticated financial markets, strong intellectual property protection and innovative business leaders. While manufacturing has declined from 1% of GDP in 1999 to 1.% today, a dynamic services sector accounts for an increasingly large share of economic activity and has been responsible for nearly all job creation in recent years. As a result of its excellent universities and well-educated population, France has a talented and highly skilled workforce. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, excellent public transportation systems and efficient intermodal connections. G/G cellular connections are nearly ubiquitous and over % of French citizens are connected to the Internet with plans underway for nationwide high-speed Broadband service. The business environment in France, though complex, is generally quite conducive to U.S. investment, as evidenced by the fact that the United States is France s largest source of foreign direct investment (FDI stock). There are, foreign-owned companies doing business in France, of which nearly, are U.S. companies with affiliates in France representing over, jobs. France ranks 1st in the World Economic Forum s assessment of global competitiveness, is one of 1 European countries in the top, and is home to of the world s largest companies. France also continues 1

125 International Data France to support innovation in small and medium enterprises (SMEs) via its 1-year, billion (US$7. billion) Investments for the Future (Investissements d Avenir) program targeting green technologies, the digital economy and industrial sectors such as aeronautics, space, transportation and shipbuilding. france The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, its overseas trade promotion offices and investorsupport mechanisms. The legal and regulatory environment is relatively transparent and stable, and efforts are under way to simplify French tax and labor laws and administrative procedures. In 1, the French government continued to introduce new measures to encourage growth and investment. The implementation of a billion (US$7. billion) corporate tax credit program (CICE Crédit d Impôt Compétitivité Emploi) and the elimination of a corporate social solidarity tax are part of a plan to attract local and foreign investors alike. The government has further developed its tax incentives to spur research and innovation, which is evidenced by the Research Tax Credit (CIR Crédit Impôt Recherche) and tax incentives for innovative new companies (Jeune Entreprise Innovante). Lastly, the government has recently implemented new labor laws that strengthen vocational training and add elements of flexibility to the French labor market. Although trade in goods and services receives most of the attention in terms of the commercial relationship, foreign direct investment and the activities of foreign affiliates can be viewed as the backbone of the commercial relationship. The scale of sales of U.S.-owned companies operating in France and French-owned companies operating in the United States outweighs trade transactions by a factor of almost five. In 1, France was the 1th largest host country for U.S. foreign direct investment abroad with investments valued at US$ billion, making the United States the largest foreign investor in France. France is the fifth largest investor in the United States on a historical cost basis. French-owned companies employ about half a million workers in the United States, while more than, employees work for U.S. companies established in France. The trade balance on all bilateral transactions between the United States and France can be viewed at There are, of course, reasons for caution as well. Low GDP growth, high taxes and inflexibility pose risks to potential investors and dampen domestic consumption. France has been subject to strict European Union macroeconomic surveillance due to a prolonged period of budget deficits exceeding EU limits. The 1 AmCham-Bain Barometer (an annual study conducted by the American Chamber of Commerce in France and Bain & Company released in October 1) on the morale of U.S. investors in France pointed to growing pessimism due to a lack of clarity in the government s agenda, red tape and burdensome regulations, a lack of predictability in legislation and a growing complexity of labor legislation. In recent years, the French government has selectively intervened in a number of corporate mergers and acquisitions and it maintains a significant stake in a number of industries. The French Ministry of the Economy and Finance issued a decree on May 1, 1, expanding the authority of the French Economy Minister to review foreign investment linked to public policy and public security in addition to prior regulations related to national security concerns. The Ministry asserted that the new decree would defend 1

126 jobs and investment in France by allowing the state to block foreign takeovers in sectors deemed strategic. In recent years, American investments have faced protectionist measures and extensive red tape in France on several occasions, such as in when the French government blocked Pepsi from acquiring Danone, in 1 when Yahoo was prevented from acquiring the online video service Dailymotion, and most recently with the government s attempted block of the GE/Alstom deal. Ultimately, GE s purchase of Alstom s gas turbine operations was approved in June 1 but only after significant French government interference. Investors should be aware of regulations regarding foreign investment and file the appropriate paperwork with the French Ministry of the Economy and Finance when planning to invest in sectors deemed strategic or acquire large portions of French companies. france One factor that could have a significant impact on U.S.-French trade and investment is the Transatlantic Trade and Investment Partnership (TTIP) agreement currently being negotiated between the United States and the European Union. The US-EU economic relationship is the largest in the world and TTIP could bring significant economic gains to all parties, including France. It is estimated that the agreement could translate into gains of US$71 billion per year for the EU and US$19 billion per year for the United States. TTIP aims not only to remove barriers to trade, but also to provide other benefits such as more open investment opportunities, simplified regulatory regimes and better protection of intellectual property rights. Market Challenges Foreign investors report that they find France s skilled and productive labor force, good infrastructure, technology and central location in Europe attractive. France s membership in the European Union (EU) and the eurozone facilitates the movement of people, services, capital and goods. However, despite French efforts at economic reform, market liberalization and attracting foreign investment, there are still perceived disincentives to investing in France. These include the tax environment, high cost of labor (with the minimum wage, or Salaire Minimum Interprofessionnel de Croissance [SMIC], at 1, [US$1,9] per month), rigid labor markets, and occasional strong negative reactions toward foreign investors planning to restructure, downsize or close. Retail distribution chains and networks are highly concentrated in France, and French global manufacturers and suppliers tend to have strong control over the retail networks they work with. This presents a major challenge for U.S. SMEs interested in breaking into the French market. In many sectors, independent wholesale/retail outlets are disappearing rapidly and being replaced by leading retail distribution chains and networks with significant market share across the European Union and beyond. Many of these large retail networks have highly organized purchasing offices that have implemented stringent selection processes for new suppliers and product/service distribution. High retail markup, ongoing competitive market innovation and creativity combined with a constantly changing theme designs approach are prerequisites to keeping up with retail trends. Market Opportunities France is an economically developed nation with a large, diverse and sophisticated consumer base. It has a strong manufacturing sector that seeks out quality components from foreign suppliers. Its relatively affluent populace is a leading consumer of services, 1

127 International Data France particularly in the educational and travel sectors. It should be noted that while in some aspects the French market can be similar to the United States, French consumers have their own unique tastes and customs. Thus, knowledge of French consumer preferences is essential to success for U.S. exporters in this market. The main U.S. export categories in goods include aircraft and engines, industrial chemicals, electronic components, telecommunications, computer software, computers and peripherals, analytical and scientific instrumentation, medical instruments and supplies, broadcasting equipment, and franchising opportunities. The French market for food products is mature, sophisticated and well served by suppliers from around the world. An increasing interest in American culture, younger consumers and changing lifestyles contribute to France s import demand for American food products. Generally, high-quality food products with a regional American image could find a niche in the French market. france France offers market opportunities for U.S. suppliers of consumer food/edible products in a number of areas, such as fish and seafood (particularly salmon and surimi), processed fruits and vegetables, fruit juices and soft drinks (including flavored spring waters), beverages (including wine and spirits), dried fruits and nuts, confectionery products, organic products, fresh fruits and vegetables (particularly tropical and exotic), frozen foods (both ready-to-eat meals and specialty products), snack foods, tree nuts, ethnic products, innovative dietetic and health products, soups, breakfast cereals and pet foods. In addition, niche markets exist for candies, chocolate bars, wild rice, kosher, and halal foods. Market opportunities for U.S. exporters also exist for oilseeds, protein meals and other feeds, and wood products and grains. Socioeconomic and demographic changes continue to alter food trends in France as French consumers desire innovative and more convenient foods offering quality image, better taste and increased health benefits. The full report, prepared by the USDA s Foreign Agricultural Service for U.S. exporters of food products, can be viewed at Market-Entry Strategy In general, the commercial environment in France is favorable for sales of U.S. goods and services. Marketing strategies for French products and services are similar to those of the United States, despite significant differences in cultural factors and certain legal and regulatory restrictions. Market entry should be well planned since the conservative and sophisticated French market tends to prefer known suppliers and requires sustained market development. Competition can be fierce, but local partners are available in most sectors and product lines. Doing Business in France article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in France, you may visit their website at The following charts are based on import and export data obtained by the French Music Industry Association (C.S.F.I.) 17 17

128 FRANCE SNAPSHOT Demographics Population in millions. Demographics Age Male Female & Over..9 Median Age.9 Population Growth.% 1.% + 1.7% 1 1.% Economy GDP (PPP) $. trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate 9.7% Inflation.7% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars France GDP (PPP) (U.S. $ in trillions) 1.. GDP-Service 7.9% GDP-Industry 19.%. ' ' ' ' '7 ' '9 '1 GDP-Agriculture 1.7% 1 Unemployment Rate (Percent). Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 1

129 International Data France Snapshot Trade Total Export $7. billion Export as % of GDP.% Total Import $. billion Import as % of GDP.% 1 Export Partners (1) Import Partners (1) Annual Percentage Annual Percentage 1 1 Germany Belgium Italy U.K. Spain U.S. Germany Belgium Italy Spain Netherlands U.K. Music Industry Music Market $7. million Sales Per Capita $1.99 Global Share.% 1 1 Music Sales Per Capita (U.S. $) 1 1 ' ' ' '7 ' '9 ' ' ' ' France Music Market (U.S. $ in millions) '7 ' '9 '1 1 ' ' Share of Global Music Market (Percent) ' '7 ' '9 '1 19

130 France Imports and Exports 1 Grand Pianos Imports 1.. Grand Pianos Exports Retail Value in $ millions x 1, Retail Value in $ millions Import Value Export Value 1 Upright Pianos Imports 1. Upright Pianos Exports. Retail Value in $ millions x 1, Retail Value in $ millions x 1, Import Value. Export Value. Digital Pianos Imports 1 1 Digital Pianos Exports Retail Value in $ millions 1 1. x 1, Retail Value in $ millions x 1, Import Value Export Value 1

131 International Data France France Imports and Exports 1 Portable Keyboards Imports Portable Keyboards Exports Value in millions Value in millions 1 Import Value Export Value Synthesizers Imports. Synthesizers Exports Retail Value in $ millions x 1, Retail Value in $ millions x 1,. Import Value Export Value Electric Guitars Imports 1. Electric Guitars Exports Retail Value in $ millions x 1, Retail Value in $ millions x 1, Import Value. Export Value 11

132 France Imports and Exports Retail Value in $ millions 1 1 Acoustic Guitars Imports 1 x 1, Retail Value in $ millions 1 Acoustic Guitars Exports x 1, Import Value Export Value Total Guitars Imports Total Guitars Exports 1 Retail Value in $ millions 1. 1 x 1, Retail Value in $ millions 7 1. x 1, Import Value Export Value. Violins Imports. Violins Exports Retail Value in $ millions x 1, Retail Value in $ millions x 1,. Import Value. Export Value 1

133 International Data France France Imports and Exports 1 Brass Instruments Imports Brass Instruments Exports Retail Value in $ millions x 1, Retail Value in $ millions x 1, Import Value Export Value Wind Instruments Imports Wind Instruments Exports Value in millions 1 1. Value in millions 7 1. Import Value Export Value 1

134 GERMANY Growing Turnover, good news on turnover overseas A point to the importance of the sector: The 1 figures of the Turnover tax statistics showed that 1,1 makers of instruments reached a turnover of 1.9 million euros, while 1,9 dealers of musical instruments and products achieved a sector turnover of 1,1.7 million euros. More than half of the sector turnover comes from the largest companies with more than employees. According to preliminary data for 1, these firms show a turnover of. million euros. This represents a growth of.% compared to the previous year. A total of,7 employees, 1.% fewer, were involved in reaching this turnover. GERMANY While domestic turnover stagnated (+.1%), overseas turnover grew by.%. Overseas turnover within the eurozone increased by.%, while overseas turnover with the rest of the world grew by.%. The importance of exporting to the eurozone is therefore continuing to diminish. Only % of all exports are going to the eurozone, while % goes to the rest of the world. The quota of exports versus domestic sales in the larger companies is at 7.%; these companies export on average more than smaller companies. Exports and Imports Growing The year 1 saw another significant foreign trade surplus of million euros. Exports grew by.% (compared to.7% in both previous years) to. million euros, with imports growing by 7.% to 9. million euros. However, the latter growth comes after a steep decline of 1.9% last year. Deviations to the above-mentioned overseas turnover figures of the companies can be explained by significantly larger participation in exports, as well as through exports of goods originally made elsewhere. German exports are reaching a broad area. The most important export countries are France (+.9%), the USA (+1.%), Austria (+.%), Japan (.1%), China (+.%), Switzerland (.7%), the UK (+.%) and the Netherlands (.%). In contrast, almost % of all imports into Germany are from China (+11.%), Indonesia (+.%), the Netherlands (+1.1%), the USA (+.%) and Japan (.%). The Netherlands have jumped into third place through an increase of more than %. This is not the result of domestic Dutch production, but a result of the fact that the Netherlands is a platform for instruments imported from Asia. This holds true particularly for electronic instruments, which in turn are re-exported to Germany. Therefore, two-thirds of all imports into Germany come from Asia. Production Grew Compared to 1 The positive development in turnover is confirmed by the numbers of instruments made in Germany. Instruments valued at. million euros or a plus of.1% compared to 1 were manufactured in Germany in 1. This result is based on numbers provided by companies with more than employees. As in 1, the number of brass instruments produced increased, with trumpets, cornets and Fluegelhorns growing by.%, Wald, tenor, baritone and Altus horns by.%, tubas 1

135 International Data Germany by.%, other brass instruments such as trombones growing by 7.7%. On the other hand, woodwind instruments saw another year of decrease. Recorders decreased by.%; bassoons and oboes by.1%. Parts and accessories in the piano segment saw slim increases (+.%), while stronger growth was recorded, mainly due to a good last quarter, for stringed instruments (+.%). Parts and accessories for wind instruments decreased by.%; for organs and harmonias, the decline was 7.%. The product groups of accordions and mouth organs saw a collapse of 17.%. Percussion instruments saw a slight decrease of 1.%. germany In the segment of large instruments, grand pianos grew again (+.%), while upright pianos saw a real decrease of 9.%. The results shown by export statistics confirm the previously mentioned production data. Exports of violins, for example, have collapsed by.7%, and exports of other stringed instruments decreased by.7%. On the brighter side, strings exports grew by 7.1%. Looking at imports, the high-value products groups (> million euros) show the following development: percussion instruments +7.%, guitars +1.%, brass instruments +11.%, woodwind instruments 1.7%, upright pianos 1.1%, grand pianos 1.%. Almost % of all imports are in the category of electronic instruments, which as a group grew by 1.%. Positive Start to 1 Next to August, January is traditionally the month with the lowest turnover. However, 1 showed a significantly more positive result than the previous year. Even if the number of companies and employees continues to consolidate or decrease, turnover achieved by the reduced numbers continues to grow. In January, larger companies with, employees (.%) reported an increase of 1.% in turnover. Having grown by 1.%, the domestic market contributes more strongly to this positive development than the foreign trade turnover, which grew by 7.%. Trade with the eurozone again showed weaker growth (+.7%) than with the rest of the world (+.7%). Commentary by Winfried Baumbach of the National Association of German Musical Instruments Manufacturers (BDMH) DOING BUSINESS IN GERMANY Market Overview The German economy is the world s fourth largest and, after the enlargement of the EU, accounts for more than one-fifth of European Union GDP. Germany is the largest European trading partner of the United States and the sixth largest market for U.S. exports. Germany s 1

136 social market economy largely follows free-market principles, but with a considerable degree of government regulation and generous social welfare programs. Germany is the largest consumer market in the European Union, with a population of. million. However, the significance of the German marketplace goes well beyond its borders. An enormous volume of trade is conducted in Germany at some of the world s largest trade events, such as MEDICA, Hannover Fair, Automechanika and the ITB Tourism Show. The volume of trade, number of consumers and Germany s geographic location at the center of the -member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies. germany The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis. Because of the country s strong export dependency, GDP declined by more than % in 9. However, the V-shaped recovery was equally strong, as pre-crisis real GDP was reached again in the second quarter of 11. The German government expects real GDP to grow by 1.% in 1 and by.% in 1. The labor market remained resilient during the economic and financial crisis and continued to be strong in 1. A comprehensive set of labor and social reforms, termed Agenda 1, which former Chancellor Gerhard Schröder and his Social Democrat/Greens coalition government introduced between and, helped overcome the structural weaknesses of the German welfare state and labor market, resulting in today s strong employment growth and low unemployment. Many experts also credit the governmentfunded short-time work scheme for limiting unemployment during the economic crisis, which allowed companies under considerable economic stress to avoid layoffs by reducing their workers working time and pay for a limited period. Other factors, such as moderate wage increases, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, and employers willingness to accept higher unit labor costs also contributed to the stability of the German labor market. As a result of the positive economic developments, employment in Germany has continued to rise for eight consecutive years and reached an all-time high of 1. million in 1, an increase of, from 1. Particularly women and the elderly have benefitted from the positive trends. Simultaneously, unemployment has fallen by almost million since ; at the end of 1,.9 million people were unemployed. The jobless rate was at.9% in 1, according to the German Federal Statistical Office (using the internationally comparable concept of the International Labor Organization [ILO], the German unemployment rate stood at.%). There was a minor increase in unemployment in 1, with an increase of.1% or,, in comparison to 1, the year with the lowest unemployment rate since German reunification. Market Challenges Germany presents few formal barriers to U.S. trade or investment. Germany s acceptance of the EU s Common Agricultural Policy and German restrictions on biotech agricultural products represent obstacles for some U.S. goods. Germany has pressed the EU 1

