Global Market

Approximately 400,000 vertical pianos and 60,000 grand pianos were sold globally in 1997. Korea was the largest single market for vertical pianos, followed by China, the United States, and Japan. The United States was the largest single market for grand pianos, followed by Japan.

The Asian financial crisis had a significant effect on markets in that region. Although exact figures are not available, the Korean and Japanese markets contracted substantially during 1998, while growth of the Chinese market slowed considerably. It appears that pianos intended for these markets, especially those produced in China, were redirected to the U.S. market. An increasing number of used pianos were also exported to the United States from the region as a result of the crisis.

Import penetration in Japan, Korea, and China is constrained by factors such as high tariffs, domination of distribution networks by local producers, and the lack of a dealership network in China. In addition, Japanese piano company-operated music schools create strong loyalty for local producers.

Japan, Korea, and China are major exporters to world piano markets. The United States has long been a minor exporter. Europe is a different story.

U.S. Market

The general decline over the past 20 years in the number of acoustic pianos sold in the U.S. market was reversed during 1997-98. Apparent consumption of vertical pianos, based on Commission questionnaire responses, increased 8 percent to 59,748 units during 1997 and increased 21 percent during January-September 1998 compared with the same period in 1997. Grand piano sales, based on trade association data, increased 27 percent to 33,600 units during 1996-98. The rebound in the piano market has been attributed largely to the improved financial prosperity of "baby boomer" age consumers who have increased their buying power and are experiencing greater perceived financial security.

The availability of low-priced, lower quality imported pianos from relatively new sources such as China has contributed to the expansion in the U.S. piano market. In 1998, U.S. imports of vertical pianos from China more than doubled. China’s share of the U.S. import market for verticals rose from less than 10 percent in 1996 to nearly 25 percent in 1998.

U.S. producers are major importers, buying foreign-produced pianos to complement their product lines. Imports, by quantity, supplied 46 percent of the market for vertical pianos during January-September 1998, up from 35 percent during the comparable period in 1997. Imports account for most of the market for grand pianos. Japan, China, Korea, and Indonesia accounted for more than 90 percent of both vertical and grand piano imports.

! Inventories of imported pianos in the United States grew significantly in 1998, rising by 67 percent in a 1-year period to almost 12,000 units as of September 30, 1998. One importer accounted for most of the increase in inventories, which the firm attributed to an overestimation of demand growth, quality problems with certain models that caused dealers to return pianos, introduction of additional lines and models, and a strategy to take advantage of the depreciating value of the Korean won in relation to the dollar.

U.S. Industry

There are currently nine piano producers in the United States. Two producers shut down manufacturing operations during 1994-98, continuing a long-term contraction in domestic piano sales. There has also been a decline in the number of retail dealers, as well as in the number of suppliers of parts and materials to the piano industry, with many crucial supplies now available only from single sources in the United States.

Baldwin Piano & Organ Co., Steinway & Sons, Yamaha Corp. of America, and Kawai America Corp. dominate domestic production. Baldwin and Steinway account for more than half of the grand pianos produced in the United States. Baldwin is the leading producer of vertical pianos. Yamaha and Kawai, subsidiaries of Japanese companies, account for more than half of U.S. production of vertical pianos.

Vertical piano production declined by 18 percent during 1994-97, mostly because a major producer shut down operations in 1996; likewise, capacity, shipments, and employment also declined during the period. Reflecting a growing U.S. market, production and employment increased by 8 percent and 10 percent, respectively, during January-September 1998 compared with the same period in 1997. However, gross profits and operating income per unit did not increase during 1996 - September 1998, declining 14 percent and 45 percent, respectively. Grand piano data exhibited similar trends, although the declines were less severe.

Asian Manufacturers and Exporters

Yamaha, Kawai, and two Korea-based companies, Young Chang and  Samick, are among the largest and most automated piano producers in the world. In addition to facilities in their home country, each has production facilities or joint ventures elsewhere in Asia (China, Indonesia, or both) to benefit from lower labor costs, improved market access, or both. These four companies  are the leading suppliers of imported pianos to the U.S. market, although 80 percent of the Yamaha and Kawai vertical pianos sold in the United States are manufactured in Georgia and North Carolina.

State-owned piano producers in China have upgraded their manufacturing processes and expanded their production capacity through purchases of used equipment from U.S. and European piano companies that closed over the past 15 years. Certain Chinese operations owned by Japanese and  Korean producers have state-of-the-art automated equipment.

Seven producers in China are known to export pianos to the United States. Young Chang’s Chinese operation is reported to be the largest exporter. Guangzhou Pearl River Piano Group, the largest state-owned producer, makes private-label pianos for several independent piano dealers in the United States. Beijing Piano Co. and Dong bei Piano Co. each makes pianos for two U.S. producers.

Competitive Strengths and Weaknesses

U.S. piano producers have the following competitive disadvantages compared with their principal Asian competitors:

• Sizeable local markets with limited foreign competition have allowed producers in Japan and Korea to achieve greater economies of scale than those experienced by U.S. producers;

• Japanese and Korean producers’ operations throughout Asia are more automated than operations in the United States;

• Asian producers, with the exception of Japan, had considerably lower labor costs than U.S. producers; and

• The national currencies of Japan, Korea, and Indonesia have significantly depreciated in real terms against the dollar during the period under consideration.

U.S. producers have the following advantages over Asian producers:

• Relatively close proximity to supplies of high-quality wood resources essential for piano manufacturing;

• Lower transportation costs when selling in the U.S. market; and

• A more experienced labor force for making furniture-style piano cabinets, the preferred style in the U.S. market (this advantage does not apply to the manufacture of the piano’s working mechanisms).

The real depreciation of the yen, won, and rupee has restrained price increases for pianos imported from Japan, Korea, and Indonesia, respectively. In some instances, price reductions may have occurred and benefited U.S. consumers. U.S. producers importing pianos from these countries also benefited. However, the reliance of several Asian producers on imported raw materials priced in dollars moderates the advantage of currency depreciation.

Producers and importers were asked to rank which countries have an advantage on 12 factors of competition. Composite results for vertical and grand piano operations are shown in table ES-1. For production costs, respondents indicated that Chinese, Indonesian, and Korean producers have an advantage as compared with U.S. producers, but that Japanese and U.S. producers had comparable production costs.

Currency Fluctuations

Significant real depreciations versus the U.S. dollar in most of the Asian region's currencies may at least partially explain the buildup of U.S. inventories of pianos from various Asian countries. Certain importers considered the currency devaluations in the wake of the Asian financial crisis as temporary, and significantly increased imports while the exchange rate was favorable during 1998.