The 2014 NAMM Global Report

Transcription

1 The 1 NAMM Global Report

2 A Message from the Chairman and President/CEO According to the results from our last NAMM Member survey, one of the top three reasons cited for belonging to the association was 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 1 countries: Argentina, Australia, Austria, Brazil, Canada, China, Finland, Germany, India, Italy, Japan, Mexico, Norway, Russia, South Korea, Spain, Sweden, Switzerland and, of course, the United States. In addition, the Czech Republic makes its first appearance in the report, and the United Kingdom returns after taking a few years off. 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 1 Austria 71 Brazil Canada China 9 Czech Republic 111 Finland 11 Germany 1 India 1 Italy 1 Japan 1 Mexico 17 Norway 17 Russia 1 South Korea 17 Spain 19 Sweden 1 Switzerland 7 United Kingdom 1 NAMM Executive Committee & Board Of Directors ACKNOWLEDGEMENTS 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.% 1 19.% + 1.9% Economy GDP (PPP) GDP-Service 79.% Economy $1.7 trillion GDP Per Capita $, GDP-Real Growth Rate 1.% Unemployment Rate 7.% Inflation 1.% 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 9.9% Total Import $. trillion Import as % of GDP 1.7% 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 $1.1 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,.19 $1,9.79 Sound Reinforcement Wind Instruments Printed Music General Accessories Microphones Percussion Computer Music Products Acoustic Pianos Signal Processing Instrument Amplifiers Portable Keyboards Digital Pianos Cables DJ Gear Keyboard Synthesizers Stringed Instruments Other Electronic Products Multi Track Recorders Electronic Player Pianos Institutional Organs Home Organs Karaoke Products Rhythm Machines $1.1 $19. $11.9 $1.77 $1.7 $9.9 $11. $7. $.1 $9. $9.7 $1. $17.7 $1. $1.7 $7.1 $7. $17. $1.9 $1. $1.7 $1. $1. $1.7 $11. $99. $. $19.1 $19. $9.1 $1.7 $.99 $1.7 $97. $. $.1 $1. $7. $1. $.77 $1.77 $. $1. $7. $79.99 $ (in millions of dollars) 7

8 U.S. Industry Revenue at a Glance 1 Industry Sales Gains and Declines DJ Gear Keyboard Synthesizers Electronic Player Pianos 1.% 1.% 1.% Microphones General Accessories Sound Reinforcement Karaoke Products Fretted Products Acoustic Pianos Wind Instruments Digital Pianos Computer Music Products Cables Instrument Amplifiers Other Electronic Products Institutional Organs Stringed Instruments Percussion Signal Processing Portable Keyboards Printed Music Rhythm Machines Multi Track Recorders Home Organs.1%.%.1%.%.1%.9%.7%.7% 1.9%.% -1.7% -1.1% -.% -.9% -.9% -.1% -.7% -.% -.% -11.% -.7% -% -% -1% -1% -% % % 1% 1% %

9 Music USA Introduction 1 Music Industry Analysis Industry Sales Advance in the Face of Strong Headwinds Despite surging sales of used gear and the financial stress of a key demographic, revenues advance.1%, in line with the larger economy The retail value of music products shipped in 1 advanced.1% to $.1 billion, basically keeping pace with the tepid growth of the economy. Although 1 represents the fourth straight year of sales gains, shipments are still below the pre-financial crisis peak. On a positive note, however, retailers and suppliers seem to have finally finished with the arduous task of recalibrating their business to the more austere climate. The resulting stability has improved the outlook dramatically, enabling businesses to once again focus their energies on rekindling growth. What we refer to as the music products industry is actually a collection of about a dozen product categories that have little in common aside from the fact that they include products that make audible sounds and are sold through a common distribution network. Given this diversity, sales results varied significantly among the product categories due to the volatile combination of economic trends, evolving musical styles and advancing technology. A rebound in the housing market bolstered acoustic piano sales, while shifting musical tastes contributed to strong gains in the acoustic guitar market. DJ and musicproduction products rode the popularity of electronic dance music (EDM) to achieve robust sales gains. Unfortunately, the same trend may have adversely affected entry-level electric guitar sales. Traditional percussion products lagged, largely due to the growing consumer preference for electronic alternatives. Audio sales advanced due to an improved economy, and school music edged up in line with national enrollment levels. While each of the product segments faced its own unique market dynamics, there were two emerging issues that confronted all of them: namely, growth in the sale of used products and the economic woes of the under- demographic. As chronicled in the columns of The Music Trades, for decades manufacturers and retailers have worried that there would be a calamity if all the unused instruments suddenly came on the market. Thanks to Craigslist and ebay, online marketplaces that traffic heavily in used gear, that day seems to have arrived. While it hasn t proved as disastrous as some have feared, there s no question that the vibrant market for used gear has weighed on new product sales. Precisely quantifying the size of the used market is impossible. However, some stats about ebay and Craigslist indicate just how large it is. On any given day, Craigslist nationally offers somewhere around 1 million music items that run the gamut from 9-foot Steinway grands (asking price $9,) and 19 Martin -s (asking price $,) to a lot of marginally functional stuff offered for $1. A similar range and volume of used gear is offered by ebay. In mid-sized markets like Springfield, Illinois; Des Moines, Iowa; or Augusta, Georgia, the inventory listed on the two sites would easily fill one or two decent-sized music stores. Couple this large supply of inventory with a generation accustomed to searching for online bargains, and the result is a significant market factor. The ebay website is the eighth most visited site in the U.S., and Craigslist is close behind at number 11. Music and music making have broad-based appeal, but the industry s largest number of customers still reside in the under- age bracket. These are the primary purchasers of guitars, amps, drums, keyboards and recording gear. And while the reverberations of the financial crisis were felt by all, they had a disproportionate effect on people age and under. A few key statistics illuminate the problem. According to the U.S. Department of Labor, only 7% of the 1 9 age cohort holds a fulltime job, an all-time low. The national unemployment rate stands at.% as of this writing, but it is 1% for the under- group. At a time when earnings opportunities seem to have declined, financial obligations have also increased. According to the treasury, college-related debt has risen 7% since. Although hard to quantify, it s not beyond dispute that the financial stress of a key buying group has retarded industry growth. Given these headwinds, it should be encouraging that industry sales held up as well as they have. The best explanation for the resilience is the ongoing advances in product value. Major strides in technology continue to improve the feature/price ratio of any product that contains a digital chip. Witness sub-$1, digital mixers, 9

10 and fully featured recording software for less than $1. However, the improvements have not been limited to the realm of high tech. Human ingenuity has found ways to enhance the value and performance of acoustic guitars, wind instruments and percussion products, yielding what can best be described as a golden age. This continued progress is the best hope for rekindling industry growth. What follows is a product-by-product assessment of the instruments considered in the U.S. section of the Global Report. Fretted Products and Effects Includes acoustic guitars, electric guitars, basses, ukuleles, amplifiers, strings, and guitar-related effects. Changing musical tastes, an ample supply of readily available used products, and new technologies combined to deliver mixed results for the fretted instrument market in 1. The year saw aggregate shipments of electric and acoustic guitars dip.7% to.7 million units versus.9 million units in 1. Retail value increased 7.% to $1.7 billion, compared with $1. billion in 1, reflecting increased sales of instruments retailing for over $1,. However, during the year, acoustic guitars significantly outpaced electric guitar sales. in $ billions 7 1 ' ' ' Industry Total ' ' '7 ' '9 '1 Unit shipments of acoustic guitars and acoustic guitars with pick-up assemblies advanced.7% to 1. million units, compared with 1. million units in 1. Retail dollar value advanced 1.% to $. million versus $. million in 1. By all accounts, higher-priced instruments were the bright spot of the market. By contrast, shipments of electric guitars declined.% to 1.1 million units versus 1.1 million units last year. The retail value of electric guitars declined only.% to $7.1 million versus $. million in 1. The softness in electric guitar sales also had an adverse impact on the sale of amplifiers, effects and guitar strings, given that electric guitarists are more frequent string purchasers than their acoustic counterparts. 1 1.% 1-Year.19% Retailers and manufacturers alike have been fixated on finding an explanation for the rise in demand for acoustics and the decline for electrics. Some attribute it to a dearth of electric guitar driven rock n roll in the current popular music lineup. Others say that acoustics are more compatible with the restrained national mood. Still others point to the popularity of EDM and compare the current music scene to the early s, when disco temporarily pushed the guitar to the sidelines. Whatever the reason, this is hardly the first time the size and composition of the guitar market has changed. In the five-plus decades since the guitar became the world s most popular instrument, the market has run through at least a half-dozen booms and busts. Those old enough to remember the early s can recount stories of bleak acoustic guitar sales, modest electric sales and a sense that the best days of the guitar 1

11 Music USA market were long past. If the past is any guide, interest in the guitar, particularly electrics, will rebound in the not-toodistant future. 7 Acoustic Guitars. However, some changes in the market are more related to technology than passing musical fads. Most notably, interfaces of varying types that enable a guitarist to plug directly into a computer to record have and will probably continue to adversely impact the sale of amplifiers and effects. As noted previously, the rise in the used market, fueled by Craigslist and ebay, falls particularly hard on the guitar market. Few consumer goods retain their value as well as a guitar, making used instruments especially appealing. in $ millions 1 ' ' ' '7 ' '9 ' x 1,, 1 Summary 1-Year Trend Retail Unit Average Price 1.%.7% 1.%.% -1.%.% Acoustic Guitars category includes banjos, mandolins and other acoustic fretted instruments. Ukuleles.% Market Share Acoustic Guitars.7% Fretted Instrument Strings 1.% Electric Guitars.9% Effects 1.9% Instrument Amplifiers 1.9% in $ millions 7 1 ' ' ' ' ' ' 1 Summary 1-Year Trend Electric Guitars '7 '7 ' ' '9 '9 '1 '1 Retail Unit Average Price -.9% -.7%.% -1.% -.1% 1.% x 1,, Electric Guitars category includes electric basses. 11

12 Fretted Products and Effects, continued in $ billions ' ' ' Total Guitars '7 ' '9 ' x 1,, in $ millions 7 1 '9 '1 Ukuleles x 1,, 1 Summary 1-Year Trend Retail Unit Average Price.9% -.7% 7.7%.% -.1%.7% 1 Summary -Year Trend Retail Unit Average Price -9.% -11.1% 1.1% 11.% 9.% 9.1% Fretted Instrument Strings Instrument Amplifiers in $ millions 1 ' 1 ' ' '7 ' '9 '1 in $ billions 1 1 '9 ' x 1,, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1. 1 Summary 1-Year Trend Retail -.7%.1% 1 Summary 1-Year Trend Retail Unit Average Price -1.7% -.%.% -9.% -.% -17.% 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 in $ billions ' Total Fretted Instruments ' ' '7 ' '9 '1 in $ millions 1 1 ' Rack-Mounted Processors ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail.% -.11% 1 Summary 1-Year Trend Retail -.1% -1.79% Rack-Mounted Processors category includes compressors, limiters, pre-amps, EQs and multi-effects. Multi-Effects Floor Processors Effects Pedals 7 1. in $ millions x 1, in $ millions x 1,, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1. 1 Summary 1-Year Trend Retail Unit Average Price -1.7% -1.% 7.% 9.% -7.% 1.1% 1 Summary 1-Year Trend Retail Unit Average Price -1.71% -.%.%.% 7.1% 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. in $ millions 1 1 ' ' ' '7 ' '9 '1 In 1, piano sales were bolstered by significant improvements in the U.S. housing market. As the sale of single-family homes advanced % to. million units for the year, the value of acoustic piano sales increased.9% to $9. million. Unit volumes were down, however. Retail sales of grand pianos advanced.% to 11,7 units, while vertical pianos dropped.% to, units. Electronic player piano unit sales were up.7% to, units. 1 Summary 1-Year Trend Retail -.1%.7% The year was defined by a shift to larger and higher-priced pianos. The 11 to grand piano category saw the biggest gains, increasing 1.% in the year and pushing the average selling price of a grand to $1,. Consumers also opted for larger, higher-quality uprights, as reflected by an increased average selling price of $,. The piano market is actually composed of two distinct segments: institutions and consumers. In the aftermath of the financial crash, the institutional market was by far the more resilient of the two. However, in 1, retailers reported a notable improvement in consumer store traffic and purchases. The improved consumer sentiment was also reflected in increased sales of digital pianos in 1. Digital piano units were up 1.9% to 1, for the year, with retail value edging up.7% due to modest price increases. Consumers have also responded well to new units that include improved computer interfaces, built-in tablet displays in the music desk and enhanced educational software. The organ market continued its downward trend with both home and institutional market segments posting significant declines. The home organ market struggles with an aging customer base and fewer retailers actively stocking and promoting the product. In the case of the church organ market, the financial difficulties in the Catholic church have reduced sales to the nation s largest denomination, while in other denominations the shift toward contemporary music ensembles reduced the market potential. 1

15 Music USA Pianos Market Share Grand Pianos 7.% Digital Pianos 1.% in $ millions Vertical Pianos 1 x 1, Electronic Player Pianos 1.9% Vertical Pianos 1.7% ' ' 1 Summary 1-Year Trend ' '7 ' '9 '1 Retail Unit Average Price -.% -.%.9% -.% -9.7% 1.7% 1 ' ' ' '7 ' '9 '1 in $ millions 1 1 ' ' ' Grand Pianos '7 ' '9 '1 1 1 x 1, in $ millions 1 '9 ' '97 ' Total Acoustic Pianos '9 '99 ' '1 ' ' '7 ' '9 '1 ' ' x 1, 1 Summary 1-Year Trend Retail Unit Average Price.%.%.9% -.1% -.% 9.9% 1 Summary 1-Year Trend Retail Unit Average Price.9% -.91%.17% -1.% -.7%.% 9 7 1

16 1 1 The Piano and Organ Market, continued 9 Digital Pianos Electronic Player Pianos in $ millions ' ' ' '7 ' '9 ' x 1, in $ millions ' ' ' '7 ' '9 ' x 1, 1 Summary 1-Year Trend Retail Unit Average Price.7% 1.9%.1% -1.% 9.9% -9.7% 1 Summary 1-Year Trend Retail Unit Average Price 1.7%.7%.% -.9% -.% 7.% Total Pianos in $ millions ' '9 ' ' ' '7 ' '97 '9 '99 ' '1 ' ' ' ' '7 ' '9 '1 '9 ' ' 1 Retail Unit Average Price 1 Summary.%.%.7% 1-Year Trend -.% -1.7% -17.% 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 Market Share 7 Institutional Organs. Institutional Organs.% Home Organs 1.% in $ millions x 1, ' ' ' '7 ' '9 '1. 1 Summary 1-Year Trend Retail Unit Average Price -.% -9.9% 7.1% -.% -.%.1% Home Organs Total Organs in $ millions 7 1 ' ' ' ' 1 'Summary ' '7 1-Year Trend '7 ' '9 ' Retail Unit Average Price. ' '9 '1 -.% -.7%.7% -79.% -1.% 9.9% x 1, in $ millions ' ' ' '7 ' '9 '1 Retail Unit Average Price 1 '9 Summary '97 '9 '99-1.%' -19.7% '1 ' 11.7% ' ' 1-Year Trend -.17% -77.%.7% x 1, ' ' ' '7 ' '9 '

18 The School Music Market Includes woodwind instruments, brass instruments and stringed instruments. Market Share Unit shipments of woodwinds, brasswinds and orchestral strings declined.9% to 911, in 1, mirroring the slight decrease in K 1 enrollments, as tabulated by the United States Census. (National K 1 enrollment for the 1 school year was. million, versus.1 million in 1.) The retail value of the shipments advanced 1.7% to $. million, reflecting a combination of modest acrossthe-board price increases and higher sales of step-up instruments. Woodwind Instruments.% Stringed Instruments 17.% Brass Instruments 7.1% The scale of shipments reflects the resilience of school music programs across the country. Despite ongoing concerns about budget cutbacks and retrenchment, unit shipments indicate that national participation levels have remained unchanged over the past decade. As one manufacturer put it, As long as parents are interested in enriching the lives of their children, we have a market for our products. During the year, shifts in the product mix actually had a more significant impact on revenues than budgetary challenges. Stronger relative performance of higher-priced saxophones drove a revenue increase. Sales of background brass increased in large part due to rebounding state and local budgets. in $ millions 1 1 Brass Instruments 1 1 x 1, ' ' ' '7 ' '9 ' Summary 1-Year Trend Retail Unit Average Price.% -.7% 9.7% 1.9%.7% 11.% ' ' ' '7 ' '9 '1 1

19 Music USA Woodwind Instruments Total Wind Instruments in $ millions 1 1 ' ' ' '7 ' '9 '1 1 1 x 1, in $ millions 1 ' ' ' '7 ' '9 '1 7 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price.% -.%.9% 11.% -9.%.% 1 Summary 1-Year Trend Retail Unit Average Price.7% -.%.9% 1.9% -.% 1.% Total Wind Instruments category includes brass and woodwind instruments. 1 7 in $ millions '9 ' '9 ' Stringed ' ' Instruments ' '7 ' '97 '9 ' '7 '99 ' ' '9 '1 ' '1 '9 ' '1 1 1 ' x 1, in $ millions 7 1 ' ' ' Total School Music '1 ' ' ' '7 ' '9 '1 ' 1 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price -.9% -9.%.%.1%.%.7% 1 Summary 1-Year Trend Retail Unit Average Price 1.71% -.9%.1% 1.7% -.7% 17.9% ' ' ' '7 ' '9 '1 19

20 The Pro Audio/Sound Reinforcement Market Includes speaker enclosures, power amplifiers, mixers, cables, and microphones. The combination of improved economic conditions and advancing technologies made the sound market one of the industry s best-performing segments in 1. The combined retail value of loudspeakers, mixers, microphones and cables advanced.9% to nearly $1. billion compared with $1.9 billion in 1. Manufacturers and retailers reported that houses of worship, educational institutions and performance venues of varying scales increased their spending on sound systems in 1. Speaker Enclosures.1% Market Share Powered Mixers.% Cabled Microphones.% Wireless Microphones 9.% Non-Powered Mixers 1.% Power Amplifiers 9.% Cables 11.% Because sound systems wear out, there is an ongoing replacement market that provides a sales baseline. However, improved technologies, particularly in the form of digital mixing consoles with remote capabilities, apparently accelerated the replacement cycle last year. The ability to remotely control speakers and power sources used to be limited to ultra-high-end installations. The fact that it s now available on even small systems has prompted buyers to step up to new digital mixers and DSP-equipped loudspeakers. Power Amplifiers Sales of powered mixers continued to wane due to the utility of powered speakers. At the same time, mixer and loudspeaker sales advanced, reflecting the strength of the market. The fascination with retro that continues to drive the instrument market has also spilled over into the sound market, particularly in microphones. An affinity for mics that, in the words of ad copy writers, capture the classic, warm, vintage sound but provide modern performance, help explain why mic sales advanced.% to $1 million in retail value. in $ millions 1 1 ' ' ' '7 ' '9 '1 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price.% 1.%.% -.% -.9%.11%

21 Music USA Powered Mixers Non-Powered Mixers in $ millions 1 ' ' ' '7 ' '9 ' x 1, in $ millions ' ' ' '7 ' '9 '1 1 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price 1.1% -.1%.9% -.% -.%.77% 1 Summary 1-Year Trend Retail Unit Average Price 1.7%.%.% -.9% 1.7% -1.1% in $ millions Speaker Enclosures ' ' ' '7 ' '9 '1 1 1 ' ' ' '7 ' '9 '1 '9 '97 '9 '99 ' '1 ' ' ' in $ millions '9 ' '97 ' Cables '9 '99 ' '1 ' ' '7 ' '9 '1 ' ' 1 Summary 1-Year Trend Retail.% 1.% 1 Summary 1-Year Trend Retail.% 1.9% 1

22 Pro Audio/Sound Reinforcement, continued Cabled Microphones Wireless Microphones 1 in $ millions 1 1 in $ millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail.% 1.7% 1 Summary 1-Year Trend Retail.%.19% 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 1. Total Sound Reinforcement in $ millions 1 in $ billions ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail.1% 1.% 1 Summary 1-Year Trend Retail.%.7% 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. The retail value of percussion products declined.% in 1 to $1. million. A widely aired General Motors television spot provided a succinct explanation for the downturn. In the ad, a harried couple flees to the quiet of their new Chevy Impala to escape the racket caused by their son, an aspiring drummer who practices constantly. This desire for sound control has taken a toll on drum kit sales, down 11.% in units in last year, as more buyers have opted for an electronic kit. Players concede there is no substitute for the expressiveness of a traditional kit, but the advantages of being able to practice silently, control volume in a performance venue like a church, or record without the need for numerous microphones, makes electronic kits a compelling alternative. Electronic kits have taken the biggest bite in the entry-level market, which explains why average selling prices of acoustic kits have edged up. The market impact of electronic kits goes beyond just drums. Electronic drummers don t break sticks as often, don t need new heads and don t require as many cymbals, which was reflected in the revenue levels of these other product categories. The two bright spots in the market were in the sale of educational percussion and hand percussion. Stronger institutional budgets led to a.% increase in the sale of mallet instruments, timpani and marching drums. A modest uptick in hand percussion sales was fueled by continued interest in the cajon. in $ millions Drum Heads 9.% ' ' Market Share Drum Kits.% ' '7 Cymbals 1.% Hand Percussion 1.% Drum Kits ' '9 '1 Individual Drums & Hardware 1.% Sticks & Mallets 1.% Educational Percussion 1.% 1 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price -.% -11.1%.% -.% -7.%.1% 1 1

24 Percussion Products, continued Educational Percussion Cymbals in $ millions 7 1 ' ' ' '7 ' '9 '1 in $ millions ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail.% 7.7% Educational Percussion category includes timpani, marching percussion, mallet instruments, snare drum kits and orchestral percussion instruments. 1 Summary 1-Year Trend Retail -.% -1.1% Individual Drums and Hardware Sticks and Mallets in $ millions 7 1 in $ millions 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.% -.9% 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 Retail -.% 1.% Data was corrected for to 1 as the category previously included global totals.

