PIANOS: ECONOMIC AND COMPETITIVE CONDITIONS
Investigation No. 332-401 Publication 3196
Appendix E Text 2
Yamaha officials indicated that the firm’s investments in Taiwan and Indonesia were made because high local import duties made the company’s pianos exported from Japan prohibitively expensive for the majority of potential consumers in Taiwan and Indonesia. The low costs for both labor and raw materials provided an added incentive for locating manufacturing operations in both countries. None of the pianos produced by Yamaha in Taiwan or Indonesia are exported to the United States, and all of the pianos made by Yamaha in Taipei are sold in Taiwan. Despite Indonesia’s large population, its market has been slow to develop, and most of Yamaha’s Indonesian-made pianos are exported to other markets in Southeast Asia, such as Singapore, Malaysia, and Thailand.9
Yamaha reportedly assembles two lines of pianos in Guangzhou, China, at a joint venture facility with Guangzhou Pearl River Piano Group, Ltd. (Guangzhou). One line is assembled from actions assemblies, plates, and keys made in Japan and backs, soundboards, and cabinetry made by Guangzhou and is marketed at Yamaha dealerships in the United States under the Eterna brand. The other line is assembled from parts made entirely in China by Guangzhou. These pianos are distributed by Guangzhou under the Pearl River label. About three-quarters of the pianos produced at the Yamaha Pearl River factory are marketed in Asia, with roughly 15 percent exported to Europe and 10 percent to the United States.
According to a Yamaha official, Yamaha felt it was imperative to establish a manufacturing presence in China. While demographics indicate that the markets for pianos in the United States, Europe, and Japan are mature and offer little prospect for substantial growth, the market potential in China is quite large. The Yamaha official reported that there are no piano stores in China; instead, customers buy directly from factories. As a result, foreign companies that want to sell pianos in China must produce them in China. Yamaha chose its joint venture partner, Guangzhou Pearl River, because of the latter’s experience in local piano production and its location in a Foreign Economic Zone, making it easier for Yamaha to ship product in and out of China. Guangzhou Pearl River, however, also produces pianos under contract with a number of piano producers and distributors in the United States. These private label pianos compete with the Eterna brand pianos offered in Yamaha’s dealerships in the United States.
in Japan and the second leading musical instruments producer in the world. All of Kawai’s grand pianos and upper-end vertical pianos are produced in Japan, whereas its less expensive vertical pianos are assembled in Kawai’s factory in Lincolnton, NC. Kawai makes vertical pianos in Maisaka, Japan, and grand pianos in Ryuyo, Japan. Kawai has made “Boston” brand vertical and grand pianos in Japan since 1992. These pianos are designed by Steinway & Sons of Long Island City, NY, and marketed by Boston Piano Co., a subsidiary of Steinway & Sons parent company, Steinway Musical Properties, Inc. Kawai also makes Schiedmayer brand pianos in Japan and markets them globally, except in the United States, under license from Rudolph Ibach Sohn of Schwelm, Germany.
In 1988, Kawai reportedly invested $10 million to establish its piano factory in Lincolnton, NC, to hedge against appreciation of the yen against the U.S. dollar and related rising labor costs in Japan. Shifting production to the United States also cut transportation costs when selling in the U.S. market and avoided U.S. tariffs then in effect, which were 5.3 percent ad valorem (currently 4.7 percent). Kawai also invested in the Lincolnton facility to take advantage of the region’s expertise in furniture making, state and county tax incentives, and financial assistance in training technicians. The manufacturing process in North Carolina combines U.S.-origin parts and materials with selected imported parts and subassemblies. Production at Lincolnton accounts for approximately 80 percent of all Kawai verticals sold in the United States each year. Kawai also exports vertical pianos produced in North Carolina to Canada and Europe, especially Germany and Italy.
Kawai entered into an agreement with Beijing Xing Hai Musical Instrument Corporation (Beijing Piano) in 1995, under which Beijing Piano manufactures approximately 250 vertical pianos each month for distribution by Kawai to countries in Southeast Asia. Beijing Piano also manufactures pianos under license from Kawai, using action assemblies made in Japan. Beijing Piano markets these pianos in China under the Kawai brand. Kawai officials reported that the licensing arrangement with Beijing is a less expensive way for Kawai to gain access to the Chinese market than to establish new production facilities.21 Licensing also eliminates the need for Kawai to set up a sales force in China.
The two leading Korean producers of pianos rank among the top four manufacturers of music equipment globally. Each of the two started out as distributors of pianos made in Japan and the United States,but became producers because high Korean import tariffs put pianos out of the reach of most potential consumers. Access to foreign production technology, manufacturing equipment, and parts; protection from import competition; and significant local demand enabled the emerging industry in Korea to achieve economies of scale and eventually become competitive in the U.S. market. In recent years, the firms have established operations elsewhere in Asia and in the United States.
Korean producers began exporting significant volumes of pianos to the United States in the late 1970s. By that time, the Korean industry had developed pianos that were adequate as entry-level musical instruments by international standards. Korean producers benefitted from the escalating relative value of the yen, which drove up production costs in Japan compared with costs in Korea and the United States. When Japanese pianos moved up the quality and price scale in the U.S. market in the late 1970's, it created an opening for Korean producers to supply the low end of that market.
The Korean producers Young Chang and Samick have followed in the footsteps of Yamaha and Kawai, consistently upgrading product quality and manufacturing technology. As in Japan, however, rising labor costs in Korea have led Young Chang and Samick to seek out lower cost production sites. Aspirations of gaining shares of the potentially huge market in China for pianos led both companies to invest in production facilities in China. Young Chang’s investment in China was much larger than Samick’s, because Samick recognized problems associated with production in China (see company profile below) and shifted investment to Indonesia. Investments by Young Chang and Samick have contributed to the recent sharp rise in U.S. imports of pianos from China and Indonesia.
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