137 International Data Germany Commission to reduce regulatory burdens and promote innovation to increase EU member states competitiveness. Although the Merkel government has talked about the need for regulatory reform in Germany, the country s regulations and bureaucratic procedures can still be very complex. While not directly discriminatory, government regulation by virtue of its complexity may offer a degree of protection to established local suppliers. Safety or environmental standards, not inherently discriminatory but sometimes zealously applied, can complicate access to the market for U.S. products. American companies interested in exporting to Germany should make sure they know which standards apply to their product(s) and obtain timely testing and certification. German standards are especially relevant to U.S. exporters because EU wide standards are often based on existing German standards. germany Market Opportunities For U.S. companies, the German market the largest in the EU continues to be attractive in numerous sectors and remains an important element of any comprehensive export strategy to Europe. While U.S. investors must reckon with a relatively higher cost of doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure and a location in the center of Europe. Market-Entry Strategies The most successful market entrants are those that offer innovative products featuring high quality and modern styling. Germans are responsive to the innovation and high technology evident in U.S. products such as computers, computer software, electronic components, health care and medical devices, synthetic materials and automotive technology. Germany possesses one of the highest Internet access rates in the EU, and new products in the multimedia, high-tech and service areas offer great potential as increasing numbers of Germans join the Internet generation. Certain agricultural products also represent good export prospects for U.S. producers. Price is not necessarily the determining factor for the German buyer, given the German market s demand for quality. The German market is decentralized and diverse, with interests and tastes differing from one state to another. Successful market strategies take into account regional differences as part of a strong national market presence. Experienced representation is a major asset to any market strategy, given that the primary competitors for most American products are domestic firms with established presences. U.S. firms can overcome such competition by offering high-quality products and services at competitive prices, and locally based aftersales support. Doing Business in Germany article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Germany, you may visit their website at The following charts are based on domestic production and export data provided by the National Association of German Musical Instruments Manufacturers (BDMH) 17

138 GERMANY SNAPSHOT Demographics Population in millions 1. Demographics Age Male Female & Over Median Age.1 Population Growth -.1% 1.9% + 1.1% 1 1.% Economy GDP (PPP) $.1 trillion GDP Per Capita $,7 GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation.9% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Economy. Germany GDP (PPP) (U.S. $ in trillions)... GDP-Service.% GDP-Industry.% GDP-Agriculture.9%. ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent). Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 1

139 International Data Germany Snapshot Trade Total Export $1. trillion Export as % of GDP.9% Total Import $1. trillion Import as % of GDP.7% Export Partners (1) Import Partners (1) 1 1 Annual Percentage Annual Percentage 1 9 France U.K. Netherlands U.S. Austria China France Netherlands Belgium China Italy U.K. Music Industry Music Market $1. billion Sales Per Capita $1.1 Global Share.% 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 1. Germany Music Market (U.S. $ in billions) Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1 1 ' ' ' '7 ' '9 '1 19

140 Germany Domestic Production (Data based on manufacturers with or more employees) Value in millions 1 1 ' ' '7 Upright Pianos ' '9 '1 Value 7 1. x 1, Value in millions 7 1 ' ' '7 Grand Pianos ' '9 '1 Value x 1, Value in millions ' ' '7 Organs ' '9 ' Value in millions 1 1 Drums & Percussion 1 1 x 1, ' ' 1 '7 ' '9 Value '1 ' ' 1 '7 ' '9 Value '1 1 1 Value in millions 1 1 ' ' Woodwind Instruments '7 ' '9 '1 Value in millions 1 1 Brass Instruments x 1, ' ' 1 '7 ' '9 '1 Value ' ' 1 '7 ' '9 Value '1 1

141 International Data Germany Germany Exports Grand Pianos Violins Value in millions ' ' '7 ' '9 '1 Value in millions 1 1 ' ' '7 ' '9 '1 Export Value Export Value Value in millions ' ' Total Acoustic Pianos '7 ' '9 '1 Value in millions ' ' '7 Stringed Instruments Played with a Bow ' '9 '1 Export Value Export Value Harpsichords Acoustic Guitars Value in thousands Value in millions ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Export Value Export Value 11

142 Germany Exports Synthesizers Electric Guitars 7 Value in millions 1 Value in millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Export Value Export Value Total Electric Instruments Digital Pianos 1 Value in millions Value in millions 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Export Value Export Value Drums & Percussion Brass Instruments Value in millions 1 1 ' ' '7 ' '9 '1 Value in millions 1 1 ' ' '7 ' '9 '1 Export Value Export Value 1

143 International Data Germany Germany Exports Woodwind Instruments Harmonicas & Accordions 1 Value in millions 1 Value in millions ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Export Value Export Value Electric Organs Total Organs & Harmoniums Value in millions ' ' '7 ' '9 '1 Value in millions ' ' '7 ' '9 '1 Export Value Export Value 1

144 HUNGARY The collective musical experience: The participation of the Hungarian population in music Research shows that low participation rates of Hungary s population in the music scene hinders the effective progress of demand and supply of the Hungarian music industry. HUNGARY The majority of the active (in a musical sense) European population sang in the past 1 months among friends, family or in a church community, rehearsal room, on stage or at home. 1.% of the European population older than 1 (nearly million European citizens) sings regularly. This rate is % in Denmark, % in Sweden, % in Finland, % in Slovenia, 17% in France and then comes Hungary with %. In Hungary, 9, citizens aged 1 or older took part in the vocal music scene, which is a significantly lower than the rate in Slovakia with its,. A total of million European citizens participated in the continent s instrumental music scene, which is.1% of all European adults aged 1 or older. The list is led by Sweden, Denmark, Luxembourg, Finland and the Netherlands with rates between 1. and 1.1%. Sadly, with a critically low value of.%, Hungary only manages to outrun Bulgaria in this tally. In 1, only 9, Hungarian adults older than 1 years played musical instruments, which is significantly fewer than the Slovakian rate. The willingness and regularity of concert attendance is one of the most important explanatory variables of the active participation in the music scene. Those who regularly sing or play a musical instrument are more likely to attend concerts. In Hungary, this rate is 19%. The number of instrument-playing citizens is higher in other countries of this region but the active participation in the music scene is even higher, which also manifests in regular concert attendance. The following diagram shows the correspondence between instrument-playing and concert-attending in European countries. (This figure shows that the correspondence between the rankings are positive, but not linear.) 1

145 International Data Hungary The situation is no different regarding album sales. Research shows that % of individuals who attended a concert in the last 1 months bought an album, in contrast to the 17% of non-concert attendees. Among those who do not play music, the willingness to buy CDs is % compared to 9% among those who do. The difference regarding the quantity of bought CDs is even greater. Those who sang during the past 1 months were more likely to have purchased a CD with a value of only % compared with those who do not, but by their own admission the amount is two or three times greater. hungary According to the Music Industry Research conducted by ProArt (the Association of Author s Rights), Hungary needs to increase concert attendance to.1 million to reach the European average. Assuming that this.1 million surplus would occur with the recent structure and ticket prices, and the income of musicians received from record companies would increase at a :17 rate, any other changes aside, the number of professional musicians who could make a living from their profits on a standard level would increase by 1%, and by.% on the level of minimal salary. In Scandinavian countries the musical lecture (both classical and pop) of children is provided by the schools. These countries can set a good example for Hungary, but it is not likely that these differing participation habits of Scandinavian culture can be established; in Scandinavia all age groups are involved in the music scene as a vocal or musical performer or album buyer, or as a concert visitor. Reaching the average of countries like Austria, the Czech Republic, Slovenia, Slovakia, whose culture are more similar to Hungary s, would make increasing the size of the Hungarian music market possible. In these countries and usually in all Europe the youngsters provide the greater music clientele, thus, a successful high school music program in our country would make significant changes with results that could be felt within five years. Source: Music Industry Research by ProArt, the Association of Author s Rights Commentary by Géza Balogh, President of HANOSZ, Hungary s National Association of Instrumentalists DOING BUSINESS IN HUNGARY Market Overview Hungary is located in Central Eastern Europe with a population of 9.9 million and has fully transitioned from a centrally planned economy to a market-based one since the fall of communism in 199. It is a member of the OECD (199), NATO (1999), and the European Union (). Per capita income is nearly two-thirds that of the EU-7 average, and total GDP is US$1 billion. The private sector accounts for more than % of GDP. Hungary s strategic location in Europe, access to EU markets, highly skilled and educated workforce, and sound infrastructure have led companies such as GE, Alcoa, Morgan Stanley, National Instruments, Microsoft, IBM and many others to locate facilities here, both in manufacturing and services. Currently, there are approximately partially owned and 1 wholly 1

146 owned US companies operating in Hungary. Many of these companies find that Hungary s geographic position in Central Europe also offers a strategic logistical hub within the region. Foreign direct investment (FDI) in Hungary has helped modernize industries, create jobs, boost exports and spur economic growth. Hungary s cumulative FDI stock has totaled more than US$1 billion since 199. Key sectors include automotive, IT, electronics, logistics and more recently, shared services (back office and/or call center operations). American companies have invested close to US$1 billion in Hungary since 199, making the US the fourth largest foreign investor behind Germany, Austria and the Netherlands. Meanwhile, U.S. exports to Hungary have topped US$1 billion in each of the last five years, led by electronics, IT equipment, automotive components, industrial engines and other manufacturing technologies and supplies. hungary Market Challenges Hungary was heavily impacted not only by the /9 global financial crisis but also by austerity measures and sector taxes introduced by the government in 1. GDP annual growth rate was.% in 1 and the expected GDP growth rate for 1 is 1.%. Hungarian exports, particularly to neighboring countries and Germany, are substantial, and Hungary maintains a trade and current account surplus. The official unemployment rate decreased from 1.9% in 1 to 1.% in 1. The government has continued its commitment to deficit reduction (particularly given Hungary s high debt-to-gdp ratio, which reached 7.9% in 1), and many outside observers, including international credit rating agencies, have criticized the government s failure to enact structural reforms as a more fiscally sustainable way to meet budget targets, rather than through short-term tax increases and one-off measures. Other actions, including suspending payments into the private pillar of the pension system (which makes it financially disadvantageous for most beneficiaries to remain in the private pillar of the pension system) and eliminating the independent Fiscal Council budget watchdog agency, have drawn widespread criticism. In 1, the three major credit rating agencies (Moody s, S&P and Fitch) changed their long-term ratings on Hungarian bonds to BB/Ba1. New foreign currency loans have largely disappeared from the market, but many companies and households still have high exposure to existing foreign currency loans. At the end of 11, the government reached an agreement with banks to address the issue of foreign currency denominated household loans. It was estimated at the time that half of Hungary s household debt (US$. billion) was in Swiss francs. The agreement contained provisions to assist those most in need by offering government rentals, interest and exchange rate subsidies, or conversions to the Hungarian forint (the nation s monetary unit) loans, depending on the debtor s financial solvency. The Ministry of Economy has started structural reforms intended to address medium- and long-term fiscal concerns. In addition, the government has initiated significant cuts both in the personal and corporate income tax rates that were expected to boost longer-term growth and have a positive effect on the central budget. 1

147 International Data Hungary Market Opportunities In spite of the many challenges that accompany the local business environment, Hungary remains an attractive market for US investment and exports. US exports to Hungary were US$1.7 billion in 1, up from US$1. billion in 1 and US$1.7 billion in 11. Funding from the EU has also driven growth and will continue to do so. Since, EU funds have been used to improve telecommunications, energy and highway infrastructure. As part of the upcoming National Development Plan (1 ), Hungary will allocate approximately billion euros in projects ranging from tourism and infrastructure development to health care and protection. hungary Market-Entry Strategies The U.S. government, through the American Embassy in Budapest and the Departments of Commerce, State, and Agriculture, stands ready to support U.S. firms, whether entering or already doing business in Hungary. The U.S. Embassy promotes a sound Hungarian business environment and advocates on behalf of U.S. companies bidding on major Hungarian government tenders or facing business problems due to government policies. In addition, the staff at the Embassy s Commercial Section can help U.S. firms to access the Hungarian market and solve commercial problems through cost-effective service programs and market research. Doing Business in Hungary article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Hungary, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 17

148 HUNGARY SNAPSHOT Demographics Population in millions 9.9 Demographics Age Male Female & Over Median Age 1.1 Population Growth -.1% 1 7.% + 17.% 1 1.% Economy GDP (PPP) $9.9 Billion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate 7.1% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from HANOSZ. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 1 Hungary GDP (PPP) (U.S. $ in billions) 1 GDP-Service.% GDP-Industry 1.1% ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% 1 1 ' ' ' Unemployment Rate (Percent) ' '7 ' '9 ' ' ' ' Inflation (Annual Percent Rate) ' '7 ' '9 '1 1

149 International Data Hungary Snapshot Trade Total Export $99. billion Export as % of GDP 1.9% Total Import $9. billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Germany Romania Austria Slovakia Italy Germany Russia Austria China Slovakia Music Industry Music Market $. million Sales Per Capita $. Global Share.% 1 Music Sales Per Capita (U.S. $) '1 Hungary Music Market (U.S. $ in millions). Share of Global Music Market (Percent) '1. '1 19

150 Hungary Imports and Exports 1 Acoustic Pianos Imports 1 Acoustic Pianos Exports Value in U.S. $ thousands Value in U.S. $ thousands 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Fretted & Stringed Instruments Imports Fretted & Stringed Instruments Exports Value in U.S. $ thousands Value in U.S. $ thousands 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1

151 International Data Hungary Hungary Imports and Exports. Wind Instruments Imports. Wind Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 1 Percussion Imports Percussion Exports Value in U.S. $ thousands Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value. Accessories Imports. Accessories Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 11

152 DOING BUSINESS IN INDIA Market Overview The Republic of India is the 1th largest export market for U.S. goods. Two-way trade reached US$.7 billion in 1. U.S. companies exported US$1.9 billion worth of goods to India, dominated by civil aircraft and spare parts, machinery and electrical machinery, which accounts for approximately % of the total trade. The U.S. presently has a trade deficit with India. U.S. imports comprise primarily diamonds, pharmaceuticals and petrochemical products. The stock of U.S. foreign direct investment (FDI) in India was US$9. billion in 1 (latest data available). INDIA India s sizeable and rapidly growing domestic market, growing financial markets, large English-speaking population and stable democratic government make it an attractive destination for U.S. business. It is the 11th largest economy in the world and third largest Asian economy. However, India underperforms relative to its vast potential. Major areas of concern include corruption, caps on FDI, inadequate financing at reasonable rates, complex and lengthy investment approval and land acquisition processes, antiquated labor laws, and poor enforcement of contracts and arbitration judgments. Economic growth slowed significantly to.% in 1. The IMF estimates GDP growth for 1 will increase to.%, from.7% the year prior, reflecting optimism about a good monsoon and the ability of the new government to advance much-needed reforms. U.S. FDI in India is largely in the professional, scientific and technical services; finance/ insurance services; and the information service sectors. Major U.S. companies include AECOM, Bank of America, Bell Helicopter, Black and Veatch, Coca-Cola, DuPont, Dow, Federal Express, General Electric, General Motors, Jacobs Engineering, KFC, Lockheed Martin, McDonalds, Microsoft, Kimberly Clark, PepsiCo, Raytheon, United Airlines, among others. The fast-growing franchising industry in the last two years has attracted major U.S. food service brands such as Dunkin Donuts, Krispy Kreme Donuts, Starbucks and Burger King, establishing their businesses in metropolitan areas as well as Tier 1 and Tier cities (Tier 1 cities possess a population of 1, and higher; Tier cities possess a population of, to 99,999). India is the eighth fastest growing source of FDI into the U.S. The total stock of FDI from India into the U.S. is US$.9 billion. The Indian rupee suffered instability in 1, ending the year 1% lower after suffering a drop of more than % in the spring. Two years of steady depreciation reflect slowing economic growth and rising macroeconomic imbalances. Key issues in 1 were inflation, a large fiscal deficit and a widening current account deficit due largely to oil imports and fuel subsidies. Another concern for the Indian government was the sharp decline in FDI inflows. This decline was triggered by concerns about tightening global liquidity conditions and India s relative macroeconomic stability. Over the summer, the Reserve Bank of India (RBI) took a series of steps to stabilize the currency and limit capital outflows, which further damaged investor confidence. However, new leadership at the RBI in September 1 focused on improving policy transparency and restoring market confidence. The former United Progressive Alliance (UPA) coalition government enacted a handful of new laws in 1 that, if properly implemented and enforced, could improve the country s 1

