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The making of Korean
brands
By Ng Boon Yian
SINGAPORE - As high-tech Samsung phones,
sleek LG flat-panel TVs and reliable Hyundai
Sonatas make it onto the wish list of the modern
consumer, it is clear that Korean brands have come
a long way from the not-so-recent past when these
very brands were associated with a low-end image
and shoddy quality. Yet within less than a decade,
these brands have muscled their way into the big
league of global names. In the latest Top 100
Brands ranking compiled by BusinessWeek magazine
and brand consultancy Interbrand, Samsung
surpassed its Japanese rival Sony to take the 20th
spot in the list, leaving the latter in 28th. More
impressively, Samsung posted a steep 186% gain in
brand value over the past five years.
The
top 10 international brands are Coca-Cola,
Microsoft, IBM, GE, Intel, Nokia, Disney,
McDonald's, Toyota and Marlboro, Toyota being the
only Asian brand in this elite club.
Hyundai and LG have also displayed their
prowess by breaking into the top-100 list for the
first time, landing the 84th and 97th spots,
respectively. What lies behind the phenomenal
success of the reinvention of Korean brands? It's
a story of big ambitions, corporate culture
shake-ups, and a laser-sharp focus on design and
innovation as well as aggressive marketing and
expansion strategies. The rising popularity of
Korean pop culture - the so-called "kim chic" -
has been another helpful bonus.
Brand
as a strategic asset
The remarkable
resurgence of Korean brands took place in the
aftermath of the Asian financial crisis, which
left seemingly indomitable chaebols, such as
Samsung and Hyundai severely weakened. Forced to
stop becoming a cradle-to-grave employer, Samsung,
for instance, had to cut 34% of its workforce and
sell or restructure 100 business groups. To revive
their sagging fortunes, the companies started to
look at brands as a strategic asset and poured
resources and savvy into burnishing their brand
images - something that many Asian companies still
fall behind in, even today.
Leading the
way was Samsung, which ruthlessly axed lackluster
sub-brands such as Plano, Tantus, Yepp and
Wiseview and instead mobilized its resources
behind the master brand of Samsung. It also chose
to focus on mobile phones as its flagship product
initially. The question for Samsung then was how
to differentiate their mobile phones in a
competitive marketplace. The answer: focus on
design as well as research and development
(R&D). Not only has the number of design staff
been hiked from about 100 to 450 in the last five
years or so, top design consultancies such as Palo
Alto-based IDEO were also hired to teach the
designers the skills behind innovation.
In
an industry constantly buffeted by fads and
fashions, Samsung approached design beyond just
looking at colors and shapes. Its innovation was
backed by a commitment to research about consumer
trends. This involves questions like: How do
consumers interact with their phones? What other
functions do they use it for other than making
calls? To look into the future of such consumer
trends, Samsung even set up an elite CNB (Create
New Businesses) group of about 30 people, whose
mandate was to explore long-term social and
technological trends and dream up new products to
meet those emerging needs.
Samsung soon
reaped the fruits of its commitment to innovation.
From a producer of low-quality rip-offs, it
blossomed into a brand whose stylish mobile phones
were seen as being in the same league as Nokia and
Motorola. Its sales of mobile phones surged to
number three in the market.
Both inspired
and threatened by Samsung, LG followed the same
strategy of focusing on branding and design. In
2004 alone, it upped the size of its design team
by 50%. Its design center is set in Kangnam in
South Korea, a hip neighborhood with trendy cafes
and clubs. LG also spared no efforts in revamping
its brand image by selling its high-end goods
under the LG name while peddling lower-priced
electronics under the name of Zenith, a US brand
it bought in 1996. Right now, it, too, is focused
on making mobile phones the anchor of its global
brand-building campaign, backed by the belief that
once consumers have a LG phone in hand, they are
more likely to turn to the brand when buying other
consumer electronics such as TVs or video
recorders.
Being based in Korea may well
have given both Samsung and LG an innovative edge
in consumer electronics like mobile phones. In
this tech-savvy society, the replacement rate for
phones is estimated at 6-18 months, as young
Koreans adapt new services and technology very
quickly. Korea, therefore, becomes an invaluable
testbed for innovations before the companies roll
them out on the world stage.
The
popularity of brands like Samsung and LG may also
have been boosted by the image of Korea as a
high-tech haven as trend-conscious consumers
hanker after the latest and the coolest. In Asian
markets, the marketing allure of the made-in-Korea
tag was further boosted as Korean pop culture
gained fans through its soap operas and bands.