25 Music USA Hand Percussion Total Percussion in $ millions 1 1 ' ' ' '7 ' '9 '1 in $ millions 1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail 1.1% -.% 1 Summary 1-Year Trend Retail -.9% -19.7% Drum Heads in $ millions 1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.% -11.1% Data was corrected for to 1 as the category previously included global totals.

26 The DJ Market Includes CD and digital media players, turntables, DJ mixers, digital DJ controllers, and special effects lighting units. The DJ product category is a catchall that includes both traditional CD players and turntables, as well as a newer 7 generation of software-based controllers. On the strength of a % increase in the sale of digital controllers, a wide range of devices that work in conjunction with software to enable users to manipulate tracks, sales in the category advanced 1%. Sales of CD players continued to trend down, reflecting the transition to software-based systems. in $ millions 1 1 ' ' ' CD Players '7 ' '9 '1 7 1 x 1, ' This new type of music making is rapidly gaining adherents, 1 as evidenced by the millions who attend EDM fests in the U.S. ' ' Some '7have ' gone '9 as '1far as describing this attraction to electronic music as the 1st-century incarnation of the guitar boom. It s new, it s highly accessible and it has nothing to do with their parents generation, said one manufacturer, explaining the appeal. 1 Summary 1-Year Trend Retail Unit Average Price -1.9%.% -1.9% -.9% -1.7% % Market Share 1 Turntables DJ Mixers.% Digital DJ Controllers 1.1% CD Players 1.7% in $ millions x 1, Turntables 7.% Special Effects Lighting 11.9% 7 '97 ''9' '99 ' 1 Summary 1-Year Trend ' '7 ' '1 '9''1 ' ' Retail Unit Average Price.7%.%.% -.% -1.1% -.% 1 ' ' ' '7 ' '9 '1

27 Music USA 1 1 DJ Mixers Digital DJ Controllers in $ millions 1 ' ' ' '7 ' '9 '1 1 1 x 1, in $ millions 1 1 '1 7 1 x 1, 1 Summary 1-Year Trend Retail Unit Average Price.9%.11% 11.7% 9.% -.1%.% 7 1 Summary -Year Trend Retail Unit Average Price.%.7% -.% 17.7%.% -.9% 1 '1 Special Effects Lighting Total DJ Sales in $ millions 1 1 ' ' ' '7 ' '9 '1 in $ millions ' '97 ''9 ''99'7 ' ' '9 '1 '1 ' ' ' '97 '9 1 Summary 1-Year Trend '99 Retail '.77% -9.% '1 ' ' ' 1 Summary 1-Year Trend Retail 1.%.7% 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, notation software, recording and sequencing software and plug-in software and loops. the increase in computer-related hardware revenues. Sales of self-contained hard-disk recorders continued to decline given the power and versatility of computer-based systems. Multi-Track In an era of fewer live performance venues and the ability to record and share digital musical files, recording grows increasingly important. And, recording is no longer just about capturing a performance. In the case of EDM, the recording is the performance. Products associated with this category cover a broad spectrum, including a mix of software and hardware. Results varied widely. Recording software, or Digital Audio Workstations (DAWs), saw a decline in revenue, although no decrease in use or interest. That s because of sharp price reductions and the fact that more and more of the software is now being bundled with the sale of hardware. Apple s decision two years ago to slash the price of its popular Logic DAW to $199 from $99 has put pricing pressure on competing products. Additionally, when manufacturers like Behringer take to offering full-featured DAW software with its mixers at no additional charge, it makes it more difficult to sell standalone programs. Sales of stand-alone notation software declined in 1, dropping.% to $1. million. This decline is set to continue, as more and more DAW software incorporates notation capabilities. Plug-ins, which include signal processing effects, 7 tune correction software and mastering programs, used in conjunction with DAWs saw revenues increase, reflecting the burgeoning interest in recording. The sale of loops, which include sounds and musical patterns, also advanced. Computer-related hardware includes in audio interfaces, which enable users to route audio in and out of a computer, and a growing array of hardware designed 1 to trigger and control a computer. These production stations, which are a ' ' ' '7 ' '9 '1 central component for creating EMD tracks, contributed to in $ millions 1 ' ' 1 Summary 1-Year Trend Market Share Portable Digital Recorders.1% ' '7 ' '9 '1 Hard Disk Multi-Track Recorders 1.9% Hard Disk Multi-Track Recorders Retail Unit Average Price -1.7% -1.% -1.1% -.% -.9% -.% 7 1 x 1, x 1,

29 Music USA Recording and Computer Music Market Portable Digital Recorders Market Share in $ millions '7 ' 1 Summary 7-Year Trend '9 '1 Retail Unit Average Price -1.% -.1% -7.%.1%.% -.% Total Multi-Track Sales 1 1 x 1, x 1, Sound Cards & Related Hardware.% Notation Software.% Recording/ Sequencing.% Plug-In Software & Loops.% Sound Cards and Related Hardware in $ millions 1 '9 '97 '9 '99 ' '1 ' ' ' 1 1 x 1, in $ millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail Unit Average Price -11.7% -.7% -7.%.7% 1.9% -.7% 1 Summary 1-Year Trend Retail.%.% 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 Notation Software Plug-In Software & Loops in $ millions ' ' ' '7 ' '9 '1 in $ millions 1 1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.% -1.71% 1 Summary 1-Year Trend Retail 9.1%.% Plug-In Software & Loops category includes signal processing effects, tune correction software and mastering programs. Recording & Sequencing Software Total Computer Music Market in $ millions ' ' ' '7 ' '9 '1 in $ millions 1 1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.9% -.% 1 Summary 1-Year Trend Retail 1.9% 1.1%

31 Music USA The Electronic Music Market Includes keyboard synthesizers, controller keyboards, electronic pianos, drum machines, and electric percussion instruments. Sales of electronic musical instruments advanced.1% last year, due to strong gains in the keyboard synthesizer market. The retail value of the entire product category was $.7 million in 1, versus $1.7 million in 1. In a broad category that includes synths, controllers, drum machines and percussion instruments, synthesizers were the best performers, with units advancing.1% to, and retail value increasing 1.% to $11.9 million. A wave of new products and a renewed fascination with retro analog synths contributed to the gain. The market also benefited from the ongoing popularity of electronic dance music and all its sub-genres. Sales of electronic percussion products advanced.% to a retail value of $1. million, reflecting their practicality. Consumers increasingly value drums that allow for complete volume control and are easy to record. Sales of keyboard controllers posted the second straight year of decline, as did electronic stage pianos. in $ millions ' ' 1 Summary 1-Year Trend Keyboard Synthesizers ' '7 ' '9 '1 Retail Unit Average Price 1.%.1%.97%.%.9% -.91% x 1, ' ' Market Share Keyboard ' Synthesizers ' ' '7 9.% Rhythm Machines, Production Centers, etc..1% ' '7 ' '9 Electronic Drums.% '1 ' '9 '1 Controller Keyboards 1.% Electronic Pianos/ Professional Organs 9.% in $ millions Rhythm Machines / Production Centers '9 ' '97 ' 1 Summary 1-Year Trend ' '9 '7 '99 ' ' '9 '1 '1 ' ' ' Retail Unit Average Price -.%.71% % -.1% -.77% -1.97% In 1, the Sound Modules and Drum Machines categories were merged to form this new category, Rhythm Machines/ Production Center. 1 1 x 1, 1

32 The Electronic Music Market, continued Electronic Pianos / Professional Organs Electronic Percussion in $ millions x 1, in $ millions 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail Unit Average Price -.% -.7% 1.9% -71.7% -.7% -.% 1 Summary 1-Year Trend Retail.7% 1.% Controller Keyboards Total Electronic Music Sales in $ millions 1 1 '9 '97 '9 '99 ' '1 ' ' ' 1 1 x 1, in $ millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail Unit Average Price -9.7% -.% 19.%.%.% -.% 1 Summary 1-Year Trend Retail.11% -.1% 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 print music shipments dipped.% to $1. million, compared to $. million in 1. The increased use of digital delivery systems is partly to blame for the decline. However, print sales were also adversely affected by shifts in musical preferences. The increasing numbers who have turned to the EDM genre as a musical outlet don t buy print music like traditional instrumentalists. The prominence of the guitar also hasn t helped; guitarists purchase far less print music than their keyboard counterparts. Declines in popular music offerings were offset somewhat by strong sales of band and orchestral methods for use in schools. The Portable Keyboard Market Ever since they were first introduced in the early s, portable keyboards were billed as the ultimate entry-level musical instrument, a tool that anyone could use to make music. Three decades later, the quality and performance of portables continue to advance, and these instruments still offer a superlative entry-level product. Yet, the retail value of portables in the under-$199 category declined for the third year running, dropping 1.% to $7. million from $. million last year. The best explanation for this downturn is competition from other products. With an average selling price of $99, small portables represent a high value, but less so when compared to keyboard apps available for as little as $.99. In addition, for many younger buyers, making music is more about manipulating loops than mastering basic keyboard skills. Sales of higher-end portables, those retailing for over $, were essentially flat last year at $11. million. These units have become so powerful, they are even used by some professional performers. Printed Music Market Share in $ millions 1 Keyboards Over $199 7.% Keyboards Under $199.% ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.% -.%

34 Portable Keyboards, continued Keyboards Under $ ' ' ' '7. ' '9 '1. ' ' '.. ' ' '7 ' Retail Unit Average Price 1 Summary. '9 '1-1.1% -19.%.% 1 Summary 1-Year Trend -7.% -.7% -1.9% 1-Year Trend in $ millions x 1,, in $ millions Total Portable Keyboards '7 ' '9 '1 Retail Unit Average Price -.77% -1.% 1.1% -.9% -.%.17% x 1,, Keyboards Over $199 in $ millions '9 ' '99 ' ' '1 ' ' ' ' '7 ' '9 '1 ' ' 1 1 x 1, '9 '99 ' '1 ' ' ' 1 Summary 1-Year Trend Retail Unit Average Price.% -.1% 9.%.9% -.% 1.9% 1 1

35 Music USA The Karaoke Market Karaoke machines, excluding those sold through mass merchants, edged up.% to $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. This year we discontinued the tracking of karaoke software because it has largely migrated from the retail environment to digital downloads. The General Accessory Market There were 1, exhibitors at the most recent NAMM Show, and by our count, close to a third were offering some type of accessory, be it a case, stand, strap, pick, cleaning tool or tuner. The creative energy of this small army of accessory entrepreneurs helped drive a.% gain in general accessory sales the last year. Aside from sale or discount, retailers favorite word is new, and accessory makers more than delivered, with a bumper crop of new items. The broad accessory category may be composed of smallticket items, retailing for under $1, but it adds up to big bucks, contributing $1. million to the industry s retail revenues. The contribution to retail gross profit is even more significant given the high profitability of most accessory items. 1 Karaoke Machines 1. General Accessories in $ millions x 1,, in $ millions 1 ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail Unit Average Price.% 7.9% -.9% -9.7% -9.% 7.99% 1 Summary 1-Year Trend Retail.% 9.97% 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 Music USA U.S. Industry Summary (in millions of dollars) Segment Acoustic Guitars $ $7 $ $1 $7 $91 $19 $ $ $ Acoustic Pianos $ $1 $9 $ $ $1 $7 $91 $ $9 Cables $11 $1 $11 $17 $19 $1 $17 $19 $1 $1 Computer Music Products $1 $ $ $ $ $1 $ $ $ $ Digital Pianos $1 $17 $1 $1 $11 $1 $1 $17 $19 $1 DJ Gear $1 $1 $1 $11 $1 $ $1 $11 $1 $19 Electric Guitars $9 $ $ $ $ $9 $ $ $ $7 Electronic Player Pianos $1 $1 $1 $11 $1 $ $ $ $ $ Fretted Instrument Strings $1 $1 $1 $17 $17 $17 $1 $19 $19 $1 General Accessories $9 $17 $ $ $ $ $ $1 $ $11 Home Organs $7 $7 $ $9 $ $ $ $19 $1 $1 Institutional Organs $7 $ $ $9 $ $9 $ $ $ $9 Instrument Amplifiers $7 $97 $ $77 $ $ $ $1 $19 $19 Karaoke Products $1 $1 $1 $9 $1 $1 $19 $1 $1 $1 Keyboard Synthesizers $1 $11 $11 $1 $11 $97 $1 $1 $99 $11 Microphones $1 $7 $9 $7 $ $9 $ $7 $7 $1 Multi Track Recorders* $ $ $9 $97 $9 $9 $9 $1 $1 $9 Other Electronic Products $1 $11 $19 $11 $11 $9 $11 $11 $19 $17 Percussion $7 $1 $19 $97 $ $ $1 $ $97 $ Portable Keyboards $ $ $19 $1 $17 $1 $1 $19 $1 $17 Printed Music $9 $7 $ $9 $9 $ $ $ $7 $1 Rhythm Machines $1 $1 $1 $11 $1 $9 $ $9 $ $7 Signal Processing $1 $ $19 $ $7 $9 $ $1 $ $ Sound Reinforcement $9 $919 $ $9 $19 $ $717 $7 $7 $79 Stringed Instruments $ $11 $11 $11 $9 $1 $ $17 $11 $19 Ukuleles $ $ $ $77 $7 Wind Instruments $1 $7 $ $1 $1 $ $7 $ $7 $ Industry Total $7,17 $7, $7, $7,9 $7,7 $, $, $, $,7 $, *Multi-Track Recorders includes a new category, Portable Digital Recorders, as of 7. 7

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

39 U.S. Industry Summary in $ billions 7 1 Industry Total 1 GDP Per Capita (in thousands of Dollars) ' ' ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 1.% 1-Year.19% 1-1.7% 1-Year 1.7% 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-Year 1.9% Source: The Music Trades GDP Per Capita Music Sales Per Capita Source: The Music Trades 1 9

40 in $ millions 1 ' ' ' Acoustic Pianos '7 ' '9 '1 in $ millions ' ' ' Digital Pianos '7 ' '9 '1 Cables DJ Products 1 1 in $ millions in $ millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '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 in $ millions 1 1 ' ' ' '7 ' '9 '1 in $ millions ' ' ' '7 ' '9 '1

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

42 Keyboard Synthesizers Organs 1 1 in $ millions 1 1 in $ millions ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Microphones Other Electronic Products 1 in $ millions 1 in $ millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Multi-Track Products Percussion 1 in $ millions 1 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 in $ millions 1 1 in $ billions ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 Printed Music Stringed Instruments 1 in $ millions 1 in $ millions 1 7 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 Summary 1-Year Trend Retail -.% -.% 1 Rhythm Machines / Production Centers Wind Instruments in $ millions 1 1 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 11,79,1,9,1 Multiple Loudspeakers, Mounted In the Same Enclosure 1,1,7 1,19,,77 Headphones, Earphones, Microphone/Speaker, Nesoi* 1 1,, 1,,1,19 Audio Frequency Electric Amplifiers, Nesoi* 1 1,1,9 19,,17 Upright Pianos ,99,1,77 Grand Pianos ,7 79,, Harpsichords and Other Keyboard Stringed Instruments, Nesoi* ,1 Stringed Musical Instruments Played with a Bow 91,7,77,9 Guitars Under $1, Excluding the Value of the Case 99 1,71,7,1,9 Guitars, Nesoi* 99,11 7,11,9 Stringed Musical Instruments, Nesoi* 99 99,,7,1 Brasswind Instruments Valued Not Over $1 Each 91,9 1,77 Brasswind Instruments Valued Over $1 Each , 1,99,77 Keyboard Pipe Organs 991,9,17 Keyboard Instruments, Nesoi* 991, 19,9 Piano Accordions 991,1,, Accordions, Nesoi* 991 7,,,19 Mouth Organs 9919, 9,1,71 Bagpipes 99 1,9, Clarinets 99 9,77,7,7 Saxophones 99 91,99,7,19 Flutes and Piccolos (Except Bamboo) ,1 1,9, Woodwind Instruments, Nesoi* 99,,9 11,,19 Wind Instruments, Nesoi* 99 99,7 1,1,7 Drums 9 1,,7,9, Cymbals 9, 17,9, Sets of Tuned Bells, as Chimes, Peals or Carillions 9 7, 7,1, Percussion Musical Instruments, Nesoi* 9,1,1,,1 Musical Synthesizers (Under $1 Each) 971,,1,1 Musical Synthesizers ($1 or Over Each) 9711,7,1, Keyboard Instrument (More Than 1 Keyboard Under $) 971 1,91, *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) 971,11,,1 Keyboard Instrument (More Than 1 Keyboard Hand-Held) 971, 1, Keyboard Instrument Except Accordions (1 Keyboard Under $1) , 1,9,17 Keyboard Instrument Except Accordions (1 Keyboard $1 or Over) 9717, 1,, Fretted Stringed Instruments 979 1,, 19,,7 Musical Instruments, Electrically Amplified, Nesoi* 979,7 1,9, Music Boxes 91,91,,117, Other Musical Instruments 99 1,9, Mouth-Blown Sound Signalling Instruments, Nesoi* 99 9,,1 11,1,99 Musical Instrument Strings 99 11,1,,, Tuning Pins for Pianos 9991,,191 Parts and Accessories for Pianos, Nesoi* ,,7 Mutes, Stands and Music Holders of Stringed Instruments 999 -,,1 Tuning Pins for Stringed Instruments 999,7,1, Parts of Bows, Chin Rest and Parts for Instruments Played with Bow 999-1,9,1 Parts and Accessories for Stringed Instruments, Nesoi* 999-1,9, Collapsible Keyboard Instrument Stands 999 -,91,71 Other Parts and Accessories for Keyboard Instruments 999 -,19, Metronomes, Tuning Forks and Pitch Pipes ,7,79 Mutes, Pedals, Dampers, and Spurs for Drums Pedals ,71,1 Parts and Accessories for Pipe Organs ,, Parts and Accessories for Harmoniums and Similar Keyboard Instruments , Parts and Accessories for Bagpipes ,19, Parts and Accessories for Woodwind Instruments ,17,1 Parts and Accessories for Other Wind Instruments ,,7 Mechanisms for Music Boxes , Parts and Accessories for Musical Instruments, Nesoi* ,97,7 1 1 Difference % Change Import Values $,,,99 $,91,7,91 +$7,,9 +.% Export Values $1,9,, $,,797,9 $11,,.% *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 11-9,,9 Single Loudspeakers, Mounted in Their Enclosures 11,, 17,1,11 Loudspeakers, Nesoi* 19 1,9,1,1,7 Headphones, Earphones, Microphones/Speaker, Nesoi* 1,, 1,,1 Audio Frequency Electric Amplifiers, Nesoi* 1 9, 1,1, Electric Sound Amplifiers Sets 1 7,,,1 Microphone, Loudspeaker and Amplifier Parts 19 -,, Upright Pianos 911 1,,91,1 Grand Pianos 91 1, 1,19, Pianos, Nesoi* 919 1,,9, Stringed Musical Instruments, Played with a Bow 91,,, Guitars 99 1,9 9,, Stringed Musical Instruments, Nesoi* 99 7,1 17,9, Brasswind Instruments 91,,1,9 Woodwind Instruments, Nesoi* 991,7 17,,11 Keyboard, Pipe Organs, Etc., with Free Metal Reeds 991 1,1,7,7 Accordions and Similar Instruments 991,1, Mouth Organs ,9 17, Wind Instruments, Nesoi* 99 1, 1,1,7 Percussion Musical Instruments 9,,, Music Synthesizers, Other Than Accordions 971 1,9 9,1,7 Keyboard Instruments, Other Than Accordians, Nesoi* 971, 9,7, Fretted Stringed Instruments 979 9,7 11,7,7 Musical Instruments, Electrically Amplified, Nesoi* 979 1,7,1, Music Boxes 91 11,1,, Mouth-Blown Sound Signalling Instruments, Nesoi* 99,9,,99 Musical Instrument Strings 99,17,7,,7 Parts and Accessories for Pianos ,, Parts and Accessories for Stringed Instruments 999-9,7,7 Parts and Accessories for Keyboards 999 -,1,7 Metronomes, Tuning Forks and Pitch Pipes ,9 Other Parts and Accessories ,,9 *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 1 1 ' ' Number of Import (in millions) ' '7 ' '9 '1 1 1 ' ' Number of Export (in millions) ' '7 ' '9 '1 1 1 Change.7% 1 1 Change 1.% -Year Change.% -Year Change.1% Value of U.S. Imports (in billions of Dollars). Value of U.S. Exports (in billions of Dollars) ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 1 1 Change.% 1 1 Change.% -Year Change 7.% -Year Change 17.% 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 Thailand Taiwan Germany Malaysia Canada S. Korea France Hong Kong U.K. Italy Vietnam China % Others 1% Mexico 1% Japan % Indonesia % Thailand % 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 U.K. Hong Kong Australia S. Korea Singapore China Brazil France Italy Chile Others % Netherlands % Germany % Canada 19% Mexico 11% Japan 17% The United States exported music products to a total of 19 countries in 1.

