Oriental Games On Display

Japanese and Korean multinationals have begun training their sights on the domestic consumer electronics market. And their gameplans are a study in contrast. An analysis.

Globalisation isnt knocking on our doors anymore. It is here to stay. If you are looking for tell-tale evidence, concentrate on just one such market: the consumer electronics market. You can be witness to the thrills, kills, skills of almost every major global corporation, be it Sony, National Panasonic, Akai, Samsung, Philips, Thomson, LG Electronics they are all here.

Apart from the convulsions it is causing amongst the local players (in November, the marketshare of MNC companies in CTVs shot up from 18.5 per cent to 45.7 per cent. And that too in a stagnating market of 1.7-1.8 million CTVs), there have been many other fascinating fall-outs.

Mega brands are being outwitted by lesser known rivals, late entrants are negating the first mover advantage of their competitors, and others, in their lust for more volumes, seem to be committing brand hara kiri.

The onslaught has only just begun. It would be silly to pronounce verdicts as yet. Many of these multinationals are still to put all their pieces in place. Most of them have used the CTV business to gain a foothold here, and then gone on to launch other products. In any case, it has been long enough for them to formulate their gameplan, and much of it is taking shape in the market now.

One truly amazing feature is the wide divergence in their approaches to carve out a piece of business for themselves. For instance, Sony has adopted a wait-and watch style, and upgrading the scope of their activities gradually. Samsung has already committed $200 million investments in areas ranging from consumer electronics to white goods to telecom products.

What is also interesting to note is that in many of these cases, some mid-course corrections are already evident. Operating styles and business philosophy have clashed with the local conditions. Who comes out the winner? Are companies changing to adapt to Indian requirements?

Again, too soon for a definitive answer. But perhaps, experiences like that of LG Electronics hold some clues. After two disastrous tie-ups with local companies, it has finally decided to go alone a first for the company which prefers to operate through joint ventures in foreign markets.

In this issue, The Strategist presents a ring-side view of the jousting that has just begun in the consumer electronics market.

Cautious, confident. Arrogant?

We are aiming for steady growth, no big jumps, intones Yoshio Kubo, managing director of Sony India, repeatedly. Last year, the company sold 60,000 CTVs in the country, and the figure for this year has been touted at 100,000 units. But many market observers believe that a more realistic figure should be around 80,000 CTVs.

So why has the growth been steadier than desired? (Sony Indias initial projection for 1996-97 CTV sales was 120,000 units). The answers can be found in the manner in which Sony Corporation operates, and has approached the Indian market and how that is in conflict with the local environment.

The initial investments have been moderate, the process of business development, gradual. Cautious steps to test and tweak the market before increasing its commitment to the Indian market, that is the message that comes across loud and clear from Sony Indias head-office in New Delhi.

Sony came to the Indian market with a limited product range, its CTV portfolio did not include 14 and 20-inch models. Samsung, on the other hand, had six models of all the popular screen sizes during launch.

Their business philosophy of cautious exposure was evident in their indigenisation programme as well. In its extensive, year-long trials before setting up shop in the country, Sony India found out that not a single vendor came up to their quality benchmarks. We had to reject them all, and are only now developing and upgrading their quality standards. But this process takes time, and I am not going to compromise on Sonys quality standards to get to the market fast, is Kubos explanation. Today, Sony TVs have import contents of around 85-90 per cent. Samsung has indigenised to the extent of 60 per cent, and so has National Panasonic.

The high import content has affected Sonys pricing strategy adversely. Though Sony is a premium brand world-wide, and in India too, they are focusing on the premium segment of the market, its price are a bit too high. The company admits that its prices are about 10 per cent higher than the desired levels.

In a price sensitive market like India, premium pricing can be dangerous ploy. Sharp, another Japanese company, learnt this the heard way. Back in the early 90s, the company Kalyani-Sharp introduced CTVs, which were costlier than the Indian brands Onida, BPL and Videocon. Without any visible product superiority, Sharp failed to make any impact in the market. Today, after buying out its partners stake, Sharp is reworking its business strategy in order re-enter the CTV market.

Strangely still for Sony, it has not done enough to promote the brand either. Promotions have been limited to dealer shops, and advertising, in rarefied media mostly on its own cable channel, Sony Entertainment Television. Considering that Sony Indias biggest enemy was Sony itself there is a flourishing grey market for smuggled Sony products in the country there were no campaigns to announce the arrival of Sony India.

Advertising is too expensive in this country. Also, we thought that the Sony brandname was well-known in the country, but later found that awareness levels were not high enough in the smaller cities. I regret that we did not spend more, says Kubo.

Instead, the strategy has been built to achieve higher market penetration to exploit the (wrongly assumed) high levels of its brands awareness. So much so that to reach out to its 1250-odd dealers across the country, the company has appointed distributors in smaller towns, even though this additional layer would chip into its margins.

Now, with 11 models, and the increased local sourcing of components expected to drive down its product prices, Sony India is gung-ho about its future prospects. We are the most well known brand in consumer electronics in the world, a smug Kubo asserts.

