The top guns of South Korea's consumer electronics industry have yet to score a major victory in Europe. The Big Three--Daewoo, Goldstar, and Samsung--all tried screwdriver plants to assemble TVs, VCRs, and microwave ovens as a way to beat market barriers. Even then, market share fizzled out at around 5%. "We met the local-content rules," says Kim Young-Ha, general manager of Goldstar Co. "But that did not make us as competitive as the Japanese or Europeans."
Now, the Koreans think they have the answer. They're launching an all-out effort to become local players, including direct investment and joint ventures. "For us to survive, we have to be a local company--in the true meaning of the word," says Kim Hun, Samsung Electronics Co.'s executive managing director. He and other Korean producers think that's the way to lower costs and match European quality standards. It also avoids dumping charges. A lot is riding on the outcome. Despite the problems, Europe is second only to the U.S. as a buyer of Korean consumer electronics, soaking up 21% of its exports.
Battered by high labor costs, runaway interest rates, and low-cost competition from Southeast Asian countries, Korean makers have seen their exports to Europe go flat. "We need about a 5% share in each country to become a visible player, but that has become extremely difficult," says Goldstar's Kim. The Korean products lacked clear brand identity and, as one Korean government official puts it, "the image of Korea was of cheap, low-quality products." In Bonn, a 25-inch stereo color TV from Goldstar still sells for only $600. The next cheapest model is from Philips at $870.
The new approach to Europe is forcing Korean companies to shed their nationalistic approach to foreign sales. They've long insisted that when possible, products should be made in Korea and exported. No more. "Go European is the theme for us," says Bae Soon-Hoon, president of Daewoo Electronics Co. His company is building a $150 million, integrated color TV plant in France. The TVs will be designed in France, and most of the components will be European-made.
JOINT FRIDGE. In a key move, Samsung last month said it would buy Werk fur Fernsehelektronik, a former East German picture tube maker. Samsung is spending $120 million to upgrade the plant, which could churn out 1.2 million TV sets a year. The company is negotiating to buy an even larger German TV maker, RFT. For more efficiency, Samsung has moved its Portuguese and Spanish color TV plants to Billingham, England, and its VCR plant from England to Spain. The company will use the Portuguese plant to make parts for all its European plants. "The realignment will result in lower operational costs, consistent quality, and creation of additional jobs," says Samsung's Kim Hun.
Goldstar is focusing on alliances to widen its market share. Its Italian venture, Goldstar-Iberna Italy, is a good example: Goldstar, Italy's Iberna, and Germany's Gepi collaborated to produce a refrigerator that was designed by Goldstar's Ireland facility and manufactured in Italy with parts and components supplied by Gepi. And Goldstar's color TV plant in Italy uses picture tubes made by Finland's Nokia.
The Korean companies are expected to invest approximately $700 million more in Europe within the next five years. A German economist concedes that the Koreans "are catching up fast." They hope to triple their European market share. But given the brutal competition, that lofty goal will be hard to reach.