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

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

51 International Data International Data Argentina Australia 1 Austria 71 Brazil Canada China 9 czech republic 111 finland 11 Germany 1 India 1 Italy 1 Japan 1 mexico 17 Norway 17 Russia 1 South Korea 17 Spain 19 Sweden 1 Switzerland 7 United Kingdom 1 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, Germany, 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 1.1% Value in $ billions 1 China Germany France Canada U.K. 7.1%.%.%.%.% ' ' ' ' '7 ' '9 '1 Italy Australia.%.% Brazil 1.% S. Korea 1.7% Russia 1.% Netherlands 1.1% Mexico 1.%

53 International Data Argentina argentina ARGENTINA With a thousand music stores, serious distributors, numerous music schools and a much-respected artist community actively touring throughout the region, Argentina is South America s second-largest music market after Brazil, followed by Chile and Peru. However, after years of enjoying an open market for imports and wire transfers overseas, the Argentinean government started to apply importation restrictions in 11. First, those restrictions were applied over certain products (such as classic and acoustic guitars, cases and stands) with the goal of protecting and encouraging domestic industry, making the importation of those products very difficult to almost impossible. However, since February 1, 1, those restrictions became far more severe and applied to all products without distinction. A new system called Declaracion Jurada de Necesidad de Importacion (DJAI), which means Sworn Statement of Need for Import, became in reality a total government control of each importation. In addition was a total control over the currency exchange rate market, regulating access to foreign currency, creating a parallel market that increased to 1% over the official market value during its worst moment in January of this year (at the time of this report, the difference is approximately % up). Since then, people involved in the import business must apply for a DJAI form for each single importation, and the government decides whether to approve it by issuing an import permit that s valid for 1 days, with no written rules or explanations about why something is approved or not. The import permit validity of 1 days is very tight for products manufactured under just in time methods, requesting or months ahead of ordering because adding the almost days required for transit time and Customs clearance, the DJAI may be due before the goods enter the country. In this case the importer must request a renewal of another 1 days, but that might not be approved, in which case the goods must go to Free Zones or stay at the ports for an uncertain period of time (there are reports of goods waiting at Customs for one entire year expecting an approval that sometimes never was issued). The consequent enormous increase in cost can force an extreme situation where goods must be re-exported to other markets or to Free Zones. These conditions make it very risky and stressful to plan orders and production overseas, which has resulted in a reduction of imports (a government goal) as well as a decline in exports, because the same method applies for components and materials required by the local industry, resulting in very uncertain conditions for any business. This explosive formula has caused Central Bank reserves to decrease, obligating the government to restrict importations even more strongly now not only to increase local production but simply because of the lack of reserves to pay the importations. In addition, a very mistaken energy policy applied during the last decade (which freezes and controls prices) resulted in a severe lack of local extraction of oil and gas (when Argentina has one of the biggest reserves of oil and gas in the world), forcing the government to import growing quantities of those two critical commodities in order to generate electricity, spending around US$1 billion a year and making the import restrictions for any other product even tighter. What we could call a vicious circle. Throughout 1, with a fast acceleration over 1 Q1, Central Bank reserves fell by %, creating a general sense of disaster, pushing a faster devaluation of the peso (jumping from

54 US$ to US$ last January, against around US$ a year ago). This was also driven by a parallel market that was going out of control. Fortunately, the Central Bank took last-minute measures forcing banks to sell their excess foreign currencies (legally, banks cannot invest more than % of their net inheritances in foreign currencies but many were having up to 1%). That gave the Central Bank around US$. billion in cash plus another US$1. billion in futures, temporarily calming the market for a few months until the strong soybean exports period arrives in April. The soybean is our green oil, representing the number one income of the country. Thanks to that, the U.S. dollar in the parallel market is now between $1 to $11 (it was $1 last January), but all restrictions are there and consumers are now used to the lack of products of any kind. Inflation is around % to % and a recession is expected in 1, the so-called stanflation. argentina And that is the situation today: a very delicate balance we may lose around July when the gross harvest exports of soybeans ends for the year. In the meantime, importers of musical instruments, public address systems, sound reinforcement systems and lighting experienced a peak of restrictions that resulted in a % decline in sales. A government election will take place in October 1; by then we are all expecting that a more amicable business party will replace the present one in December 1, but it looks like an eternity. The good news is that after this long period of restrictions and repressed demand, we should have a booming time in 1. Commentary by Alfredo Campanelli, Founder of Import Music Argentina Doing Business in Argentina Market Overview The U.S. and Argentina share a long history of bilateral commercial relations both in trade and investment. The United States is Argentina s third-largest trading partner, and U.S. companies are among the top investors with some U.S. companies maintaining local sales and manufacturing subsidiaries in the country for more than a century. Argentina is an important regional export market for the United States: with a population of million people, it is the second-largest economy in South America and the fourth most populous country in Latin America. The U.S. and Argentina share a mutually beneficial trade relationship with total bilateral trade in goods and services in 1 of nearly US$ billion. The U.S. supplies raw materials, intermediate goods and capital goods to feed Argentina s industrial sector while Argentina exports food and agricultural products as well intermediate goods to the U.S. industry. While the U.S. enjoys a trade surplus with Argentina, approximately 9% 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

55 International Data Argentina 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 seamless pipe, tubes, and other iron and steel products. argentina 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 11 (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 they provide to their Argentine employees, their transparency and their work in corporate social responsibility. In 1, U.S. companies comprised nearly one-third of the 1 most-respected companies in Argentina as published annually by Argentina s largest newspaper, Clarin. 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. The outlook for the Argentine economy is uncertain in 1 due to various factors including lower commodity prices (expected to trend somewhat downward from the historic highs of recent cycles) and economic disruptions caused by foreign exchange and import restrictions. GDP growth slowed markedly in 1 to 1.9% from.9% in 11, according to official statistics (the IMF and some private analysts believe the official statistics may overstate growth). Strong commodity prices and automobile exports to Brazil have contributed to Argentina s rapid growth over the past several years. Non-automatic import licenses (NAILs) were ended late last year for all but a few products, but a regime erected by the GOA in February 1, whereby all importers are required to 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 a subject of WTO complaints by the U.S. and other countries against Argentina. Moreover, the GOA s policy of tying the percentage of 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 the unit labor costs and resulted in a more challenging business environment, especially as the real effective exchange rate has appreciated. Limits on profit remittances have also discouraged new investment in Argentina. Lack of transparency and a public comment period for new regulations adds to business uncertainty, as does the lack of a credible national statistics agency. As a result of the aforementioned government policies, many local and international firms based in Argentina have put on hold plans for expansion or the adoption of new product lines until the economic climate and regulatory regime become more clear, consistent and predictable. Market Opportunities We encourage you to work with the U.S. Embassy to explore opportunities in all sectors. Services offered to American 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.

56 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 Strategy 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. argentina U.S. companies exporting to Argentina typically market their products and services through Argentine agents, representatives and distributors. Close personal relationships are important. U.S. companies must consider Argentina s unique economic, demographic and cultural characteristics that distinguish it from other Latin American countries. It is increasingly difficult to establish a typical customer due to new consumption habits and to the dynamics of income distribution and demography. An important component of the marketing mix is promotion. Companies are encouraged to visit or exhibit at local and regional trade shows and to 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 the International Trade Centre (ITC)

57 International Data Argentina Snapshot ARGENTINA Snapshot Demographics Population in millions. Demographics Age Male Female & Over.. Median Age 1. Population Growth.9% 1.% 1.9% + 11.% Economy GDP (PPP) GDP-Service 1.% Economy $771. billion GDP Per Capita $1, GDP-Real Growth Rate.% Unemployment Rate 7.% Inflation.% GDP-Industry 9.7% GDP-Agriculture 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 ' ' ' Argentina GDP (PPP) (U.S. $ in billions) ' ' '7 ' '9 '1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 7

58 Trade Total Export $.1 billion Export as % of GDP 11.% Total Import $71. billion Import as % of GDP 9.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 Brazil China Chile U.S. Brazil U.S. China Germany Music Industry Music Market $9. 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

59 International Data Argentina Argentina Imports and Exports Acoustic Pianos Imports 1 Acoustic Pianos Exports Value in U.S. $ thousands 7 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 9

60 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 7 1 ' ' ' '7 Percussion Imports ' '9 '1 Value in U.S. $ thousands ' ' ' '7 Percussion Exports ' '9 '1 Import Value Export Value 7 1 ' ' ' '7 Accessories Imports ' '9 ' ' ' ' '7 Accessories Exports ' '9 '1 Import Value Export Value

61 International Data Australia australia Significant structural reform has taken place in the music products and allied industries during the past three years. Coming off the back of the outfall of a post-stimulus global financial crisis (GFC) and the liquidation and eventual sale of the Australian Music Group (AMG), we are perhaps seeing the stabilisation of the supply of major brands. Combined with an uptick in consumer confidence and steady retail sales generally, the music products industry could be staging somewhat of a recovery. AUSTRALIA A rise in Average Unit Value (AUV) may suggest a decline in low value imports. After a period of deflation, this would not be unwelcome. With the Aussie dollar falling 1% in 1, one could surmise a correlation. Overall, a steady recovery of single-digit value growth in most categories could only be seen as positive. The positive news here is that there has been some growth in value. An additional AUS $1 million at import represents about AUS $ million at retail. Hopefully it represents the first of a number of rebuilding years following the GFC and more particularly the sale and breakup of the AMG, the significant reduction of sites for the country s biggest chain and the closure of perhaps % of the country s retailers over recent years. The other good thing is the increase in Average Unit Values. This comes in part as a result of fewer low-cost imports (other woodwind, other percussion, and to a lesser extent, acoustic guitars and electronic keyboards) and in part from the exchange rate movement downward against most major currencies. While the improvement year-on-year is welcome, the industry is losing ground when compared to the economy overall. As these figures show: Over the past 1 years the industry average annual growth in value is just 1.% (or aggregated out to 1.% since ). This is barely keeping up with population growth over the same period (+1%), but well behind the consumer price index (+%), average weekly wages (+%) and disposable personal income (+1%) over that same period. School populations over that time have increased by around 11% but all the traditional student instrument categories have, in effect, gone backward. The value of keyboards, brass and woodwind products have all declined by more than 1%. Of the typical studentstyle instruments, only orchestral strings with 11% growth are in line or ahead of student populations. Guitar products, though, show an average annual increase in value of.%, and we know that the ukulele is replacing the recorder in a number of schools. We are beginning to see a reduction in the percentage of Chinese-made goods in some segments. In some cases this is a result of lower import volumes; like EKB, other woodwind and other percussion. But in some cases Chinese manufacturing volumes are shifting to Indonesia, Vietnam, India and Hong Kong (though you would think Hong Kong imports were Chinese-made products), presumably in an effort to further reduce the cost of manufacturing. However, the reduction in average values makes achieving growth and 1

62 maintaining earnings against the consumer price index and inflation more difficult. In this environment, substantial unit growth is not as achievable as it was prior to 9 and in this context, it would be better for the industry and in particular the retailers if more higher-value product was imported and sold, rather than the continuing race to the bottom on price. Microphone sales are well up and benefitting from the transition to the new digital spectrum, though they are well short of the numbers that need to be changed over by December 1, 1. Nonetheless there is no doubt the changeover is having an impact on sales according to the major suppliers; this is not surprising considering there are estimated to be more than 1, wireless units in the community that will be illegal to use as of January 1, 1. australia Percussion seems to be struggling. Perhaps this is still the remnants of the AMG sales and breakup issue. Arguably, percussion was the most affected category. The category overall remains about % below its peak. Cymbals reported significant reduction, perhaps also due to the rise in popularity in electronic percussion. The major brass and wind lines have had a bit of an upswing in the past year, which is positive. They have bad years from time to time but always seem to recover some of their previous volume and value. The most robust of the orchestral instrument category is strings. Digital pianos seem to be the only real highlight amongst the keyboard products. While softer in 1 than in 1, they retain a history of strong growth over the past decade. It will be interesting to see what happens with electronic keyboards. There was a big decline in the past year but a big rise in imports in 1. We hope to see 7K volumes in 1 particularly if AUV can be maintained on 1 values. General Economic Overview Excerpts from Federal Government 1 Budget Papers and NAB The fundamentals of the Australian economy remain strong, and the outlook is favourable with solid growth, low unemployment and well-contained inflation. Subdued wages growth and weak domestic demand continued to keep core inflation well under control at.%. Ongoing global uncertainty has also reinforced the cautious behaviour that consumers have shown since the global financial crisis and they remain reluctant to take on more debt. This was particularly challenging for the retail sector and other sectors linked to the retail sector such as wholesale trade and road transport. Overall, the non-resources part of the economy was forecast to grow at a below-trend average annual rate of % over the next two years. The Australian dollar dropped from just under 1c in April to 9c at year s end. Gross domestic product, or GDP, grew at just. of 1% in the first quarter, giving Australia a below-trend annual growth rate of.%, indicating a stalling economy that threatened to contribute to a rise in unemployment, despite predictions of.% growth in GDP.

63 International Data Australia Interest rates reached historic lows of.% in August 1 and stayed at that level for the remainder of the year. There were encouraging signs from the US economy although pundits were remaining cautious about the Euro zone. US GDP rose by a reasonably strong.% (annualized rate) in Q, completing a strong second half to the year. In music products, the US market continued to strengthen after post-gfc economic fallout, with The Music Trades magazine reporting that the retail value of music products shipped in 1 advanced.1% to $.1 billion, basically keeping pace with the tepid growth of the economy. Although 1 represents the fourth straight year of sales gains, shipments are still below the pre-financial crisis peak. australia Commentary by Rob Walker, Executive Director of the Australian Music Association (AMA) DoinG Business in Australia 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 and ranks as the U.S. s 1th largest trade partner. 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 in 11 1 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. Over this period, US goods exports 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

64 Australian direct investment in the United States was US$9 billion in 11. Australia is the 1th-largest investor in the United States. The Australian financial system remained resilient throughout the global economic crisis, and Australian banks have rebounded. The four largest are now among the world s11 AA-rated banks. The Australian stock market is currently the largest liquid stock market in the Asia-Pacific region (ex-japan) and ranks sixth in the world. australia Australia has a large services sector (over 7% of GDP), but is also a significant resources, energy and food exporter. Australia s abundant and diverse resources attract high levels of foreign investment and include extensive reserves of coal, iron ore, copper, gold, natural gas, uranium and renewable energy sources. A series of major investments, such as the US$ 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. 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 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 per capita incomes stimulating greater demand for US 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 Australia-US Free Trade Agreement enhanced the long and successful trading relationship by eliminating tariffs on almost all US 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.

65 International Data Australia Market Opportunities The top-performing export sectors from the US to Australia during 1 were: Machinery, Vehicles, Optical and Medical Instruments, Electrical Machinery, Pharmaceutical Products, 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. 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. australia 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 and the entire country of 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. The distance from many of their trading partners and the sheer size of the Australian continent, comparable to the continental US, 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, visit 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)

66 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) $99. billion GDP Per Capita $, 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. 1 1 Australia GDP (PPP) (U.S. $ in billions) GDP-Service.7% GDP-Industry 7.% GDP-Agriculture.9% ' ' ' ' ' '7 ' '9 ' ' ' ' Unemployment Rate (Percent) ' ' '7 ' '9 '1 1 ' ' ' Inflation (Annual Percent Rate) ' ' '7 ' 99 1 '9 '1 1 1 Import Value

67 International Data Australia Snapshot Trade Total Export $1.7 billion Export as % of GDP.1% Total Import $. billion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 China Japan S. Korea India China U.S. Japan Germany Singapore Thailand Music Industry Music Market $ million Sales Per Capita $1.1 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

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

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

70 Australia Domestic Sales Printed Music 1 Computer Music Software Value in Australian $ millions 1 1 ' ' ' '7 ' '9 '1 Value in Australian $ millions 1 ' ' ' '7 ' '9 '1 Microphones & Stands 1 1 DJ Products Value in Australian $ millions 1 1 ' ' ' '7 ' '9 ' x 1, Value in Australian $ millions 1 1 ' ' ' '7 ' '9 '1 1 1 x 1, x 1, Value in Australian $ millions Sound Reinforcement ' ' ' '7 ' '9 ' ' ' ' '7 ' '9 '1 x 1, 1 1 Value in Australian $ millions Digital Electronics ' ' ' '7 ' 1 '9 '1 1 1 x 1, 7 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.

71 International Data Austria Austria Total annual sales for 1 ended at 1.9 million euros (USD $19 million), a.% increase from 11. While annual sales were slightly increased, store closures as well the number of MI employees continued to decrease. For the fifth year in a row, the total number of music stores dropped, with five stores closing in 1. This brings the country s overall music store count to 1. The total number of employees decreased from in 11 to in 1, representing a.% decrease. AUSTRIA Austrian musical instrument stores are separated into three categories. The Category A stores represent 1% of all music stores and produce annual sales volumes of more than 1.1 million euros (USD $1. million). The Category B stores represent 1% of all music stores and produce annual sales volumes between, and 1.1 million euros (USD $9, to USD $1. million). Finally, the Category C stores represent 7% of all music stores and produce sales volumes of less than, euros (USD $9,). The average annual sales volume per store in 1 was, euros (USD $,), a 1.% decrease from 11. The average annual sales volume for Category A and B stores was 1,11, euros (USD $1,,) and the average annual sales volume for Category C stores was 19, euros (USD $,). Both Categories A and B saw increases of.9% from 11, when their average sales volume was 1,99, euros (USD $1,7,). Category C s average sale volume decreased by.%, with an average sales volume of 1, euros (USD $9,). The Austrian music market is segmented into the following product categories (the percentage next to each category reflects its percent of the total market): Keyed Instruments % Wind Instruments 1% Stringed Instruments 1% Miscellaneous Instruments & Accessories 1% Sound Reinforcement Products 9% Percussion Instruments % Of the six product categories listed above, two reported increases. Wind instruments increased by 7% and stringed instruments increased by %. Percussion instruments reported the largest decrease (-%), followed by sound reinforcement (-%), miscellaneous instruments and accessories (-%), and keyed instruments (-%). Commentary by Otmar Hammerschmidt, chairman of the Austrian Musical Instruments Retailer s Association 71

72 Doing Business in Austria Market Overview Austria, with a population of. million, is a dynamic European Union member country offering export opportunities for U.S. companies of all sizes. For the U.S. firms looking to expand in Southeast Europe, Austria is an attractive regional headquarter location. Austrian governments have sought to encourage this through economic reforms and by highlighting Austria s historical and economic ties to neighboring countries in Eastern Europe and the Balkan. At present, approximately U.S. firms have subsidiaries, affiliates, franchisees and licensees in Austria. About 1 of these companies have regional responsibilities for Central and Eastern Europe. Some important facts about Austria and its market: Population of. million a dynamic European Union member state. austria Austria is an attractive location for regional headquarters for U.S. firms looking to expand to Southeast Europe. Historical and economic ties to neighboring countries in Eastern Europe and the Balkans. 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$19. billion (at the 1 annual average exchange rate of US$1. = EUR.7) in 1 (source: Statistik Austria). U.S. exports to Austria amounted to US$. billion, representing an increase of 9.% from 11 (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. 7

73 International Data Austria Note: There are differences between Austrian and U.S. import-export statistics. Statisticians call it the Rotterdam Effect the discrepancy in trade statistics that appears 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. 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. austria 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. 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

74 Market Entry Strategy 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. 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 austria The following charts are based on retail sales data provided by the Austrian Musical Instruments Retailer s Association 7

75 International Data Austria Snapshot Austria Snapshot Demographics Population in millions. Age Male Female & Over.7.91 Median Age. Population Growth.1% Demographics 1 1.% 1.% + 1.% Economy GDP (PPP) $. billion GDP Per Capita $,9 GDP-Real Growth Rate.% Unemployment Rate.9% Inflation.% GDP-Service 9.7% Economy GDP-Industry.7% 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 7

76 Trade Total Export $1. billion Export as % of GDP.1% Total Import $1.9 billion Import as % of GDP 9.% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Germany Italy U.S. France Czech Republic Annual Percentage 1 1 Germany Italy Switzerland China Czech Republic Music Industry Music Market $17. million Sales Per Capita $1.7 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

77 International Data Austria Austria Domestic Sales Grand Pianos Keyboards Value millions ' ' ' ' '7 ' '9 '1 Value millions 1 ' ' ' ' '7 ' '9 '1 Upright Pianos Accordions Value millions Value millions 1 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 Digital Pianos Synthesizers & Sound Modules 1. Value millions 1 Value millions ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 77

78 Austria Domestic Sales Acoustic Guitars Stringed Instruments 1. Value millions 1 Value millions ' ' ' ' '7 ' '9 '1. ' ' ' ' '7 ' '9 '1 Electric Guitars Sound Reinforcement Value millions Value millions ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 Guitar Amplifiers Percussion. 1 Value millions Value millions 1. ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 7

79 International Data Austria Austria Domestic Sales Brasswind Accessories Value millions Value millions 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 Woodwind Sheet Music/Software 1 Value millions 1 Value millions 7 1 ' ' ' ' '7 ' '9 '1 ' ' ' ' '7 ' '9 '1 79

80 BRAZIL Time to Believe in or Forget Brazil More than ever, Brazil is a country of opportunities, even if they are hard to find. As stated in the last Global Report, the economic situation the country faces includes crises as well as adventures. It is time (again) for distributors to show which ones are financially stable and which are not. The estimated size of the Brazilian musical instruments market is about US$, per year (street price); import goods correspond about % of total sales. With more than, music shops, from the smallest to the biggest retailers, the sales are concentrated in music shops, on average, with the potential to buy and obtain credit. BRAZIL In 1, Brazil hosted the World Cup and will hold the Olympics in 1. The latter is another chance to amplify the sales of well-made brands. During the last two years, however, the country has received many international sales managers trying to develop opportunities related to the World Cup. Remember that business relationships demand time and confidence. If you want to expand your market share, but are not willing to conquer it, think twice about approaching Brazil. There is no chance to surf in the wave of a big and prosperous economy. Companies that want to establish themselves here must like to work, be able to act local and create brand awareness. Brazilians like price, opportunity and credit. They are fans of reasonable prices, with a good relationship between brand and price. Believe in Brazil On the plus side, the country is still interested in the music business; avid consumers are seeking great brands that can improve the consumer s self-image. Another positive note is the country s population of about million citizens, but more important, the, schools that the Brazilian government is investing in with musical instruments and audio equipment so they can all take part in the Music in School program. And finally, the Reuters news agency published an article in February 1 stating that the country s Gross Domestic Product expanded.7% in the fourth quarter compared to the third quarter (citing the government statistics institute IBGE). This was more than twice the amount expected by economists, and it pushed the economy to.% growth for calendar year 1. Forget Brazil On the downside, the official value of import goods (musical instruments and accessories) dropped around % in Brazil from 11 to 1. 1 was a time to regroup and evaluate strategy as companies planned better and tried to reinvent themselves. And even though 1 was a difficult year to plan ahead, it was an important year to define what 1 and 1 could be. The average prices for musical instruments dropped 11.7%; many companies are now out of business. Another item of concern is that the Brazilian real was down 1.9% in comparison to the dollar in 1. Add to this the topics of inflation, interest rates and high importation taxes. Then mix in the information that, since the Brazilian Real Plan to 1 (to establish the currency against the huge inflation that hit the country in the 9s), the currency is undervalued 77.%.

