Public Relations
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Korean takeover
How Korean consumer durable majors LG and Samsung knocked out rivals in the fight for market share and brand recall. - LG to hire 4,000 to give AC sales a push - India, Korea to ink three key MoUs next week - Bulking up - Eight in fray for H"bad Metro - LG sets up brand shop - IBM gets highest number of US Patents in 2009 Some time in the middle of 1994, the Dhoots of Videocon put their brightest man, Ravinder Zutshi, on a special project. They had been approached by Samsung which was keen to sell its consumer electronics in India. The Korean company had proposed a joint venture which could source products from Videocon’s factories at Aurangabad in Maharashtra. Zutshi was asked to study the possibilities. Quantitative research threw up no surprises. Unaided awareness about Samsung was close to zero, aided awareness was slightly better at 7 per cent. People thought the Japanese were the masters of all technology, and the Koreans were at best imitators. But when he dug deeper, Zutshi found deep dissatisfaction amongst consumers from multinational (Sony, Sanyo, National, Philips and others) as well as Indian (Videocon, Onida, BPL et al) brands. The consumers’ aspiration and awareness were high, but the technology made available to them was low. And there was no indication that any of them would invest in the latest technology. After-sale service existed only on paper. LEADING THE PACK Combined market share of LG and Samsung TVs 45% LCD TVs 63% Refrigerators 43% Washing machines 41% ACs 42% Microwave ovens 48% Source: Industry Zutshi’s report said there was a big gap that could be exploited. With better technology, contemporary products and a customer-friendly disposition, Samsung stood a fair chance in the market. The Dhoots trusted Zutshi. If Samsung did well, they argued, their factories at Aurangabad would run at full capacity, and whenever the foreign investment rules were further liberalised, they could sell their stake to the Korean chaebol and make a neat pile of money. Quickly, they formed a 49:51 company with Samsung. It was 1995. Around the same time, LG (it was at that time known as Lucky Goldstar) sent a large and high-powered team to India. The odds were stacked against the company — low awareness of its brand, poor perception of Korean technology and so on. But the team saw that the Japanese were not too interested in India; Europe and the US were their primary focus. This had made Indian brands complacent, and they lacked the financial wherewithal to come out with cutting-edge technology. LG also found out that education was very high on the agenda of Indians. The team members knew that it was education that had transformed South Korea from a poor agrarian country into a developed industrial powerhouse in a matter of decades. The same would happen in India, the team reported to its bosses back home. The LG brass was convinced and made up its mind to enter India. As rules did not allow a fully-owned subsidiary, it first tried its luck with Bestavision and then with Chandra Kant Birla. Finally, in 1997, when the foreign ownership rules were relaxed, it came on its own. Cut to the present. In most product categories of the consumer electronics market, LG and Samsung lord it over a market share of over 40 per cent — television, refrigerators, air-conditioners, washing machines and microwave ovens. Outside South Korea, this has not happened in any other large market. In certain categories, their products sell at prices similar to Japanese rivals — a clear indication that the perception of the Koreans being poor cousins of the Japanese is history. Their brand recall is universal. Indian brands, with the exception of Videocon, which has now hired ex-LG honcho Kwang Ro Kim as chief executive, are on oxygen. LG did business of $2.8 billion in 2009. India accounts for about 6 per cent of LG’s worldwide turnover. “We want to raise it to at least 10 per cent by 2012,” says LG India Managing Director Moon Bum Shin. “By 2015, India will become the second largest contributor to LG’s revenue after the US and ahead of (South) Korea,” he adds. Samsung crossed the $2-billion mark in 2009 — India is around 2 per cent of its global turnover. How did the Koreans get the better of rivals in India? Strong foundation Both LG and Samsung knew that half measures wouldn’t work in India. Thus, LG has invested $300 million and Samsung $200 million in two production facilities each. “It wasn’t a global factory that also supplied to India. We didn’t want to make the customers wait,” says Rajeev Karwal, who drove sales and marketing at LG from 1997 to 2003, then headed Philips and Electrolux in India, and now runs a consultancy for small-scale enterprises called Milagrow. Apart from Videocon, no rival of the Koreans has put up large