Point of View/ Rajeev Sharma: How South Korea eclipsed Japan in wooing Indian markets

The success of South Korean business giants in India over their Japanese rivals is not so much about the failure of the Japanese companies in wooing the great Indian middle class as it is about Korean companies understanding India's requirements and marrying quality with economical prices.

South Korea has the edge in India, while Japan is still struggling. Here's why.

Korean companies fought a long, uphill battle to erase the stigma of being the poor cousins of Japanese brands in India. Although it took time, Korean companies went for the jugular from the outset. They targeted price-conscious Indian consumers with an array of low-cost products, which until that time had been out of reach of most people.

Computer monitors, air-conditioners, refrigerators, flat-panel televisions all became affordable except to the very poor.

Korean companies realized long ago that comparative price advantage was a sure-fire route to penetrate the vast Indian market.

Through this they gained positive word of mouth publicity and the respect of Indian households. Korean products became so popular that Korean business conglomerates set up manufacturing bases in India to cater to global markets.

At the same time, competition from China appeared to pose a threat for a while.

Samsung, LG and Hyundai have emerged as household names across India. They have climbed the market ladder, displacing many domestic and global brands in consumer electronics, white goods, computer peripherals, mobile phones and automobiles. These conglomerates are involved in almost every aspect of business, from oil refineries to cosmetics, in their home country. Now they plan to continue expanding their product portfolio in India as well.

LG Care, which controls more than 50 percent of the personal care and cosmetics market in South Korea, is taking on P&G and HLL in India in a big way by tapping into the low-cost, highly skilled Indian workforce.

Japan, on the other hand, performed well behind its potential of being a seasoned international player of repute. Japanese firms, with the exception of Suzuki Motor Corp. in the automobile sector, have made few inroads via capital investment. For example, electronics giant Sony Corp. is still struggling to find a firm footing in the country. The same goes for Toyota Motor Corp. and Honda Motor Co.

The root of the problem is the Japanese approach to business, say experts. This refers to the "mental distance" between the two countries and a management style that is very different from that of U.S. and Korean companies.

Japanese companies are typically hierarchical, where decision-making can be painfully slow due to the bottom-up approach.

Koreans have maintained an exclusive focus on the Indian market. First and foremost, they donned a local face for their brands. Another strategy they adopted to squeeze out competition was to build a second level of management comprised of Indians who, in turn, were the face of the media and marketing.

The Japanese, known for their tenacity, have upped the ante. Alarmed at the growing strength of Korean firms in India, Japanese companies took stock of their successes and failures and came up with a series of studies that analyzed what went wrong and how to attempt a comeback.

One report by Mizhuo Research Institute in May 2008 was written by economist Koji Sako. It pointed out that Japanese companies in India need to adopt new market strategies by assessing the unique characteristics of the Indian market.

"India differs fundamentally from ASEAN and China," Sako wrote, adding that its vast consumer potential made it an ideal export base.

The report noted that India has been the largest recipient of yen loans since 2003.

However, foreign direct investment from Japan in 2006 was comparatively low. Mauritius spent $6.3 billion; the United States $900 million; Germany $100 million; France $100 million; and Japan $90 million.

Sako said that despite intensified competition, it would be difficult to gain market share from South Koreans whose brand names are more familiar to Indian consumers. Japanese companies are now pinning their hopes on rising Indian demands for high-end products.

Sako, in his report, pointed out that in Japan, India is perceived as a huge market.

"It should be noted that India's recent purchasing power is driven by the upper middle class. Japanese companies will need to adopt new market strategies by assessing the unique characteristics of the Indian market," he wrote.

So far, Korean companies have invested $2.6 billion in India. Some of them, like LG, Samsung and Hyundai, have achieved tremendous success. More than two dozen captains of leading Korean companies, representing a combined turnover in excess of $200 billion, spent two busy days in India in January scouting for investment opportunities.

They accompanied South Korean President Lee Myung-bak on his Jan. 24-27 state visit. Lee was chief guest at India's Republic Day Parade on Jan. 26. The designation is the top diplomatic honor accorded by the Indian government to a visiting foreign dignitary.

Trade ties between India and South Korea have grown dramatically in recent years. This can be gauged by the fact that New Delhi and Seoul had pledged to raise two-way trade to $10 billion by 2010, but surpassed the goal in 2008 with an impressive $16 billion.

The two countries have now set an ambitious target of $30 billion for bilateral trade by 2014, which seems attainable.

India and South Korea established the Long-Term Cooperative Partnership for Peace and Prosperity in October 2004 during a visit to India by then President Roh Moo-hyun. The partnership constitutes the bedrock of robust ties between New Delhi and Seoul.

Korean companies increasingly favor the infrastructure sector over consumer electronics and automobiles, areas in which they were big investors in the past.

The big change since 1999, when the last business delegation visited from South Korea, is that this time they are looking at infrastructure projects like power, roads, ports and shipping and not at consumer electronics and automobiles alone.

Some of the big names in Korean industry who came calling to New Delhi during the past few months include Posco President and CEO Chang Oh-kang, Hanjin President and CEO Jong Hee-lee, Ssangyong Engineering & Construction Chairman and CEO Seok Joon-kim, Dealim Vice Chairman Ki Seong-bae, Hyundai Heavy Industries President Choong Seung-ahn and Doosan Heavy Industries President and CEO Dae Joong-kim.

It is clear that in the last decade, Korean companies have stolen a march over Japanese investments in India. Now, with the latter trying to make a comeback, a battle royale could be fought in battleground India between the two countries.

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The author is a Senior Fellow at the Vivekananda International Foundation, a think tank based in New Delhi.