Will Daewoo's Bold Strategy Pay Off?

Daewoo Electronics Co. is trying to ride the technology tiger to global success. The South Korean chaebol has chosen a mid-tech, low-margin strategy to expand in an international market dominated at the high-tech peak by the U.S. and Japan and at the low-cost bottom by China and India. With worker compensation now higher than Britain's, Daewoo and the other Korean conglomerates are trying to boost economies of scale and move up the technology scale. They are buying foreign brands with large market share and good technology. At the same time, they are pushing into emerging markets in Asia and Eastern Europe, offering cheaper cars and consumer goods than Japan, the U.S., or Europe. It's an ambitious and complex strategy. Can it work?

Daewoo's impending purchase of France's "national champion," Thomson Multimedia, is an example of going mid-tech and low profit. If Daewoo Chairman Bae Soon Hoon can close the deal with Paris, Thomson will purchase the venerable RCA and GE brands in the U.S. But Daewoo is buying into the maker of standard televisions just when consumer electronics are going digital and converging with computers and telecommunications--areas where Koreans are weak.

Daewoo expects to leverage its brands in the booming consumer markets of Asia and Eastern Europe, where low price is more important than the best technology. But China, India, and the Eastern European countries are intent on developing their own brands. It will be a lot harder for the Koreans to dominate those consumer-electronics markets the way the Japanese came to dominate America's.

Korean businesspeople thrive on doing what outsiders say they could never do. Building memory chips is just one example. But as the recent drop in prices for such chips illustrates, playing the technology cycle is a difficult game. It will take speed, flexibility, and a lot of capital to succeed.