153 International Data India overall business climate. The Companies Act offers significant improvements to corporate governance procedures, imposing stiffer penalties for fraud, increasing protection for investors and creditors, simplifying processes for creating and closing businesses, and mandating greater transparency in financial disclosures. India held the largest elections in world history with over million voters from April to May 1. The Bharatiya Janata Party (BJP) government won a decisive majority, the first in years. The economic priorities of new Prime Minister Narendra Modi include enhancing the ease of doing business, substantially augmenting India s power-generation capabilities, plus upgrading infrastructure and urbanization of Tier and Tier cities. Many economists consider that the previous UPA government, partly due to the demands of a large and diverse coalition, had allowed economic policy to drift. There are expectations that the new central government with a strong majority in Parliament will better steer economic policy, improve government transparency and facilitate investment in manufacturing and infrastructure to stimulate growth and job creation. india Market Challenges Infrastructure Problems with the country s roads, railroads, ports, airports, education, power grid and telecommunications are significant obstacles as the nation strives to achieve its full economic potential. India s ongoing urbanization, together with rising incomes, has resulted in a heightened need for improved infrastructure, both to deliver public services and to sustain economic growth. India is seeking to invest US$1 trillion in its infrastructure during the 1th Five-Year Plan (1 17) and is looking for private sector participation to fund half of this massive expansion, largely through its homegrown Public-Private Partnership (PPP) model. U.S. companies have been successful in certain areas of India s infrastructure development, but competition from other countries is becoming stiffer. As a result, U.S. industry s market share in India in this sector has been declining. Unfortunately, the PPP model has encountered significant barriers, slowing the development of numerous metro transit, road/highways, airport, mining and energy projects. High Tariffs and Protectionist Policies Import duties continue to be very high, comparatively. Exporters and investors are also faced with nontransparent and often unpredictable regulatory and tariff regimes. Most U.S. services are still strictly excluded from the market. According to the World Bank survey for 1, India is ranked 1th out of 19 countries due to its difficult business climate. Moreover, it is ranked 1th in enforcing contracts. Local Content Requirements The Indian government is pursuing local content requirements in specific areas including information and communications technologies (ICT), electronics and solar energy to spur an increase in the manufacturing sector s contribution to GDP. These policies negatively affect U.S. exporters. 1

154 With regard to ICT, which has been a particular area of concern this past year, India recently drafted a policy expressing preference for domestically manufactured telecommunications and ICT products in government procurement, citing security concerns. In addition, all telecom and ICT products that have security implications have to be notified to the Department of Telecommunications by all Ministries. In April 1, the Indian government announced that all imported ICT equipment would require mandatory licensing and certification from accredited labs in India. The limited number of labs has created yet another hurdle for U.S. exporters seeking to have their products quickly certified for sale and use here. This regulation has not been fully enforced. This preferential market access (PMA) policy could result in hindering imports of innovative technologies, forcing the government to choose from a limited pool of approved locally manufactured products for its ICT procurement needs. Most alarmingly, procurements by private telecom companies could be affected as well. Of similar concern is a newly evolving cloud computing policy, which could mandate that all government data remain in India, effectively denying market access to any foreign cloud storage companies. india Compulsory Registration, Testing and Certification In January 1, new product labeling and safety testing requirements came into force for imports of electronic goods under the authority of Bureau of Indian Standards (BIS). Prior to the deadline, there were issues related to the precise requirements as well as a significant backlog for pending applications. The Government of India made some last-minute adjustments to ease the impact of the new mandates, and subsequently has shown some willingness to engage industry to lessen the burden and streamline the registration process. While the BIS requirement and process adds to the cost of U.S. exporters, the overall impact is not material. Weakening of the Patent Regime for Pharmaceutical Industry In 1, large pharmaceutical companies holding patents on innovative medicines were negatively affected by a ruling that weakened protection of intellectual property, with the Indian Supreme Court s ruling in the Novartis Glivec patent case, which interpreted Section (d) of the Indian Patents Act as barring the grant of patents for improved formulations and compounds that may have received patent protection in other countries. In the face of such obstacles, U.S. companies are re-evaluating their business models in India. Powers of States On June, 1, Andhra Pradesh was officially split creating two states: Telangana and Seemandhra. Companies should be prepared to face varying business and economic conditions across India s now 9 states and 7 union territories. Power and decision-making are decentralized in India, making differences at the state level more apparent in political leadership, quality of governance, regulations, taxation, labor relations and education levels. Gujarat is an example of a state with a positive business climate that has succeeded in attracting significant foreign investment. Jharkand and West Bengal are on the other side of the spectrum. Each has a much lower level of foreign-owned business activity. West 1

155 International Data India Bengal s continued efforts to make land more easily available through the government s Land Bank could spark interest in small greenfield projects. However, not enough land is available in tracts for heavy industrial projects. To do business in India successfully, an investor firm should factor differences in approach by different states to its national business strategy. india Overall, many businesses find they simply cannot afford to ignore the potentially lucrative Indian market despite its well-documented poor infrastructure, high tariffs, protectionist policies, corruption, bureaucratic inefficiency and intellectual property regime, which present the biggest obstacles to domestic and foreign investment and growth. Nevertheless, India s massive infrastructure requirements present trade and investment opportunities for U.S. companies seeking to compete against foreign bidders. Similarly, while recent modifications in India s defense procurement procedure will give priority to domestic public and private sector firms for major military procurements, thus reducing the country s dependence on imports from foreign vendors, major U.S. defense firms continue to succeed in the Indian market. Many large U.S. multinationals are more optimistic about India s long-term potential and are expanding and deepening their market penetration. American firms with advanced and niche-market products and services are entering the market for the first time, or are replacing legacy distributors appointed in the past with more capable and aggressive representatives. Logistics companies are discovering India as a base for distribution throughout Asia, Africa and the Middle East. Finally, many smaller American firms have begun to view India as a top anchor market in the region for their products and services. Market Opportunities These leading sectors present opportunities for U.S. entrants to the Indian market on the basis of estimated Indian imports and potential for growth from the U.S. for 1: Civil aviation Defense Education services Environment and water Franchising Health care and medical equipment Life science, biotechnology Infrastructure Mining and mineral-processing equipment Plastics 1

156 Power and renewable energy Travel and tourism Food processing Corrosion control Supply chain management india Market-Entry Strategies Strategic planning, due diligence, consistent follow-up, and perhaps most importantly, patience and commitment are all prerequisites to successful business. The Indian sub-continent necessitates multiple marketing efforts that address differing regional opportunities, standards, languages, cultural differences and levels of economic development. Gaining access to India s markets requires careful analysis of consumer preferences, existing sales channels, and changes in distribution and marketing practices, all of which are continually evolving. Finding Partners and Agents: New-to-market businesses must address issues of sales channels, distribution and marketing practices, pricing and labeling, and protection of intellectual property. Developing relationships and scheduling personal meetings with potential agents are extremely important. Due diligence is strongly recommended to ensure that partners are credible and reliable. Geographic Diversity: U.S. companies, particularly small and medium-sized enterprises, should consider approaching India s markets on a local level. Good localized information is a key to success in such a large and diverse nation. Multiple agents are often required to serve each geographic market in the country. Market-Entry Options: Options include using a subsidiary, a joint venture with an Indian partner, or using a liaison, distributor, project or branch office. Doing Business in India article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in India, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 1

157 International Data India Snapshot INDIA SNAPSHOT Demographics Population in billions 1. Demographics Age Male Female & Over.. Median Age 7. Population Growth 1.% 1.7% 1.% +.% Economy GDP (PPP) GDP-Service 7.9% Economy $7. trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.% Inflation.% GDP-Industry.% GDP-Agriculture 17.9% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. 7 1 ' ' ' India GDP (PPP) (U.S. $ in trillions) ' '7 ' '9 '1 1 Unemployment Rate (Percent) 1 Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 17

158 Trade Total Export $. billion Export as % of GDP.7% Total Import $.1 billion Import as % of GDP.9% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 1 Annual Percentage 1 U.S. UAE China Hong Kong Singapore China Saudi Arabia UAE Switzerland U.S. Music Industry Music Market $9. million Sales Per Capita $. Global Share.% * The Music Trades began reporting data on India in ' '7 Music Sales Per Capita (U.S. $) ' '9 '1 1 India Music Market (U.S. $ in millions).7 Share of Global Music Market (Percent) ' '7 ' '9 '1. ' '7 ' '9 '1 1

159 International Data India India Imports and Exports ' ' '7 Acoustic Pianos Imports ' '9 '1 Value in U.S. $ thousands ' ' '7 Acoustic Pianos Exports ' '9 '1 Import Value Export Value 7 Fretted & Stringed Instruments Imports Fretted & Stringed Instruments Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 19

160 India Imports and Exports 1 Wind Instruments Imports 1. Wind Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value. Percussion Imports Percussion Exports ' ' '7 ' '9 '1 1 ' ' '7 ' '9 '1 Import Value Export Value 1 ' ' '7 ' Accessories Imports '9 ' ' ' '7 ' Accessories Exports '9 '1 Import Value Export Value 1

161 International Data Italy ITALY Italy is a country located in Southern Europe, divided into regions, with a population of 1 million (ISTAT, January 1, 1) and a density of 1.7/km or./sq. mi, on an area of 11, sq. mi. The country is a founding member of what is today the European Union. ACOUSTIC PIANOS Turnover recovering with a +.% An important fact, if not in units that retain their values in the pure acoustic segment, certainly in turnover which has still a respectable importance. It will be necessary to keep an eye on acoustic electric pianos because of the strong decrease in units they have suffered. ITALY DIGITAL PIANOS Turnover growing by +11.% A very important increase that in this delicate moment of our market is particularly welcome. A phenomenon to be noticed: in the segment of the professional digital pianos, we see a decrease of 9.% in units, totally compensated by the raise of the price average of +9%. This is a factor to be studied in other product families. ORGANS AND HARPSICHORDS Turnover decreased by 19.% The figures are too small to venture any comments about them. PORTABLE KEYBOARDS Turnover decreased by.% The first change we note is a reduction in the average price of all lines. In the case of portable keyboards with standard keys, the reduced retail price has probably created a sales increase of 1, units (+%), which in turn generated an increase of well over 7, euros (+1%) compared to the previous year, which unfortunately is totally absorbed by the drop in sales of other keyboards and in particular those with mini keys ( 9, euros). SYNTHESIZERS AND SAMPLERS Turnover in growth of +.% Interesting structure of the increase in this sector. On the one hand, the controller keyboards: while they do not have a significant cutback of the average price ( 1.7%), they have a rather strong increase in units sold (+%), which is reflected in sales (+1.%). On the other hand, sound modules, which had a striking reduction of the average price (.%), presumably produced an increase in both units (+.7%) and turnover (+1.%). ARRANGERS, COMPOSER Turnover advancing by +1.% Another area that often surprises us with its unpredictable fluctuations due to the introduction of innovative products and strong price variation that reflect sudden changes in consumer trends. We find that MP has lost much of its appeal, that composer due to an increase of the average price (+1.%) have lost in units sold but kept the turnover, that rhythmic units which kept the average price had a good increase both in units (+.%) and in turnover (+1%) followed by a significant turnover increase of the midi readers (+9.) due to a price increase of 19% that had as a result only a.% in units sold 11

162 and, in the end, a true reversal between arrangers and re-mixer passing from an average price of 1 euros to 1, euros, which leads to a sales reduction in units of 9% but that because of the effect of the increase in the average price, saves almost 1% of the turnover of the previous year. ACOUSTIC GUITARS Turnover decreased by.% The sector loses again more than a million euros. This clearly indicates that, even if 1 finally provided a positive sign, we can t let our guard down because the road to recovery is not yet complete. If the best-selling product in our industry, the most accessible and affordable, among the non-educational products, is still falling, we must realize that the crisis is not over and that the business must be monitored with full attention. The average price increase of +.%, which corresponds to the reduction in sales of.%, is purely coincidental. italy ELECTRIC GUITARS Turnover down by 1.% In this case, we lost more than million euros. Except for guitar controllers, which spread their wings with an increase in units of +.%, due probably to the reduction of the average price by 1.1%, which most likely gave access to this product to a new target audience that had been excluded before, electric guitars and bass guitars drop both in units and in turnover and this brings us to the same conclusions of the acoustic guitars. OTHERS FRETTED INSTRUMENTS Turnover in recovery by +.% Finally, an area remaining in standard levels: a steady increase mainly due to ukulele, which continues its positive trend. WIND INSTRUMENTS Turnover in recovery by +.% This is a sector that deserves a better look. It is true that it had a good increase in turnover, but if we go into detail, we see that the increase is due only to the rise of the average price. If we analyze the units sold with the only exception of clarinets (+.1%), oboes and bassoons (+.7%, but on a numerical basis, which is not relevant) all other wind instruments are dropping. HARMONICAS Turnover in recovery of +.% Basically stable. ACOUSTIC BOW INSTRUMENTS Turnover down by.% Broadly speaking, we can say that there has been a slight drop in the sales of violins and violas, offset by the increase of the sales in cellos. The real decline that has determined the negative figures is given by the decrease in units of basses (.9%) despite the significant decrease in the average price ( 1.%). 1

163 International Data Italy ELECTRONIC BOW INSTRUMENTS Turnover increased +19.% A slow but steady increase, even if still at very low levels, the sale of electric violins, a decline in cellos probably due to the strong rise of the average price (+1%) and an increase in electric basses that we will need to monitor in the future to check any association with the result of the acoustic sales. italy PERCUSSION INSTRUMENTS Turnover in recovery by +.% The sector that had suffered a strong decline in turnover from 1.7 million euros of 1 to.7 million euros of 1, in 1 shows a small sign of recovery but, even in this case, if we look at the figures, we see that acoustic drums still decline, by little, but they come down and, consequently, the single parts and in addition the Latin percussions and percussions below 1 euros (percussion under 1 euros are into educational turnover). The cymbals keep their position and are constant, while the real increase comes from the sales of electronic drums, which advance relentlessly (+1.%). If we go more into detail we can outline even better the composition of the increase. The total value of the sector s decrease is 7, euros, the total value of the increasing sectors 1,1, euros; the difference between the two is an increase of 779, euros. The boost of electronic drums is 71,79. euros, which leads us to say that the increase of the drum segment is due almost completely to electronic drums. ACCORDIONS Turnover down by.% This sector has a slightly lower turnover, mainly due to the reduced sales of traditional accordions (.7% in units and.7% in turnover) with an increase of the average price of +.% followed by a reduction in units ( 1.7%) of electronic accordions even if compensated by an increase in the average price of +.%, which brings the final value to an increase of +.% from 1. A strong increase by concertinas of +.7% in units and +.% in turnover is likely because of the significant average price reduction ( 1%). EDUCATIONAL INSTRUMENTS Turnover in recovery of +.% Basically stable as units sold and noteworthy on a few elements. The sum of the values of the decreasing sectors, as metallophones ( 1, units) and other percussions has a value of,7. euros that practically absorbs almost the entire increase of recorders, which have risen by 1, units and +7.% as average price to a final value of an increase of 7,11. euros. The doubt arises about whether the two data are somehow connected, or if the change of interest from metallophone to recorders is due to a need to reduce the spending amount due to the crisis or to other factors. INSTRUMENT AMPLIFIERS Turnover down by 7% Percentage due exclusively to bass amplifiers, which last year had an absolutely anomalous increase probably due to a phenomenon of exportation with billing in Italy that this year has stopped, so this brings us back to realistic values and figures. If we analyze item by item we 1

164 notice that the trend of the amplifiers basically follows the general trend. In fact, amplifiers up to 1 euros both for guitar or bass (lowest price band) have an increase while all others above 1 euros suffered a setback both in units and turnover. SOUND AMPLIFIERS Turnover in recovery by +1.% This segment is OK from the point of view of turnover but it lost a very important.1% in terms of units. The most penalized ones are speakers up to 99 euros that lost 1, units and not amplified mixers up to euros losing 1,99 units. On the other hand, we note an increase in the average price of +.7%, probably due to the euro/dollar exchange and compensates and justifies the loss in units. italy MICROPHONES Turnover with a +.% The overall reduction in the average price, except for wireless microphones, which before probably had an average price that was too low considering the type of product, brings the sector to a growth in units of +1.9% with leaps of 1,9 units in microphones between 1 and 1 euros and,9 in those over 1 euros. Only radio microphones underwent a reduction of sales in units by 11.7%, due likely to the rise in the average price by +.% and justified by a turnover increase of +7.1%. SIGNAL PROCESSORS (guitar effects pedals) Turnover in recovery of +1.9% A drastic reduction in sales of studio processors, which lost.% in terms of units, caused probably more by the average price that doubled, but not enough to fill the loss of turnover, despite the significant price increase, is down by 17.%. Multi-effects pedals recovered and take the figures of this segment to a positive. Despite a live reduction of.% in the average price, they benefit with a +19.7% in units and a +1% in sales, leading the segment to a positive result. DIGITAL RECORDERS Turnover increasing by +.% Important growth of digital recorders, with good result mainly due to the reduction of the average price of 1.%, while analog multi-track recorders disappeared from the scene. MUSIC PUBLISHING Turnover in recovery of +1.% The sector closes with a brilliant +1.% coming from a +11.% of classical music, which represents two-thirds of the entire sector and an encouraging +7.1% of light music (popular music). ACCESSORIES Turnover increasing by +19.% Despite an unusual 1.% in tuners, we have +.7% in strings and +.% in other accessories. Finally the trend of this very important segment has changed and is growing again. 1

