Approximately 400,000 vertical pianos and 60,000 grand pianos were sold globally in 1997, according to a report released today by the U.S. International Trade Commission (ITC).

The ITC reported that 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, according to the report.

The ITC, an independent, nonpartisan, factfinding federal agency, conducted the investigation, Pianos: Economic and Competitive Conditions Affecting the U.S. Industry, at the request of the U.S. House of Representatives' Committee on Ways and Means. As requested, the ITC's report includes an overview of the global market, a profile of the U.S. piano industry, profiles of leading manufacturers in Japan, Korea, China, and Indonesia, and a comparison of the competitive strengths and weaknesses of U.S. and foreign producers. Following are highlights of the report:

• 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.

• Two Japan-based producers (Yamaha and Kawai) and two Korea-based companies (Young Chang and Samick) are among the largest 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. Yamaha and Kawai also have production facilities in the United States from which they supplied over one-half of all vertical pianos manufactured in the United States in 1998. Roughly 80 percent of the vertical pianos sold by Yamaha and Kawai in the U.S. market in 1998 were made in the United States.

• The Asian financial crisis had a significant effect on markets in that region. 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.

• Import penetration in Japan and Korea is constrained by the domination of distribution networks by local producers while access to China is limited by high tariffs and the lack of a dealership network. In addition, producer-owned music schools create strong loyalty for Yamaha and Kawai in Japan.

• Although the U.S. market for acoustic pianos has contracted with few exceptions for the past two decades, apparent consumption of both vertical and grand pianos increased in 1997 and 1998 largely because of a strong economy and improved consumer prosperity. Apparent consumption of vertical pianos, based on Commission questionnaire responses, increased 8 percent in 1997 and 21 percent during January-September 1998. Grand piano sales, based on trade association data, grew by 27 percent during 1996-98.

• 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.

• Reflecting a growing U.S. market, vertical piano 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 from January 1996 to September 1998; instead, they declined 14 percent and 45 percent, respectively, as some U.S. producers restrained price increases or reduced prices on certain models to maintain market share.