The Hindu Business Line : The Korean juggernaut

The relentless Koreans roll on with complete domination in many consumer electronics categories. Now, both LG and Samsung have revealed plans to scale up even further to ensure their stranglehold on the Indian market.

LG Electronics India Managing Director Kwang Ro Kim

DON'T be surprised if you bump into the LG Electronics India Managing Director Kwang Ro Kim the next time you visit your hometown in, say, Jorhat (Assam). Or, while you are browsing at the local electronics store you could even meet the Deputy Managing Director of Samsung India, Ravinder Zutshi.

For both men like to keep an ear to the ground. And it is this understanding of the market conditions — and giving what the consumer wants — that has helped the companies attain a dominant position in the Indian consumer durables market, which, by recent estimates, is expected to grow exponentially in the forthcoming years. In fact, a recent study by McKinsey pointed out that India's consumer goods market, already among the top ten in the world, could touch $400 billion by 2010, making it one of the five largest in the world. And the two Korean chaebols are well anchored to further reap the benefits from this opportunity. Not that they have not had a feel of the market potential already.

Sample this: Two out of every five televisions or refrigerators sold and one out of every two washing machines sold in the country are made by the two Korean conglomerates. This, within about a decade of their entry. And the companies (with LG targeting revenues of about Rs 9,000 crore and Samsung Rs 6,500 crore in this financial year) seem well on course to see their combined revenues cross the $3.5 billion mark in the current year.

Analysts say that the success of the firms is primarily a case of "returns on investments" — investments not only in creating large manufacturing capacities in the country but also towards maintaining local flavour in its products and marketing. "Credit must also go to the Korean management, which was aggressive, ready to wait and invest in this country — patience being the key operating word. The focus on people and product-related processes also ensured that product and service delivery was of high quality," says Anang D. Jena, Research Director, Synovate.

By the end of the year, Samsung India Electronics Ltd would have invested $134 million (approximately Rs 603 crore) in the Indian market. Investment by LG India Electronics stood at about Rs 750 crore at the end of 2004. The company is looking to make an additional investment of Rs 550 crore in its Pune facility.

In contrast, the Japanese brands, which enjoyed higher brand awareness in the domestic market, were wary about investing in the country and were more focused on developing markets such as China and South-East Asia. "Koreans adapted to India realising that good brand-building and value-for-money offerings were the key. The Japanese, initially, tried to dictate rather than adapt. Once they fell behind and lost their awesome aura nothing worked for them. Only Sony is standing still," points out Francis Xavier S, Managing Director, Francis Kanoi Marketing Planning Services.

In addition, the aggressive pricing strategy adopted initially actually knocked the competition off its feet. In particular, LG's products were about 5-15 per cent lesser than the competition. Resultantly, the price erosion in the CTV and refrigerator category in particular averaged about 10 per cent till last year, driving many competitors into the red. However, with margins having dipped in the mass end of the market, both the firms are increasing their focus on the higher end of the market as well as tapping newer high growth categories such as home theatre systems and even MP3 players. "This year, in terms of consumer electronics and home appliances, we expect the home appliance business to grow by over 40 per cent. We are expecting strong growth to come from our digital media business — flat panel TV business as well as categories like home theatres and digital audio players. In IT, it will be our TFT LCD panels as well as printers that will be the major growth drivers whereas in mobiles it will be the colour and camera phone segment. Our focus will continue to be on providing leading technology and feature-rich products to our consumers across product categories," says Zutshi.

Samsung India's Deputy Managing Director Ravinder Zutshi

LG, which has been a price warrior in the domestic market, is also sprucing up its portfolio at the high end of the market. "LG has always provided offerings across all price points, be it super-premium or premium range of products to be able to cater to a broader cross section of customers. We intend to continue our focus on our high-end products without losing our focus on entry-level segments," says Kim. LG is also concentratingon new segments such as audio systems and so on. The reason perhaps lies in the fact that in the durables category, the high-end categories are leading the growth. For example, while the overall CTV category is showing a marginal de-growth, the flat TV segment is growing by about 72 per cent. Likewise, the fully automatic segment in washing machines and frost-free category in refrigerators are growing by 43 per cent and 47 per cent respectively against an overall category growth of 9 per cent in washing machines and a flat growth in refrigerators. "The reasons are the growing availability of these leading technology products not only in A class towns but also in mini-metros and larger cities, the price rationalisation that has taken place in the market and the fast technology adoption by Indian consumers," says Zutshi.

Further, demand has even dipped or remained flat in categories such as refrigerators and even colour televisions this year. Analysts point out that the Korean companies with a presence across appliances, consumer electronics and IT products can take these dips in their stride as their fortunes are not dependent on any one particular segment. Interestingly, this is a strategy which even smaller Indian players are trying to replicate, primarily to get out of the `seasonal nature' of their product portfolio. Analysts add that with the slow growth in the consumer durables category this year, the battle lines between Samsung and LG for dominance could be drawn deeper. For now, LG is leading the pack by far across various key categories.

For example, in the January-June 2005 period, the company's market share (by volume) stood at 27 per cent in CTVs (followed by Samsung with a share of 14.4 per cent), 29.2 per cent in refrigerators (followed by Whirlpool with a share of 23.1 per cent) and 35.4 per cent in washing machines. An industry analyst points out that LG is a clear number one in these segments and its dominance is likely to continue over the next couple of years as the "company is not letting its guard down." "LG has taken a share from everyone to be the number one in virtually all the consumer electronics and appliances fields," says Francis Xavier.

Says a prominent Chennai-based consumer durables retailer: "The trend of Korean dominance will continue; they have good penetration of their products, established distribution centres and all this helped in their market leadership in most segments. Also, erstwhile top players like Videocon and BPL vacated many markets which the Koreans filled." He says that the Koreans have got their finger on the pulse of the Indian market by getting their pricing and product profile right. Chinese brands, he says, while being the largest in the world in some categories, have not yet cut much ice in the Indian market.

Meanwhile, the Korean tide could well swamp the booming mobile handset market in India. With LG deciding to commence local manufacture and Samsung seriously evaluating it, the Korean assault may next be on the current European market leaders in this segment. In fact, it is this ability to adapt to the changing market requirement which is giving their competition a run for their money.

Reporter Associate: Vinay Kamath

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