165 International Data Italy COMPUTER MUSIC Turnover in recovery of.1% Despite an increase in the average price of +.%, cards have an increase in units (+7.1%) and turnover (+.9%) taking the sector to an added value of, euros. The software lost 9.% in units, caused by an increase of the average price of +1.%, which determines a +.7% in sales. In addition, there is an increase in value of,71 euros for master keyboards, achieved with the reduction of the average price by 1.9%, which consequently generated an increase in units +.% and +.% in turnover. italy CONCLUSIONS The musical instrument market closed 1 with a positive sign of +.%, restoring confidence to the sector and showing a trend change we have been waiting for, for four years. The composition of the turnover is quick and clear: 17 out of segments have achieved an increase in turnover, 1 have had an increase in units and only 1 an increase in the average price. This is the macroscopic data, which was then analyzed sector by sector and item by item, and from which we took some of the percentages that have been reported here. There are still deep wounds that need to heal in our market, for example, the acoustic pianos sector, which reached minimum values and requires great effort to be defended. In addition, the whole guitar sector, which suffers heavily and highlights that the crisis is far from over and that we have to keep up our guard for an indefinite time. The wind instruments sector, which despite the increase showing, sounds the alert for instruments in the up-market products, same as for the acoustic bow instruments. On the other hand we remark that the electronics are the most requested. Electronic percussions are growing but the greatest amount of interest is for electronic drums. The entire sector of amplification of instruments, voice and microphones in contrast to signal processors, shows a strong trend toward low-end products. And the surge of accessories confirms the tendency toward saving. Music publishing brings a twofold positive sign. The whole sector is in turmoil and still in an adjustment phase after the earthquake we suffered in 1, but the first quarter of 1 indicates an increase average of +.% (data obtained thanks the active cooperation of members of Dismamusica), reflecting the fact that the closing of 1 is not an occasional event but a new direction of the market. It s up to us now to ride this wave of positivity, making the most of our entrepreneurial skills and seizing the opportunities that we find every day along the way. Commentary by Claudio Formisano, President of Dismamusica DOING BUSINESS IN ITALY Market Overview Italy is the world s ninth largest economy, with a GDP of US$. trillion in 1. Italy s economy contracted by.% in 1 and 1.9% in 1, still affected by the current global recession. 1

166 In 1, Italy was the nd largest market for U.S. exports, which totaled approximately US$1. billion. The U.S. is Italy s ninth largest supplier. Germany, France, the United States, Spain, Switzerland and the United Kingdom are Italy s most important trading partners, with China continuing to gain ground. U.S. imports from Italy totaled US$.7 billion in 1. U.S. cumulative direct investment in Italy was US$. billion in 1, ranking Italy 11th in Europe. U.S. investment is concentrated in manufacturing, computer services and software, and energy, with significant industrial relationships in the aerospace and automotive sectors. Pharmaceuticals represent the second sector for U.S. investors in Italy in terms of sales (%) and employment (1%). U.S. biopharmceutical companies have an annual turnover of.7 billion euros (% of the total industry). italy Tourism is an important source of external revenue, as are exports of engineering products, mechanical machinery and textiles/fashion. Industrial activity is concentrated in the north in a swath that runs from Turin in the west through Milan to Venice in the east. This is one of the most industrialized and prosperous areas in Europe and accounts for more than % of the national income. By contrast, Italy s southern region, or Mezzogiorno, is less developed. Italy is a founding member of the European Union (EU) and uses the euro as its national currency. Italy s current government came into being on February, 1, when 9-year-old Florence mayor and Democratic Party (PD) leader Matteo Renzi replaced Enrico Letta as Prime Minister. Renzi s center-left PD dominates his governing coalition, which is no longer a grand coalition but still includes the New Center Right party, the Civic Choice party and the Union of the Center. Renzi s goals extend the goals of the preceding Letta and Mario Monti governments: stimulating the Italian economy; reforming the electoral system; and streamlining Italy s political institutions. As new regulations and laws are passed by the new government, new opportunities may arise. Market Challenges Italy is a mature and sophisticated market. U.S. entrants face strong competition from local and other EU companies in all market segments. Italy s regulatory environment is complex and at times lacks the transparency, clarity, efficiency and certainty found in other developed economies. 1

167 International Data Italy Products that involve health, safety or environmental concerns are likely to be highly regulated. While EU-wide regulations often apply, Italian laws may go beyond the basic EU requirements. Italy s economy is dominated by small and medium-sized firms (SMEs), many of which are family-owned, comprising 99.9% of Italian businesses and producing % of Italy s GDP. Italy s SME sector has a higher proportion of firms employing fewer than 1 persons than the EU average. These companies contribute nearly half of total employment and one-third of value added to the economy. italy Market Opportunities U.S. firms enjoy good opportunities in sectors where new regulations or programs (often imposed or initiated at the EU level) are creating demand; with new products/ services where there is little or no domestic competition; and/or where the U.S. product offers clear technological, design or price advantages. Best prospects for U.S. exports include airport and ground support equipment, automotive parts and equipment, cosmetics and toiletries, cybersecurity, energyefficiency technologies, medical devices and technologies, mobile communications and private equity. Italy s changing demographics and lifestyle also create opportunities. The country s birthrate is low and its population is aging. More women are entering and remaining in the workforce, although their participation remains below EU averages. Italy hosts major trade shows that attract buyers from throughout Europe, the Mediterranean and beyond. The Commercial Service offers on-site support for U.S. exporters at most of the major international shows, or by request. Shows where U.S. companies have obtained good results include Ecomondo and Mostra Convegno Expocomfort (MCE) (energy-efficiency technologies), Cosmoprof (cosmetics), Autopromotec (automotive), EICMA (motorcycles), Zoomark (pet products) and Showcase USA-Italy (tourism). U.S. agricultural, fish and forestry exports to Italy in 1 totaled approximately US$1. billion. The US is, for Italy, primarily a supplier of high-quality inputs for Italian food processing, as well as wheat for pasta and confectionary, forest products for furniture and housing components, tree nuts for bakery products, seeds for planting, hides and skins, seafood for the restaurant sector, and tobacco. Market-Entry Strategies The cultivation and maintenance of personal relationships are a vital part of doing business in Italy. Finding the right Italian agent, distributor or business partner is therefore essential to entering the Italian market. It is usually not effective to rely on agents or distributors in neighboring markets, since despite the existence of the EU common market, the Italian market remains very individualized. 17

168 The ideal candidate should already have a network of relationships that will open doors in the market. They should have a solid understanding of local business practices and regulations. For technical products, the potential partner should have the ability to provide Italian customers with after-sales service. Patience is essential because it may take two to three times longer than expected to establish a business. ecommerce remains relatively less developed in Italy due to factors such as a high level of credit card fraud, lack of trust in the postal system, and the traditionally less favorable return practices of Italian merchants. However, Italians do use the Internet for social networking and information. Doing Business in Italy article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Italy, you may visit their website at italy The following charts are based on retail sales data provided by the Italian Music Association, Dismamusica 1

169 International Data Italy Snapshot ITALY SNAPSHOT Demographics Population in millions 1.7 Demographics Age Male Female & Over. 7. Median Age. Population Growth.% 1.% + 1.% 1 1.% Economy GDP (PPP) $.7 trillion GDP Per Capita $, GDP-Real Growth Rate -.% Unemployment Rate 1.% Inflation.1% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from DismaMúsica. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Economy. Italy GDP (U.S. $ in trillions). 1. GDP-Service 7.9% GDP-Industry.9% 1.. GDP-Agriculture.%. ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 19

170 Trade Total Export $. billion Export as % of GDP.17% Total Import $. billion Import as % of GDP 1.% Export Partners (1) Import Partners (1) Annual Percentage 1 Annual Percentage 1 1 Germany France U.S. U.K. Switzerland Spain Germany France China Spain Netherlands Belgium Music Industry Music Market $. million Sales Per Capita $. Global Share.% 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 7 1 ' ' ' Italy Music Market (U.S. $ in millions) '7 ' '9 ' ' ' Share of Global Music Market (Percent) ' '7 ' '9 '1 17

171 International Data Italy Italy Domestic Sales Value in millions Value in millions Acoustic Guitars ' ' '7 ' '9 '1 Retail Value Electric Guitars ' ' '7 ' '9 '1 7 1 ' ' '7 ' '9 '1 1 Retail Value. x 1, x 1, Value in millions Value in millions ' ' ' ' 1 '7 '7 Grand Pianos ' '9 '1 Retail Value Upright Pianos ' '9 '1 Retail Value x 1,.. Value in millions Total Guitars 7 ' ' '7 ' '9 '1 1 ' ' '7 ' '9 '1 1 Retail Value x 1, Value in millions 1 1 ' ' 1 Total Acoustic Pianos '7 ' '9 '1 Retail Value 1 x 1, 171

172 Italy Domestic Sales Digital Pianos Wind Instruments 1 Value in millions x 1, Value in millions x 1, ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Retail Value Retail Value Harmonicas were added to this category in. 1 1 Value in millions 1 1 ' Portable Keyboards ' '7 ' '9 ' x 1, Value in millions 1 1 Percussion 1 ' ' 1 '7 ' '9 '1 Retail Value ' ' 1 '7 ' '9 '1 Retail Value. Stringed Instruments with a Bow Print Music Value in millions x 1, Value in millions 1 1. ' ' 1 '7 ' '9 '1 Retail Value ' ' '7 ' '9 '1 Retail Value 17

173 International Data Italy Italy Domestic Sales Computer Music Voice Amplifiers Value in millions ' ' '7 ' '9 '1 Value in millions 7 1 ' ' '7 ' '9 '1 1 1 x 1, Retail Value Retail Value Value in millions ' Signal Processing 1 1 x 1, 1 1 ' ' '7 ' '9 '1 ' '7 ' '9 '1 Retail Value Value in millions 1 1 ' ' 1 Instrument Strings '7 ' '9 '1 Retail Value Instrument Amplifiers Accessories 1 Value in millions x 1, Value in millions 1 ' ' 1 '7 ' '9 '1 Retail Value ' ' '7 ' '9 '1 Retail Value 1 Accessories category includes tuners, instrument strings and other accessories. 17

174 JAPAN 1 Japanese Music Products Sales Increased 9% Large Part of Sales Done on the Internet According to the statistics compiled by the Japan Musical Instrument Manufacturers Association, Japan s 1 music products sales were 17. billion yen, a 9% increase over the previous year. Domestic sales advanced 1% to 7.7 billion yen, while exports increased % to 9.9 billion yen. The growth rates were the largest in the last three years. As listed below, domestic sales rose both in units and value for almost all music products except for mini-size electronic keyboards, flutes, piccolos, electric guitars, Taishokotos, concert drums and tabletop xylophones. (Sales value increased for tabletop xylophones and accordions.) JAPAN Electronic organ sales advanced more than % in units and value, largely driven by the new Yamaha STAGEA Electone models, which were refined 1 years after the initial launch. Also, sales of other percussion instruments dramatically increased in units. Given that they were almost flat in value, it looks like small items may have pushed up the market, but details are unknown. Despite comparatively good performance, music retailers reported a negative market trend last year. Retailers enjoyed sizable extra sales before the tax hike in April, but thereafter, demand instantly waned. Retail business remained quiet except for a minor temporary uptick around May; customers didn t return throughout the year after summer. Of course, not a few retailers got through the year with excellent sales, but what did music retailers generally fret over regarding their 1 business? Brisk Internet sales at the cost of brick-and-mortar stores. The positives from last year were due in part to a moderate surge of exports backed by depreciation of the yen, a rescheduled second consumption tax hike to 1% and low oil prices. The year 1 will see improved consumer confidence as workers (largely employed by big businesses) will get a pay raise. Exports also fared better in 1 than a year before, with favorable sales increases of grand and upright pianos, clarinets, saxophones and other wind instruments, tabletop xylophones, keyboard harmonicas, accordions, electronic organs, digital pianos, electronic keyboards and mini-size keyboards, and other digital music products both in units and value. According to Import/Export Statistics compiled by the Customs Bureau of The Ministry of Finance, total exports for 1 were.1 billion yen, a % increase over the previous year. Imports were 9 billion yen, a 1% increase. Imports of acoustic guitars, brass instruments, electric/electronic instruments with a keyboard and other electric/electronic instruments increased substantially. Electric/electronic instruments with or without a keyboard rose in particular. Since 1, Japan has imported more than, accordions and other instruments in this category every year. We have found through interviews with distributors that accordions 17

175 International Data Japan share only 1% or % of the category, and 9% or 99% of the category is composed of keyboard harmonicas. japan Sales increase in 1 (compared with 1) (%) Value (%) Upright pianos 1 1 Grand pianos Electronic organs 17 Digital pianos 1 11 Electronic keyboards Keyboard synthesizers 1 19 Other electronic insts Amps for musical insts Clarinets 1 1 Saxophones 1 1 Other woodwind insts. 1 1 Trumpets & cornets 1 11 Trombones Other brass insts Acoustic guitars Other stringed insts Marching drums 1 1 Jazz drums 1 17 Other percussion insts Xylophones with legs 9 17 Glockenspiels with legs 1 9 Tabletop xylophones 1 99 Harmonicas Keyboard harmonicas Accordions 9 1 Recorders Commentary by Masaru Sawano, President of Japan Music Trades DOING BUSINESS IN JAPAN As the world s fourth-largest buyer of American products and the world s third-largest economy, Japan, among the most dynamic and advanced countries in the world, is a market that should be considered by all American exporters. Japan is a technology powerhouse, a proving ground for consumer goods and services, and in the social and commercial vanguard of developed market demographics. Further, Japanese companies are also major investors in the United States, and as a result Japan sees dozens of visits by senior U.S. state and city officials annually. While the reasons U.S. firms engage with Japan are diverse, the strategic and tactical importance of the Japanese market is critical not only for their business in Japan, but in the U.S. and developing markets as well. 17

176 Market Overview Japan continues to enjoy attention in the business news this year owing to a variety of factors, including the strong performance of the Japanese stock market in 1, continued brighter business and consumer sentiment, a yen that has seemingly stabilized at a level sharply lower than that of recent years, and the apparent end of stubborn deflation. The new economic policies linked to these developments are known collectively as Abenomics : a three-pronged strategy of bold monetary loosening, fiscal stimulus centered on infrastructure spending, and growth-oriented structural reform. While the implications and ultimate success of this strategy in re-igniting long-term growth in Japan are uncertain, it has drawn considerable attention from U.S. businesses. japan The U.S., Japan and 1 other countries are to negotiate the Trans-Pacific Partnership (TPP). With Japan s participation, its members would account for nearly % of world GDP. Moreover, the liberalization expected to be required of TPP member countries may play an important role in promoting the domestic economic reforms likely to be called for under Abenomics. As of April 1, Japan and the U.S. have resumed working-level bilateral talks in Tokyo as part of TPP multilateral free trade negotiations. While Japan has made significant steps toward economic healing following the tragic combined earthquake, tsunami and nuclear incident of March 11, lasting changes on various levels remain noticeable, including idled nuclear power plants. In particular, greater levels of manufacturing by Japanese companies outside of Japan, increased fuel imports and a weakening yen have turned Japan s multi-decade trade surplus into a trade deficit. Japan remains the world s third-largest economy, after the United States and China, with a GDP of almost US$ trillion. Japan is the fourth-largest export market for U.S. goods and services, and our fourth-largest trading partner overall. In 1 the U.S. exported US$ billion in goods to Japan. The United States runs a persistent trade deficit with Japan in merchandise, and a surplus in services. Japan is the second-largest foreign investor in the United States, with a cumulative investment of approximately US$1 billion. During 1, the Japanese yen weakened appreciably and is currently near five-year lows against the dollar. Even so, U.S. products remain competitive in Japan. Japan s large government debt, which totals more than % of GDP, and an aging and shrinking population are major challenges confronting the economy, but the latter issue can also present opportunities for U.S. companies. In 1, the top exporters to Japan were China, the United States, Australia, Saudi Arabia, South Korea, the UAE and Indonesia. The top importers from Japan were China, the United Sates, South Korea, Taiwan and Hong Kong. The U.S.-Japan alliance is a cornerstone of U.S. security interests in Asia and is fundamental to regional stability and prosperity. The U.S.-Japan alliance continues to be based on shared vital interests and values. These include stability in the Asia-Pacific region, the preservation and promotion of political and economic freedoms, support for human 17

