"Samsung is the only large high-technology company that has increased its brand value this year - from Dollars 5.3bn to Dollars 6.4bn - according to Interbrand, the brand consultancy."
COMPANIES & FINANCE INTERNATIONAL: Koreans aim to create a sharp image: Electronics groups like Samsung and LG are making waves, says Andrew Ward:
Financial Times; Dec 28, 2001
By ANDREW WARD
There was a time when receiving Korean electronics goods on Christmas morning might have led to tears over the wrapping paper.
Maligned as cheap substitutes for Japanese or European manufacturers, Korean brands have long struggled to shake off their bargain-basement image.
But those days may be coming to an end. Anyone receiving a Samsung mobile phone or an LG television set this year would have no cause for complaint: the two leading South Korean manufacturers are now establishing a reputation for leadership in design and cutting-edge digital products.
Samsung is the only large high-technology company that has increased its brand value this year - from Dollars 5.3bn to Dollars 6.4bn - according to Interbrand, the brand consultancy.
The growth rate is beaten only by Starbucks, the coffee-shop chain.
"In the past, consumers equated good electronics with Japan. Now, we're showing that Korea produces great products as well," says Eric Kim, Samsung Electronics vice-president of global marketing.
The emergence of the South Korean manufacturers poses a threat to industry giants such as Sony, Toshiba and Philips, which risk falling out of fashion as consumer habits change in the digital age.
"We are the new kids on the block but we're gaining momentum," says Mr Kim. "It was difficult to challenge the likes of Sony and Philips in the traditional analogue market because they were so established. But there is an opportunity for us to get in ahead of them in the digital market, where consumers seem willing to try new brands."
Those digital products include stand-alone items such as interactive televisions, set-top boxes, third-generation mobile phones, and MP3 and DVD players.
"Korea arrived in the electronics industry 10 years late compared with the Japanese and Europeans," says James Kim, analyst at Salomon Smith Barney.
"But this time, Korean manufacturers are at the front of the pack in digital technology."
Samsung and LG's focus on digital products has been complemented by heavy investment in design. Samsung's palm-sized mobile phones have helped it overtake Germany's Siemens as the world's fourth-largest handset maker.
"There is not much difference in the performance of different companies' products these days so design gives us an opportunity to differentiate ourselves," says Byeon Nam-seog, head of digital appliances for LG Electronics. "Design is the first thing consumers notice."
Both Samsung and LG have attempted to put across their messages through aggressive advertising. Samsung will spend about Dollars 400m on marketing in 2002, including high-profile sponsorship of the Winter Olympics and football World Cup finals.
It is not just developed markets that they are targeting.
The pair are attempting to establish leads in emerging markets, where brand loyalty to Japanese and European manufacturers is weaker and growth potential greater.
"We've invested very heavily in China, India, the Middle East and former USSR," says Mr Byeon. "In India our brand is on a par with Sony and Panasonic."
The companies' shares have reflected the optimism surrounding them, with both Samsung and LG hitting 12-month highs this month. James Kim says the pair have the best operating margins in the industry at 13 per cent.
The gains in the shares have come despite the companies' other problem divisions. Samsung Electronics, which is the world's largest maker of memory chips, suffered a 67 per cent drop in third-quarter profits because of a sharp downturn in its semiconductor division. LG
Electronics has been blighted by failed investments in telecommunications services and other LG companies.
Last month, it announced plans to spin off the non-core businesses, freeing it to concentrate on consumer appliances and telecoms equipment.
Samsung Electronics has also been granted far-reaching autonomy from its parent Samsung group and is widely considered South Korea's best-managed company.
These structural reforms by Samsung and LG following the 1997 Asian financial crisis have given the Korean electronics manufacturers another advantage over their debt-laden and overstaffed Japanese competitors.
"Most Japanese electronics companies still face significant restructuring," agrees Eric Kim.
Mr Kim is determined to use this corporate strength to catapult Samsung to the world number-one position in all its main product markets by 2005.
"We're at the top of the second tier of consumer electronics manufacturers at the moment, ready to make that step up," he says.
Get ready for more Korean appliances next Christmas and beyond.
Copyright: The Financial Times Limited 1995-1998 |
