From crisis come opportunities
HSBC Securities Korea CEO
Concerns over dim outlook on the global economy, led by the financial crisis in the U.S. and European countries, still hang in the air. Regardless of where this turmoil started and whether it originated from the persistently high unemployment rates or the stagnant property market that made it worse, what worries me most is the media’s adverse affect on the consumer expectations. The constant news flow suggesting the future may be far from rosy hamper consumer sentiment, forcing them to put less in their trolleys and driving the economy to deteriorate further. However, looking at the still-strong competitiveness of the Korean IT giants including Samsung Electronics and LG Electronics, I cannot help but ask if the current fears could be excessive.
Samsung Electronics and LG Electronics are the leading exporters in Korea. With subsidiaries in over 90 countries and plants churning out products in North America, South America and China, they have established themselves as a ‘community-friendly’ corporation instead of some Korean firms operating in overseas markets. Even though these companies have had their share of difficult times in the past economic downturns, they emerged as global brands in making products such as LCD TVs, handsets and home appliances. I believe the crisis we are facing now will present them with further room for growth for the following reasons.
During the financial crisis in 2008, companies were reminded once again of the importance of the supply chain management. Supply chain management starts off with accurately estimating the ever-changing needs of customers and spans to all aspects of the supply chains from purchasing raw materials to producing the end products. And when macro conditions become unstable, it becomes more difficult to project demand. However, Korean IT companies have well prepared for holiday season through strategic partnership with the major distribution channels. They have lowered their inventory levels and stocked the shelves with what they believe will withstand the blow from reduced spending.
Along with tight control over inventory, the ongoing effort in meeting the rapidly changing customer needs is another success factor. Reflecting upon the Western business principles in managing a company, Korean companies may seem reckless, extending their R&D expenditures in throes of an economic contraction. However, this continuous investment in R&D is the very essence in which Korean firms found their edge to its competitors. Although Samsung and LG Electronics lag behind Apple or Google in software, they have successfully established their place in the IT market by introducing bigger screens, higher resolution and faster communications technology ahead of their peers. Therefore I have strong belief that the current macro economic hardships will not stop those companies from moving forward.
Lastly, these companies have strong foundations laid out in emerging markets. Korean firms tend to have strong market presence and well established brand power in markets such as India and Indonesia, which have long acted as a base for their entrance to more developed markets and China. Thus, they have a clear edge over those who have rushed to switch their focus as developed markets display clear signs of slowing consumption. Furthermore, it takes more than just low prices to penetrate these emerging markets as they display distinctive features, which present foreign firms with difficulties that only time can solve. It will take considerable time for the global companies who have turned away from these markets on low profitability to rebuild their business, thus the negative impact from the cutback in consumer spending in developed countries is expected to be limited for Korean firms.
From crisis come the opportunities. And only to those who are ready seize these opportunities come their way. Thus, while the overall economic picture remains fragile, I have faith that Korean firms will take advantage of the possibilities that these hard times have to offer.