177 International Data Japan rights and democratic institutions and securing of prosperity for the people of both countries and the international community as a whole. Japan is one of the world s most prosperous and stable democracies. Market Challenges The degree of difficulty in penetrating the Japanese market depends on the product or service involved. Key variables include the degree of local or third-country competition, the number of regulatory hurdles to be overcome and cultural factors such as language (both spoken and written), service and quality expectations and business practices. Tariffs on most imported goods into Japan are low. However, cultural, regulatory or other non-tariff barriers exist that can make market entry difficult. These can include Japanese import license requirements, restricted or prohibited imports, temporary entry of goods, certifications, standards, labeling requirements, etc. japan Market Opportunities The Japanese market offers numerous opportunities for U.S. companies in a wide variety of sectors. Best prospects for U.S. exporters in the Japanese market include the following sectors: Aerospace Agricultural products and services, including high-value food and beverage Biotechnology Cloud Computing Cosmetics and Toiletries Education and Corporate Training Electronic Components Health Care IT Medical Equipment Nuclear Decontamination in Fukushima Pharmaceuticals Renewable Energy Safety and Security Telecommunications Equipment Travel and Tourism Market-Entry Strategy U.S. companies wishing to enter the Japanese market should consider hiring a reputable, well-connected agent or distributor, and cultivating business contacts through frequent personal visits. Japan s business culture attaches a high degree of importance to personal relationships, and these take time to establish and nurture. Patience and repeated follow-up are typically required to clinch a deal. The nature and pace of deal-making in Japan are quite different from in the United States. U.S. business executives are advised to retain a professional interpreter, as many Japanese executives and decision-makers either do not speak English or prefer to speak Japanese. Doing Business in Japan article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Japan, visit The following charts are based on domestic sales and export data provided by the Japan Musical Instruments Manufacturers Association (JMIMA), the Ministry of Economy, Trade and Industry (METI) and the Customs Bureau of the Ministry of Finance, and published by the Japan Music Trades 177

178 JAPAN SNAPSHOT Demographics Population in millions 17.1 Demographics Age Male Female & Over Median Age.1 Population Growth -.1% 1.% +.% 1 1.% Economy GDP (PPP) $.1 trillion GDP Per Capita $7, GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Japan GDP (PPP) (U.S. $ in trillions) GDP-Services 7.1% GDP-Industry.7% 1 GDP-Agriculture 1.% ' ' ' ' '7 ' '9 '1 1 ' ' ' Unemployment Rate (Percent) ' '7 ' '9 ' ' ' ' Inflation (Annual Percent Rate) ' '7 ' '9 '1 17

179 International Data Japan Snapshot Trade Total Export $71. billion Export as % of GDP 1.77% Total Import $11.9 billion Import as % of GDP 1.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 U.S. China S. Korea Thailand Hong Kong China U.S. Australia UAE Saudi Arabia Qatar Music Industry Music Market $. billion Sales Per Capita $17. Global Share 1.% 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1. Japan Music Market (U.S. $ in billions) Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 179

180 Japan Domestic Sales and Exports (Note regarding the export data: The knockdown production and intermediary trade data are not included starting in 1) 1. Acoustic Guitars Domestic Sales Acoustic Guitars Exports Value in billions of Yen x 1, Value in billions of Yen x 1,. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Value Value Value in billions of Yen 7 1 ' '9 ' '97 Electric Guitars Domestic Sales '7 ' '9 '1 '9 '99 ' '1 ' Value ' ' x 1, Value in billions of Yen 7 1 ' '9 ' '97 Electric Guitars Exports 1 '7 ' '9 '1 '9 '99 ' '1 ' ' Value ' 1 1 x 1, Value in billions of Yen ' '9 Total Guitars Domestic Sales ' ' '7 ' '9 ' ' ' '7 ' '9 '1 ' '7 ' '9 '1 '97 '9 '99 ' '1 ' ' ' Value X 1, 1 Value in billions of Yen ' '9 Total Guitars Exports ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' ' x 1, 1

181 International Data Japan Japan Domestic Sales and Exports Value in billions of Yen ' ' '7 Grand Pianos Domestic Sales ' '9 ' x 1, Value in billions of Yen 1 1 ' ' '7 Grand Pianos Exports ' '9 '1 1 1 x 1, Value Value 1 Upright Pianos Domestic Sales 1 Upright Pianos Exports 1 Value in billions of Yen ' '9 ' ' '7 ' '9 ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value '1 ' 1 1 ' x 1, Value in billions of Yen 1 9 ' '9 ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' ' 1 x 1, Value in billions of Yen 1 1 Total Acoustic Pianos Domestic Sales ' ' '7 ' '9 '1 1 ' ' '7 ' '9 '1 '9 '97 '9 '99 ' '1 ' ' ' Value x 1, Value in millions of Yen 1 1 ' ' '7 Total Acoustic Pianos Exports ' Value '9 ' x 1, 11

182 Japan Domestic Sales and Exports Value in billions of Yen ' ' '7 Electric Pianos Domestic Sales ' Value '9 ' x 1, Value in billions of Yen 1 1 ' ' '7 Electric Pianos Exports ' Value '9 '1 1 1 x 1,. Electronic Keyboards Domestic Sales Electronic Keyboards Exports 1. Value in billions of Yen ' ' '7 ' '9 '1 1 1 x 1, Value in billions of Yen x 1,, 1. ' ' '7 ' '9 Value '1 ' ' '7 ' Value '9 '1 1. Value in billions of Yen 1 1 ' '9 Total Electronic Instruments Domestic Sales 7 x 1, 1. ' ' '7 ' '9 '1 ' '7 ' '9 '1 '97 '9 '99 ' '1 ' ' ' Value Value in billions of Yen ' '9 Total Electronic Instruments Exports ' '7 ' '9 '1 '97 '9 '99 ' '1 ' ' Value ' x 1,, 1 1.

183 International Data Japan Japan Domestic Sales and Exports Value in billions of Yen ' ' '7 Stringed Instruments Domestic Sales ' '9 ' x 1, Value in billions of Yen 7 1 ' ' '7 Stringed Instruments Exports ' '9 ' x 1, Value Value Value in billions of Yen ' ' ' '7 ' Brass Instruments Domestic Sales ' '9 '7 ' Value '1 '9 '1 1 1 x 1, Value in billions of Yen 7 1 ' '9 ' '97 Brass Instruments Exports '7 ' '9 '1 '9 '99 ' '1 ' Value ' ' x 1, 7 Woodwind Instruments Domestic Sales 1 Woodwind Instruments Exports Value in billions of Yen 1 ' ' '7 ' '9 '1 1 x 1, Value in billions of Yen x 1, ' '9 ' '97 '7 ' '9 '1 '9 '99 ' '1 ' Value ' ' ' '9 ' '97 '7 ' '9 '1 '9 '99 ' '1 ' Value ' ' 1

184 Japan Domestic Sales and Exports 1 Total Wind Instruments Domestic Sales Total Wind Instruments Exports Value in billions of Yen ' ' '7 ' '9 '1 7 1 x 1, Value in billions of Yen 1 1 ' ' '7 ' '9 '1 1 1 x 1, Value Value Value in billions of Yen 1 Percussion Domestic Sales x 1, Value in billions of Yen 7 1 Percussion Exports x 1, ' ' '7 ' '9 '1 '9 '97 '9 '99 ' '1 ' Value ' ' '7 ' '9 '1 ' ' ' ' '7 ' Value '9 '1 Total Domestic Sales Total Exports Value in billions of Yen 7 1 ' ' '7 ' '9 ' x 1,, 1.. Value in billions of Yen x 1,, ' '9 ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' '. ' ' '7 ' '9 Value '1 1

185 International Data Mexico MEXICO Overall, the market has been in a slowdown due to the micro economic situation. The government is pushing worldwide their various reforms that will make big changes, but this is in the long run, and currently the economic situation has not been favorable for our industry and others. The end consumer is being very cautious. As with other currencies, the Mexican peso devaluated against the U.S. dollar more than 1%; inflation was around % to % for the first quarter. Growth for the year has been recently adjusted again to a mere 1.%. Basically, inflation will eat up the growth. Prices of most goods have increased between 1% and %. Suppliers worldwide increased their prices at the beginning of the year. Combining this situation with the devaluation, etc., we have the 1% to % increase even in our industry. MEXICO The budget for the cultural ministry has been cut even further this year, since the government has less money to spend. This in turn affects the possibility for bids and replenishment of local orchestras and community bands. Dealers are focusing more on low-priced instruments and those of lesser quality. This creates for some a problem of liquidity and the ability to pay the fixed costs of their stores. Mexico in June 1 will have elections for senate and some state governorships. Therefore, the main focus of political parties is not for the country, but their influence and promotion in various governmental seats. As a result, the country is on hold and spending is focused on campaigns. An estimated US$ million will be spent of taxes for the promotion of campaigns. So the majority of dealers are satisfied if they can achieve their results of last year, even if their money and spending power has diminished. As previously stated, end consumers are more cautious. This shows up as reduced use of credit cards and more cash payments. No true growth in our industry will be seen. No special trends or changes are happening in our market. The U.S. continues as a major influence on product usage and trends in the Mexican market. Commentary by Thomas Veerkamp, Marketing Director of Casa Veerkamp, SA de CV DOING BUSINESS IN MEXICO Market Overview The North American Free Trade Agreement (NAFTA), which was enacted in 199 and created a free trade zone for Mexico, Canada and the United States, is the most important feature in the U.S.-Mexico bilateral commercial relationship. 1

186 Mexico is the United States third largest trading partner and second largest export market for U.S. products. U.S.-Mexico bilateral trade increased from US$ billion in 199, the year prior to the implementation of NAFTA, to US$7 billion in 1, an increase of 7%. After a drop in trade following the economic crisis of, U.S.-Mexico trade in goods has grown steadily, rising % from US$ billion in 9 to the previously mentioned US$7 billion in 1. Negotiations are now underway for the Trans-Pacific Partnership (TPP), with U.S. and Mexican participation. The U.S. and Mexico seek to boost U.S. and Mexican economic growth by increasing exports from a region that includes some of the world s most robust economies and that represents more than % of global trade. mexico In May 1, President Obama and Mexican President Peña Nieto announced the High Level Economic Dialogue (HLED). The HLED involves several government agencies from the United States and Mexico that are working together to promote competitiveness and connectivity; foster economic growth, productivity, and innovation; and partner for regional and global leadership. Within the framework of the HLED, the two governments are working in conjunction with the private sector to identify and reduce barriers to trade between the two countries and to increase opportunities for both U.S. and Mexican companies in these two markets. To further HLED efforts to promote entrepreneurship, stimulate innovation and encourage the development of human capital to meet the needs of the 1st-century economy, Presidents Obama and Peña Nieto also announced a Bilateral Forum on Higher Education, Innovation, and Research, which was officially launched in May 1. Through the forum, the U.S. and Mexican governments seek to expand student, scholar and teacher exchanges; increase joint research in areas of mutual interest; and share best practices in higher education and innovation. A third initiative announced by the presidents in 1 is the Mexico-United States Entrepreneurship and Innovation Council (MUSEIC). The council is composed of seven subcommittees that focus on providing a legal framework that encourages innovative entrepreneurship, promoting women s entrepreneurship, exchanging best practices on technology commercialization, engaging entrepreneurs among the Latin American diaspora residing in the United States, supporting entrepreneurs of small and medium-sized businesses, developing regional innovation clusters, and sharing best practices on financing high-impact entrepreneurship. Mexico is the most populated Spanish-speaking country in the world, with a population of more than 1 million (7% of whom live in urban areas). Ten percent of the population is considered wealthy and about % live in poverty, earning less than US$1 per day. The remaining % of the population is considered middle class. Mexico has a very young population, with a median age of 7. 1

187 International Data Mexico With a shared Western and Hispanic culture, U.S. producers may find it easier to market and sell their services and products in Mexico. There is a large installed base of manufacturing in a wide range of sectors. Mexico is a stable democracy. Mexico s GDP growth slowed from a strong average of.% between 1 and 1 to 1.1% in 1, and rebounded to.% in 1. Energy, telecom, labor, financial and education reforms are positioning Mexico to increase its competitiveness. mexico Market Challenges Mexico s size and diversity are often under-appreciated by U.S. exporters. It can be difficult to find a single distributor or agent to cover this vast market. The Mexican legal system differs in fundamental ways from the U.S. system. Therefore, U.S. firms should consult with competent legal counsel before entering into any business agreements with Mexican partners. The banking system in Mexico has shown signs of growth after years of stagnation, but interest rates remain relatively high. In particular, small and medium-sized enterprises (SMEs) find it difficult to obtain financing at reasonable rates despite government efforts to increase capital for SMEs. U.S. companies need to conduct thorough due diligence before entering into business with a Mexican firm, and should be conservative in extending credit and alert to payment delays. As one element in a prudent due diligence process, the U.S. Commercial Service offices in Mexico can conduct background checks on potential Mexican partners. U.S. companies should assist Mexican buyers in exploring financing options, including Export-Import Bank programs. Mexican customs regulations, product standards and labor laws may present pitfalls for U.S. companies. U.S. Embassy commercial, agricultural, intellectual property rights, standards, and labor officers are available to counsel firms about regulations that affect their particular export product or business interest. Continued violence involving criminal organizations has created insecurity in parts of Mexico, including some border areas. Market Opportunities Abundant market opportunities for U.S. firms exist in Mexico; trade in goods and services totals almost US$1. billion a day between the two countries. The current administration came into office in December 1 for a six-year term. In April 1, President Peña Nieto announced a consolidated National Infrastructure 17

188 Plan. The plan focuses on transportation, water, energy, health, urban development, communications and tourism, with an anticipated total investment of US$ billion. As these initiatives develop, opportunities to participate in major projects, subcontracts and sales to the federal government will grow. Mexico s geographic proximity to the United States has propelled the maquiladora industry near the U.S.-Mexico border. This phenomenon, as well as global economic factors, are providing U.S. businesses with increasing alternatives to Asia-based manufacturing and opportunities to sell into regional supply chains. Labor rates are competitive with China, and a robust logistics network allows rapid transit of goods to U.S. consumers. mexico Some of Mexico s most promising sectors include agriculture; agribusiness; auto parts and services; education services; energy; environmental; franchising; housing and construction; packaging equipment; plastics and resins; security and safety equipment and services; technology sectors; transportation infrastructure equipment and services; and travel and tourism services. Given the size of the Mexican market, there are numerous promising prospects, including food processing equipment, architectural and engineering services and more. If an industry is not explicitly mentioned as a best prospect, it does not necessarily mean that there are not ample opportunities for it in the Mexican market. Market-Entry Strategies To do business in Mexico, it is key to develop and maintain close relationships with clients and partners. Mexicans prefer direct communication such as telephone calls or face-to-face meetings. However, is also widely used. Mexican companies are extremely price conscious, seek financing options, tend to desire exclusive agreements, and value outstanding service and flexibility. A variety of market-entry strategies exist for U.S. firms wishing to export to Mexico. Many factors help determine the best strategy, such as the product/service, logistics and customs, distribution, marketing, direct or indirect sales, exporting experience and language proficiency, among others. Doing Business in Mexico article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Mexico, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 1

189 International Data Mexico Snapshot MEXICO SNAPSHOT Demographics Population in millions 1. Demographics Age Male Female & Over.9.7 Median Age 7. Population Growth 1.1% 1.% 1 7.9% +.9% Economy GDP (PPP) $.1 trillion GDP Per Capita $17,9 GDP-Real Growth Rate.% Unemployment Rate.7% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars... Mexico GDP (PPP) (U.S. $ in trillions) 1. GDP-Service.1% GDP-Industry.% 1... ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% Unemployment Rate (Percent) 7 Inflation (Annual Percent Rate) 1 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 19

190 Trade Total Export $. billion Export as % of GDP 1.99% Total Import $7.1 billion Import as % of GDP 19.% Export Partners (1) Import Partners (1) Annual Percentage 7 1 Annual Percentage 1 U.S. Canada U.S. China Japan Music Industry Music Market $1. million Sales Per Capita $1. Global Share 1.1% ' ' Music Sales Per Capita (U.S. $) ' '7 ' '9 '1 Mexico Music Market (U.S. $ in millions) 1. Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 19

191 International Data Mexico Mexico Imports and Exports ' ' '7 Acoustic Pianos Imports ' '9 '1 Value in U.S. $ thousands ' ' '7 Acoustic Pianos Exports ' '9 '1 Import Value Export Value 1 Fretted & Stringed Instruments Imports Fretted & Stringed Instruments Exports 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 191

192 Mexico Imports and Exports 1 Wind Instruments Imports 1 Wind Instruments Exports 1 Value in U.S. $ thousands ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1 Percussion Imports Percussion Exports 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Accessories Imports Accessories Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 19

