A Profitable Passage to India

Armed with market research, Korean companies succeed

When Hyundai Motor Chairman Chung Mong Koo toured his company's well-manicured plant in the Indian port city of Madras last November, he was impressed with its operations. So impressed, in fact, that he did something extraordinary: In January and February, he chartered a total of nine airplanes and ferried 2,000 Hyundai managers and workers from Seoul to Madras, where each group spent three days studying the Indian subsidiary's operations. "It was a vote of confidence for us," says Hyundai Motor India President B.V.R. Subbu. The quality of the cars Hyundai produces in India shows up in the numbers. In 2002 -- after just four years in India -- Hyundai sold 111,000 cars, giving it a 19% share of the market, second only to leader Maruti's 45%.

Chung isn't the only Korean exec who's hot on India these days. Consumer-electronics and white-goods maker LG Electronics has seen its Indian sales surge by 40% annually since 2000. Its rival, Samsung Electronics, has been growing at a 20% annual clip. Together, their TVs, air conditioners, washing machines, microwaves, and phones now make up a third of Indian sales in each of those categories, according to New Delhi market researcher ORG-GfK. By next year, the Indian subsidiaries of Hyundai, Samsung, and LG each expect to raise their Indian revenues to more than $1 billion a year, which would put them well ahead of rivals from the West such as Philips, Electrolux, and Whirlpool.

What's the Korean trio's secret? Other multinationals rushed into India a decade ago, when the government loosened its rules on foreign investment, and didn't do much to adapt their products. Ford Motor's first model in India was the Escort, while General Motors sold the Opel Astra, both aging versions of midsize cars costing more than $20,000, out of reach for most Indians.

When the Koreans arrived on the subcontinent in the mid-1990s, they took the time to do market research and learn exactly what Indians wanted. Samsung, for instance, began doing market research in India in 1994 but didn't start selling products there until December, 1995. "We learned that it's very important to live up to Indian consumer expectations," says M.B. Lee, vice-president for marketing at Samsung India Electronics.

Hyundai's first Indian offering was the $7,000 Santro, a mini-car retailored with the latest technology especially for India. Another example: Both Samsung and LG discovered that Indians like more volume on their TV sets because families often watch in noisy environments. So for a premium of 7%, both now offer sets with more than 800 watts of sound, compared with the normal 200 watts. "In India, you've got to roll up your sleeves like a local to do business, not do it like a suit-and-tie multinational," says Ganesh Mahalingam, LG Electronics India's sales and marketing chief. "Korean companies are more flexible," says Namuh Rhee of Rhee Capital in Seoul. "They know how to learn from past mistakes."

Hyundai, Samsung, and LG have been building factories in India since 1997, and now make up to 85% of their products locally. That helps cut costs dramatically because India's high tariffs make imports a tough sell. And they're still investing. Hyundai is completing an $80 million expansion of its Madras factory and plans to export as many as 25,000 of its Santros to Europe and North America this year. Samsung is building a new $25 million, 500,000-refrigerator-a-year plant near Delhi. And LG is spending $50 million on a new facility near Bombay that will double its washing machine and refrigerator production.

The Koreans' success has stirred the competition. Indian TV maker Onida, which once led the market, is expanding into air-conditioners and washing machines as "dealers feel happier with a basket of products," says Chairman Gulu Mirchandani. The Indian subsidiary of Swedish white-goods maker Electrolux -- which hasn't made money in India for a decade -- is cutting staff by 35%, outsourcing more and focusing on fewer but newer models of its core refrigerators and washing machines. Next year, the company plans a $6 million marketing blitz. All of this will make the company "as lean and nimble" as the Koreans within two years, vows Chief Executive Rajiv Karwal, a former LG marketing head. If he and others can pull that off, the success of the Koreans may become an all-India success story as well.

By Manjeet Kripalani in New Delhi

Business Week May 12, 2003, Iss. 3832, Pg.50