Aggressive expansion
abroad
Riding on such popularity, companies
from Samsung to Hyundai have certainly pushed
their products onto world markets aggressively,
allowing them to join the family of global brands.
In this regard, the rise of China and India
provided opportunities to aid expansion. Hyundai,
for instance, has seen surging sales in emerging
markets other than the US. The car company even
managed to be the top-selling foreign brand in
China with a 9.8% market share, overtaking brands
like Volkswagen, Ford , GM and Toyota.
Hyundai also saw impressive performance in
the US, where it sold 419,000 vehicles in 2004,
about 2.5% of national car sales. Part of the
reason for this strong showing is due to the
company's focus on quality and reliability, a
marked change from the past, when the car became
infamous for its shoddy build quality. To win back
consumer trust, Hyundai introduced a 10-year
100,000-mile warranty in 1999. The pricing of the
cars is competitive and an aggressive promotion
strategy was launched in the US whereby seven
models - Tucson, Sonata, Accent, Azera, Santa Fe
and Elantra - were unveiled in 24 months. Little
wonder, therefore, that Hyundai is being
increasingly considered by car shoppers in the US.
Samsung is no less savvy in pushing its
stylish products worldwide, particularly through
shrewd product placements in blockbusters such as
Matrix Reloaded and Fantastic Four. Sponsorships
of major sporting events like the 2002 World Cup
also raised the Korean brand's global profile,
while putting its financial heft behind regional
games like the historic India-Pakistan cricket
match in 2004 - called the "Samsung Cup" - helped
it to penetrate the burgeoning middle class in
South Asia.
Taking a leaf from Samsung's
book, LG is undertaking similar promotion
strategies, including sponsoring Europe's grand
racing event, the World Touring Car Championship
(WTCC). Therefore, despite slumps in the domestic
Korean market, companies like Hyundai have been
able to surge ahead on the back of robust overseas
sales. Hyundai reported a 24% rise in
second-quarter net income, thanks to strong sales
abroad that helped offset sluggish demand at home
as Korean consumers are still restrained by piling
debt. Much of Samsung's sales also come from
abroad.
Shake-ups in corporate
culture
Yet, without shake-ups in corporate
culture, it is hard to imagine such breakthroughs
in these Korean companies' production, marketing
and branding strategies. Indeed, the head honchos
of Samsung, LG and Hyundai are all respected
corporate figures who have managed to overhaul
their formerly sluggish organizations with
determination and flair.
When Kim Ssang
Su, LG chief executive, took over in October 2003,
he immediately put his stamp on the corporation by
setting high targets and injecting machismo in the
work culture. In order to make LG one of the
world's top three home electronics players, Kim
mandated that meetings were made earlier and
concrete targets of 30% productivity improvements
were made for three divisions - mobile phones,
digital displays and appliances. In order to boost
morale, the top management holed up in a two-day
retreat, where they pledged to make LG a world
player while downing shots of Korean soju (a
distilled spirit) and shouting "global top three"
together, according to a BusinessWeek report.
While LG had its eyes on catching up with
Samsung, the latter had also revamped its own
corporate culture under the transformational
leadership of Lee Kun Hee, who was reportedly so
upset with the subpar standards of Samsung
products in 1995 that he ordered the workers at a
plant to smash $50 million of inferior goods and
toss them into a bonfire, with a banner before
them that read "Quality is My Pride". And the rest
is history.
Challenges ahead
The
past few years have certainly been bountiful for
the Korean star performers. While the growing
middle class in Asia will provide greater growth
opportunities for these companies, the landscape
ahead is not without challenges. These include
rising raw material costs and an appreciating won
that may make Korean products less competitive.
Labor woes in companies such as Hyundai, where
unions want a greater say in overseas plant
constructions and personnel redeployment, may also
stymie the flexibility of corporate responses.
Even a trailblazer like Samsung cannot rest on its
laurels. Increasingly keen competition could erode
the lead that the company has been enjoying in
mobile phones. Its mobile phone unit's
second-quarter operating profit has actually
dropped to 12%, from 16% a year ago. Therefore,
while the progress so far has been impressive, the
challenges ahead may slow down the speed with
which these Korean companies continue to make
forays into the global markets.
Ng
Boon Yian is a research associate at the
Institute of Southeast Asia Studies, Singapore.
The views expressed here are her own, not the
institute's.
(Copyright 2005 Asia
Times Online Ltd. All rights reserved. Please
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