81 International Data Brazil And forget those import taxes. Brazilians are used to paying more to buy goods from abroad. Every product that enters Brazil costs three or four times more (street price) than in the U.S. Perspectives and Actions Since 1, some international companies have started a new way to do business in Brazil. Among other things, this consists of understanding the Brazilian conditions for developing a business and either opening their own offices in Brazil or hiring a Brazilian to work directly with them to represent their company s interests. Others are pushing their distributors while also cooperating with them. In addition, companies should understand that business is more than just demand, sell and purchase; they should also pay attention to other aspects such as brand image, brand awareness, the business and marketing plan, and brand position. brazil This requires a balancing act. Market share is being lost by companies with a particular brand based in their home country that believe that all countries should understand their brand equity. If you want to find the big fish distributor in the Brazilian market, be the big fish yourself. But remember that you can be great in your home country yet this does not guarantee that Brazilian consumers will face your brand in the same way. There is a lot of pressure on Brazilian companies to manufacture their own OEM brand. This is why Brazil has so many Me Too brands. Big distributors are already compromised with awareness brands ; some of them just take on more brands than possible in order to block the new entrants to the marketplace. 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 and is the fifth-largest country in the world in terms of land mass and population, with a population of 197 million. Brazil s economy, the seventh largest in the world, grew.9% in 1. Growth slowed due to reduced demand for Brazilian exports in Europe and Asia, despite strong consumer demand and continued growth in the middle class. By, Brazil is projected to be the fifth-largest consumer market in the world, ahead of France and the United Kingdom. During the past decade, the country has maintained macroeconomic policies that control inflation and promote economic growth. Inflation was.% in mid-1. Urban unemployment was at.% in April 1, while wages continue to increase. Interest rates are high by international standards. The Central Bank s benchmark rate was 7.% in April 1, higher than its 1 low point, but still low by Brazilian historical standards. 1

82 In 1, the U.S. was Brazil s second largest source of imports, with 1.% of total worldwide imports, behind China and followed by Argentina, Germany and South Korea. U.S. merchandise exports to Brazil totaled US$.7 billion in 1, up 1.% from 11, and U.S. imports from Brazil were US$.1 billion, up 1.1% from 11. The U.S. continues to enjoy a positive trade balance with Brazil. Market Challenges Brazil has a large and diversified economy that offers U.S. companies many opportunities to export their goods and services, and U.S. exports are increasing rapidly. brazil Doing business in Brazil requires intimate knowledge of the local environment, including both the direct as well as indirect costs of doing business in Brazil (referred to as the 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 expansion 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. Market Opportunities Certain sectors of the Brazilian market have experienced higher than average growth in recent years, such as air transportation, infrastructure, oil and gas, and mining. Under the second phase of the Growth Acceleration Program (PAC II), the Government of Brazil (GOB) will spend or attract private investment of some US$7 billion in development of the country s energy generation and distribution system, roads, railroads, ports and airports as well as stadiums as it prepares for the 1 soccer World Cup and 1 Olympics. The GOB has begun auctioning concessions to private companies to operate airports, ports, roads and railways. In the years leading up to the 1 Olympic Games in Rio de Janeiro, the country will host several large international events. In 1, Rio de Janeiro hosted the Rio+ United Nations Conference on Sustainable Development (UNCSD). In 1, Brazil hosted the soccer Confederations Cup and a papal visit for World Youth Day event. In 1, a total of 1 Brazilian cities will host soccer s World Cup. Although more than half of Rio s Olympic venues are already built, a legacy from the Rio 7 Pan American Games, investments are being funneled into areas such as airport renovation, stadium construction and renovations, and infrastructure projects all in preparation for the tourists who will attend these major events. Unlike in London, the percentage of investments dedicated to transportation such as buses, beltways and metro lines is expected to be higher than investments dedicated to Olympic sports projects such as arenas and stadiums. The GOB has stated that it is focused on using the major sporting events as an opportunity to make long-term investments in infrastructure that will improve the quality of life in Brazil well after the Games have concluded.

83 International Data Brazil 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 is one of the largest IT markets in the emerging economies. IT end-user spending in Brazil is expected to grow to US$1 billion in 1. The largest share of spending will be on telecom equipment, representing 7% of the market, followed by IT services at 1.% and computing hardware at 11.9%. brazil Market-Entry Strategies Brazil s business culture relies heavily on the development of strong personal relationships. In most cases, U.S. firms need a local presence and must invest time in developing relationships in Brazil. The U.S. Commercial Service encourages U.S. companies visiting Brazil to meet one-on-one with potential partners. U.S. companies enter the market in a number of different ways, such as by participating in local trade shows. It is essential to work through a qualified representative or distributor when developing the Brazilian market. Some firms 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, 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 Age Male Female & Over.1.1 Median Age.7 Population Growth.% Demographics 1.9% 1.% + 7.% Economy GDP (PPP) $. trillion GDP Per Capita $1,1 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.. Brazil GDP (PPP) (U.S. $ in trillions). GDP-Industry.% 1. GDP-Service.1% 1. 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 $. billion Export as % of GDP 1.1% Total Import $1. billion Import as % of GDP 9.9% Export Partners (1) Import Partners (1) Annual Percentage China U.S. Argentina Netherlands Annual Percentage China U.S. Argentina Germany S. Korea Music Industry Music Market $9. million Sales Per Capita $1. Global Share 1.% Music Sales Per Capita (U.S. $).9... ' ' ' ' '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 Electric Guitars & Basses Wind Instruments Percussion Synthesizers Instrument Strings 1 1 Total Imports 1 1 in $ millions ' ' ' '7 ' '9 '1 7

88 CANADA The Canadian economy continued on a path of sluggish growth in 1, moving forward at a slightly slower pace than in 1. Real GDP growth in Canada for 1 was 1.%, compared to 1.7% in 1,.% in 11 and.% in 1. An improving economy in the United States, Canada s largest trading partner (7% of exports), helped maintain this growth, offset by slower export markets elsewhere and challenges in the energy market. The stronger U.S. economy contributed to a relative weakening of the Canadian dollar from C$1. = US$1.1 in 1 to C$1.=US$.979 in 1, a trend that has continued into 1. CANADA Per capita GDP increased in 1 to US$,1 per person, up.% from US$,9 in 1. This was roughly the same rate of growth as between 11 and 1. In a labour force of 19. million people, overall unemployment declined from 7.% in 1 to 7.1% in 1. Youth unemployment remains stubbornly high, however, with continued difficulties in a demographic group that is an important target market for the music products industry. Inflation continued to drop, to 1.% in 1, versus 1.% in 1. 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 11 levels to US$71 million, ranking Canada sixth overall in the world. The per capita estimate of US$.9 per person ranks second in the world, just behind the United States. Though statistics for 1 will not be available until next year, anecdotal evidence suggests the Canadian music products market continued to grow in 1. Imports of music products to Canada increased in 1 over 1 in both unit and dollar terms. Currency exchange and increases in the cost of imports contributed to the nominal value of imports increasing faster than unit imports. Details by category are included in the table below. Product Value Change (%) Change (%) Accessories and Parts -.% N/A Accordions, Mouth Organs & Other 1.%.% Brass and Stringed Instruments.% 1.9% Electronic Keyboards.1% -.% Guitars -1.% -7.% Mandolins, Ukuleles & Banjos 1.% -.% PA & Recording Equipment & Stands 1.%.% Percussion -7.% -1.% Pianos.1% -1.% Printed Music.7%.9% Woodwinds 1.% 7.% It should 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 both for the Canadian market and global markets. The quantity and value of these domestically produced products would not be included in the import statistics above.

89 International Data Canada Looking forward to 1, the overall mood for the Canadian market remains cautious. Stronger economic growth in the U.S. should drive greater Canadian export growth and income, but it also drives the U.S. dollar stronger against the Canadian dollar, leading to market price increases on imported goods denominated in U.S. dollars. Recent challenges faced by large companies such as Target and Sears in Canada show that the market remains fragile, and consumers are being more careful than ever with their disposable income. Commentary by Dale Kroke, Chairman of the Music Industries Association of Canada, using information from the CIA World Factbook, Statistics Canada and The Music Trades magazine canada Doing Business in Canada Market Overview Canada continues to hold a historic record as the U.S. s largest export market, accounting for 1.9% of total U.S. goods exports. Total stock of Canadian foreign direct investment in the U.S. also ranked among the top four in the world. U.S. companies looking to expand their international portfolios need to consider the tremendous business opportunities offered in Canada. A solid and increasingly integrated supply chain mainly in the automotive and aerospace sectors already make up roughly % of the over US$1 billion in bilateral merchandise trade recorded in 1. New developments in shipbuilding, air-defense, safety and security, mining, and renewable energy will create virtually limitless business opportunities. The U.S. and Canada, through the Beyond the Border Initiative, are committed to facilitating the flow of people and goods across the border while maintaining the security and integrity at the border. In an unprecedented effort to streamline unnecessary or duplicative regulations, the private sector and government on both sides developed ambitious work plans through the U.S.-Canada Regulatory Cooperation Council. Tangible results have reduced the cost of doing business and increased just-in-time efficiencies. Recent efforts to curb pirated goods and to enhance IPR protection will significantly support increased trade and investment between the U.S. and Canada. 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 U.S. Canadian 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, can vary from procedures followed in the U.S. Bidders must be registered in Canada in order to bid, and bidders must fulfill all the requirements in order to qualify 9

90 to bid (specified 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 Regional Benefits or IRBs). 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. The continuing strength of the Canadian dollar will mean continued 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 in association with the Music Industries Association of Canada (MIAC). 9

91 International Data Canada Snapshot CanadA Snapshot Demographics Population in millions. Age Male Female & Over.7. Median Age 1.7 Population Growth.7% Demographics 1 7.7% + 1.% 1 1.% Economy GDP (PPP) $1. trillion GDP Per Capita $,1 GDP-Real Growth Rate 1.% Unemployment Rate 7.1% Inflation 1.% GDP-Service 9.9% 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 91

92 Trade Total Export $.7 billion Export as % of GDP.1% Total Import $71. billion Import as % of GDP.99% 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 $71. million Sales Per Capita $.9 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

93 International Data Canada 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 ' ' Import Value '1 1 x 1, 9

94 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 ' ' ' 1 '7 ' ' ' ' 97 9 Value in Canadian $ millions '9 Woodwind '1 '7 ' ' Import Value 1 '1 1 x 1, Value in Canadian $ millions ' 97 Portable Keyboards ' ' '7 ' '9 ' Import Value 1 x 1, x 1, Drums & Percussion Total Electronic Keyboards Value in Canadian $ millions 1 1 ' 97 ' ' '7 ' ' Import Value '1 7 1 x 1, Value in Canadian $ millions 1 1 ' ' ' ' ' ' '7 ' '9 '7 ' '9 Import Value '1 ' x 1, 7 9

95 International Data Canada Canada Imports Printed Music 1. Value in Canadian $ millions ' ' ' '7 ' '9 ' x 1,, Import Value Total Imports 1. Value in Canadian $ billions '... ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 Import Value

96 China General Outlook China s musical instrument market in 1 featured signs of slow sales in the first half of the year while increasing in the latter half. At the year s beginning, there was both a chilly performance of domestic and international sales and the diminishing in size and quantity of the export orders received by music manufacturers. These multiple factors led to increased loans and product stock for many music enterprises. However, since June, exports experienced a rebound and, coupled with booming domestic sales between August and October, the market potential driven by innovation and technology was fully released and secured an overall stable growth for the whole year. CHINA The major economic indicators were a mixed blessing. According to China National Bureau of Statistics, business revenues for music enterprises above designated size registered a positive growth of.% to US$. billon. The export delivery value rose to US$11 million, an increase of.%. Meanwhile, the overall debt level for these enterprises expanded by 1.%, which showed that debt increased and cash fluidity weakened. According to the General Administration of China Customs, the music export value reached US$1. billion, a decrease of.%, while the import value was US$9 million, a decrease of.%. It was the first time that both the value of export and import registered declines in recent years. The main business revenues for music enterprises above designated size reached US$. billion, among which the value of Chinese traditional musical instruments accounted for US$.7 billion, an increase of 7.%. The value of Western instruments accounted for US$. billion, an increase of %. Electric instruments decreased by.% to US$ million. Other instruments increased by 17.% to US$7 million. Though influenced by multiple factors such as rising labor and raw material costs, Renminbi (RMB) appreciation and market uncertainties and a time in which the Chinese economy experienced a lower-and-medium growth, the musical instruments industry still tackled unprecedented difficulties and accomplished positive results in coping with changes in international and domestic markets and well-adjusting economic structure. Characteristics of China s Musical Instruments Industry Economic structure readjustment is accelerated due to market change The pressure was first felt by guitars, violins, wind instruments and electric instruments. The relevant enterprises positively adjusted their product structure in time. For example, once the orders of wind instruments declined, the production of brass instruments was complemented immediately. The decrease of electric guitars was complemented by expanding acoustic guitars right away. The Kapok guitar company unveiled a series of creative music products; the violin manufacturers adjusted product structure in time by upgrading products to improve profit. Pianos and electric music products manufacturers have intensified their effort in digital pianos; one example of this was that the Pearl River Piano Group had aimed at an annual production program of 1, digital pianos. 9

97 International Data China Besides, Chinese traditional musical instruments and accordions gained positive market preferences and were widely received by customers thanks to innovative music training and cultural marketing approach. The big get stronger (characterized by capital operation), while the small get more united The Initial Public Offering (IPO) filing for by Pearl River Piano and Hailun Piano facilitated extension of the industry chain, strengthening financing cooperation and motivating technical innovation. All spurred a new round of investment within the musical instruments industry. china The Pearl River Piano Group completed its first phrase of piano production and research in Zengcheng City, Guangdong Province; Hailun Piano moved into new production and an expanded production line; Parsons Music integrated its piano and guitar production base in Qingdao. Besides, the construction of Kapok s new industrial park, a new factory floor of Hangzhou Goodway, Shanghai Maca piano as well as Jiangsu Qimei s instrument production base were all well complete. Efforts of some of these industry-leading companies helped promote technical innovation and a new capacity of production was formed. At the same time, a number of small businesses collaborated with each other. Yangzhou Zither Association organized its member companies to launch culture-oriented creative activities, which was expected to strengthen its Zither brand awareness as a whole. A number of piano companies in the town of Luoshe in Zhejiang Province organized a delegation to take part in Musikmesse in a joint effort to tackle difficulties and optimize business operations in sharing market and resources. In technology-driven times, brand and quality count In order to improve product quality and increase brand awareness, music enterprises took effective measures in the aspects of market and technical innovation and try their best to convert research efforts into practical productivity. Ten national standards of musical instruments including pianos, general technical standards of recycling and utilization of out-of-use musical instruments were released by National Standard Committee of Musical Instruments. Throughout the year, 97 items of music patents including items of patents for design were released. Industry cluster received attention Small- and medium-size music enterprises accounted for a proportion of 9% in the music industry. A remarkable characteristic of industry cluster was that enterprises of the same kind flock together because of regional resources and history legacy. Over the years, the development of the music industry cluster largely depended on the material resources and craftsmanship and now it has benefitted greatly from the nation s favorable culturepromoting policies. Therefore, the music enterprises in the cluster kept increasingly close cooperation with each other and also joined in an effort to attend international exhibitions to establish business partnerships. 97

98 Associations, chamber of commerce and Internet all played a positive role in helping advance cooperation. For example, the CMIA subcommittee of Chinese national musical instruments and the accordion subcommittee collaborated at their annual industry gathering to share innovation and good experiences. Hangzhou Zhongtai Flute Town industry cluster sought development in cooperation while bridging a gap in competition. Several ocarina companies in the region also actively collaborated to promote ocarina culture. All of these examples show that small business is more open and has increasingly benefitted from doing business in partnership with each other. Major Events china The 1th Meeting of the International Association of Piano Tuners and Technicians (IAPBT) The 1 th IAPBT meeting, which took place from 7 9 October 1, drew piano tuners and technicians from 1 countries and regions. Among these, nearly 1 delegates were from the U.S., the EU, Japan, South Korea, Australia and Chinese Taipei. A total of Chinese domestic participants were from piano manufacturers, professional music colleges and music retail stores. During the event, international technical lectures and piano concerts were presented in an effort to help strengthen communications and cooperation. The Second China (Beijing) International Violin and Bow Makers Competition The second China (Beijing) International Violin and Bow Makers Competition took place on 11 1 September 1. A total of violin and bow makers from 11 countries and regions including Italy, France, the U.S. and Canada took part in the competition. A total of 99 pieces of violins or bows with 1 works from 7 international participants were registered in the event. The panel consisted of 1 world-class violin maestro and musicians from China, Japan, Italy, France, the U.S. and the UK. After the competition, violin concerts and exhibitions of winning pieces were staged. Thereafter, a series of events like the violin-themed forum and the violin-making process were also demonstrated during Music China in Shanghai. During the event, Chinese domestic violin makers and manufacturers were actively involved in the violin-making process, which further helped broaden their horizons and refine talents. The 1th Music China The 1 th Music China hit success again during 1 1 October 1. The size of the show increased to 9, square meters,.9% more than in 1. The show attracted a total of 1, exhibitors, among which there were 1,91 domestic ones, an increase of.%, and 9 international ones, increased by.%. The number of exhibitors in 1 of the total pavilions exceeded the number of exhibitors last year. The show also attracted,1 visitors from around the world, of which,, international visitors were from countries and regions, an increase of.7%. During Music China 1, a series of diversified industry events were held, like the NAMM and CMIA Industry 9

99 International Data China Forum, How to sessions, International Forum on Chinese Traditional Music, Maestro Forum and classes on music making, which were attended by over, visitors. Other featured events also included live music performances and the violin culture promotion programs. Commentary by Mr. An Zhi, President of the China Musical Instrument Association (CMIA) Doing Business in China Market Overview The biggest news in China in 1 was the leadership transition as Xi Jinping took over as President from Hu Jintao, and Li Keqiang took over as Premier from Wen Jiabao. What impact they will have on economic governance remains to be determined. china The International Monetary Fund (IMF) estimates that China s 1 GDP growth will be 7.%. The Chinese government s new leadership has acknowledged that the country s economic growth will slow going forward due to a number of internal and external factors, likely to the range of 7 7.% in the short- to mid-term, but has not reacted with stimulus measures through the first half of 1. Despite slowing GDP growth, which in 1 was at the lowest level in 1 years, employment has remained stable, but weak profitability in certain sectors and continued external headwinds affecting export-oriented manufacturing may be cause for concern going forward. Inflation was at an annualized level of.% in 1, and has remained low through the first half of 1. China s newly installed economic policymakers have focused their rhetoric on achieving sustainable, high-quality growth versus fast growth, and transforming the country s economic growth model to have a greater focus on consumption, service sector development and innovation. The government continues to list controlling residential real estate prices as a priority, but year-on-year house prices rose.% across China in April 1, and total credit expanded by % year-on-year in the first four months of 1, with credit-to-gdp exceeding % by mid-1, according to some analysts. The unprecedented expansion of credit is the result of stimulus measures undertaken by the government in 9 and 1 to cushion a slowing economy. China s new government has vowed to refrain from stimulus, but observers are unclear how much of a slowdown the leadership can accept before intervening. Exports remain a vital part of China s economy, and the Euro-zone economy remains an important factor for the health of China s economy. China s economy has seen enormous benefits from fixed-asset investment, particularly in response to the financial crisis of, which reduced exports as a percent of GDP. This investment-led growth, however, is widely perceived as unsustainable, and China s leadership addressed this concern in its 1th Five-Year Plan (1th YP), which came out in 11. The plan aims to increase consumption activity from approximately % of GDP in 1 to % by 1. The IMF estimates that total investment will remain above 7% of GDP in 1, and household consumption remains suppressed by factors such as financial repression. The rebalancing of China s economy should create opportunities for U.S. 99

