Samsung, LG eye bigger pie in India

Despite their slugfest on the high street, Korean chaebols Samsung and LG have independently charted a similar strategy that will see India operations carve out a larger slice of their global turnover.

Between them, they control more than half the domestic market for colour televisions and home appliances, virtually sweeping away desi brands as well as tough Japanese competitors.

But two Korean giants are now engaged in a no-holds-barred battle for supremacy over the Indian consumer electronics sweepstakes and neither one is ready to budge.

Yet, despite the slugfest, Korean chaebols Samsung and LG have independently charted out a similar strategy for India, the cornerstone of which is to transform the country into one of their top three markets across the globe.

And, ironically, when they talk about their future strategy in India, it would appear they both share the same blueprint.

Consider this. Despite being in India for less than two years, Jung Soo Shin, Samsung Electronics president and CEO, has charted out ambitious growth in the country.  Currently, India is just 2 per cent of its global turnover ($3.5 billion) and number seven in the pecking order in terms of sales. But, the Korean conglomerate envisages trebling its turnover in India in the next three years - or, simply put, to hit over $10 billion. 

"We expect India to become 5 per cent of our total global turnover in the next two to three years and to be our third-largest market after the US and China," says a quiet Jung.

To achieve those objectives Samsung has recently doubled the capacity of its refrigerator factory and is looking at a 50 per cent increase in its 10 million per annum mobile phone unit.  

 LG has set itself even tougher targets in India. At the moment, India is number five in the pecking order in terms of sales.

But Moon B Shin, managing director of LG India, who has been in the country for over five years, says this will all change by 2015.

"India's contribution to global LG revenues will double from the current 6 per cent to 12 per cent by 2015. This means, we will overtake Korea and become number two after the US in revenue contribution," says Moon.

He has cleared investments of over `1,300 crore, which entail setting up a new plant, most probably in Chennai.

Interestingly, both the Korean cheabols are also looking at India as a manufacturing base for other markets. Samsung, for instance, currently has very limited exports from India. But that is going to change; Jung says India will serve the West Asia, Africa and north Asian markets. At present, these markets are served by Malaysia, Thailand and China.

LG is a bit ahead, but the strategic aim is the same: to transform India into a manufacturing hub. "Currently, 12 per cent of our turnover comes from exports. This will go up to 30 per cent by 2015," says Moon. But even Moon, like his counterpart, points out that the markets that India will cater to include South Africa and West Asia, maybe even South Korea.

Underlying the shift, both agree that Chinese labour costs are going up and the gap between India and China has reduced.

Moon says the differential is only six per cent. But Samsung, while agreeing to this view, says what makes China still attractive is cheaper component prices because of large volumes as well as better infrastructure.

The company has found a way out: it is bringing in its own global vendors to India, for instance, for the manufacture of mobile phones, which it hopes will help them move to a higher indigenisation level, yet assure quality, too.

The two cheabols have also increasingly realised the need to shift a larger part of their research and development work to India.

So, increasingly, these centres will play a key role in cutting-edge development of new products, not only for India, but for the global market. Samsung, for instance, has just set up a performance innovation centre in India - the fourth worldwide (after the US, China and UK), which will design and develop innovative new products. To begin with, mobile phones have been selected, which could be followed by televisions.

Says Jung: "There is a clear move for India to become a centre for global R&D. It's a part of our worldwide strategy." In order to upgrade the centre, Samsung, which already has over 4,300 engineers, is planning to add in another 700 this year.

Rival LG is also upgrading its Indian R&D centre so that it can design and develop televisions, refrigerators, washing machines and microwaves for the world market.

To achieve these objectives, it will be hiring 2,000 more engineers. Currently, the 3,000-strong R&D centre mostly undertakes localisation of products from Korea.

The common strategy is also spilling over into the marketing space. LG has traditionally positioned itself as a price warrior, while Samsung has preferred to take premium positioning, with most of its products slightly dearer in the various ranges. 

But that is clearly changing, and LG says it will focus on premium products that are also smart. "We are coming out with premium products, which will provide us that special edge" argues Moon.   

As part of that strategy, the company is planning to launch a range of new products next year that will be based on the plank of higher energy efficiency (reduce energy consumption by 22-30 per cent), health features (refrigerators that will also tell you how many calories you need to eat) and 'smart' products (such as internet-enabled TV sets).

Ask Samsung's Jung whether the new change at LG would make an impact on his company, he merely says:

"Ultimately you have to make money in this business".  Certainly, both these Koreans hope to do just that in their second home, India.