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Surajeet Das Gupta | July 24, 2004

Don't be surprised if you meet Kwang Ro Kim in a neighbourhood LG showroom. The workaholic managing director of LG India, loves to make surprise calls on dealers whether he's in Delhi or travelling to heartland towns like Raipur in Madhya Pradesh, urging them to sell more and checking if they are stocked up for battle.

That's one of the ways Kim keeps in touch with the fast-changing marketplace and it has worked wonders so far. For LG, the Korean giant, is the king in the consumer electronics and home appliances market.

And it's the undisputed market leader in an array of products ranging from colour TVs, microwave ovens, refrigerators, washing machines to air conditioners.

But LG's Numero Uno position is now being challenged by a powerful rival from its own part of the world -- Samsung -- which is working on its own grand strategy to reach for the top spot.

By 2005 Samsung wants to grab the number one slot in colour TVs from LG (which has sewn up over 22.6 per cent of the market). By year-end Samsung also aims to dislodge LG as the flat TV market king. And by 2006 it wants to become the King of Cool and sell more refrigerators to Indian homes than its top rivals LG and Whirlpool.

Samsung aims to do this in style. It is planning to fill the slot as technology leader and not only as a volume player and a price warrior -- which is what rivals accuse LG of being. But LG's Kim dismisses Samsung's ambitions disdainfully: "Our investment of over Rs 1,600 crore (Rs 16 billion) is virtually three times that of our rivals and our turnover {Rs 7,000 crore (Rs 70 billion)} is more than double." What's more, LG isn't standing still and aims to double turnover by 2007.

But Samsung isn't a challenger to be underestimated. Even if it's smaller in India, it's the bigger, more profitable chaebol in Korea. Samsung has a global turnover of $36.4 billion and LG is half its size. What's more, Samsung is emerging as Asia's new technology star.

And it has already made master moves that demonstrate its overweening ambition in the Indian market. Kwang Soo Kim -- who took over the reins of Samsung early this year -- immediately realised that anything between the wicket would work in this cricket crazy country.

He grabbed the biggest prize of the season by becoming the main sponsor for the India-Pakistan Series and thus made it personally into most Indian homes every night as he distributed the prizes at the end of each match. More recently, he made it to the small screen once again running with the Olympic Torch in Delhi's streets.

But it is not all fun and games for Samsung's Kim. He has been jetsetting across the country meeting dealers and launching a slew of new products. He's also whizzing back and forth between India and Korea to decide business strategy.

"Our strategy is value driven, not price driven. We are expecting leadership on the basis of top quality, leading edge technology, priced competitively and backed by strong after sales service," he said in a faxed statement (Kim prefers to let his managers do the talking). His ambitious target is to boost turnover two-and-a-half times by 2006 (it's expected to hit Rs 5,000 crore (Rs 50 billion) by December 2004).

The battle's about to get fiercer than ever before and spill over from consumer electronics and home appliances to IT products and mobile phones which are hot growth areas for both companies. Samsung already has an entrenched position in the IT products business -- it claims over 60 per cent market share in peripherals (like PC monitors etc).

And its smart new laptops are even closing in on IBM at the upper end of the business. Samsung also claims that it has grabbed over 33 per cent of the laser printer market, which it only entered nine months ago.

But LG is coming up from behind in the IT space -- and it's determined to make its presence felt in everything from laptops to desktops and even monitors. "In three years we want to be the number one in the PC business," says LG's Kim who says he is aiming aggressively for a 10 per cent share in this category in a few months.

Similarly, LG, which is a latecomer in the GSM mobile phone space, is determined to take on Samsung and of course Nokia. Once again LG's Kim has an ambitious target.

Currently, it has only 5 per cent of the GSM market but in three years time it's talking about being the market leader. Samsung scoffs at this ambition. Says Vivek Prakash, vice president, marketing, Samsung: "I think they are four years behind us in the GSM space, we sell over 150,000 phones a month."

Both the Kims can look back with satisfaction over the last few years. Between them the two companies have gathered up a crushing market share in the Indian consumer goods industry. Samsung and LG together make around one in three TVs sold in India. And that goes for about half the washing machines, microwave ovens and frost-free refrigerators.

Competitors have differing opinions about the two companies and their strategies. "LG is playing the volume and low margin game in India. Samsung on the other hand is using the technology edge positioning, and not chasing price," says T K Banerjee, managing director, Haier India, a subsidiary of the giant Chinese consumer goods company.

But Electrolux India managing director chairman Rajeev Karwal who has worked with LG disagrees. He points out: "I think both of them are playing the volume and pricing game. I think Samsung has now changed tack and is moving in the same direction."

The Koreans insist that both companies are following radically different strategies. For instance, IT adds up to only 20 per cent of LG's product portfolio.

Its revenues come mainly from home appliances and consumer electronics including mobile phones (40 per cent each) where it has invested big money and built mega capacities.