100 companies that provide consumer products and services, provided China provides market access and a level playing field for foreign firms. Environmental protection is also listed as high priority in the 1th FYP, but many challenges remain in this area. China is the United States second-largest trading partner after Canada. Despite China s gradually slowing GDP growth, U.S. exports of goods to China increased to US$11. billion in 1, up from US$1 billion in 11. The U.S. trade deficit in goods with China widened to US$1 billion in 1, up from 11 s deficit of US$9 billion. U.S. exports of services expanded to US$9 billion in 1, up from US$.7 billion in 11, and the U.S. had a trade surplus in services of US$17 billion with China in 1. china China s rapid economic growth, especially in the urban areas, has led to a booming consumer market for high-end goods and services, including tourism and education. China will consume US$7 billion worth of luxury goods by 1, % of the world market. About % of people buying luxury items in China are years old or younger, whereas that percentage is only half of that in the U.S. By, China s middle class is expected to account for around % of the population, or 7 million people. Despite these remarkable changes, China is still a developing country with significant economic divisions between urban and rural areas. The number of migrant workers remains high. An estimated 1 million laborers worked outside of their home provinces in 11, where they were legally precluded from access to the local social safety net, including education services for their children. The Economist Intelligence Unit estimates that China s urban population is 9 million (more than double the entire U.S. population) in 1 and % of all Chinese are expected to be living in urban areas by. According to the National Bureau of Statistics of China, in 1 the per-capita income of urban residents was US$,9 and the per-capita income of rural residents stood at US$1,7. The CIA World Fact Sheet estimates that China has 99 million rural individuals living below the poverty line. Official estimates of income inequality put China in the ranks of the Dominican Republic and Congo (China s official 1 Gini Coefficient, which measures income inequality, was.7), but unofficial estimates suggest that inequality may be closer to levels seen in Haiti and South Africa. In summary, although GDP and trade continue to increase significantly, challenges remain as China attempts to reduce its high domestic savings rate and relatively low domestic demand, maintain job growth for the high number of migrant workers and graduates entering the workforce, and stem the environmental damage resulting from China s rapid industrial and economic growth. Market Challenges In addition to large multinationals, many of which continue to earn impressive returns on their exports to and investments in China s market, American small- and medium-sized enterprises (SMEs) are also active here. The U.S. Department of Commerce s Commercial Service (CS) counsels American companies that in order to succeed in China s market, they must thoroughly investigate their specific market, take heed of product standards and prequalify potential business partners. Stumbling blocks that foreign companies often run into while doing business in China can be grouped into the following broad categories. 1

101 International Data China China often lacks predictability in its business environment. China s current legal and regulatory system can be opaque, inconsistent and often arbitrary. Implementation of the law is inconsistent. Lack of effective protection of intellectual property rights is a particularly damaging issue for many American companies. Both those that already operate in China and those that have not yet entered the market have had their product IP stolen by Chinese companies. China has a government that, in some sectors of the economy, could be called mercantilist due to the significance of exports in the growth model. China has made significant progress toward a market-oriented economy, but parts of its bureaucracy still seek to protect favored firms, especially state-owned enterprises, from imports, while encouraging exports. china China retains much of the apparatus of a planned economy, with five-year plans setting economic goals, strategies and targets. The State and the Communist Party directly manage the only legal labor union. The size and complexity of the market in China can stress a firm s capabilities, resources and patience. Well-targeted and informed efforts and a network of contacts at various levels across a broad range of organizations are often linked closely with market success and the ability to resolve problems. Market Opportunities Opportunities exist for growth of imports from the U.S. in sectors such as Safety and Security, Automotive Components, Aviation, Coal Mining Equipment, Environment, Franchising, Machinery, Marine Industries, Medical Equipment, ICT Equipment and Software, Oil and Gas, Green Building, Nuclear, Rail and Urban Rail, Animal Feed, Fisheries Products, Tree Nuts, Soybeans (the largest single U.S. export to China), Hides and Skins, Wood Products, Packaged, Foods, Meat and Poultry, Wine and Beer, Fresh Fruit and a range of services. The wide range of promising sectors suggests that China will remain an important and viable market. With growing numbers of Chinese traveling abroad for education and leisure purposes, China s contribution to U.S. educational institutions and the tourism industry is increasingly important as well. China is a challenging market and requires a strong understanding of a firm s capabilities and in-depth knowledge of the market. Before making a decision to enter the Chinese market, potential entrants should first consider their own resources, past exporting experience, and have a willingness to commit a significant amount of time exploring opportunities for their products and services in China. Long-term relationships are key to finding a good partner in China. Companies should have an IPR strategy as part of their market strategy and should conduct thorough due diligence on potential partners or buyers, whether public or private. 11

102 Market Entry Strategy Two of the primary objectives of U.S. policy with regard to China are (a) creating jobs and growing the American economy by increasing exports, and (b) ensuring our companies ability to compete on a level playing field. A company should visit China in order to gain a better perspective and understanding of its potential as a market. Given the size of China and its rapidly changing market, a visit to China can provide great insight into the country s business climate and its people. Chinese company representatives respect face-to-face meetings, which can demonstrate a U.S. company s commitment to working in China. Prospective exporters should note that China has many different regions and that each province has unique economic and social characteristics. U.S. companies commonly use agents in China to initially create these relationships. Localized agents possess the knowledge and contacts to better promote U.S. products and break down institutional, language and cultural barriers. 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) 1

103 International Data China Snapshot China Snapshot Demographics Population in billions 1. Age Male Female & Over..7 Median Age.7 Population Growth.% Demographics 1 7.% % + 9.% Economy GDP (PPP) $1.7 trillion GDP Per Capita $9, GDP-Real Growth Rate 7.% 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. 1 China GDP (PPP) (U.S. $ in trillions) GDP-Industry.% GDP-Service.% 1 1 GDP- Agriculture 9.7% ' ' ' ' ' '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.% Total Import $1. trillion Import as % of GDP 1.% 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. Australia Music Industry Music Market $1. billion Sales Per Capita $.79 Global Share 7.1% 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 7 1 x 1, 1 1 x 1, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Value Value Grand Pianos Imports Grand Pianos Exports 1 1 ' ' 1 ' ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 '1 ' ' ' ' ' '7 ' '9 Value x 1, x 1, 1 ' 97 ' ' '7 ' 9 99 Value '9 ' x 1, x 1, ' ' ' '7 ' Total Pianos Imports '9 '1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Value x 1, 1 1 ' 97 ' ' '7 ' 9 99 Value Total Pianos Exports '9 ' x 1, x 1, 1

106 China Imports and Exports 1 Guitars Imports 7 1 x 1, 1 1 Guitars Exports x 1,, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '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 7 ' 1 ' ' ' ' ' Total Stringed Instruments Imports ' ' ' '7 '7 '7 ' Value ' ' '9 '9 '9 '1 '1 ' x 1, ' ' ' 9 99 Total Stringed Instruments Exports '7 ' '9 '1 1 Value x 1,, 1

107 International Data China China Imports and Exports ' ' ' '7 Percussion Imports Value ' '9 '1 1 x 1, ' ' ' '7 Percussion Exports Value ' '9 ' x 1,, ' ' ' ' ' ' '7 '7 Brasswind Imports ' ' '9 '9 '1 ' x 1, ' ' ' ' ' ' '7 '7 Brasswind Exports ' ' '9 '9 '1 ' x 1, Value Value 7 ' ' ' '7 ' '9 '

108 China Imports and Exports 1 Electronic Keyboards Imports Electronic Keyboards Exports x 1, x 1,, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Value Value 7 Electronic Instruments Imports Electronic Instruments Exports 1 1 ' ' ' ' ' ' '7 '7 ' ' '9 '9 '1 ' x 1, 1 1 ' ' ' ' ' ' '7 '7 ' ' '9 '9 '1 '1 x 1,, Value Value ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1

109 International Data China Where Do Chinese Music Products Go? Top Five Chinese Export Destinations U.S. 1 Top Five Guitar Export Destinations Brazil Germany U.K. Holland x 1,, 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. 7 1 Top Five Electric Instrument Export Destinations 1. and X 1, 1 U.S. Germany Japan Hong Kong U.K..... X 1,, U.S. 97 Hong Kong Germany 9 99 Uzbekistan U.K. 1. U.S. Japan Holland Germany Brazil. Value Value 7 1 U.S. U.S Top Five Upright Piano Export Destinations Japan Holland Germany Hong 9Kong 99 Germany France Brazil 1 Singapore x 1, Top Five Stringed Instrument with Bow Export Destinations U.S. 97 U.K. 9 South Korea 99 Germany Brazil x 1, Value Value 1. 19

110 Where Do Chinese Music Products Go? 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. Germany Brazil U.K. France Value Value U.S. Nigeria Germany Holland Brazil U.S. Germany Brazil U.K. France 11

111 International Data Czech Republic doing business in the Czech Republic czech republic Market Overview Economic health is largely based on growth in exports. About % of GDP is linked to export orders, with.% of goods exported to the EU7, and a third of total exports going to Germany. In this regard 1 represented a good year for the country, which posted over US$1 billion in exports, a.% increase from 11. Leading countries with which the Czech Republic maintains a trade surplus are Germany, Slovakia, the UK, France and Austria. The Czech government is seeking to diversify its export markets and has identified 1 priority markets to focus on, including the United States. Exports to these priority markets grew by % in 1, as compared to a.% increase in exports to EU members. U.S. exports to the Czech Republic have started to cool after experiencing annual double-digit growth following the 9 economic slowdown. U.S. exports last year increased by only 9.7%, reaching a record of nearly US$1. billion. This contributed to a healthy 7% increase in exports over the last three years, outpacing the % growth that U.S. exports achieved globally during the same period. (NOTE: This is based on U.S. trade data. The Global Trade Atlas reports a 7.9% increase in U.S. exports, to US$.1 billion in 1, and Czech government data have U.S. exports to the country increasing by 17% in 1, to US$.1 billion). 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, the Czech Republic recorded inward investment of US$1. billion, a half billion of this originating from U.S firms (source: Czech National Bank.) The World Economic Forum considers the Czech Republic to be a Tier, or innovationdriven economy, placing it on the same level as its neighbors to the west. Except for Slovenia and neighboring Slovakia, it is the only country in Central and Eastern Europe to achieve this ranking. Though the country ranked 9th in the 1 1 World Economic Forum s Global Competitiveness Index (GCI), surpassing all of its Central and Eastern Europe neighbors (except for Estonia), the Czech Republic continued its gradual fall in the rankings, from th last year and th in 1. In terms of the GCI s sub-rankings, the Czech Republic ranks below the average for Tier economies, highlighting the work the country has to achieve before being considered an economic equal to its western neighbors. Market Challenges Though outside the Euro Zone, the Czech Republic continues to feel 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.%, far worse than the.% growth that the Ministry of Finance had anticipated for the year. This slump accelerated prior to this report s publication. According to the Czech Statistical Office, GDP contracted by 1.9% in the first quarter of 1 on a year-to-year basis and by.% on a quarter-to-quarter basis. For the first time in three years, Czech exports declined due to the crisis in Europe. The current Czech National Bank estimate for 1 GDP is -. %, and the CNB does not anticipate a return to growth until the fourth quarter of 1. The CNB anticipates 1.% growth in 1. Unemployment improved in 1 to an estimated.9%, though 1 estimates have the figure falling to 7.%. 111

112 The Czech Republic s economic transformation is not yet complete. Ranked th on the World Bank s 1 Ease of Doing Business index, the Czech Republic finds itself positioned below most of its Central and East European neighbors (though slightly improved from its adjusted 7th ranking in 1). In critical subrankings, the country is th in trading across borders, 1th in protecting investors, and 79th in enforcing contracts. Readers may find all ranking indicators and the complete report for the Czech Republic at the Doing Business website. czech republic The most problematic factors for doing business, according to the World Economic Forum s Global Competitiveness Report, continue to be corruption, inefficient government bureaucracy and tax regulations. The country improved from th to 9th on the Heritage Foundation s Economic Freedom list as a result of substantial increases in labor freedom and the management of government spending offsetting a decline in freedom from corruption. 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 healthcare 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 who are seeking new opportunities outside Western Europe. The Czech Republic is characterized by wide population dispersion. Over 1% of the population is centered in Prague, the only city with more than 1 million inhabitants, while the majority of Czechs live within minutes of other major commercial/ industrial hubs (Brno, Plzen, Olomouc, etc.). 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 communication network is relatively well developed, and communication and website offerings are an increasingly effective 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. In addition, currency fluctuations may return in 1, challenging even the most well-planned export strategy (the 11 exchange rate varied greatly from between CZK 1.. per USD, while 1 saw milder fluctuations of CZK per USD). 11

113 International Data 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 East European country. Establish a local presence or select a local partner for effective marketing and sales distribution. Perform detailed market research to identify specific sector opportunities. czech republic Use the experience of other, successful U.S. companies in the market. The local American Chamber of Commerce is a valuable resource. 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. Age Male Female & Over Median Age.9 Population Growth.17% Demographics 1 7.% + 17.% 1 1.9% Economy GDP (PPP) $. billion GDP Per Capita $, GDP-Real Growth Rate -.9% Unemployment Rate 7.1% 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. 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 $11. billion Export as % of GDP.1% Total Import $1. billion Import as % of GDP.1% 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 '7 ' '9 ' ' ' ' Wind Instruments Exports '7 ' '9 '1 Import Value Export Value. Percussion Imports Percussion Exports Value in U.S. $ thousands 1 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, just the sound of The 1st Century is still exciting. This is a time of astonishingly rapid change and a world of new and different challenges. Through an alignment of geopolitical, geophysical and economic factors, we see the rise of the New North, where the impacts of climate change, a unique combination of sea, air and rail transport plus growing prosperity in Russia and Asia have presented a set of unrivalled new business opportunities. In many ways, Finland is the epicenter of this New North : a unique intersection of geography, infrastructure, education, good governance and business spirit. finland 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. In Finland, nature reigns supreme and it is no surprise that Helsinki was the site of the first LEED-certified building in the Nordics. Finland, along with all its Nordic neighbors, have 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 with Russia a 9-mile-long border, 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. 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$7.7 billion in 1, chiefly in the electronics, paper, medical equipment and telecommunications industries. The U.S. remains an important trading partner for Finland outside of Europe. Finnish imports of U.S. goods and services in 1 were valued at around US$. billion. The U.S. was Finland s sixth-largest customer after Sweden, Germany and Russia, with Finnish exports of goods and services to the United States valued at about US$.1 billion. Finland is the only Nordic country to replace its national currency, the Finnish mark, with the euro. Finland has a largely homogeneous population. There are about, American residents in Finland and 179, visited the country in 1, which was an impressive % increase from the previous year. The immigration rate from the U.S. to Finland has been steadily increasing and since has been consistent between to people immigrating every year. The GDP per capita estimate was US$, 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 remarkable transparent and predictable business environment. Market Opportunities There are several opportunities driven by the new relationship with energy, as Finland introduced a national long-term climate and energy strategy. Clean-tech sector growth has been driven by smaller firms operating in the areas of new materials, smart grids, recycling and measurement technologies. New clean-tech areas to watch 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 aging buildings, is an exceptional opportunity. Embassy Helsinki hosts the League of Green Embassies, a unique vehicle to promote U.S. highperformance 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. Travel and tourism: American Airlines began operations in Finland in May 11, enhancing connections between Finland and the U.S. by enabling outbound leisure travel and simplifying business travel. Finnish healthcare remains interested in state-of-the-art medical equipment. Finland-Russia border trade: Nearly % of goods from the EU to Russia pass through Finland. Consumers in Russia remain interested in discretionary luxury goods. 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. The plan is for a continuous rail link from Tallinn, Estonia, to Warsaw, Poland, via Riga, Latvia and Kaunas, Lithuania. The Helsinki-to-Tallinn portion will be operated by existing commercial ferries. 119

120 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 in Finland s distribution channels allows 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) finland 1

121 International Data Finland Snapshot finland Snapshot Demographics Population in millions. Age Male Female & Over.7. Median Age. Population Growth.% Demographics 1.% + 19.% 1 1.% Economy GDP (PPP) GDP-Service 71.9% Economy $19. billion GDP Per Capita $,9 GDP-Real Growth Rate -.% Unemployment Rate.1% Inflation.% GDP-Industry.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 ' ' ' ' Finland GDP (PPP) (U.S. $ in billions) ' '7 ' '9 '1 GDP-Agriculture.% 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 1 ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 11

122 Trade Total Export $7.7 billion Export as % of GDP.7% Total Import $7.7 billion Import as % of GDP.1% 1 Export Partners (1) 1 Import Partners (1) Annual Percentage 1 Annual Percentage Sweden Russia Germany Netherlands U.S. Russia Sweden Germany Netherlands China Music Industry Music Market $7.9 million Sales Per Capita $1.97 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 1

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

124 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. Percussion Imports 1 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 1

125 International Data Germany Germany Turnover Growth in 1 As in the previous year, companies with or more employees reported an increase in turnover in 1 to 1.7 million euros,.% more than in 1. These companies employed,79 staff members,.% fewer than in 1. A total of 97 staff worked in companies with fewer than employees, 1,17 staff in 1 companies with 99 employees, and the other 1, staff worked in 7 companies with 1 9 employees. One company employed more than staff. GERMANY If we take into consideration an additional 1,1 small enterprises (fewer than staff), the sector s turnover increases to about 9 million euros (data from 1). Trade Weak Retail with music instruments turns over around 1. billion euros in 1,99 sites and about 7, employees (data from 1). The number of sites has been decreasing for years. Turnover indices show reductions for 1. Growth in Domestic Market Stronger Than in Exports Domestic turnover for manufacturers grew by.% to 1. million euros, export turnover grew by.1% to 1.1 million euros. Exports to the Euro Zone shrank, while exports to other foreign markets grew significantly. Production Showed Significant Increases Production of instruments grew in 1 by 9.% to million euros compared to the previous year. However, this number includes two additional companies reporting numbers, with a total of companies as opposed to in 1 and 1 in 11. As is usually the case, there were big differences in the individual product groups; however, the majority of product groups showed growth. Almost % of this growth was in the organ segment, which always shows large ups and downs due to the nature of the segment being tied to large projects. 1 saw production value grow by 1.% after falling the previous year by.9%. Further growth by value was noted in grand pianos (1.%), other brass wind instruments such as trombones (9.7%), parts and accessories for pianos (7.%), parts and accessories for wind instruments (.1%), tubas and parts and accessories for organs, harmonias, etc. (.%) and pianos (.%). Trumpets, cornets, horns saw a smaller plus of 1.%, and accordions and harmonicas of plus.%. Small decreases were seen in the segments of French, tenor, baritone and alto horns at -.%, significant decrease for recorders (-.%), parts and accessories for string instruments (-7.%), percussion instruments (-11.%), oboes and bassoons (-1.1%). Export Quota Slightly in Decline In 1, the export quota showed a slight decline of.% to.%. 1

126 Manufacturer Prices Rise Continuously 1 saw an increase in manufacturer prices by.%. During the last few months, the increase has slowed a little. In March, manufacturer prices were around.% above the same month of the previous year, while in April 1 it was.% above April 1. Volume of Foreign Trade Decreased in 1, Exports Grew Slightly, Renewed Export Surplus While foreign trade was overall quite level during the last few years, in 1 Germany went back to showing familiar export surpluses. Exports in the value of 1.7 million euros (+.9%) were recorded, and imports in the value of.1 million euros (-1.%). Irregularities in terms of the above-mentioned export turnover of companies can be explained by the fact that some firms are considerably more involved in exporting, and by re-exports of products originally made outside of Germany. germany The four most important import countries show considerable decreases in 1. Imports from China decreased by 1.1%, from Indonesia also by 1.1%, from Japan by 1.% and from the U.S. by.%. Of all imports, 7.9% are from China, 1.9 % from Indonesia, 11.9 % from Japan and 11. % from the U.S. Two-thirds of all imports come from these four countries. German exports are broadly distributed. Growth has been seen in exports, particularly to China (+.%), France (+1.1%), the U.S. (+.7%), the UK (+7.7%) and to Switzerland (+.%). Contrasting with this growth, exports to other countries shrank: to Austria (-1.%), Japan (-.%) and Italy (-.%). Exports to the Netherlands practically stagnated (-.7%). In terms of shares of exports, 1.% went to France,.9% to the U.S,.% to Japan,.% to Austria,.9% each to Switzerland and China and.% to the Netherlands. According to preliminary figures, in 1 the following products showed export growth by value: Brass wind instruments (+7.%), organs (+.%), parts and accessories for other instruments (+1.7%), grand pianos (+1.7%), accordions (+.%), parts and accessories for wind instruments (+.%), strings (+.%), other string instruments except guitars (+.1%), harmonicas (+1.%) and violins (+.%). In contrast, the following product groups showed export decreases by value: Guitars (-19.%), percussion (-1.%), parts and accessories for pianos (-.%), parts and accessories for string instruments (-.%), other wind instruments particularly woodwind instruments (-.%), bowed string instruments except violins (-1.%) and pianos (-.%). Outlook for 1 The beginning of 1 showed positive trends. There was no change to companies with more than staff; they achieved a turnover of 7.1 million euros in the first quarter, which represented a growth of.%. Domestic turnover grew by 7.%, export turnover by 9.1%. These companies employ,79 people, a plus of.% compared to the first quarter of 1. 1

127 International Data Germany Export statistics for the first four months of the year show exports of million euros (+.%) and imports of 11. million euros (+.9%). 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 expansion of the EU, accounts for more than one-fifth of European Union GDP. Germany is the United States largest European trading partner and the sixth-largest market for U.S. exports. Germany s social market economy largely follows free-market principles, but with a considerable degree of government regulation and generous social welfare programs. germany 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 worldwide 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 heart of a -member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies. 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 recovery in 1/11 was equally strong (.% and.%, respectively), resulting in a V-shaped recovery as pre-crisis real GDP was reached again in the second quarter of 11. Growth has slowed more recently, mainly due to uncertainty in the Euro Zone. GDP grew by.7% in 1. The government forecasts annual growth of. percent in 1. The labor market largely remained robust even though the recession in many Euro Zone countries created a more difficult economic environment in 1. In addition to a series of labor and social reforms implemented in recent years, many experts credit the government-funded short-time work program for limiting unemployment, which allowed companies to retain their trained labor force at a time of shortages of skilled labor on the job market. 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. A manufacturing industry on the rebound brought back jobs that were partially lost during the /9 recession. In addition, jobs in the services and healthcare sectors were added. A steady economy and a declining workforce contributed to a drop in average unemployment to.9 million over the course of 1, with an average jobless rate of.%, down from 7.1% in 11. For 1, the government expects unemployment to further decline slightly, maintaining an average of.% and a drop to.% in 1. Although unemployment is still higher in the east of the country than in the west (1.7% versus.9%), it dropped to the lowest level in years. The number of employed people living in Germany reached an alltime high (about 1. million) in November 11, an increase of 1, from a year earlier and a level that was maintained throughout 1. 17