193 International Data Norway DOING BUSINESS IN NORWAY Market Overview Norway is a modern, energy-rich country with.1 million people. Norway is considered one of the world s wealthiest countries, with a Gross Domestic Product (GDP) per capita exceeding US$7, based on purchasing power parities (ranked second among Organization for Economic Co-operation and Development (OECD) countries in 1 and 1.7 times the average). Norway s external financial position is exceptionally strong from a global perspective and the country has an important stake in promoting a liberal environment for foreign trade. NORWAY The country is richly endowed with natural resources petroleum, hydropower, fish, forests and minerals and is highly dependent on the petroleum sector. Norway is the world s 1th largest exporter of crude oil and third largest exporter of natural gas. Its large shipping fleet is one of the most modern among maritime nations. Other major industries such as shipping, shipbuilding, fishing and fish farming, information technology, pulp and paper products, and light metals processing have prospered as well. Incomes are also more evenly distributed, making every person a consumer. Unemployment rates and interest rates are low. The Norwegian economy features a combination of free market activity and government intervention. The government controls key areas, such as the vital petroleum sector, through large-scale state enterprises. Norway is located in northern Europe and is part of the Scandinavian peninsula. Jan Mayen and the Arctic archipelago of Svalbard are also part of Norwegian territory. The majority of the country shares a border to the east with Sweden; its northernmost region is bordered by Finland to the south and Russia to the east; and Denmark lies south of its southern tip across the Skagerrak Strait. Norway s extensive coastline faces the North Atlantic Ocean and the Barents Sea. With its population covering, square kilometers, Norway is one of the most sparsely populated countries in Europe, spread across a nearly 1, mile long, narrow and mountainous country with a coastline 1 times its length. Norway is a vibrant, stable democracy. The majority of Norwegians are fluent in English and many have very close cultural and family ties to the United States. Norwegian business ethics are similar to those of the United States. 19

194 Norway is not a member of the European Union (EU), but is linked to the EU through the European Economic Area (EEA) agreement. By virtue of the EEA, Norway is practically part of the EU s single market, except in fisheries and agriculture. Norway is part of the Schengen Agreement, which guarantees free movement of persons and the absence of internal border control between of the EU Member States (as well as Norway, Iceland, Switzerland and Liechtenstein). All passport controls between these Schengen countries have been abolished. Market Challenges The overall economic and trade relationship is strong, and Norway s import climate is generally open and receptive to U.S. products and investments. However, the agriculture sector is well protected through trade barriers. norway The domestic market is small, but the country can serve as an attractive base for business operations in the Nordic, Baltic and/or Western Russian markets. Market Opportunities U.S. companies have excellent opportunities to capture a significant share of new contracts in Norway s offshore oil and gas, renewable energy, information technologies, shipping and maritime, defense, healthcare, travel and tourism, and consumer goods sectors. Market-Entry Strategy U.S. exporters seeking general export information and assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce s website ( Doing Business in Norway article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Norway, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 19

195 International Data Norway Snapshot NORWAY SNAPSHOT Demographics Population in millions.1 Demographics Age Male Female & Over.. Median Age 9.1 Population Growth 1.19% 1.7% 1 1.% + 1.1% Economy GDP (PPP) $9. billion GDP Per Capita $,9 GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Norway GDP (PPP) (U.S. $ in billions) GDP-Service.% GDP-Industry 1.% 1 1 ' ' ' ' '7 ' '9 '1 GDP-Agriculture 1.7% Unemployment Rate (Percent)... Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 19

196 Trade Total Export $1. billion Export as % of GDP.% Total Import $91. billion Import as % of GDP.1% Export Partners (1) Import Partners (1) 1 Annual Percentage 1 1 Annual Percentage 1 9 U.K. Germany Netherlands France Sweden U.S. Sweden Germany China U.K. Denmark U.S. Music Industry Music Market $7. million Sales Per Capita $1. Global Share.% 1 Music Sales Per Capita (U.S. $) 1 ' ' ' '7 ' '9 ' ' ' Norway Music Market (U.S. $ in millions) ' '7 ' '9 ' ' ' Share of Global Music Market (Percent) ' '7 ' '9 '1 19

197 International Data Norway Norway Imports and Exports Acoustic Pianos Imports Acoustic Pianos Exports 7 1 Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' Fretted & Stringed Instruments Imports ' '7 ' '9 '1 Value in U.S. $ thousands 1 ' Fretted & Stringed Instruments Exports ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports 1 1 Value in U.S. $ thousands 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 197

198 Norway Imports and Exports 1 Wind Instruments Imports Wind Instruments Exports Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' ' '7 ' Percussion Imports '9 '1 Value in U.S. $ thousands ' ' '7 ' Percussion Exports '9 '1 Import Value Export Value 1 Accessories Imports Accessories Exports 1 9 Value in U.S. $ thousands 7 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 19

199 International Data Russia DOING BUSINESS IN RUSSIA Market Overview Current Political Situation The recent events in Ukraine and Crimea have changed the landscape of the bilateral trade and investment relationship between the United States and Russia. Russia s provocative actions through the purported annexation of Crimea and destabilizing southeastern Ukraine have forced the U.S. and others in the international community to impose sanctions on Russian individuals, companies and financial institutions that are actively supporting Russia s actions in Ukraine and Crimea. RUSSIA The U.S. has suspended government-to-government economic cooperation with Russia on many fronts, including the two countries bilateral trade and investment working group, which sought to expand economic and commercial ties. Within these parameters, U.S. companies can still export their goods and services to Russia and continue working with their Russian partners to sustain and increase their sales in this market. However, companies should continuously monitor any developments concerning the United States political and economic relationship with Russia. Market Challenges Russia is the largest country in the world, spanning nine time zones and encompassing more than 17 million square miles. Seriously underdeveloped infrastructure poses logistical challenges, especially in accessing markets outside of major cities. Conducting business might be impeded by burdensome regulatory regimes; inadequate intellectual property rights (IPR) protection and enforcement; widespread corruption and inadequate rule of law; inconsistent application of laws and regulations; lack of transparency; and a non-level playing field for competition due to the continued presence of large state-owned or-controlled enterprises dominating strategic sectors of the economy. Investments in the wide-ranging and ever-changing list of strategic sectors of the Russian economy are subject to Russian government control. Recent reforms make it easier for companies to hire expatriate employees, but the Russian immigration and visa system requires time and patience for business travelers to obtain necessary permissions to do business in Russia. New rules for secondment of employees should be scrutinized for an individual company s situation. English is not widely spoken although knowledge of the language is expanding, especially in the major cities. 199

200 Market Opportunities With a vast landmass, extensive natural resources, more than 1 million consumers, a growing middle class and acute infrastructure needs, Russia remains a promising market for U.S. exporters. Russia is the world s eighth largest economy by nominal gross domestic product (GDP) and the sixth largest by purchasing power parity (PPP). It has the highest per capita GDP (US$1,) of the BRICS countries (Brazil, Russia, India, China and South Africa). Russia is a high-income country, with a highly educated and trained workforce and sophisticated, discerning consumers. Although Russia has recovered from the 7.9% contraction in GDP it experienced in 9 as a result of the global financial crisis, economic growth has slowed substantially and GDP growth was flat in 1. russia In terms of trade in goods, Russia was the United States th largest export market and the 1th largest exporter to the U.S. in 1. Russia was the United States th largest trading partner overall. U.S. exports to Russia in 1 were US$11. billion, a new record and an increase of almost % from 1. Russian exports to the U.S. in 1 were US$7. billion, a decrease of % from 1. Russia s leading trading partners are China, the Netherlands, Germany, Italy, Ukraine, Belarus, Turkey, Japan and Poland. Stocks of U.S. investment in Russia through 1 were approximately US$1 billion. The U.S. is Russia s 1th largest foreign investor. Russia joined the World Trade Organization (WTO) in August 1. This brought the world s largest economy then outside the WTO into the organization and bound it to a set of rules governing trade. The U.S. Congress also enacted legislation to extend permanent normal trade relations to Russia in the same year. Russia s membership in the WTO has the potential to reduce trade barriers with the rest of the world, which may create opportunities for U.S. exports and investments. For industrial and consumer goods, Russia s average bound tariff rate declined from almost 1% to under %. U.S. manufacturers and exporters should have more certain and predictable access to the Russian market because of Russia s commitment not to raise five tariffs on any products above the negotiated rates. For American businesses, Russia s accession to the WTO should also bring the following: 1. More liberal treatment for service exports and service providers. Stronger commitments for protection and enforcement of IPR. Rules-based treatment of agricultural exports

201 International Data Russia. Market access under country-specific tariff-rate quotas. Improved transparency in trade-related rule-making. More effective WTO dispute-resolution mechanisms Market-Entry Strategies Expect to commit significant time, personnel and capital, as developing business in Russia is resource intensive, for those companies that believe opportunities in Russia outweigh the risks. Conduct market research to identify opportunities and potential Russian business partners. Conduct significant due diligence to ascertain the reliability of business partners. russia Consult with U.S. companies already in the market, as well as with the U.S. Commercial Service and business organizations such as the American Chamber of Commerce in Russia and the U.S.-Russia Business Council. Communicate regularly with Russian business partners to ensure common understanding of expectations. Frequent travel to Russia is strongly recommended in order to establish and maintain relationships with partners and to understand changing market conditions. Maintain a long-term time frame to implement plans and achieve positive results. Doing Business in Russia article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Russia, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 1

202 RUSSIA SNAPSHOT Demographics Population in millions 1. Demographics Age Male Female & Over Median Age.9 Population Growth -.% 1 9.% 1 1.% + 1.% Economy GDP (PPP) $.1 trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.9% Inflation 9.1% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars... Russia GDP (PPP) (U.S. $ in trillions) GDP-Service 9.7% GDP-Industry.% ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% 1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1

203 International Data Russia Snapshot Trade Total Export $. billion Export as % of GDP 17.% Total Import $.9 billion Import as % of GDP 1.% Annual Percentage Export Partners (1) 1 1 Netherlands China Ukraine Germany Italy Turkey Annual Percentage Import Partners (1) China Ukraine Germany Belarus Italy U.S. Music Industry Music Market $. million Sales Per Capita $1. Global Share 1.%. 1. Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 Russia Music Market (U.S. $ in millions) 1. Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1.... ' ' ' '7 ' '9 '1

204 Russia Imports and Exports Acoustic Pianos Imports Acoustic Pianos Exports 1 1 Value in U.S. $ thousands 7 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Fretted & Stringed Instruments Imports Fretted & Stringed Instruments Exports 1 1 Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports 1 Value in U.S. $ thousands 1 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value

205 International Data Russia Russia Imports and Exports ' ' '7 Wind Instruments Imports ' '9 '1 Value in U.S. $ thousands 1 1 ' ' '7 Wind Instruments Exports ' '9 '1 Import Value Export Value. Percussion Imports 1 Percussion Exports Value in U.S. $ thousands 1 7. ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value ' ' '7 ' Accessories Imports '9 '1 Value in U.S. $ thousands 7 1 ' ' '7 ' Accessories Exports '9 '1 Import Value Export Value

206 DOING BUSINESS IN SOUTH KOREA Market Overview It has been three years since the Korea-U.S. Free Trade Agreement (KORUS) went in to force on March 1, 1, becoming the United States largest FTA since NAFTA. The Agreement is expected to increase U.S. exports to Korea by approximately US$1 1 billion. SOUTH KOREA Total 11 U.S.-Korea trade exceeded US$1 billion for the first time ever, also surpassing that mark in 1 and 1. Total U.S. exports to Korea in 1 exceeded US$1. billion. Korea is the United States sixth largest export market. The U.S. is the third largest exporter to Korea, with an.1% market share of Korea s total imports. Key competitors include China (1.1%), Japan (11.%) and the EU s nations (1.9%). Trade with China reflects significant re-export activity. Korea s 1 GDP grew %, according to the OECD. Its commercial banks maintain strong reserves in case of a possible global slowdown or difficulties within the eurozone. Korea will continue to focus its development on key economic growth sectors. Patents, trademarks and industrial designs issued by the Korea Intellectual Property Office (KIPO) reached,1 in 1, an.% year-on-year increase. This growing trend in local patent and trademark filings reflects a move toward more technology-intensive and capitalintensive industries and services. Market Challenges Unique industry standards, less-than-transparent regulations, pressures to reduce prices and contract negotiations continue to affect U.S. business in Korea. However, firms that are innovative, patient and that exhibit a commitment to the Korean market generally find business to be rewarding and Koreans to be loyal customers. With the implementation of KORUS, Korea s attractiveness as a market should continue to improve. U.S. products will become increasingly cost-competitive, and bilateral trade should increase over time. EU products have had reduced or zero-tariff access to this market since mid-11. Australia and Canada are also poised for duty-free access for most goods shipped to Korea, once their already-negotiated FTAs are ratified and go into force, likely in late 1 or during 1. U.S. SMEs must remain flexible and ready to work with Korean counterparts regarding amending contract terms or renegotiating price, quantity and delivery terms following a business deal or bilateral contractual agreement. In Korea, the principal of consideration, as is the case in English law, is not present. In other words, a request to amend an offer or to restart negotiations with a counteroffer likely will not include any payment for consideration on the Korean side. Koreans feel that the signing of a contract is only the beginning of a business relationship. U.S. exporters of agricultural commodities also face market challenges related to import regulations and testing requirements.

207 International Data South Korea Market Opportunities The Korean US$1 trillion economy is heavily weighted toward international trade. Trade accounts for a whopping 9% of the Korean GDP. As the country continues to move toward more technology-intensive industries, U.S. companies will find market opportunities in leading industries such as life sciences (medical devices, pharmaceuticals and biotechnology), industrial chemicals, IT, nanotechnology, aerospace/defense, energy, environmental technology, and transportation, to name a few. U.S. companies are already partnering with local Korean companies and industries to expand market opportunities from Korea to third-country markets, including ASEAN, the Middle East and other markets of the Asia-Pacific. Given Korea s strong shipping and air cargo infrastructure, this is not only a market end-point for U.S. goods and services, but also a hub for expansion into other markets. south korea As one example, the Korean security and safety sector has not offered great opportunities for U.S. companies over the last 7 1 years. However, during 1, President Park initiated numerous safety and security reforms and initiatives, which even included the complete reformulation of Korea s Coast Guard. Additionally, in late 1, under the purview of the National Emergency Management Agency (NEMA), Korea will announce the development of a large (US$ million) firefighting and disaster-training facility. This facility will be designed to be one of Asia s largest and most comprehensive of its kind. Market-Entry Strategies A local presence is essential for success. Retain a manufacturer s representative, distributor or name a registered trading company as an agent or establish a branch sales office. Establishing and maintaining a strong business relationship is essential. Companies should visit Korea frequently to cultivate contacts and to better understand business conditions. Doing Business in South Korea article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in South Korea, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 7

208 SOUTH KOREA SNAPSHOT Demographics Population in millions 9. Demographics Age Male Female & Over.7. Median Age. Population Growth.1% 1 7.% 1 1.1% + 1.7% Economy GDP (PPP) $1. trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.% Inflation 1.% Economy Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars.. 1. South Korea GDP (PPP) (U.S. $ in trillions) 1. GDP-Service.9% GDP-Industry.7%%... ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1

209 International Data South Korea Snapshot Trade Total Export $. billion Export as % of GDP.% Total Import $.9 billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 China U.S. Japan Hong Kong Annual Percentage China Japan U.S. Saudi Arabia Qatar Music Industry Music Market $9. million Sales Per Capita $.91 Global Share 1.7% 7 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 South Korea Music Market (U.S. $ in millions).. Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 9

210 South Korea Imports and Exports Acoustic Pianos Imports 1 Acoustic Pianos Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Fretted & Stringed Instruments Imports Fretted & Stringed Instruments Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports 1 Keyboards Exports 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 1

211 International Data South Korea South Korea Imports and Exports Wind Instruments Imports. Wind Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 1 Percussion Imports 1. Percussion Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value Accessories Imports 1 Accessories Exports 1 ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value 11

212 SPAIN Despite the fact that Spain hasn t quite recovered from the financial crisis, it is safe to conclude that the year 1 has seen a positive shift in sales for musical instruments, considering that our organization has observed a.9% increase over last year. Changes in total sales in recent years can be seen here:.% in 1,.% in 11,.1% in 1, and.% in 1. Sales volume for 1 is approximately 11 million euros. Total sales figures for musical instrument sales in Spain, for previous years, based on information obtained by COMUSICA, are as follows: 1. million euros in 1, 1. million euros in 11, 11.7 million euros in 1 and 19. million euros in 1. It is noteworthy to mention that these figures do not take into account possible sales made online through websites that have their domain based outside of Spain. It is estimated that these sales could account for up to % of total market turnover. SPAIN Regarding specific instruments, a good example of the changes in recent sales tendencies can be seen in the imported violin market, as well as changes in drum sales, and stringed and wind instruments. The number of imported violins increased by 7.% in 1. Unit sales of percussion instruments increased by.1%, unit sales of trumpets increased by 11.% and unit sales of saxophones increased by 1.1%. Commentary by Juan Grecos, IC Delegate for COMUSICA, the Spanish Music Products Association, and Managing Director of Caprice, S.L. DOING BUSINESS IN SPAIN Market Overview The government of Spain remains committed to implementing sweeping structural reforms to bring the country out of the economic crisis that began in the second half of. Since its majority win in the general elections of November 11, the ruling Popular Party has focused on implementing a series of measures with a view to reducing the deficit, restructuring the financial sector and reforming the labor market. Despite the economic challenges facing the country, Spain continues to be a significant market for U.S. companies. With a GDP of US$1. trillion and a population of.7 million in 1, Spain is the fifth largest economy in the EU and was the 1th largest importer in the world in 1. After 1 years of solid GDP growth that made it the world s ninth largest economy, Spain entered into a recession in the second quarter of, from which it emerged in the third quarter of 1. In 1, unemployment reached.7%, depressing consumption and contributing to 1.% GDP growth. GDP is forecast to grow 1.% in 1 and 1.% in 1. As of the end of 1, inflation was at 1.%. Spain and the United States enjoy a long-standing political and commercial relationship. Spain has traditionally represented a significant export market. According to the 1