For Samsung, by contrast, infotech makes up 35 per cent of its products and consumer electronics and home appliances together are only 32 per cent.  The remaining revenue comes from mobile phones and Samsung expects it to be over 40 per cent in the next few years.

Says Prakash, "Unlike LG, appliances constitute only 8 per cent of our turnover globally. We are a complete electronics company straddling the space from IT, mobile computing to consumer goods." On the other hand, analysts say LG India has been more of a home appliances and television company.

LG, however, wants to change this image dramatically and the new focus would be on IT and mobile phones. Kim's target is that around one-third of the company's turnover will come from IT products in the next three to four years. To back that ambition it has built a 100,000 per year PC plant which will churn out more monitors, hard disks and drives than ever before.

Industry experts however believe the crucial difference is one of emphasis. LG is clearly a volume player and is aggressively building up a distribution chain to push its products in the remotest corners of India. Take one crucial statistic: LG has over 43 branch offices and another 110 sales offices across the country. By comparison Samsung has only half that number -- 20 branch offices.

Says LG's Kim proudly: "Which other company has this kind of commitment in India. We are there in the remotest corners of the country. We have warehouses all over so that there is quick movement of goods."

The difference between the two companies is also reflected in the capacities the two have built up in recent years. LG has the capacity to build 2 million colour TVs annually (that includes it's new factory near Pune). Samsung's factory can build 1.5 million sets annually. LG can build four times as many refrigerators as Samsung and its AC factory is almost seven times larger than its rival's.

The giant capacities have, according to some competitors, forced LG to be a price warrior in a tough, unforgiving market. That's in contrast to Samsung, which is oriented towards technology and higher margins. Says Karwal: "LG's refrigerator prices are 5 per cent to 16 per cent cheaper than ours. They have built such large capacities that they have to keep selling volumes."

LG's Kim admits he is already preparing to slash PC prices and be 5 per cent cheaper than competitors. And Onida's Gulu Mirchandani points out that it has survived the LG pricing onslaught by creating a new lower end brand, Igo.

But LG has played its cards smartly in other ways. It has freedom of movement on prices because it has indigenised quickly especially in home appliances and consumer electronics.

Average localisation in most LG products is around 70 per cent while it's as high as 90 per cent in refrigerators. Samsung, by comparison, has localisation levels of around 50 per cent to 60 per cent and even its executives admit there's a long way to travel in some products.

Instead, Samsung's Kim is banking on the technology edge to help it drive the market and expects volumes to follow. For instance it's pulling out of the crowded high-volume 14-inch CTV market and, as an alternative, offering consumers a slightly more expensive 15-inch flat-screen TV. How does it hope to gain from this move? Samsung and Toshiba are the only ones that can use 15-inch picture tubes and they hope to leverage this.

Samsung is also trying to persuade customers to make a technological leap forward in other ways. It wants people to shift from traditional colour TVs to flat-screen models and it recently launched a promotion under which customers can get attractive deals if they exchange old TVs for new flat-screen models. As a result flat-screen TVs make up 30 per cent of Samsung's TV sales compared to an industry average of 17 per cent.

Similarly in GSM mobile phones, the company is leveraging its strength in display technology by launching the first TFT phone with 65,000 colours (this creates better pictures especially on camera phones).

It hopes to grab 80 per cent of this market segment. Says Prakash: "Our strategy is to get into a niche based on a technology edge and take a leadership position." He says that technology gives a six- to 18 month lead for a company after which everyone else catches up.

In personal computers Samsung is staying away from low-priced desktops and focusing on the over Rs 70,000 market where it hopes to offer unique features. Its top-of-the-line product is a 17-inch screen laptop, which is also the thinnest and lightest computer in the world.

But Samsung's Kim and his team make it clear that they will play the volume game too especially in home appliances where it is coming from behind. In refrigerators Samsung initially started by importing expensive fridges and it, therefore, had to stay at the upper end of the market.

But last year Samsung's set up its refrigerator plant and aggressively moved into the direct cool segment of the market. Now, it has just launched a direct cool fridge for only Rs 7,900.

So who will win the big game? Or, will the two chaebols suddenly find newer challengers emerging. Videocon, for instance, says it has cheaper costs and superior Japanese technology.

Says Venugopal Dhoot, chairman, Videocon: "Our CTVs are at least 5 per cent to 10 per cent cheaper because we even make our own glass shells indigenously. Also we have the best of technology from Japanese companies and a range of brands like Sansui, Toshiba and Akai."

Others say that life will soon become tougher for the Koreans. Says Karwal: "At the moment we cannot play on price and volumes because of our losses. But once that is over we will also do the same." Adds a consumer electronic manufacturer: "You can't play the pricing game too far and compromise quality. The Koreans are being forced to do exactly that because of the large investment they have made. The bubble could burst any time."

But for the time being the Indian firms have been left behind and so have the mighty Japanese brands. And that leaves the Koreans reigning supreme and battling it out fiercely with one another.

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