128 Market Challenges Germany presents few formal barriers to U.S. trade or investment, although Germany s participation in the EU s Common Agricultural Policy and German restrictions on biotech agricultural products represent barriers for some U.S. goods. Germany has pressed the new EU Commission to reduce regulatory burdens and promote innovation to increase EU member states competitiveness. The Merkel government has talked about the need for regulatory reform in Germany; still, Germany s regulations and bureaucratic procedures can 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 and obtain timely testing and certification. German standards are especially relevant to U.S. exporters because, as EU-wide standards are developed, they 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 heart 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, healthcare and medical devices, synthetic materials and automotive technology. Germany boasts 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 dramatically from one German 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 stiff competition by offering high-quality products, services at competitive prices and locally based aftersales support. For investors, Germany s relatively high marginal tax rates and complicated tax laws may constitute an obstacle, although deductions, allowances and write-offs help to move effective tax rates to internationally competitive levels. 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) 1

129 International Data Germany Snapshot Germany Snapshot Demographics Population in millions 1. Age Male Female & Over Median Age.1 Population Growth -.1% Demographics 1.1% +.9% 1 1.% Economy GDP (PPP) $. trillion GDP Per Capita $9, 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.. Germany GDP (PPP) (U.S. $ in trillions) GDP-Service 9.1% GDP-Industry.1% GDP-Agriculture.%. ' ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent). Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1. ' ' ' ' ' '7 ' '9 '1 19

130 Trade Total Export $1. trillion Export as % of GDP.1% Total Import $1. trillion Import as % of GDP.% Export Partners (1) Import Partners (1) Annual Percentage 1 Annual Percentage France U.S. U.K. China Netherlands Italy France Netherlands China Belgium Italy U.K. Music Industry Music Market $1. billion Sales Per Capita $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 1

131 International Data Germany Germany Domestic Production (Data based on manufacturers with or more employees) Upright Pianos Grand Pianos Value in millions 1 1 ' ' ' '7 ' Value '9 ' x 1, Value in millions 7 1 ' ' ' '7 ' Value '9 ' x 1, Value in millions 1 1 ' ' ' Organs '7 ' '9 ' Value in millions 1 1 Drums & Percussion 1 1 x 1, ' ' 1 ' '7 ' Value '9 '1 ' ' 1 ' '7 ' Value '9 '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 ' Value '9 '1 11

132 Germany Exports Grand Pianos Violins Value in millions ' ' ' '7 ' '9 '1 Value in millions 1 1 ' ' ' '7 ' '9 '1 Export Value Export Value 1 Total Acoustic Pianos Stringed Instruments Played with a Bow Value in millions 1 Value in millions 1 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '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 1

133 International Data Germany 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 Value in millions ' ' ' '7 ' '9 '1 Value in millions 1 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

134 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

135 International Data Germany Germany MI Destinations and Sources Export Destinations (1) Import Sources (1) Value in millions Value in millions 1 1 France U.S. Japan Switzerland Austria China China Japan Indonesia Netherlands U.S. France Export Value Import Value 1

136 doing business in INDIA Market Overview The Republic of India is one of the world s most politically active democracies and the 1th largest economy. It is the third-largest Asian economy after China and Japan. Among the major emerging markets of Brazil, Russia, India, China and South Africa (BRICS), India ranks second in terms of economic growth, with the IMF forecasting a GDP growth rate of.7% for 1. It is the second-most populous country in the world with approximately % of its 1. billion inhabitants residing in urban areas. India s industrialized economy encompasses diverse manufacturing sectors (steel production, oil and gas refining, auto, plastics, textiles), which contribute just 1% to a GDP that also includes traditional village farming, agriculture and handicrafts. The services sector, especially information technology, continues to be the major source of economic growth. Services account for more than half of India s GDP output and employ less than one-third of its labor force, currently estimated to be 71 million workers, making it the second-biggest workforce on the planet. INDIA India is the 1th-largest export market for U.S. goods. Led by civil aircraft, engines, equipment and parts, U.S. goods exports to India in 1 reached US$. billion, up.9% from the previous year. Corresponding U.S. imports from India, primarily diamonds, pharmaceuticals and petrochemical products, totaled US$. billion, up 1.1%. Preliminary data show that U.S. exports of private commercial services (i.e., excluding military and government sales) to India stood at US$1 billion in 1 and U.S. imports were US$17.7 billion. Total two-way trade in goods and services is expected to top US$1 billion in the near term. The stock of U.S. foreign direct investment (FDI) in India was US$.7 billion in 11 (latest data available), down from US$. billion in 1. U.S. FDI in India is largely in the professional, scientific and technical services, finance/insurance services, and the information services sectors. The Indian economy has posted an average growth rate of.9% since 199, and according to the government of India, reduced poverty by about 1 percentage points to 9.%. Dependent on services exports and private domestic consumption, India s 1 GDP grew approximately.%, reaching US$1.9 trillion with a GDP per capita of US$1,9. The World Bank estimates India s 1 1 GDP growth at.1%. Economists estimate that creating jobs for millions of its citizens in order to alleviate poverty in India requires economic growth of 7 to % per year through, the year India is expected to overtake China as the most populous nation on earth. In 11, economic growth in India began a quarter-on-quarter deceleration from.% GDP growth in 1 to what many believe was the bottom at.% GDP at the end of 1. Supply-side constraints, policy paralysis and the government s inability to roll back the fiscal stimulus programs that contributed to the surge in the fiscal deficit contributed to the downturn. However, experts speculate that the Indian economy will grow faster in 1 compared to 1 due to business- and investor-friendly reform measures announced recently by the Indian government. Under the threat of a stalled Indian investment cycle, a possible credit rating downgrade over a burgeoning fiscal deficit, and a rising current account deficit, the government relaxed foreign investment rules in sectors such as retail and civil aviation and set up a ministerial panel to fast-track implementation of large industrial and infrastructure projects. Political fallout over the decision to implement FDI in the multi-brand retail sector resulted in the loss of political allies in the parliament. Nevertheless, Prime Minister Manmohan Singh expressed confidence that the government will pass long pending reforms needed to reverse the country s worst economic slowdown in recent years. 1

137 International Data India Restrictions on single-brand retail were relaxed; the government of India on a case-by-case basis has been known to adjust the requirement to source a proportion of inventory from domestic industry, a factor that discouraged foreign investment. Opening up the domestic aviation sector to foreign investment should help to ease indebtedness of the industry (estimated at US$ billion in 11/1) and in turn should ease some of the pressure on public sector banks, which have a large degree of exposure to domestic airlines. The government also raised the FDI cap in broadcasting services (to 7%, from 9% previously). The Indian government also approved the sale of stakes in state-owned companies in the aluminum, oil and copper sectors. india The government of India continues to consider laws that would allow foreign investment in the pension sector (9%) and raise the FDI cap on the insurance sector (to 9%, from % currently). With the 11 introduction of a new land acquisition bill, the government began the process of reforming and modernizing 1-year-old land acquisition rules. It is also taking an across-the-board review of FDI caps that can be removed or relaxed without legislative action. The reform efforts were welcomed by business leaders as a signal that India is open for business. But much remains to be done. The 1 nominal exchange rate was. Indian rupees per 1 USD. According to the 1 Indian Government Economic Survey, unemployment reached.% in 1; however, as much as 9% of total employment is in the informal economy. Minimum wages in India vary from state to state and range from US$1 per month for unskilled workers to US$1 per month for skilled workers. Among the professional ranks, rapidly rising salaries with generous perks (cars, housing allowances) have generated high turnover. An increased security presence in urban areas combined with conservative monetary and fiscal policies have allowed India to become one of the more stable economies in the region and thereby lessened the impact of the ongoing global economic downturn. Despite persistently high inflation of 7.% in 1 for wholesale prices, India s growing middle class and its relatively stable political environment compared to its neighbors makes it an attractive destination for U.S. companies. Principal U.S. interests run the gamut of industry sectors. Major U.S. companies include AECOM, Bank of America, Bell Helicopter, Black and Veatch, Coca-Cola, DuPont, Federal Express, General Electric, General Motors, Jacobs Engineering, KFC, Lockheed Martin, McDonalds, Microsoft, Kimberly Clark, PepsiCo, Raytheon, Starbucks and United Airlines, among many others. Recent FDI reflects well-known hotel brands such as Marriott, Hilton and Hyatt, and major engineering firms are pursuing huge infrastructure projects such as the Delhi-Mumbai Industrial Corridor and the Chennai-Bangalore highway project. India s economy is gradually being transformed by the country s highly entrepreneurial and rapidly globalizing private sector. Notwithstanding a recent slowdown in domestic investment, Indian firms are investing in infrastructure projects, growing their advanced manufacturing capabilities, and investing in new volume-based business models that tap into rising incomes and consumption in towns and rural economies across the country. Increasingly they are also investing abroad, including into the United States. In terms of 17

138 long-range economic forecasts, major consulting firms project that more than million people, a full % of the population, will enter India s middle class over the next 1 to years. Given the expected dramatic increase in the size of the Indian middle class, the critical role played by private consumption is likely to endure, notwithstanding the government s efforts to become more export-oriented. This demographic dividend of India s growing under- population is anticipated to be one of the key drivers of long-term growth, provided sufficient employment can be generated. India would like to be viewed as a major economy and world power, but it is difficult to overlook that India is home to the largest number of poor people in the world, with an estimated million people living below the poverty line (living on less than US$1. a day) according to the CIA World Factbook. Market Challenges india Infrastructure Problems with the country s roads, railroads, ports, airports, education, power grid and telecommunications are among the toughest obstacles to India s economy growing to its full potential. India s ongoing urbanization, together with rising incomes, have 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 through the 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, and U.S. industry s market share in India in this sector has been declining. High Tariffs and Protectionist Policies Tariffs Import duties continue to be very high, and exporters and investors are faced with nontransparent and often unpredictable regulatory and tariff regimes. Most U.S. services are still strictly excluded from the market. The World Bank ranks India among the world s more difficult business climates: 1 out of 1 economies in 1 (improved from 19/1 in 11), and next to last 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 domestic manufacturing sector s contribution to GDP. These policies negatively affect U.S. exporters. 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 ministries must notify the Department of Telecommunications of all telecom and ICT products that have security implications. At the time of drafting this report, the Indian government announced that all imported ICT equipment will require mandatory licensing 1

139 International Data India and certification from accredited labs in India from September 1 onward, creating yet another hurdle for U.S. exporters due to the limited number of such labs. 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 and, alarmingly, could impact procurements by private telecom companies 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 Weakening of the Patent Regime for Pharmaceutical Industry The year 1 witnessed weakening of the intellectual property environment in India for big pharmaceutical companies holding patents on innovative medicines. In two landmark cases, the Indian government issued unprecedented compulsory licenses to Indian generic pharmaceutical firms for two cancer drugs of a European and a U.S. multinational. Furthermore, the Indian Supreme Court recently rejected the grant of a patent to a multinational pharma company for an innovative cancer drug that is patentable elsewhere, including in the United States. By raising the bar for patents and issuing compulsory licenses, India encourages its generic manufacturers to produce and export cheap generics at the expense of the big pharma when patented drugs are deemed unaffordable. In the face of such obstacles, U.S. companies are reevaluating their business models in India. Powers of States Power and decision-making is decentralized in India, therefore investors should be prepared to face varying business and economic conditions across India s states and 7 union territories. There are differences at the state level 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, having attracted significant foreign investment. Jharkand or Uttar Pradesh are on the other side of the spectrum and have minimal foreign business activities. To do business in India successfully, an investor should factor differences in approach by different states in its national business strategy. Poor infrastructure, high tariffs, protectionist policies, corruption, bureaucratic inefficiency and a weak intellectual property regime present the biggest obstacles to foreign investment and growth. Nonetheless, India s infrastructure requirements also present trade and investment opportunities for U.S. companies. 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 as a last option, major U.S. defense firms continue to have success in the Indian market. Indeed, many large U.S. multinationals are convinced of India s longterm potential and are expanding and deepening their market penetration. U.S. 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 slow-growth 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 for their products and services as well. Many businesses find they cannot afford to ignore this budding market of 1. billion people. 19

140 Market Opportunities Best prospect sectors and business opportunities. These sectors present opportunities for U.S. entrants to the Indian market on the basis of estimated Indian imports from the U.S. for 1: Defense and Civil Aviation Education Services Environment and Water Franchising Healthcare and Medical Equipment india Transportation Infrastructure (Roads, Ports and Railways) Mining and Mineral Processing Equipment Plastics Power and Renewable Energy Travel and Tourism In addition to these best-prospect sectors, there are growing opportunities in the field of homeland security equipment, oil and gas and construction equipment, solar power, and food processing and cold storage equipment. Market-Entry Strategy 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. Relationships and personal meetings with potential agents are extremely important. Due diligence is strongly recommended to ensure that partners are credible and reliable. 1

141 International Data India 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 country. Multiple agents are often required to serve each geographic market in the country. Market Entry Options Options include using a subsidiary relationship, 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 india The following charts are based on import and export data obtained from the website of theinternational Trade Centre (ITC) 11

142 INDIA Snapshot Demographics Population in billions 1. Age Male Female & Over.. Median Age 7. Population Growth 1.% Demographics 1.% 1.% +.7% Economy GDP (PPP) Economy $. trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.% Inflation 9.% GDP-Industry 17.% 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. India GDP (PPP) (U.S. $ in trillions) GDP-Service.1% GDP-Agriculture 1.9% 1 ' ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent) 1 Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 1

143 International Data India Snapshot Trade Total Export $17. billion Export as % of GDP.1% Total Import $1.1 billion Import as % of GDP 1.9% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 1 Annual Percentage 1 UAE U.S. China Hong Kong Singapore China UAE Saudi Arabia Switzerland U.S. Music Industry Music Market $9. million Sales Per Capita $.7 Global Share.% * The Music Trades began reporting data on India in Music Sales Per Capita (U.S. $). ' '7 ' '9 '1 1 India Music Market (U.S. $ in millions).7 Share of Global Music Market (Percent) ' '7 ' '9 '1. ' '7 ' '9 '1 1

144 India Imports and Exports. Acoustic Pianos Imports Acoustic Pianos Exports Value in U.S. $ thousands 1 1. ' ' ' '7 ' '9 '1 ' ' ' '7 ' '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 1

145 International Data India 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 ' ' ' ' '7 ' '9 '1 Import Value Export Value 1 ' ' ' '7 Accessories Imports ' '9 ' ' ' ' '7 Accessories Exports ' '9 '1 Import Value Export Value 1

146 Italy The musical instruments and music publishing markets in 1 as a whole suffered a further decline compared to 1 of.%. Considering that the publishing industry was practically unscathed (-.%), we can affirm that losses in 1 were attributed entirely to the musical instruments segment and applicable to a broad product spectrum (including sound amplification systems and tools, teaching aids, microphones and signal processors). The following is a breakdown of this decrease in turnover. The most significant changes mainly concern six product categories, of which four in particular are highly significant: Percussion instruments, which registered -.%, with a decrease in turnover of.7 million euros ITALY Plectrum instruments, which registered -9.%, with a decrease in turnover of.9 million euros Acoustic and digital pianos and organs, which registered -1.%, with a decrease in turnover of.9 million euros Accessories, which registered -1.%, with a decrease in turnover of. million euros These four macro-categories are followed by single amplifiers for instruments, which registered -11.%, with a decrease in turnover of.97 million euros and wind instruments, which were down -1.9% with a decrease in turnover of 1.77 million euros. Lastly, other product categories should also be considered. These additional items, added together, generated a further decrease of 71, euros, resulting in total losses in turnover of a little over million euros. This negative result, however, is partially offset by the results generated by product categories showing positive figures. Two product categories in particular are noteworthy: sound amplification and microphones, which recorded a growth in turnover of. million euros (+1.%). Seven other product categories showing positive signs should also be mentioned, even if their results are less significant individually, which in total generated an increase of 1.9 million euros (which we must obviously take into account). The above all leads to a positive end result of 7. million euros, which effectively lowered losses in revenue from a little over million euros to approximately million euros. This corresponds to the total figure of -.% as a final result for 1. Conclusions and General Remarks Being part of a niche market like ours, in a period like the one we have been dealing with for years now, is very penalizing and brings us inevitably out of the particular nature of our industry, binding us to the unresolved structural problems of our country: the collapse of internal demand, with a net drop in household spending due to the reduction in purchasing 1

147 International Data Italy power of incomes, the widespread inefficiency of public administration, heavy direct and indirect taxation, VAT increase to %, and unemployment. These are all fundamental factors that influence our daily activities. But it is not right to succumb passively to this situation. It is a challenge and an opportunity for all professionals in our industry. It is a test that demands (and probably will continue to do so for a certain period) reflection by all on the structure of their work. This means a need for a general revision process in relation to business management, a concept that generates corrective intervention capable of keeping in mind the changes that have occurred and are still ongoing, such as the reality of the Internet, which is ever more present and demands more attention in every sense. italy In conclusion, however, I d like to offer a note of cautious optimism. From an investigation of the sales made by a large number of distributors, who I thank for the great support they have been giving to the Association and to the market, in the first quarter of 1 there was a small but very important and encouraging sign of recovery of +.%. There is no doubt this figure is low, but we have not seen a positive sign in years. It is very likely that the aforementioned process has already begun. Commentary by Claudio Formisano, President of Dismamusica Doing Business in Italy Market Overview Italy is the world s ninth-largest economy with a GDP in 1 of US$.1 trillion. Italy s economy contracted by about.% in 1, still affected by the current global recession. Italy s population is. million. In 1, Italy was the rd-largest market for U.S. exports, which totaled approximately US$1. billion. The United States is Italy s eighth-largest supplier. The top four supplier nations are Germany, France, China, and the Netherlands. U.S. imports from Italy totaled US$.9 billion in 1. U.S. cumulative direct investment in Italy was US$. billion in 11, ranking Italy 1th 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. 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 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. 17

148 The February, 1, national elections produced a three-way split in the Parliament and a political stalemate since none of the major parties could form a new government. The parties could also not agree on a successor to President Napolitano so finally prevailed on Napolitano to serve a second term. Once re-elected on April, 1, Napolitano used his new leverage to compel the main center-left and center-right parties to come together in a historically unprecedented grand coalition government, which was sworn in on April, 1. The previous Monti Administration from November 1, 11, to April 1, named a government of technocrats and embarked on a series of reform measures to revive Italy s stagnant economy. As new regulations and laws are passed by the new government, new opportunities may arise. italy 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. 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. The economy is dominated by small, family-owned companies (99.9% of Italian firms are small or medium size) that employed 1% of Italy s workers and produced.% of Italy s GDP in 1. 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, E- Commerce, Green Building, Mobile Communications, Motorcycles, Private Equity and Travel and Tourism. Italy s changing demographics and lifestyle also create opportunities. Italy 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. U.S. agricultural, fish and forestry exports to Italy in 1 totaled US$9 million. The United States is, for Italy, primarily a supplier of high-quality inputs for Italian food processing: 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. While consumer-ready products do succeed in this 1

149 International Data Italy market, the EU s system of making technical conclusions subordinate to political decisions has constrained trade for many U.S. products, but in particular for meats and products containing genetically modified ingredients. Market-Entry Strategy 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 enter 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. 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, as it may take two to three times longer than expected to establish a business. italy 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 The following charts are based on retail sales data provided by the Italian Music Association, Dismamusica. 19

150 Italy Snapshot Demographics Population in millions 1.7 Age Male Female & Over. 7. Median Age. Population Growth.% Demographics 1.% +.% 1 1.% Economy GDP (PPP) $1.1 trillion GDP Per Capita $9, GDP-Real Growth Rate -1.% Unemployment Rate 1.% Inflation 1.% Economy 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.. Italy GDP (U.S. $ in trillions) GDP-Service 7.% GDP-Industry.%.. GDP-Agriculture.1%. ' ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 1

151 International Data Italy Snapshot Trade Total Export $7. billion Export as % of GDP.19% Total Import $. billion Import as % of GDP.% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 1 Annual Percentage 1 9 Germany France U.S. U.K. Switzerland Spain Germany France China Netherlands Russia Spain Music Industry Music Market $1. million Sales Per Capita $. Global Share.1% 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 11

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

153 International Data Italy Snapshot Italy Domestic Sales Digital Pianos Wind Instruments 1 1 Value in millions x 1, Value in millions 1 1 x 1, ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 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 ' ' 1 ' '7 ' '9 '1. Stringed Instruments with a Bow Print Music Value in millions x 1, Value in millions 1 1. ' ' 1 ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1

154 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, Value in millions ' Signal Processing 1 1 x 1, 1 1 ' ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 Value in millions 1 1 ' ' 1 Instrument Strings ' '7 ' '9 ' Instrument Amplifiers Accessories 1 Value in millions x 1, Value in millions 1 ' ' 1 ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 1 1 Accessories category includes tuners, instrument strings and other accessories.