213 International Data Spain U.S. Department of Commerce, U.S. exports of goods to Spain in 1 amounted to US$1. billion. Spanish exports to the U.S. decreased in 1 to US$11.7 billion, down from US$11. billion in 1. Services exports from the U.S. to Spain continue to be strong. The actual U.S. export numbers to Spain are substantially higher than the reported numbers, since many of Spain s imports from the U.S. arrive in Europe via ports of entry in other European countries. As a member country of the European Union (EU), Spain adheres to EU legislation, as is the case of all member countries. Investment plays a key role in the bilateral economic relationship; the U.S. is among the largest investors in Spain. spain The estimated U.S. firms in Spain employ more than 1, people. These companies represent approximately 7% of the GDP. Most of the large U.S. names are present. Many of these companies are in the industrial sector automobiles, chemical factories, pharmaceutical, industrial machinery, etc. The presence of large, well-known foreign names serves as a catalyst for innumerable local providers and, in almost all cases, increases exports. Over % of Spanish exports are made by foreign multinationals located in Spain. Gross FDI inflows into Spain decreased in 1, and the U.S. was the fifth main investor (1. billion euros), coming after the Netherlands (. billion euros), the UK (1. billion euros), France (1.7 billion euros) and Germany (1. billion euros). This figure represents a decline of.% over the previous year. U.S. investors hold significant portfolio investment in shares of some of Spain s largest companies. Spain has also been investing abroad and is currently the ninth most important source of FDI into the U.S., accounting for approximately 7.% of Spanish outbound investment. The country is also within the top fastest growing sources of FDI (1th) with a compound annual growth rate of 11% between and 1. Much of the investment has taken place in the past seven years, going from US$1 billion in to US$ billion in 1. U.S. subsidiaries of Spanish firms contributed US$1 million worth of R&D in the U.S. in 11. Subsidiaries of Spanish-owned firms employed 1, people in the U.S. as of 11, the latest year for which employment data is available. Major Spanish firms in the telecommunications, banking, infrastructure and energy sectors have become global leaders. Procurement decisions for these companies continue to be made within Spain. One of the largest banks in the world by stock market value and the largest in the eurozone, Europe s second largest phone company, and seven of the world s ten largest construction companies, all have their headquarters in Spain. Spain is the world s fourth largest tourist destination, receiving.7 million foreign visitors in 1. The country ranks second in terms of receipts, following the U.S.. In terms of outbound travel, Spain offers excellent potential as a source of visitors to the U.S. It currently ranks as the world s 1th largest market for outbound travel to the U.S., and the fifth largest in Europe. 1

214 With 1, miles of high-speed rail, Spain is second only to China in terms of high-speed train infrastructure. Madrid has high-speed train connections with cities, making it the city with the most connections in Europe. Wind energy is the third most important source of electrical generation in Spain after gas and nuclear. In 1, it supplied 1.1% of the electrical demand in the country. Spain is the fourth country in the world in terms of installed wind power after the U.S., Germany and China. Installed wind capacity in Spain was,9 MW by the end of 1. More than, people work in the sector. Spain is the world s fifth largest wind technology exporter after Germany, China, Denmark and the United States. The industry exports technology worth more than US$ billion per year. spain Spanish energy companies continued to invest heavily in the U.S. The cutting-edge technology of major Spanish multinationals such as Abengoa, Gamesa, ACS and Iberdrola has allowed them to successfully undertake multiple renewable energy projects in numerous states (Abengoa currently has the world s largest CSP solar plant in Arizona). Spanish wind generation companies operate in more than U.S. states. Market Challenges The exchange rate of the dollar versus the euro is advantageous for U.S. exporters. Nevertheless, U.S. suppliers will continue to face competition from EU countries as well as from Asia. Cost, financing terms and after-sales service are important competitive factors. European exporters provide generous financing and extensive cooperative advertising, and most European governments support exporting with trade promotion events. Japanese and Chinese companies are also emerging as formidable competitors. Although U.S. products are well respected for their high level of technology and quality, American firms sometimes fall short of their competitors in flexibility on financing, adaptation of product design to local market needs, and assistance with marketing and after-sales service. Delays in reimbursement. The EU revised legislation in 1 to shorten payment delays. Spain enacted this legislation in July of the same year. Nonetheless, delays in reimbursement continue to represent a major problem, particularly in the public sector. The economic downturn has resulted in some companies reluctance to commit to purchase or represent new products or services. Given that developing export sales or distribution channels takes time, export-ready U.S. firms are urged to explore opportunities in Spain and throughout the eurozone. Labor reform. Major reforms were undertaken in 1, and a new wave of economic reforms was announced on April, 1, on the heels of news that unemployment had increased in Q1 of 1 to more than 7%. These reforms have made Spain much more competitive in comparison to labor costs in other European countries. 1

215 International Data Spain Market Opportunities Chemicals were the principal U.S. export to Spain in 1, accounting for 1.% of total exports, followed by agricultural products (1.%), transportation equipment (11.%) and petroleum and coal products (7.%). Primary U.S. exports to Spain have consistently included aircraft and associated parts and equipment; pollutioncontrol and water resources equipment; medical products and equipment; outbound travel and tourism; electric power systems; telecommunications equipment; automotive parts and supplies; and pharmaceuticals. Other sectors offering good prospects include defense, security equipment, renewable energy equipment and services, ecommerce, engineering services and industrial machinery. spain The U.S. Commercial Service in Spain offers a range of programs tailored to the needs of U.S. companies interested in exporting their products and services to Spain and other European markets. Services provided vary from business intelligence reports to identifying opportunities and potential partners, appointments schedules and organizing company promotional events. Due to the macroeconomic reforms in the financial sector and labor laws, costs have dropped in comparison to other major markets in the region. These reforms have sharply increased Spain s competitiveness, making it a good market for entry not only into the European region but also for Latin America and Africa. Spanish firms are value-added partners for both the Latin American and Caribbean (LAC) market their language and cultural skills are a key advantage for developing opportunities in the LAC region. Industrial production is playing an increasingly important role in the Spanish economy (1.9%), while indicators show that the service sector declined in 1 and now accounts for.7% of economic activity. Construction accounts for 7.%, and agriculture accounts for.%. With the lack of credit in the Spanish market, ExIm Bank can now play a more active role in financing exports of U.S. products and services by financing Spanish buyers through loan guarantees. This tool is an attractive alternative to Spanish companies that are struggling with the current liquidity constraints. Principal agricultural exports to Spain from the U.S. in 1 included tree nuts, soybeans and products, seafood products, biodiesel, distilled spirits and wheat. Spain s food, beverage and agricultural processing sectors have fared well in recent years despite the economic crisis, supported in part by increased exports. U.S. exports of ingredients and raw materials have great prospects in this environment. Principal growth sectors are seafood, tree nuts, consumer-oriented products, food ingredients and specialty foods. On February 1, 1, the United States and the European Union announced that beginning June 1, 1, products certified as organic for one market can be sold 1

216 as organic in the other market. This partnership, in combination with the growing demand in the EU, is expected to open new opportunities for U.S. exporters. Market-Entry Strategies There are 17 autonomous communities in Spain with varying degrees of autonomy and cultural identity. A number of regional markets joined by the two hubs of Madrid and Barcelona make up the Spanish market. However, the majority of agents, distributors, foreign subsidiaries and government-controlled entities that constitute the economic power bloc of the country operate in these two hubs. Spanish commercial procedures are in line with the rest of Western Europe, where price and value remain paramount. However, credit terms, marketing assistance and after-sales service are important factors in local purchase decisions. The use of credit to purchase consumer goods is widely accepted in Spain, particularly in the cities, with banks competing to offer coverage. spain The Spanish government has eased regulations at all levels and increased incentives in an effort to attract foreign firms and investments. In recent years, investment incentives designed to reward investors for establishing manufacturing operations in less-developed areas have dispersed some investment from the major hubs. Except in a few cases, Spanish law permits foreign investment of up to 1% of equity. Unit labor costs have fallen dramatically over the last three years, and Spain has regained most of the competitiveness that it lost during the construction boom of 7 and in terms of labor costs. However, despite changes in labor legislation, the law remains relatively inflexible. Spaniards tend to be more formal in personal relations than Americans are but much less rigid than they were 1 years ago. The approach to doing business is similar to that of Italy or France. Professional attire is recommended. In order to break into this market, there is no substitute for face-to-face meetings with Spanish business representatives. Spaniards expect a personal relationship with suppliers. It can be challenging to elicit a response to initial communication by phone or . Direct mail campaigns generally yield meager results. Less than % of local managers are fluent in English. Spaniards tend to be conservative in their buying habits. Recognized brands do well. Large government and private-sector buyers appear more comfortable dealing with other large, established organizations, or with firms that are recognized as leaders within their sectors. Doing Business in Spain article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Spain, you may visit their website at The following charts are based on retail sales data provided by COMUSICA, the Spanish Music Products Association 1

217 International Data Spain Snapshot SPAIN SNAPSHOT Demographics Population in millions 7.7 Demographics Age Male Female & Over.. Median Age 1. Population Growth.1% 1 7.% + 17.% 1 1.% Economy GDP (PPP) GDP-Service 71.% Economy $1. trillion GDP Per Capita $, GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation -.1% GDP-Industry.% GDP-Agriculture.% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars ' ' ' Spain GDP (PPP) (U.S. $ in trillions) ' '7 ' '9 '1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1-1 ' ' ' ' '7 ' '9 '1 17

218 Trade Total Export $17. billion Export as % of GDP.7% Total Import $7.9 billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage France Germany Portugal Italy U.K. Annual Percentage Germany France Italy Netherlands China Portugal Music Industry Music Market $99. million Sales Per Capita $. Global Share.% 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 ' ' ' ' Spain Music Market (U.S. $ in millions) '7 ' '9 ' ' ' Share of Global Music Market (Percent) ' '7 ' '9 '1 1

219 International Data Spain Spain Domestic Sales Value in millions 1 1 ' Total Musical Instruments ' '7 ' '9 '1 Value in millions '1 Percussion x 1, Retail Value Retail Value Value in millions '9 '1 '1 Trumpets 1 x 1, Value in millions '9 '1 Saxophones 7 1 x 1, Retail Value Retail Value '9 '1 19

220 DOING BUSINESS IN SWEDEN Market Overview Sweden is the largest economy among the Nordics and represents a transparent, highly developed, sophisticated and diversified market with few barriers to entry. According to the World Economic Forum, Sweden ranks first among the top 1 countries in the world for leveraging information technologies. Based on Sweden s export-oriented manufacturing, diversified economy, strong small and medium enterprises (SMEs) and fiscal discipline, the country ranks fourth on the International Institute for Management Development (IMD) s 1 competitiveness ratings. SWEDEN With innovation a top priority for both industry and government, Sweden ranks second on the World Intellectual Property Organization (WIPO) s 1 Global Innovation Index. More than 1, U.S. companies are present in Sweden, and the country is the top location in the Nordics for regional headquarters covering the Nordics and often the Baltics as well. The U.S. and Sweden share strong ties in trade and investment. Annual U.S.- Swedish trade in goods and services is valued at an estimated US$ billion, and cumulative bilateral investment is valued over US$ billion. Major categories of U.S. exports to Sweden include aerospace/defense, automotive aftermarket, healthcare/life sciences, information technologies, safety/security, cleantech and renewable energy. With strong historical, cultural and business ties to the United States, Sweden is a top European market for travel to the U.S. with about, visits annually, accounting for over US$1 billion of benefit to the U.S. economy. Market Challenges U.S. exporters often face strong competition from Swedish and third-country suppliers and must offer advanced technologies as well as competitive prices and terms. Sweden has a high cost of living with expensive labor and individual tax rates that are among the highest in the world. A VAT rate of % applies to the import or sale of most products. Market Opportunities Sweden has a long-established tradition of expertise in engineering, shipbuilding, mining and the life sciences, making it a highly receptive market to new, advanced technologies.

221 International Data Sweden There is ongoing, strong demand for advanced technologies and products/services that improve productivity, including IT software and services that lower costs and improve business efficiencies, as well as equipment and services for safety/security, including cyber security. Green opportunities: Sweden s commitment to sustainability across industry sectors drives market demand for U.S. products and services in renewable energy/low carbon/green technologies and energy efficiency. Sweden s rapid developments in smart grid, bioenergy, cyber security and ehealth make the country a critically important market for these industries. Since Swedes are early adopters of new technologies, Sweden is considered to be an ideal (albeit expensive) test market. sweden The relatively strong Swedish kroner makes U.S. products price-competitive. English is widely spoken and is the language used for business agreements. Market-Entry Strategies Demonstrate a clear competitive advantage (e.g., price, quality, branding). Pay close attention to both the obvious and subtle cultural differences between the United States and Sweden and adjust marketing strategies accordingly. Evaluate prospective partners carefully and choose an experienced, well-established distributor. Be flexible and adjust expectations; Sweden is a small country with a population of 9 million. Evaluate the potential for distributors to cover the entire region. Depending on the industry sector, prospective business partners may be based in Stockholm, Gothenburg or Malmo or in another Nordic capital. Express commitment to the market with a long-term perspective. Visits are important since Nordic partners want firsthand assurance of company reliability and commitment. Doing Business in Sweden article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Sweden, you may visit their website at The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 1

222 SWEDEN SNAPSHOT Demographics Population in millions 9.7 Demographics Age Male Female & Over. 1. Median Age 1. Population Growth.79% 1.% + 19.% 1 1.9% Economy GDP (PPP) $. billion GDP Per Capita $,7 GDP-Real Growth Rate.1% Unemployment Rate 7.9% Inflation -.1% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. GDP-Service.% Economy GDP-Industry.% GDP-Agriculture 1.% 1 1 ' ' ' Sweden GDP (PPP) (U.S. $ in billions) ' '7 ' '9 '1 1 Unemployment Rate (Percent)... Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1-1. ' ' ' ' '7 ' '9 '1

223 International Data Sweden Snapshot Trade Total Export $1.1 billion Export as % of GDP.% Total Import $1. billion Import as % of GDP 7.7% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 Annual Percentage Norway Germany Finland Denmark U.K. Germany Denmark U.K. Norway Netherlands Finland Music Industry Music Market $9. million Sales Per Capita $9.7 Global Share.% 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 1 Sweden Music Market (U.S. $ in millions).7 Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1

224 Sweden Imports and Exports. Acoustic Pianos Imports 1. Acoustic Pianos Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 1 Fretted & Stringed Instruments Imports. Fretted & Stringed Instruments Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports Keyboards Exports ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Import Value Export Value

225 International Data Sweden Sweden Imports and Exports ' ' '7 Wind Instruments Imports ' '9 ' ' ' '7 Wind Instruments Exports ' '9 '1 Import Value Export Value 7 Percussion Imports. Percussion Exports ' ' '7 ' '9 '1. ' ' '7 ' '9 '1 Import Value Export Value 1 1 ' ' '7 ' Accessories Imports '9 ' ' ' '7 ' Accessories Exports '9 '1 Import Value Export Value

226 DOING BUSINESS IN SWITZERLAND Market Overview Switzerland s population of million is affluent and cosmopolitan GDP of about US$1 billion; growth forecast of.% for 1 In 1, total exports from the U.S. to Switzerland amounted to US$7 billion SWITZERLAND U.S.-Swiss trade generally stable despite financial and economic crisis World-class infrastructure, business-friendly legal and regulatory environment Highly educated, reliable and flexible workforce Consumer and producer of high-quality, value-added industrial/consumer goods Manufacturing sector is highly automated and efficient Strong market demand for U.S. components and production systems Strong demand for high-quality products with competitive prices Highest per capita IT spending in the world Multilingual/multicultural European test market and business environment Many U.S. firms with European and regional headquarters in Switzerland Market Challenges Market is sophisticated, quality-conscious, high-tech and competitive An epicenter of European and global competition While EU-type regulations and standards exist in general, there are significant exceptions Unique Swiss requirements for pharmaceuticals, cosmetics, detergents and chemicals Market Opportunities Products with relatively advanced technologies are best prospects Switzerland is strategically placed as a gateway to EU markets Ideal test market for introduction of new high-tech and consumer products Excellent platform for marketing into Europe, Middle East and Africa

227 International Data Switzerland High concentration of computer/internet usage per capita Sophisticated market for U.S. devices Switzerland is becoming a European center for the commercial aviation business Fast-growing demand for highly sophisticated security equipment/systems One of the world s top countries for R&D Excellent opportunities for partnerships in biotech, nanotech and renewable energies, especially solar switzerland Significant assets pooled from around the world under Swiss management, creating excellent opportunities for U.S. financial services providers Market-Entry Strategies Express commitment to the market and establish long-term relationships Work directly with Swiss importers/distributors for maximum market penetration Be prepared to meet customer s needs and willing to sell in small volumes Offer high-quality and environmentally friendly products Enter the market early to gain and maintain competitive edge Evaluate carefully prospective partner s technical qualifications and ability to cover the German, French and Italian regions Doing Business in Switzerland article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in Switzerland, you may visit their website at The following charts are based on import data provided by The Federal Office of Statistics in Switzerland and the personal research of Michael Heuser, President of Roland Switzerland and Delegate of Suissemusic for International Relations and the Confederation of European Music Industries (CAFIM) as well as the website of the International Trade Centre (ITC) 7