Investing in the brand, market by market

Samsung, the multi-billion chaebol from South Korea, could not have more different in its approach. It started with a high levels of indigenisation thus managing to keep the price levels right, entered the market with a fuller product range, and built its brand market by market rather than going national at the outset.

Byung Mun Park, managing director, SIEL, says, The key to success in this market lies in providing top quality, contemporary products with the most superior product features... Last month, Samsung India Electronics Ltd(SIEL) sold 16,000 CTVs.

The company has tried to adapted itself better to the nuances of the Indian market. K S Raman, president-elect, CETMA, has two interesting insights to offer about the Indian CTV market. One, a company with a fuller product range has a better chance of selling here. Somehow, it gives the customer more confidence in that brand in its after sales service, its spares availability. And two, for some strange reason, the customer goes for TVs with bigger sound systems. At home, he will never ever put the volume at 50-100 watts, but he still wants it.

When Samsung came to the market in December 1995, it had six models which included 14, 20, 21 and the 29-inch models. Today, the tally has gone upto 10 models. And with the Super Horn Sound System in its 20 and 21-inch models, it is hoping to use the Indian customers fascination with higher power sound outputs to its advantage. National Panasonics Top Dome did not do well due to this very reason. The product was top-class but it had a puny 20-watt output. Videocons Bazooka and Onida KY series are 120 watt systems.

It is still an uphill task for Samsung. As AFF director Arvind Mahajan points out, They are a late entrant in most of the businesses, and the Samsung brand is not so well-known to the Indian customers. Samsung has tried the piecemeal approach to work around this constraint go to one market, build up your presence there, and only then move on to the next market.

Samsung products were launched in Northern India in December 1995, then they went south in May the next year, and finally came to Western India in September. So instead of spreading its $4 million ad budget thin over a larger target segment, Samsung was able to build its position more effectively in a chosen few markets. The result in the north, Samsung has a 11 per cent marketshare in CTVs.

Big volumes, bigger promotions

Akais tale is a curious one. Though one of the largest CTV brands in the world, in India, they have had very little to do with the brands fortunes. Akai has a 10 per cent stake in Baron International, a local company which imports, assembles and sells these CTVs.

And to sell them, Baron International has embarked on a promotion blitzkrieg never before seen in the Indian market. In the last one year, it has come out with three mega campaigns, each one more daring and ambitious than its predecessor.

It all started with a alpha-numeric pager that came free with every Akai 21-inch model a scheme the company introduced in January96. The next one promised Rs 10,000 off on the same 21-inch model in exchange for any old CTV. And during Diwali, all hell broke loose. Akai started offering a 14-inch colour TV free with its bigger models!

So far, the sales volume figures seems to suggest that these promotions have been wildly successful. While last year, the company sold 100,000 CTVs, this year it is expected to sell 175,000 CTVs this financial year (nearly 10 per cent market share).

If you ask Kabir Mulchandani, CEO, Baron International, about the secret behind these astounding schemes, figures are thrown at you like staccato fire. We spent Rs 33 crore in promotions in the first six months of 1996-97, ploughed back nearly Rs 25 crore of profits from last year...Our ad expenditure will be Rs 30 crore for this year...We have cut distribution costs as a per cent of turnover by two per cent...

Many industry analysts question the sustainability of such a business strategy. I cant see how they can make money with this kind of strategy. Even an MNC with deep pockets like Philips could not sustain its heavy promotion-driven strategy for long. And then, every time you go back to the trade, they will demand a bigger scheme. Where will it all end? asks a particularly severe critic of the company.

Mulchandani is unfazed. Very soon, he is coming to town with another whopper of an offer a Whirlpool washing machine worth Rs 7,700 free with his 21-inch TV sets.

The wrong mates

In yet another way, LG Electronics, another Korean multinational, tripped while trying to run too fast. The first foreign entrant in consumer electronics, it was in a tearing hurry to get its operations off the ground.

LG Electronics, and in fact most Korean companies, believe in working through joint-ventures, to tap local understanding of their markets. But in a frenzy to capitalise on its first-mover advantage, it chose the wrong partners. And how many times!

In 1993, talks with RPG group was not leading anywhere. So the discussions were terminated, and LG started talking to another company, Bestavision Electronics. In less than a month, LG had hitched its fortunes with the maker of Texla TVs, a regional brand selling mostly in Punjab.

But soon enough, it was clear that the resources of the small company could not match LGs ambitious investment plans for India. The two parted ways in December 1995. LG signed another joint venture pact with the C K. Birla. And sure enough, differences about management control and business objectives wrecked this tie-up as well.

Arvind Mahajan comments, Joint ventures between two different business cultures are always difficult to work out. These companies should try to find smaller partners so that they have an upper hand, like Daewoo Electronics has tied up with Anchor. (Samsung has a joint venture with Reasonable Computer Solutions Pvt. Ltd.!)

During its tie-up with Bestavision, LGs Goldstar was selling 3000-4000 units per month. Now it is back to the starting block building its Indian operations from scratch. Recently, it applied for a wholly-owned subsidiary, with investments planned to the tune of $481 million.

It is long haul for everyone, all right. And for some like LG Electronics, it promises to be longer than others.