155 International Data Japan Japan 1 Japanese Music Products Sales: Exports Increased %, Domestic Sales Decreased % According to the statistics compiled by the Musical Instruments Manufacturers Association, total sales of Japanese music products in 1 were 99 billion yen, a 1% increase over the previous year. While export value surged % to 7. billion yen, domestic sales declined % to 1. billion yen. The industry experienced sales upturns on many items in the year. The piano industry enjoyed the largest growth in the last years. Total piano sales were.1 billion yen, a % increase. Domestic sales of pianos declined % to 1. billion yen, but exports offset the dip with 1. billion yen, a 1% increase over 1. However, sales have declined in units continuously since 11 for both domestic sales and exports. JAPAN Soaring Demands for Wind Instruments Domestic sales and exports increased 1% to 1. billion yen as almost all wind instruments achieved significant growth in 1. Clarinet sales, which showed the largest increase of.% to 1. billion yen, were followed by other brass instruments with an 1.% increase to. billion yen, saxophones with a 17% increase to. billion yen, and other woodwind instruments with a 1% increase to million yen. Flutes including piccolos also advanced 1% to. billion yen. Trumpets including cornets rose 1% to 1. billion yen as well, but domestic sales slightly were lower than the 1 level. Other product lines closing with excellent performance include the following: guitars increased 11% to 1. billion yen, other stringed instruments increased 19% to 1.1 billion yen, concert drums increased % to million yen, marching drums increased 11% to million yen, jazz drums increased % to million yen, marching xylophones increased % to 1. billion yen, keyboard harmonicas increased 19% to 1.7 billion yen, recorders increased % to 1. billion yen, digital pianos increased 11% to 1. billion yen, electronic keyboards increased 19% to. billion yen and keyboard synthesizers increased % to.9 billion yen. On the other hand, sales of other percussion instruments decreased % to 9 million yen. Electric guitars decreased % to 7.7 billion yen, and mini-sized keyboards also decreased % to million yen. Negative performance of electric guitars seriously affects the sales of a host of related products. Electric guitar sales for the year remained only % of 11 sales. More importantly, the segment serves as a barometer to gauge industry pulse. Minisized keyboards were likely hit by a lower unit price and reduced demand as a gift item. Total imports of music products to Japan in 1 were. billion yen, a 1% increase. All tracked items gained in sales value, but decreased by 1% to % in unit sales. Only bowed string instruments, accordions and percussion instruments increased 1%, 7% and 19% in value, and 1%, % and % in units, respectively. Grand piano imports increased % in value, but decreased % in units. Acoustic guitars increased % in value, but decreased 1% in units; other stringed instruments increased % in value, but decreased 7% in units; brass instruments increased % in value, but decreased 1% in units; other wind instruments increased % in value, but decreased % in units; electric guitars increased 1% in value, but decreased 1% in units, and instrument strings increased 1% in value, but decreased 1% in units. 1

156 A weakened yen against the U.S. dollar, the euro and other major currencies apparently worked to raise the import value during the year. Also, industry experts reported imports of expensive products significantly increased last year. Music dealers feel improving consumer sentiment, but effect of the consumption tax hike is uncertain Japan Music Trades conducted a music products retail market survey by sending a questionnaire to 1 music retailers throughout Japan at the end of January. The following is a report based on responses from 1 dealers. Dealers who replied that their business grew in 1 over the previous year exceeded those who reported negative results, suggesting a slow but sure recovery from two years ago. Facing a consumption tax hike in April, the industry is carefully watching consumer spending and market conditions. japan A total of music dealers out of 99 replied that their sales rose in 1, which means more than half are still struggling with declined or flat sales. However, when compared with the results in 1, there is a clear sign of recovery in the music products retail market. The dealers with positive sales results reported an % increase on average, and 1 dealers reported double-digit growth. Though the effect of Abenomics (described below) is not fully felt by the music products industry, overall music retail performance is improving to some extent. Consumer spending has been gradually returning since last spring, and demand for high-ticket music products likely soared in the fall after the government announced a consumption tax hike to be implemented in April 1. The dealer reports confirmed improving consumer confidence. Backed by a recovering general economy, music products sales remarkably increased from the end of last year to the beginning of 1, the most profitable business season in Japan, compared with recent years. Albeit industry members are uncertain about business in 1 as the coming consumption tax hike might affect consumer spending. The Japanese government announced additional boost packages to cope with an anticipated steep economic slowdown after April. At this moment it is anyone s guess whether those efforts will work as expected, and there is a possibility that the economic stimulus plans end up offsetting only part of the effect of the tax hike, or at worse, damage retail business. Commentary by Masaru Sawano, President of Japan Music Trades 1

157 International Data Japan Doing Business in Japan Market Overview As the world s fourth-largest buyer of American products, Japan is a market that U.S. companies should not overlook, but approach with a thoughtful strategy. Japan is a technology powerhouse, a proving ground for consumer requirements, and stands in the vanguard with respect to the sweeping changes recently seen in developed market demographics. Most U.S. state economic development agencies are also well aware of the important foreign direct investment coming into their communities from Japan. While the reasons U.S. firms engage with Japan are diverse, savvy firms recognize that underestimating the strategic and tactical importance of the Japanese market may disadvantage them not only in Japan, but in the United States and third-country markets as well. japan Japan was back in the business news headlines in 1, owing in part to a rising stock market, a sharply lower yen and stirrings of domestic demand for both personal consumption and capital investment. The new economic policy linked to these developments is known 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 reigniting growth in Japan are far from certain, it has drawn considerable attention from U.S. businesses. In April 1 the U.S. and Japanese governments agreed on a package of actions and agreements that pave the way for the Obama administration to support Japan s participation in the Trans-Pacific Partnership (TPP). With Japan s participation in the TPP, 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. While Japan has made significant steps toward economic healing following the tragic combined earthquake, tsunami and nuclear incident of March 11, there are lasting changes noticeable on various levels, including idled nuclear power plants. Japan remains the world s third-largest economy, after the United States and China, with a GDP of roughly 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$7 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 more than US$7 billion invested. During 1 the Japanese yen was stable against the dollar. However, the yen weakened appreciably in the first half of 1. Even so, U.S. products remain competitive in Japan. 17

158 Japan s large government debt, which totals over % of GDP, persistent deflation and an aging and shrinking population are major challenges confronting the economy. In 1 the top exporters to Japan were China, the United States, Australia, Saudi Arabia, the UAE, South Korea 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 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. japan 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. Generally, tariffs on most imported goods into Japan are low. However, cultural, regulatory or other non-tariff barriers continue to 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. Market Opportunities The Japanese market offers numerous opportunities for U.S. companies in a wide variety of sectors. The best prospects for U.S. exporters in the Japanese market include: Aerospace Agricultural products and services including high-value food and beverage Biotechnology Cloud computing Cosmetics and toiletries Education and corporate training Electronic components Healthcare IT Medical equipment Pharmaceuticals Renewable energy Safety and security Environmental remediation and engineering services Telecommunications equipment Travel and tourism 1

159 International Data Japan 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 those in the United States. U.S. business executives are advised to retain a professional interpreter, as many Japanese executives and decision-makers 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, you may visit their website at japan 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 19

160 Japan Snapshot Demographics Population in millions 17.1 Age Male Female & Over Median Age.1 Population Growth -.1% Demographics 1.% +.% 1 1.% Economy GDP (PPP) $.7 trillion GDP Per Capita $7,1 GDP-Real Growth Rate.% Unemployment Rate.1% 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.% GDP-Industry.% 1 GDP-Agriculture 1.% ' ' ' ' ' '7 ' '9 '1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1-1. ' ' ' ' ' '7 ' '9 '1 1

161 International Data Japan Snapshot Trade Total Export $97. billion Export as % of GDP 1.7% Total Import $7. billion Import as % of GDP 1.1% Export Partners (1) Import Partners (1) Annual Percentage 1 1 Annual Percentage 1 1 China U.S. S. Korea Hong Kong Thailand China U.S. Australia UAE Saudi Arabia S. Korea Music Industry Music Market $. billion Sales Per Capita $17.1 Global Share 1.1% 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 11

162 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 7 Value Value in billions of Yen 7 1 ' '9 Electric Guitars Domestic Sales ' ' ' '7 ' '9 '1 1 ' ' '7 ' '9 '1 '97 '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 17 1 ' ' ' ' '7 ' ' '7 '9 ' '1 '9 '1 '97 '9 '99 ' '1 ' ' ' Value X 1, 1 Value in billions of Yen 1 1 ' '9 Total Guitars Exports ' ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' ' x 1, 1

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

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

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

166 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 ' ' ' '7 ' '9 '1 '9 '97 '9 '99 ' '1 ' Value ' ' ' '7 ' '9 '1 ' ' x 1, Value in billions of Yen 7 1 ' '9 ' '97 Percussion Exports ' '7 ' '9 '1 '9 '99 ' '1 ' Value ' ' x 1, Total Domestic Sales Total Exports 1 Value in billions of Yen 7 1 ' '9 ' ' ' '7 ' '9 '1 ' ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' ' x 1,, Value in billions of Yen ' '9 ' ' '7 ' '9 '1 '97 '9 '99 ' '1 ' Value ' ' x 1,, 1

167 International Data Mexico 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. Mexico is the United States third-largest trade 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$9 billion in 1, an increase of 1%. mexico 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 in a region that includes some of the world s most robust economies and that represents more than % of global trade. The TPP presents an opportunity to go beyond NAFTA and is anticipated to be finalized by 1. In May 1, President Obama visited Mexico, at which time he and Mexican President Enrique Peña Nieto announced a new High Level Economic Dialogue (HLED). The HLED will help to further identify barriers to trade between our two countries, to reduce such barriers, and improve opportunities for both U.S. and Mexican companies in our two markets. Mexico is the most populated Spanish-speaking country in the world and has 11 million people with 7% living in urban areas. A full 1% of the population is considered wealthy and about % 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. It offers a large market with a GDP of approximately US$1.1 trillion. Per capita income is US$1,1. With a shared Western and Hispanic culture, U.S. producers 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 economy continues to grow with % growth in GDP in each of the past two years. Growth is expected to be lower in 1. Labor, education and telecom reforms as well as proposed energy and fiscal reforms have people optimistic that the country will increase its competitiveness. 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. 17

168 The Mexican legal system differs in many significant ways from the U.S. system. 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 Mexican 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 to explore financing options, including Export-Import Bank programs. mexico Mexican Customs regulations, product standards and labor laws may present pitfalls for U.S. companies. U.S. Embassy commercial, agricultural and labor attachés are available to counsel firms with respect to regulations that affect their particular export product or business interest. Continued violence among transnational criminal organizations has created insecurity in some parts of Mexico, particularly in some border areas. Market Opportunities Abundant market opportunities for U.S. firms exist in Mexico; trade totals almost US$1. billion a day between the two countries. Mexico inaugurated a new President in December 1. A national infrastructure plan has been unveiled. Sales opportunities to the Mexican federal government will likely increase in the next few years. Mexico s geographic proximity to the United States has propelled the maquiladora industry near the U.S.-Mexico border and currently gives U.S. businesses an alternative to Asia-based manufacturing and opportunities to sell into the supply chain. Some of Mexico s most promising sectors include 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; travel and tourism services and the agricultural sector. Market-Entry Strategy 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. 1

169 International Data Mexico Mexican companies are extremely price conscious, seek financing options, tend to desire exclusive agreements, and value outstanding service and flexibility. U.S. firms wishing to export to Mexico will find a variety of market entry strategies. 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 mexico The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC) 19

170 mexico Snapshot Demographics Population in millions 1. Age Male Female & Over.9.7 Median Age 7. Population Growth 1.1% Demographics 1.% 1 7.9% +.9% Economy GDP (PPP) $1. trillion GDP Per Capita $1, GDP-Real Growth Rate 1.% Unemployment Rate.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.. 1. Mexico GDP (PPP) (U.S. $ in trillions) 1. GDP-Service 9.% GDP-Industry.%... ' ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% Unemployment Rate (Percent) 7 Inflation (Annual Percent Rate) 1 1 ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 17

171 International Data Mexico Snapshot Trade Total Export $7.9 billion Export as % of GDP.1% Total Import $7.7 billion Import as % of GDP.1% Export Partners (1) Import Partners (1) Annual Percentage 7 1 Annual Percentage 1 U.S. Canada U.S. China Japan Music Industry Music Market $19. million Sales Per Capita $1. Global Share 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 '1 171

172 Mexico Imports and Exports ' ' ' Acoustic Pianos Imports '7 ' '9 '1 Value in U.S. $ thousands ' ' ' Acoustic Pianos Exports '7 ' '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 17

173 International Data Mexico Mexico Imports and Exports 1 1 ' ' ' Wind Instruments Imports '7 ' '9 '1 Value in U.S. $ thousands ' ' ' Wind Instruments Exports '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 17

174 Doing Business in Norway NORWAY Market Overview Norway is one of the world s richest countries in per capita terms, and the national income per capita is calculated 1.7 times the average of the OECD (Organization for Economic Co-operation and Development) countries. Norway has an important stake in promoting a liberal environment for foreign trade. Its large shipping fleet is one of the most modern among maritime nations. 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. The country is richly endowed with natural resources petroleum, hydropower, fish, forests, and minerals and is highly dependent on the petroleum sector. Norway has a per capita GDP of US$, based on purchasing power parities (ranked eighth in the world in 11 according to the CIA World Factbook). After a solid GDP growth in 7, the economy was considered slow and rather contracted in the time period 9, but returned to positive growth in Norway s external financial position is exceptionally strong from a global perspective. Norway is located in northern Europe and is a 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 is facing the North Atlantic Ocean and the Barents Sea. With a population of million covering, square kilometers, Norway is one of the most sparsely populated countries in Europe. The population is spread across 1,1 miles of long, narrow and mountainous landscape; the country has a coastline three times its length. Norway is a vibrant, stable democracy. Norway has one of the most financially healthy economies in the world, thanks in part to its status as the world s seventh largest exporter of crude oil and third largest exporter of natural gas. 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 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. 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. 17

175 International Data Norway Norway is part of the Schengen Agreement, which guarantees free movement of persons and the absence of internal border control between of the 7 EU member states, as well as Norway, Iceland, Switzerland and Liechtenstein. All passport control between these Schengen countries has 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, although the agriculture sector is well protected through trade barriers. 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. norway Market Opportunities U.S. companies have excellent opportunities to capture a significant share of new contract awards in Norway s oil and gas, renewable energy, information technologies, and defense sectors. Other sectors with significant opportunities are telecommunications equipment and services, healthcare technologies, shipping and maritime equipment, tourism and consumer goods. 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. 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) 17

176 Norway Snapshot Demographics Population in millions.1 Age Male Female & Over.. Median Age 9.1 Population Growth 1.19% Demographics 1.% 1 1.% + 1.% Economy GDP (PPP) $. billion GDP Per Capita $, GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation 1.9% 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 ' ' ' ' ' '7 ' '9 '1 GDP-Agriculture 1.% Unemployment Rate (Percent).... Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1. ' ' ' ' ' '7 ' '9 '1 17

177 International Data Norway Snapshot Trade Total Export $1. billion Export as % of GDP.% Total Import $9.1 billion Import as % of GDP 1.9% Export Partners (1) Import Partners (1) 1 Annual Percentage 1 1 Annual Percentage 1 9 U.K. Netherlands Germany France Sweden U.S. Sweden Germany China Denmark U.K. 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 '1 177

178 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 Fretted & Stringed Instruments Exports 7 1 Value in U.S. $ thousands 1 1 ' ' ' '7 ' '9 '1 ' ' ' '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 17

179 International Data Norway 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 179

180 Doing Business in Russia Market Overview With a vast landmass, extensive natural resources, more than 1 million consumers, a growing middle class and almost unlimited infrastructure needs, Russia remains one of the most promising and exciting markets for U.S. exporters. Russia is the world s 11th-largest economy by nominal GDP and seventh largest by PPP. It has the highest per capita GDP (US$1,) of the BRICS countries (Brazil, Russia, India, China and South Africa). Russia is an upper middle income country, with a highly educated and trained workforce and sophisticated, discerning consumers. russia Russia s economy is still recovering from the economic crisis that began in, with GDP growth estimated at.% for 1. In terms of trade in goods, Russia was the United States 7th-largest export market and the 1th-largest exporter to the United States in 1. Russia was America s 1st largest trading partner overall. U.S. exports to Russia in 1 were US$1.7 billion, a new record and an increase of almost % from 11. This is six times more than the growth rate for overall U.S. exports worldwide, which rose by %. Russian exports to the United States in 1 were US$9 billion, a decrease of 1% from 11. Russia s leading trade partners were recently Netherlands, China, Germany, Italy, Ukraine and Turkey. U.S. accumulated investment in Russia is approximately US$1 billion. According to Russian data, the United States is Russia s 1th-largest foreign investor. Russia joined the World Trade Organization (WTO) in August 1. This brought the world s largest economy outside the WTO into the organization and bound it to a set of rules governing trade. Congress also enacted legislation to extend permanent normal trade relations to Russia in the same year. Russia s membership in the WTO will liberalize trade with the rest of the world and 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 will have more certain and predictable access to the Russian market as a result of Russia s commitment not to raise tariffs on any products above the negotiated rates. For American businesses, Russia s accession to the WTO will 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.. Market access under country-specific tariff-rate quotas.. Improved transparency in trade-related rule-making.. More effective WTO dispute resolution mechanisms. 1

181 International Data Russia The United States is working vigorously to expand bilateral trade and investment cooperation to benefit both Russia and the United States. In the last several years, the positive atmosphere resulting from the reset of bilateral relations has led to an unprecedented advance in economic cooperation between our countries. From 9 to 11, U.S. exports to Russia rose markedly by about 7%, and total United States-Russia trade increased by more than %. There is much more room for growth in this important relationship. Market Challenges Russia is the largest country in the world, spanning nine time zones and encompassing over 17 million square miles. Seriously underdeveloped infrastructure poses logistical challenges, especially in accessing markets outside of major cities. russia An incomplete transition from central planning has led to an insufficiently integrated economy and disparities in wealth distribution, both geographically and demographically. 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 the continued presence of large state-owned or state-controlled enterprises in strategic sectors of the economy. Investments in 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. English is not widely spoken although knowledge of the language is expanding, especially in the major cities. Market Opportunities In alphabetical order: Agricultural Equipment Apparel Automotive Parts and Service Equipment / Accessories Aviation Chemicals / Plastics Construction Consumer Electronics Electric Power Generation and Transmission Equipment 11

182 Energy Efficiency / Green Build Medical Equipment Refinery Equipment Safety and Security Equipment Travel and Tourism to the U.S. Market-Entry Strategy Commit time, personnel and capital seriously, as developing business in Russia is resource-intensive. Conduct market research to identify opportunities and potential Russian business partners. Conduct due diligence to ascertain the reliability of business partners. russia Consult with U.S. companies already in the market, as well as with 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 timeframe 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

183 International Data Russia Snapshot Russia Snapshot Demographics Population in millions 1. Age Male Female & Over Median Age.9 Population Growth -.% Demographics 1 7.% 1 1.% + 1.1% Economy GDP (PPP) $. trillion GDP Per Capita $1,1 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... Russia GDP (PPP) (U.S. $ in trillions) GDP-Service.% GDP-Industry 7.% ' ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% 1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 1

184 Trade Total Export $1. billion Export as % of GDP.% Total Import $1. billion Import as % of GDP 1.7% Annual Percentage Export Partners (1) Netherlands Germany Turkey China Italy Ukraine Annual Percentage China Import Partners (1) Germany Ukraine Japan U.S. Music Industry Music Market $19. 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 1

185 International Data Russia Snapshot Russia Imports and Exports Acoustic Pianos Imports 17 Acoustic Pianos Exports 1 1 Value in U.S. $ thousands ' ' ' '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 1

186 Russia Imports and Exports ' ' ' Wind Instruments Imports '7 ' '9 '1 Value in U.S. $ thousands 1 1 ' ' ' Wind Instruments Exports '7 ' '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 1

187 International Data South Korea Doing Business in South Korea Market Overview The long-anticipated Korea-U.S. Free Trade Agreement (KORUS) went into force on March 1, 1, becoming our nation s largest FTA since NAFTA. The Agreement is expected to increase U.S. exports to Korea by approximately US$1 1 billion. In 11, more than, small and medium-sized enterprises (SMEs) exported US$1.9 billion in goods to South Korea, a % increase from known SME exports in 1. SOUTH KOREA Total 11 U.S.-Korea trade exceeded US$1 billion for the first time ever, also surpassing that mark in 1. Total U.S. exports in 1 exceeded US$. billion. Korea is the United States eighth largest export market. The U.S. is the third largest exporter to Korea, with an.% market share of Korea s total imports. Key competitors include China with 1.%, Japan with 1.% and the EU s 7 nations with 9.7%. With the EU having already implemented its FTA with Korea, U.S. firms will now be on more equal footing with the benefit of KORUS implementation. (China s trade reflects significant re-export activity.) Korea s projected 1 GDP growth forecast is.%, according to the International Monetary Fund. Its commercial banks maintain strong reserves in the case of a possible global slowdown or difficulties in the Euro Zone. 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. The increasing trend in local patent and trademark filings reflects the move toward more technology-intensive and capital-intensive 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 exhibit a commitment to the Korean market generally continue to find business to be rewarding and Koreans to be loyal customers. With the implementation of KORUS now in process, Korea s attractiveness as a market will continue to improve. U.S. products will become increasingly cost-competitive, and bilateral trade should increase. EU products have had reduced or zero-tariff access to this market since mid-11. U.S. SMEs must remain flexible and ready to work with their Korean business counterparts as it pertains to amending contract terms or renegotiating price, quantity and delivery terms, following a business deal or bilateral contractual agreement. In Korea, the principle of consideration, as is the case in English law, is not present. 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. 17

188 Market Opportunities The Korean economy is heavily weighted toward international trade. Trade accounts for 9% of its GDP. As Korea 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. U.S. companies are already partnering with local Korean industries to expand market opportunities from Korea to third-country markets, including ASEAN, the Middle East and other markets in the Asia-Pacific region. Given Korea s strong shipping and air cargo infrastructure, this is not only a market for U.S. goods and services, but also a hub for eventual expansion into other markets. south korea Market-Entry Strategy 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) 1