228 SWITZERLAND SNAPSHOT Demographics Population in millions.1 Demographics Age Male Female & Over.. Median Age. Population Growth.7% 1 7.% + 17.% 1 1.1% Economy GDP (PPP) $.7 billion GDP Per Capita $, GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation -.1% Data Source: Demographics, Economy and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic Product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. GDP-Service 7.% Economy GDP-Industry.7% 1 1 ' ' ' Switzerland GDP (PPP) (U.S. $ in billions) ' '7 ' '9 '1 GDP-Agriculture.% Unemployment Rate (Percent)... Inflation (Annual Percent Rate) ' ' ' ' '7 ' '9 '1-1. ' ' ' ' '7 ' '9 '1

229 International Data Switzerland Snapshot Trade Total Export $.9 billion Export as % of GDP 7.% Total Import $. billion Import as % of GDP 7.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Germany U.S. Italy France U.K. China Germany Italy France China U.S. Austria Music Industry Music Market $1. million Sales Per Capita $1.7 Global Share.% Music Sales Per Capita (U.S. $) 1 1 ' ' ' '7 ' '9 '1 17 Switzerland Music Market (U.S. $ in millions) 1. Share of Global Music Market (Percent) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 9

230 Switzerland Imports Total Imports Upright Pianos 1 1 Value in Swiss Francs millions 1 7 ' '7 ' '9 '1 Value in Swiss Francs millions 1 1 ' ' '7 ' '9 '1 Import Value Import Value Grand Pianos Stringed Instruments with a Bow 1 Value in Swiss Francs millions 1 ' ' '7 ' '9 '1 Value in Swiss Francs millions 1 1 ' ' '7 ' '9 '1 Import Value Import Value Stringed Instruments with a Bow increased greatly in 7 due to the introduction of a new, highly expensive Master Instrument. Guitars Fretted Instruments Value in Swiss Francs millions ' ' '7 ' '9 '1 Value in Swiss Francs millions ' ' '7 ' '9 '1 Import Value Import Value

231 International Data Switzerland Switzerland Imports Brass Instruments Wind Instruments Value in Swiss Francs millions ' ' '7 ' '9 '1 Value in Swiss Francs millions 1 1 ' ' '7 ' '9 '1 Import Value Import Value Percussion Keyboards 1 1 Value in Swiss Francs millions 1 ' ' '7 ' '9 '1 Value in Swiss Francs millions ' ' '7 ' '9 '1 Import Value Import Value Accordions Pipe Organs & Harmonium Value in Swiss Francs millions ' ' '7 ' '9 '1 Value in Swiss Francs millions ' ' '7 ' '9 '1 Import Value Import Value 1

232 UNITED KINGDOM UNITED KINGDOM The overall UK economy continues to slowly recover from the financial downturn and, by many measures, is currently the fastest growing in the European Union. As reported last year, this growth remains fragile and has by no means translated into a significant resurgence of spending on discretionary products (e.g., musical instruments). A good trading month for musical instruments is still as likely to be followed by a disappointing one. But the overall trend is a (small) upward one! The reduction in global oil prices has especially contributed to almost zero inflation in the country. The positive aspects of low inflation are easily undone by the fluctuating exchange rates between the pound and the euro, which can create real issues for the industry in the perceived values of products that the customer understands between the different trading territories. Following from this, it would be fair to say that a significant amount of trade is now being conducted in the UK by businesses based in the eurozone. Customers, as we all know too well, are able to compare and contrast values anywhere in the world with the click of a mouse! On the positive side, the UK continues to maintain a robust chain of brick-and-mortar shops, which now find a working balance between physical and online sales of our products. It is, however, still evident that the big retail businesses in MI are getting bigger, and the / rule looks set to be even more sharply defined in years to come. The ongoing impact of Amazon on the industry remains a highly political one. Clearly, huge numbers of (mainly entry-level) instruments are being sold by the company, and the effect of this on the existing retail chain of shops and the suppliers who distribute the instruments is still being determined. On one side of the debate is that the company is potentially reaching consumers who would not normally visit a music shop. If that is the case, there is clearly a line of thought to suggest that the company could be contributing to growing the overall size of the industry. While on the same scale, ebay and newer sites like Gumtree continue to sell large numbers of instruments, which adds to a difficulty in determining the total size of the UK market. The breadth of selling channels for our industry continues to make sales tracking difficult, but it is clear that a number of key businesses in our industry are making good increases in a challenging climate. Pro audio (and EDM) is experiencing a relative boom at the moment (as was clearly evidenced at recent global trade shows) but pure MI is not growing as fast. But, overall, single-figure percentage growth is taking place in UK MI and, when this is combined with the faster growth in pro audio, we are gradually seeing movement forward for the total industry. An interesting socio-economic aspect facing the industry in the UK (and possibly in many other places) is not just that of an aging population, but also that of an aging industry! A huge number of our music shops and distributors are run by baby boomers, many of whom are simultaneously approaching a point at which retirement will beckon. This creates a real issue for ensuring the next generation is being suitably trained and groomed to take their place running all the great businesses in our great industry.

233 International Data United Kingdom So, in summary, it remains clear that there are a vast number and variety of channels through which the general public can buy instruments. Recent 1 MIA research shows the growth of the number of people now playing an instrument and the growth of the number of households with instruments. This is nicely compounded by the millions of people who used to play and want to play again and the millions who have never played and would like to start playing. The opportunity for our industry consistently remains one that could double in size if we could only find the ways to reach out to these people! united kingdom Initiatives to address this major opportunity are now taking root in the UK, and Learn to Play Day and other similar activities are creating new musicians. This is in additional to the large numbers of lapsed musicians who return to making music. For example, the 1 MIA Learn to Play Day gave 1, free music lessons to members of the general public at 19 music shops and other venues. You won t be surprised to hear that a substantial percentage of these people continue their music-making activities as a result. Commentary by Paul McManus, Chief Executive of the Music Industries Association (MIA) DOING BUSINESS IN THE UNITED KINGDOM Market Overview The United Kingdom (estimated 1 GDP of US$. trillion) has the sixth largest economy in the world according to the CIA s 1 World Factbook, the third largest economy in the European Union, and is a major international trading power. While the United Kingdom is geographically relatively small (about the size of Oregon), it has a population of more than million people. Highly developed, sophisticated and diversified, the UK market is the second largest in Europe and the sixth largest in the world for U.S. goods exports. The United Kingdom is the second largest market in the world for U.S. service exports. With few trade barriers, the United Kingdom is the entry market into the European Union for more than, U.S. exporters. U.S. exports to the UK of goods and services combined were estimated to be worth nearly US$1 billion in 1. Major categories of U.S. exports include aerospace, automotive, electronics, healthcare, information technologies, telecommunications, and safety/security equipment. The United Kingdom remains the No. 1 overseas market for travel to the United States, with more than. million UK travelers estimated to have visited the United States in 1.

234 The U.S.-UK investment relationship is the largest in the world, with a cumulative bilateral stock in direct investment valued at nearly US$1.1 trillion in 1. More than million jobs, approximately 1 million in each country, have been created over the years to manage and drive this investment. More than 7, U.S. firms have a presence in the United Kingdom, which is also the top location in Europe for U.S. regional headquarters covering Europe, the Middle East and Africa. united kingdom A major international financial, media and transportation hub, London is also headquarters to the European Bank for Reconstruction and Development (EBRD). Market Challenges The UK economy grew by 1.7% in 1, reflecting a gradual recovery from the recession. The economy is showing signs of picking up steam in 1, with forecast growth of.%. The continuing difficulty in accessing credit, particularly by SMEs, still represents a challenge for many businesses. Weak consumer confidence and broadly static wages continue to dampen retail sales, and several well-known High Street brands have disappeared as a result of financial difficulties. There are signs, however, that as the economy and the local housing market pick up, consumer confidence is returning. The pound has strengthened against the dollar in recent months, making London one of the world s most expensive cities to do business in. As UK and third-country suppliers represent strong competition, U.S. exporters need to offer differentiated products at competitive prices. Complex EU technical/regulatory requirements can be burdensome. Devolved Administrations present some differences in policies and regulations among England, Northern Ireland, Scotland and Wales. Scotland held a referendum in September 1 on whether to leave the United Kingdom, but it did not pass. The UK government has introduced deep cuts to public sector spending, affecting many businesses and, more broadly, consumer confidence. Despite an improving economic picture, the government is committed to reducing its deficit and the cuts are likely to continue. Market Opportunities The United Kingdom is a highly sophisticated market with strong demand for products and services that improve productivity, including ICT software and services that lower costs and improve business efficiencies.

235 International Data United Kingdom There is ongoing, strong demand for a wide range of equipment and services related to safety/security and, in particular, for cyber security. The United Kingdom s commitment to low-carbon targets is driving market demand for U.S. products and services in the area of renewable energy, energy efficiency, low-carbon/green technologies, smart grid technologies and e-vehicles. The proposed U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) has the potential to cut tariffs and address market barriers, thus creating additional opportunities in the UK for U.S. exporters. united kingdom Market-Entry Strategies Demonstrate a clear value proposition and competitive advantage (e.g., price, quality, branding). Pay close attention to both the obvious and subtle cultural differences between the United States and the United Kingdom, and adjust marketing strategies accordingly. Evaluate prospective partners carefully and choose an experienced, well-established local distributor. Be flexible working with a UK partner during this challenging and prolonged period of economic recovery. Express commitment to the market with a long-term perspective. Doing Business in the United Kingdom article is provided by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce s International Trade Administration. For more information on doing business in the United Kingdom, you may visit their website at The following charts and data are based on results from a survey conducted by Nexus Research on behalf of the Music for All charity in conjunction with the Music Industries Association (MIA)

236 UNITED KINGDOM SNAPSHOT Demographics Population in millions.7 Demographics Age Male Female & Over.99.1 Median Age. Population Growth.% 1.% 1 17.% + 17.% Economy GDP (PPP) $. trillion GDP Per Capita $7,7 GDP-Real Growth Rate.% Unemployment Rate.7% Inflation 1.% Data Source: Demographics, Economy, and Trade from CIA World Factbook, Music Industry from The Music Trades. GDP (PPP): Gross Domestic product based on purchasing-power-parity (PPP) valuation of country GDP in U.S. dollars. Economy... United Kingdom GDP (PPP) (U.S. $ in trillions) GDP-Service 7.% GDP-Industry.% GDP-Agriculture.%. ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1

237 International Data United Kingdom Snapshot Trade Total Export $. billion Export as % of GDP.7% Total Import $. billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 Annual Percentage 1 Switzerland Germany U.S. France Netherlands Ireland Germany Netherlands China France U.S. Belgium Music Industry Music Market $. billion Sales Per Capita $. Global Share.% * U.K. music data re-stated by The Music Trades in and explains the significant drop from. 1 1 Music Sales Per Capita (U.S. $) ' ' ' '7 ' '9 '1 1 1 United Kingdom Music Market (U.S. $ in millions) 7 Share of Global Music Market (Percent) 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 7

238 United Kingdom Music Making in the UK Survey PERCENTAGE OF POPULATION OVER YEARS THAT CURRENTLY PLAYS A MUSICAL INSTRUMENT PERCENTAGE OF HOUSEHOLDS THAT CURRENTLY HAVE AT LEAST ONE MUSICAL INSTRUMENT PLAYER 1% % 7% 7% 1 1 This survey was conducted by Nexus Research on behalf of the Music for All charity. The objectives were to: Provide feedback on music players, lapsed players and non-players profiles, behavior and attitudes Provide reference data for promoting the value of music in the community Obtain insight as to how best to encourage more people to make music The results are based on 1,1 Internet surveys with people (1+ years) spread across England, Wales, Scotland and Northern Ireland. During these surveys, data on an additional,17 members of households was also collected regarding their music making. Highlights There are an estimated 1.m (+ years) lapsed players, % (7.9m) of whom would like to start playing again and % of whom are women. Of the lapsed players, % stopped playing by 1 years. Of those who have never played, % (1.m) agreed they would like to learn to play a musical instrument. Over 7% of non-players indicated that they wished they had learned to play an instrument. Over % of those who had never played completely agreed that you are never too old to learn to play.

239 International Data United Kingdom The most popular instruments played are guitars (by % of instrument players), pianos and keyboards (by %) and woodwind (by %). Some 7% of guitar players are male while % of piano/keyboard players and % of woodwind players are female. People first learn to play an instrument by teaching themselves (%), by private one-to-one lessons (1%) and/or by school lessons (%). When purchasing, specialist (brick-and-mortar) music retailers are the most likely consideration (% overall, 1% current players), closely followed by the Internet (% overall, % current players). A third of respondents indicated that they had seen or heard about the benefits of playing a musical instrument and its positive effects on health, well-being or education. Between % and % of the general population completely agree that music brings people together, playing a musical instrument provides a sense of personal accomplishment and that they d be proud of their children playing. This proportion rises to 7% to % on a completely and mostly agree basis. % of people consider it very important that the Government continue to financially support the provision of music in schools. rising to 9% on a very + quite important basis. 9

240 NAMM Executive Committee & Board of Directors NAMM EXECUTIVE COMMITTEE & BOARD OF DIRECTORS NAMM EXECUTIVE COMMITTEE Joseph Castronovo Korg USA, Inc. Mellville, NY Ben Kraft Kraft Music Ltd Franklin, WI John D Addario III D Addario & Company, Inc. Farmingdale, NY Sheryl Laukat Cannonball Musical Instruments Sandy, UT Vice Chairman Mark Goff W.H. Paige & Co., Inc. Indianapolis, IN Paul Decker Music Villa Bozeman, MT Ron Losby Steinway & Sons, Inc. Long Island City, NY Treasurer Robin Walenta West Music Co., Inc. Coralville, IA Greg Deering Deering Banjo Company, Inc. Spring Valley, CA Ron Manus Alfred Music Van Nuys, CA Secretary Chris Martin C.F. Martin & Co., Inc. Nazareth, PA Jim DeStafney Blues Angel Music Pensacola, FL Chairman Larry Morton Hal Leonard Corporation Milwaukee, WI President/CEO Joe Lamond NAMM Carlsbad, CA NAMM YP PRESIDENT C.J. Averwater Amro Music Stores, Inc. Memphis, TN NAMM BOARD OF DIRECTORS Blake Augsburger Harman International Elkhart, IN Pat Averwater Amro Music Stores, Inc. Memphis, TN Gayle Beacock Beacock Music Co., Inc. Vancouver, WA Peter Dods Easy Music Center Honolulu, HI Michael Doyle Guitar Center, Inc. Westlake Village, CA Jessica Freehling-Kazzie Art s Music Shop, Inc. Birmingham, AL Todd Heid Heid Music Company, Inc. Appelton, WI Rob Joseph MusicMax Inc. dba R. Joseph Group Columbus, OH Gabriela König König & Meyer GmbH & Co. KG Wertheim, Germany Brian Reardon Monster Music Levittown, NY Liz Reisman Creative Music & Arts, LLC Monroe, CT Peter Sides Robert M. Sides Family Music Centers State College, PA Tom Sumner Yamaha Corporation of America Buena Park, CA Martin Szpiro Jam Industries Ltd. Baie D urfe, Canada Andy Zildjian Sabian Ltd. Meductic, Canada

241 ACKNOWLEDGEMENTS NAMM wishes to express our sincere appreciation to everyone who helped make the 1 NAMM Global Report possible, including Paul and Brian Majeski of The Music Trades magazine for the U.S. music products industry sales statistics and unit information and analysis; and Ariel Sedeno of the U.S. Census Bureau for the U.S. import and export statistics. We also want to acknowledge the contributions of those organizations and individuals who helped us assemble the global statistics: Alfredo Campanelli of Import Music Argentina; Rob Walker of the Australian Music Association (AMA); Otmar Hammerschmidt of the Austrian Musical Instruments Retailer s Association; Daniel Neves of Música & Mercado, Brazil; Dale Kroke of Music Industries Association Canada (MIAC); An Zhi and Chang Jie of the China Musical Instrument Association (CMIA); Zuzana Petrofová of PETROF, spol. s r.o., Czech Republic; Thomas Hemery and Vincent Sultana of the French Music Industry Association (C.S.F.I.); Winfried Baumbach of the National Association of German Musical Instruments Manufacturers (BDMH); Géza Balogh of HANOSZ, Hungary; Claudio Formisano of Dismamusica, Italy; Masaru Sawano and Masako Koyama of The Japan Music Trades; Thomas Veerkamp of Casa Veerkamp, SA de CV, Mexico; Juan Grecos of Caprice, S.L., Spain; and Paul McManus of the Music Industries Association (MIA), United Kingdom. Your assistance was crucial and is greatly appreciated. Thank you. 1

242 NAMM, the International Music Products Association 79 Armada Drive Carlsbad, CA 9 USA.77.NAMM ()