production facilities. “In terms of investments and technology, no other Indian company apart from Videocon had the might to rival them,” says Videocon Chairman Venugopal Dhoot. LG and Samsung brought the latest products, customised them to Indian conditions (Samsung, for instance, reduced the size of the freezer in its fridges because Indians didn’t want it; LG cut out all frills that were not required in India) and began to give quick after-sale service. Samsung, says Zutshi, now deputy managing director, Samsung India (the Dhoots exited the venture in tranches by 2002; it had broken even by 1998), was the first in the industry to give uniform training to all technicians. “When pagers came in July 1995, we gave one to all technicians across metros,” says he. Also crucial were the Korean price tags. LG as well as Samsung prices were up to 20 per cent below Sony, but around 10 per cent higher than Indian rivals. The brands were positioned as value for money. They spent large sums of money on brand promotion. Both LG and Samsung now earmark 4 to 5 per cent of their turnover for brand development, above- as well as below-the-line. This translates to ad spends of at least Rs 400-500 crore from each. In the initial days, when they were yet to build scale, help poured in from their Korean parents in liberal measures. The Koreans knew little about cricket but were quick to join the bandwagon in India. But how did they address the quality perception? For the first three months, Samsung campaigns focused on its technological achievements. It was, after all, the world leader in colour picture tubes and semiconductors. “If you don’t want the best, go to Sony, National and Philips, we said in our advertisements,” says Zutshi. Karwal says he was able to convince the LG brass that it should build on its Korean heritage and not hide it. “The company wanted to play on the Goldstar brand because it had some recall. But I argued that it had failed in India so why harp on it? We went ahead with LG. I said let’s not pretend to be what we are not.” “Where they have scored,” says the top functionary of a rival, “is that they treated India differently than other Asian markets.” And they ambushed rivals whenever they could. Karwal says when he came to know that Sony was ready to launch its flat-screen television, he rushed to Seoul and managed a consignment of 500 flat-screen televisions to launch first. “I also got to know that Sony had booked the centrespread of a publication. So, I bought the wrap-around which said ours was the flattest thing on earth.” The Japan factor Still, LG and Samsung owe a debt to their neighbours across the sea — they were quick to adopt the best manufacturing practices of Japanese companies. Samsung, for instance, uses the just-in-time supply principal with its vendors — they need supply only when the factory demands. Its vendor development exercises could be straight out of the Japanese management textbook. “They (the Koreans) combine American marketing with Japanese manufacturing,” says Karwal. So, where did the Japanese go wrong? An industry veteran, who for long worked with the Japanese, says they tested the waters in India for too long, and thereby lost the first-mover’s advantage to the Koreans. Panasonic India CEO Daizo Ito admits that the company has ratcheted up its focus only in the last one year. “Panasonic has been in the Indian market for long but, as a part of strategy, the focus has been increased exponentially since last year or so.” The Japanese also went after the premium slots in the market, and thereby missed the volumes. “LCD television is the only segment where we compete (with the Koreans) but here too our and their key target segments are different. We are focused on households with an annual income above Rs 5 lakh, unlike the Koreans,” says Sony India Managing Director Masaru Tamagawa. The question is, have the Koreans taken an unassailable lead over the Japanese? The Japanese take heart from their large market share in automobiles, cameras, cordless phones, small appliances and LCD televisions. Panasonic, for one, is aiming for growth of over 100 per cent in each of the next two years, and double-digit market share in LCD television. “Coming from the Japanese domain, the quality and reliability of products is our strength. The challenge is to make this strength reach the consumer,” says Ito. “The retail experience is also the key. Therefore, we have continuously expanded our brand shops and presence at other retail counters.” But this is the game the Koreans seem to have perfected. Trade relations When the Koreans first came to India, the consumer electronics trade was archaic and in disarray. All producers had appointed distributors who then sold to the dealers. There was thus little direct contact between the dealer and the company. No company hadPages: [1] 2