189 International Data South Korea Snapshot SOUTH KOREA Snapshot Demographics Population in millions 9. Age Male Female & Over.7. Median Age. Population Growth.1% Demographics 1 7.% 1 1.1% + 1.% Economy GDP (PPP) $1.7 trillion GDP Per Capita $, GDP-Real Growth Rate.% Unemployment Rate.% Inflation 1.1% 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.% GDP-Industry 9.%... ' ' ' ' ' '7 ' '9 '1 GDP-Agriculture.% Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 1 ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 19

190 Trade Total Export $7. billion Export as % of GDP.7% Total Import $1. billion Import as % of GDP.9% Export Partners (1) Import Partners (1) 1 Annual Percentage 1 1 Annual Percentage China U.S. Japan Singapore Hong Kong China Japan U.S. Australia Saudi Arabia Music Industry Music Market $9. million Sales Per Capita $.77 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 19

191 International Data South Korea South Korea Imports and Exports Acoustic Pianos Imports Acoustic Pianos Exports ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Import Value Export Value 1 1 ' Fretted & Stringed Instruments Imports ' ' '7 ' '9 '1 1 1 ' Fretted & Stringed Instruments Exports ' ' '7 ' '9 '1 Import Value Export Value Keyboards Imports 1 Keyboards Exports 1 ' ' ' '7 ' '9 '1 ' ' ' '7 ' '9 '1 Import Value Export Value 191

192 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 19

193 International Data Spain Spain COMUSICA initiated this report to assess the evolution of the sale of musical instruments in Spain in 1.This study was prepared based on surveys conducted with both wholesalers and retailers. The number of wholesalers surveyed was 1, which account for more than 7% of total sales volume of our country. Also surveyed were retailers. The following is the data obtained The average sales volume of the wholesalers dropped by 11.%, while the average decrease in store sales throughout 1 was.%. SPAIN There were two very distinct phases in the development of the market in 1. The first semester can be described as very bad, with an average loss in retail sales of 17%. The second half experienced significantly better performance, which moderated the average decline in sales at the end of the year. Based on the figures obtained, we could not detect a significant drop in trade margins. However, we consider that the better results of store sales in comparison to wholesalers is undoubtedly the result of a process of stock liquidation. There is no direct information on the evolution of foreign web sales, but the general impression is that they have experienced a greater drop in sales than domestic firms. The general sense among the companies that were surveyed, and from the opinions of their customers, is that we may be facing a changing trend that will allow us to begin to experience slow but steady growth in 1. Commentary by Juan Grecos, IC Delegate for Comúsica, the Spanish Music Products Association, and Managing Director of Caprice, S.L. Doing Business in Spain Market Overview Spain ranks as one of the top 1 economies in the world. It is the fifth-largest economy within the EU and the 1th in the world with a GDP of US$1. trillion and a population of almost 7 million. Spain was the 1th-largest importer in the world in 9. While Spain is not growing as quickly as other EU markets, there continue to be good export opportunities for U.S. companies. Major Spanish firms in the telecommunications, energy, banking and infrastructure sectors have become global leaders. Procurement decisions for these companies continue to be made in Spain. Spain and the United States enjoy a long-standing political and commercial relationship. Spain has traditionally provided a healthy export market. In the second half of 9, international trade began to recover following the global economic crisis. According to the U.S. Department of Commerce, U.S. exports of goods to Spain in 9 were US$.7 19

194 billion, a decrease of.% from, but this amount increased in 1 by 1.% to US$1.1 billion. Spanish exports to the U.S. in 9 were US$7.9 billion and US$. billion in 1. U.S. services exports continue to be strong. Investment plays a key role in the bilateral economic relationship; the U.S. is among the largest investors in Spain, and Spain continues to be the 1th-largest investor in the U.S., with much of the investment taking place in the past five years. spain The United States is the third-largest investor in Spain after the United Kingdom and France, having invested over US $.7 billion through the end of 9. The U.S. firms in Spain employ over, workers. These companies represent approximately 7% of the country s GDP. Most of the large U.S. names are present. Many of these companies are in the industrial sector: automobiles, chemical factories, pharmaceutical, industrial machinery, etc. The presence of large, well-known foreign names serves as a catalyst for innumerable local providers and, in almost all cases, increases exports. Over % of Spanish exports are made by foreign multinationals located there. In the Spanish tourism sector, revenue increased.% in 1. Although 9 and 1 were characterized by a pronounced global economic and financial crisis, Spain continues to be the world s third-largest recipient of foreign tourists. It also offers excellent potential for outbound travel to the United States, currently ranked as the world s 11th-largest market for outbound travel to the United States and the fifth largest in Europe. The United States and the European Union (EU), with its 7 member states, enjoy a mature economic relationship characterized by massive two-way trade of US$ billion and an extensive US$ trillion two-way investment relationship. In 1, U.S.-EU trade continued to grow, despite the world financial crisis. U.S. exports of goods and services to the EU-7 in 1 are estimated to have been US$7 billion, with imports from the EU estimated at US$1 billion. Market Challenges The weakness of the dollar versus the euro is advantageous for U.S. exporters. Nevertheless, U.S. suppliers will continue to face stiff 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. Extended delays in receipt of payment are common. EU legislation was revised in 1, and legislation was also passed in Spain in July 1 to reduce the reimbursement period. 19

195 International Data Spain The recent economic downturn appears to have resulted in some companies reluctance to commit to purchase or represent new products or services. Nevertheless, developing export sales or distribution channels takes time; export-ready U.S. firms are urged to explore opportunities in Spain and throughout the Euro Zone. Market Opportunities Chemicals were the principal export to Spain in 1, accounting for % of total exports, followed by transportation equipment (9.%), agricultural products (.9%) and software and electronic products (.%). Primary U.S. exports to Spain have consistently included aircraft and associated parts and equipment, pollution control and water resources equipment, medical products and equipment, outbound travel and tourism, electric power systems, telecommunications equipment and pharmaceuticals. Other sectors offering good prospects include defense, security equipment, renewable energy equipment and services, e-commerce, chemicals, engineering services and transportation and industrial machinery. spain With the lack of credit in the Spanish market, Eximbank, a full-service commercial bank located in Moldova, 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 struggling with the current liquidity constraints. The Spanish market is made up of a number of regional markets joined by the two hubs of Madrid and Barcelona. There are 17 autonomous communities in Spain (similar to U.S. states) with varying degrees of autonomy and cultural identity. However, the vast majority of agents, distributors, foreign subsidiaries and government-controlled entities that make up the economic power bloc of the country operate in these two hubs. The key to a foreign firm s sales success is to either appoint a competent agent or distributor, or to establish an effective subsidiary in the Madrid or Barcelona areas. 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 also 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 provide this service. 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. However, disincentives such as high labor costs, inflexible labor laws and concern for intellectual property rights in the copyright area still exist. Market-Entry Strategies Spaniards tend to be more formal in personal relations than Americans 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. 19

196 There is no substitute for face-to-face meetings with Spanish business representatives to break into this market. 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. Known 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 spain The following charts are based on retail sales data provided by COMUSICA, the Spanish Music Products Association 19

197 International Data Spain Snapshot Spain Snapshot Demographics Population in millions 7.7 Age Male Female & Over.. Median Age 1. Population Growth.1% Demographics 1 7.1% + 17.% 1 1.% Economy GDP (PPP) GDP-Service 7.% Economy $1.9 trillion GDP Per Capita $,1 GDP-Real Growth Rate 1.% Unemployment Rate.% Inflation 1.% GDP-Industry.1% GDP-Agriculture.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 ' ' ' Spain GDP (PPP) (U.S. $ in trillions) ' ' '7 ' '9 '1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1-1 '99 ' '1 ' ' ' ' ' '7 ' '9 '1 197

198 Trade Total Export $. billion Export as % of GDP.9% Total Import $1. billion Import as % of GDP 1.1% Export Partners (1) Import Partners (1) Annual Percentage France Germany Italy Portugal U.K. Annual Percentage 1 9 Germany France Italy Netherlands China U.K. Music Industry Music Market $1. 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 19

199 International Data Spain Snapshot Spain Domestic Sales 1 Electric Guitars. Acoustic Guitars 1 Value in millions x 1, Value in millions x 1, ' ' ' '7 ' '9 '1. ' ' ' '7 ' '9 '1 Value in millions 1 ' ' ' 1 Electro-Acoustic Guitars ' ' '7 ' '9 '1 ' '7 ' '9 ' x 1, Value in millions ' ' 1 ' Electric Basses '7 ' '9 ' x 1, Value in millions 7 1 ' ' ' 1 ' ' Percussion ' '7 ' '9 '1.. '7 ' '9 '1. x 1, Value in millions ' ' 1 ' Digital Drums '7 ' '9 ' x 1, 199

200 Spain Domestic Sales 1 1 Digital Pianos 1 1 Value in millions x 1, ' ' ' '7 ' '9 '1 Electronic Keyboards Value in millions 1 1 ' ' 1 ' '7 ' '9 ' x 1, Instrument Amplifiers Value in millions 1 1 ' ' 1 ' '7 ' '9 ' x 1,

201 International Data Sweden Doing Business in Sweden Market Overview Sweden is an export-dependent country, home to more multinational corporations per capita than any other country in the world, and is considered an important base for the Nordic-wide operations. The U.S. Embassy Commercial Service, together with the entire U.S. Embassy, under the Administration s National Export Initiative (NEI) and Select USA programs, the Commercial Service at U.S. Embassy Sweden works closely with the Swedish Government, NGOs and companies to promote U.S. products and services in strong sectors of life sciences, aircraft, clean tech, telecom, auto aftermarket, retail, as well as U.S. education and travel to the U.S. The travel sector grew by more than % in 11 and accounted for over US$1 billion of benefit to the U.S. economy. SWEDEN Given U.S. and Swedish cooperation in innovative solutions to mitigate greenhouse gases, the U.S. Embassy in Stockholm supports events and U.S. company profiling under its Swedish American Green Alliance (SAGA) to focus on increasing trade in renewable power, energy efficiency, electric vehicles, mass transportation, recycling and waste, large-scale urban redevelopment, and clean air and water technologies. Sweden is an experienced trading country with high prices, which offers an opportunity for price-competitive import products as well as challenges of the cost of doing business. Labor laws create an expensive market for labor. Individual tax rates are among the highest worldwide, whereas corporate taxes are average for the EU at %. VAT taxes of % apply for the import or sale of products. Certain taxes have been reduced to help segments of the economy, for example, the restaurant businesses. Swedish industry continues to invest heavily in the U.S. market and employs upwards of, people in the U.S. with many U.S.-based suppliers. Some of the largest employers are Ericsson (with more than 1, employees, and an equal number of contractors, and over 1 suppliers), ABB (which invested over US$ billion in the U.S. market in the last year alone), Skanska (with more than 1 contracts in the U.S., many of them incorporating energy efficiency), Electrolux, Volvo AB, IKEA, H&M, SAAB Aerospace and many others with large investments, many in the clean tech sector. Market Opportunities Swedes are early adopters of alternative clean tech, e-government solutions and in hightech sectors like security and ID systems. Sweden is considered an ideal test market for new-to-market products, though an expensive one. Swedes are early adopters ; or in some cases, adapters, quick to follow or adapt to new trends. 1

202 Market-Entry Strategy The most effective entry strategies will vary by product and sector. Flexibility and close work with the U.S. Embassies will help introduce new products and services into distribution channels for both old- and new-to-market companies throughout the Nordics. The other Nordic capitals and two other major Swedish cities, Gothenburg in the west and Malmo in the south, should be considered on Nordic itineraries. 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 sweden The following charts are based on import and export data obtained from the website of the International Trade Centre (ITC)

203 International Data Sweden Snapshot Sweden Snapshot Demographics Population in millions 9.7 Age Male Female & Over. 1. Median Age 1. Population Growth.79% Demographics 1.% +.% 1 1.9% Economy GDP (PPP) GDP-Service.% Economy $9. billion GDP Per Capita $,9 GDP-Real Growth Rate.9% Unemployment Rate.1% Inflation.% GDP-Industry 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-Agriculture 1.9% 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

204 Trade Total Export $11. billion Export as % of GDP.9% Total Import $1. billion Import as % of GDP.1% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 Annual Percentage Norway Germany U.K. Finland Denmark Germany Norway Denmark Netherlands U.K. Russia Music Industry Music Market $9. million Sales Per Capita $1. 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

205 International Data Sweden 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

206 Sweden Imports and Exports ' ' ' Wind Instruments Imports '7 ' '9 ' ' ' ' Wind Instruments Exports '7 ' '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

207 International Data Switzerland Switzerland The Swiss market seems to be quite stable, although it is not a very dynamic one. Referring to the dealer talks at Frankfurt Musik Messe 1, we have received many positive comments. SWITZERLAND The drop in the import statistic is mainly due to the electronic devices which are not in the Federal statistic, with the exception of some product categories such as keyboards and sound modules. We estimate that the total value of imported electronic products, such as amplifiers, PA systems, effectors, sheet music, etc., is another to 7 million Swiss francs. Online business is growing, but not as fast as experts previously have stated. The main business is going through the music retailer. We understand it as an appreciation of the dealers services. The economy in Switzerland is very stable and the unemployment rate is below %. Commentary by Michael Heuser, President of Roland Switzerland and Delegate of Suissemusic for International Relations and CAFIM Doing Business in Switzerland Market Overview Switzerland s population of million is affluent and cosmopolitan GDP of about US$ billion; growth forecast of 1.% for 1 In 1, total exports from the U.S. to Switzerland amounted to US$. billion U.S.-Swiss trade is 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 7

208 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 switzerland 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 High concentration of computer/internet usage per capita Sophisticated market for U.S. devices Switzerland is becoming a European center for 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 Significant assets pooled from around the world under Swiss management, creating excellent opportunities for U.S. financial services providers Market Entry Strategy 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

209 International Data Switzerland 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 switzerland 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 CAFIM 9

210 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) GDP-Service 7.% Economy $7. billion GDP Per Capita $, GDP-Real Growth Rate 1.7% Unemployment Rate.9% Inflation -.% GDP-Industry.% 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 ' ' ' Switzerland GDP (PPP) (U.S. $ in billions) ' ' '7 ' '9 '1 GDP-Agriculture.7% Unemployment Rate (Percent)... Inflation (Annual Percent Rate) ' ' ' ' ' '7 ' '9 '1-1. ' ' ' ' ' '7 ' '9 '1 1

211 International Data Switzerland Snapshot Trade Total Export $1. billion Export as % of GDP.% Total Import $7.7 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. Germany Italy France U.S. China Music Industry Music Market $11. 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 11

212 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 1

213 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 1.. Value in Swiss Francs millions ' ' ' '7 ' '9 '1 Value in Swiss Francs millions ' ' ' '7 ' '9 '1 Import Value Import Value 1

214 United Kingdom The UK as a total economy is gradually returning to some small growth, but it remains fragile and this growth has by no means translated into a resurgence of spending on discretionary products (e.g., musical instruments). The monthly outgoings of the mortgage, utilities and food is clearly and naturally coming first. UNITED KINGDOM As a context, the UK and Germany appear to be among the first parts of the European territory that are seeing this return to positive growth, but sustained growth is far from guaranteed. Thankfully, the UK still has a very similar number of retail outlets selling instruments compared to the numbers of a few years ago. What is clear is that the big retail businesses in MI are getting bigger, and the / rule will potentially end up being even more sharply defined in years to come. The principle of successful shop coupled with successful Internet business is clearly the business model that seems to be gaining the most overall success. The UK has a number of big hitters with this model. This is important in light of the new research the MIA has just released about the state of the UK music-making community. There has (not surprisingly) been a huge growth in people wanting to buy instruments online to the extent that it is now as popular as using a bricks-and-mortar shop. The percentage of people using both shops and Internet remains the same, but the Internet was the minority figure only eight years ago. It can be argued this is all well and good as long as the shop has both the physical and the e-commerce options for the customer. It has to be said that the impact of Amazon on the industry remains a hugely contentious one. Clearly, large numbers of instruments are being sold by the company and effect of this on the existing retail chain of shops and the suppliers who distribute the instruments is still being determined. Not on the same scale, but ebay and newer sites like Gumtree continue to sell vast numbers of instruments and this all adds to a difficult market to determine in total size in the UK. What is clear is the total effect of all the many channels through which people can now buy their instruments. The new research clearly 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! Commentary by Paul McManus, Chief Executive of the Music Industries Association (MIA) 1

215 International Data United Kingdom 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. united kingdom Highly developed, sophisticated and diversified, the UK market is the largest in Europe and the fifth-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 1, U.S. exporters. U.S. exports to the UK of goods and services combined were estimated to be worth nearly US$11 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 slightly fewer than.9 million UK travelers estimated to have visited the United States in 1. The U.S.-UK investment relationship is the largest in the world, with a cumulative bilateral stock in direct investment valued at more than US$99 billion in 11. Over 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. 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.% in 1, reflecting continued weakness in the economy. There are some signs that the economy is beginning to pick up, with additional growth of.% in the first quarter of 1. The continuing difficulty in accessing credit, particularly by SMEs, still represents a challenge for many businesses. 1

216 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 severe financial difficulties. Despite the advantage of a relatively strong U.S. dollar, London is one of the world s most expensive cities in which to do business. As UK and third-country suppliers represent strong competition, U.S. exporters need to offer differentiated products at competitive prices. united kingdom Complex EU technical/regulatory requirements can be burdensome. Devolved Administrations present some differences in policies and regulations among England, Northern Ireland, Scotland and Wales. The UK government has introduced deep cuts to public sector spending, affecting many businesses and, more broadly, consumer confidence. A debate has arisen about the UK s future membership in the EU, with the suggestion of an in or out referendum possibly taking place sometime in the next four years. 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. 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. Market-Entry Strategies Demonstrate a clear value proposition and competitive advantage (i.e., 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. 1

217 International Data United Kingdom 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 united kingdom 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) 17

218 United Kingdom Snapshot Demographics Population in millions.7 Age Male Female & Over.99.1 Median Age. Population Growth.% Demographics 1.% 1 17.% + 17.% Economy GDP (PPP) $. trillion GDP Per Capita $7, GDP-Real Growth Rate 1.% Unemployment Rate 7.7% 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.. United Kingdom GDP (PPP) (U.S. $ in trillions) GDP-Service 7.% GDP-Industry.% GDP-Agriculture.7%. ' ' ' ' ' '7 ' '9 '1 1 Unemployment Rate (Percent) Inflation (Annual Percent Rate) 1 ' ' ' ' ' '7 ' '9 '1 ' ' ' ' ' '7 ' '9 '1 1

219 International Data United Kingdom Snapshot Trade Total Export $7.7 billion Export as % of GDP 19.99% Total Import $. billion Import as % of GDP 7.1% Export Partners (1) Import Partners (1) 1 1 Annual Percentage 1 Annual Percentage 1 9 Germany Netherlands U.S. France Ireland Belgium Germany Netherlands China U.S. France Belgium Music Industry Music Market $. billion Sales Per Capita $.9 Global Share.% * U.K. music data re-stated by The Music Trades in and explains the significant growth 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 19

220 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, % 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 learnt to play an instrument. Over % of those who had never played completely agreed that you are never too old to learn to play.

221 International Data United Kingdom The most popular instruments played are guitars (by % of instrument players), pianos & keyboards (by %) and woodwind (by %). Some 7% of guitar players are male whilst % 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 (bricks 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, wellbeing 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. 1

222 NAMM Executive Committee & Board of Directors NAMM Executive Committee & Board of Directors NAMM Executive Committee Chairman Larry Morton Hal Leonard Corporation Milwaukee, WI Vice Chairman Mark Goff WH Paige & Co., Inc. Indianapolis, IN Treasurer Robin Walenta West Music Co., Inc. Coralville, IA Secretary Chris Martin C.F. Martin & Co., Inc. Nazareth, PA 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 Tom Bedell Two Old Hippies, LLC Bend, OR Keith Brawley Taylor-Listug, Inc. El Cajon, CA Tim Carroll Avid Technology, Inc. Daly City, CA John D Addario III D Addario & Company, Inc. Farmingdale, NY Jim DeStafney Blues Angel Music Pensacola, FL Peter Dods Easy Music Center Honolulu, HI Jessica Freehling-Kazzie Art s Music Shop, Inc. Birmingham, AL Jon Haber Alto Music, Inc. Middletown, NY Todd Heid Heid Music Co., Inc. Appleton, WI Rob Joseph MusicMax Inc. dba R. Joseph Group Columbus, OH Gabriela König König & Meyer GmbH & Co. KG Wertheim, Germany Ben Kraft Kraft Music Ltd Franklin, WI Sheryl Laukat Cannonball Musical Instruments Sandy, UT Ron Manus Alfred Music Van Nuys, CA Crystal Morris Gator Cases, Inc. Lutz, FL Jeff Mozingo Mozingo Music O Fallon, MO Jyotindra (J.P.) Parekh Rice Music House Columbia, SC Menzie Pittman Contemporary Music Center Haymarket, VA Liz Reisman Creative Music & Arts, LLC Monroe, CT Tom Sumner Yamaha Corporation of America Buena Park, CA Andy Zildjian Sabian, Ltd. Meductic, Canada

223 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 Mary May 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; Winfried Baumbach of the National Association of German Musical Instruments Manufacturers (BDMH); Claudio Formisano and Gianni Cameroni of Dismamusica, Italy; Masaru Sawano and Masako Koyama of The Japan Music Trades; Juan Grecos of Caprice, S.L., Spain; Michael Heuser of Roland Switzerland, and Paul McManus of the Music Industries Association (MIA), United Kingdom. Your assistance was crucial and is greatly appreciated. Thank you.

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