Korea's consumer tech miracle

In the second of a two-part feature on Korea, E&T looks at how the country's consumer tech giants are facing increased competition on home soil.

On the first morning of the Korea Electronics Show (KES) this year, a technology journalist would typically attend the morning briefing by the show organiser's, who have helpfully produced a guide to all the major announcements that are likely to be made over the next few days.

However, this is Korea and there is no English translation available. A quick look around reveals that I am the only foreign journalist to have attended. 'Are overseas press welcome at the Korea Electronics Show?', is a question I have to ask myself.

Japan - the main rival

Of course they are, but the reality is that South Korea's consumer tech sector has traditionally been eclipsed by the Japanese consumer technology industry. Only one week earlier, Japanese consumer tech giants Sony, Panasonic and Sharp were able to showcase their latest products at Japan's main electronics and consumer technology show, Ceatec, along with dozens of other foreign media who chose to attend Ceatec but not KES.

Yet Korea's consumer tech giants appear to be gaining traction of seismic significance against their Japanese rivals. The past few years have seen the disappearance of a number of Japanese consumer tech brands through merger and acquisition. In addition, Japanese companies are faring quite poorly compared to Korea's consumer tech Chaebols in the current global economic malaise.

These Japanese companies on the whole are set to languish in the red this year, while South Korean companies go from strength to strength. Their diverging fortunes demonstrate the strides Korean companies have made against their Japanese rivals.

For the third quarter, Sony reported losses of 26.3 billion yen. The only positive note was increasing sales and revenues from the Playstation 3. The company is now forecasting a 95 billion yen loss overall this year.

Now contrast this with South Korea's Samsung Electronics, which announced that its quarterly profits tripled to a record 3.72 trillion won in the three months ended September, compared to 1.22 trillion won for the same period last year.

Equally, LG Displays announced record quarterly sales and almost doubling its profit. Sister company LG Electronics said it recorded all-time high quarterly sales for flat-screen TVs and mobile phones.

Panasonic barely managed to stay out of the red when it announced quarterly profits of 6.1 billion yen - down 90 per cent from the previous year - despite an upsurge of white goods, such as refrigerators and washing machines. Overall, it expects to lose 140 billion yen this year.

And although Toshiba managed to pull out a small quarterly profit of 100 million yen, this was on the back of cost-cutting and higher sales of memory chips.

Much of this can be put down to the great speed with which Korean companies are able to respond to the competition. For example, Samsung had the good sense to invest in its own LCD production, while Sony has been lagging in this area - and therefore had been forced into a joint venture with Samsung to guarantee its stock. This is more expensive and means that it is difficult to innovate faster than its rivals.

Sony fell behind Samsung in LCD because it had invested heavily in plasma technology, which has been falling behind LCD in sales and innovation. It also held on to cathode ray technology for longer than it needed to.

"Japan has always been ahead with technologies," says Lee Min-hee, analyst at Dongbu Securities in Seoul. "What Korean companies do really well is act fast to invest and turn a new technology into a business."

"Korean companies' strength is in speed. They are quick to make changes to develop and market products that consumers want," explains Lim Tae-yun, a research fellow at Samsung Economic Research Institute (SERI).

Introducing OLEDs

Another example from Korea's other big consumer tech company, LG Electronics, was the recent announcement that they are to start selling organic light emitting diode (OLED) HDTVs in Korea in November.

At a stroke, LG has gained a psychological advantage of Sony of Japan, whose 11in OLED display (the world's first) went on sale in January last year. LG is now planning to get its production facilities kitted out to accommodate the new line-up. With Samsung, they have invested in a new generation 5.5 fabrication line (due in 2011), where even larger OLED displays will be manufactured.

This is important as this technology is seen as the eventual successor of existing flat screen technology. OLEDs can be printed onto any suitable substrate using an inkjet printer or even screen printing device. Eventually, they may have a lower cost than LCDs or plasma displays.

Additionally, the quality of the picture - contrast ratio (1,000,000 to 1), colour gamut and response time (negligible at 0.01ms) beats LCD hands down. Sony had the early move advantage and have now lost it.

Although not the full picture, much of these contrasting fortunes can be put down to the exchange rate against the dollar for South Korea's currency, the won - which has been markedly depressed.

But South Korea has also been accused of protectionism - particularly in the area of mobile devices. Perusing through the main electronic stores, you will find it very difficult to spot a mobile phone that is not made by either Samsung or LG.

Samsung and LG are two of the largest mobile phone makers in the world. They have been able to concentrate on foreign market expansion as their home market has been pretty much closed to the competition.

This is as as a result of the Korean government stipulating that WIPI (Wireless Internet Platform for Interoperability), a middleware platform used in South Korea that allows mobile phones regardless of manufacturer or carrier to run applications, to be installed on all devices.

But the result was that foreign mobile phone companies decided not to enter the Korean domestic market. Unfortunately for the domestic players, the South Korean government scrapped WIPI in April which will now open up the market.

The pressure on the Korean government to even the playing field between the foreign handset makers and the domestic ones has basically come from consumers. During the recent Korean general election, it became a political issue.

And in October, Apple announced that it would begin selling its popular iPhone in South Korea for the first time. No doubt Blackberry devices will start to appear soon after.

However, there is another threat to the established players in the home market - the Korean government is planning to foster smaller company growth. This has so far provided some success with the emergence of a number of smaller Korean consumer tech companies now entering the world stage with their consumer tech devices - such as Cowan, Humax and Iriver.

In the past, these smaller companies may have been compelled, as original equipment manufacturers (OEMs), to badge their products as either Samsung or LG. However, the Korea Overseas Trade Association (KOTRA) is actively involved in bringing buyers to Korea at trade shows - such as the Korea Electronics Show.

It appears that the nickname that some Koreans have given their own country, The Republic of Samsung, may be less appropriate in the future.

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