Will South Korean businesses help India in its makeover?
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Can South Korea become India’s potential business partner? The recent visit of Prime Minister to South Korea indicates that India is trying to learn the ropes of business from Korean companies. There is no doubt that both countries share a cordial relationship. But, will this relationship be able to transform India and meet its recent objectives set up by Narendra Modi, the Prime Minister? Can India achieve its dream of becoming a strong manufacturing and services hub?
Why did South Korean companies like Hyundai Motor, Samsung Electronics and LG Electronics make it big in India? Was it timely entry into the Indian market or was it the exquisite marketing that helped Korean companies to stand out? You will be surprised to know that India was the first country when Hyundai decided to start a production unit in a foreign land way back in 1998.
At that point of time, India was gradually building its economy and boosting its per capita income. India had the buying power but industrialisation was yet to pick up. South Korea was one of the first countries that realised the potential of India as a manufacturing destination. Today, Hyundai is the second largest car manufacturing company in India.
“The recent high-level exchange between both countries shows that there is a scope of taking the relationship to the next level or a level much higher. Being a developed economy, Korea can play a significant role in India’s Make in India initiative. It is one of the most dynamic countries and a manufacturing powerhouse of the world.
In India, we admire the determination, hard work, entrepreneurship and risk taking capabilities of South Korea,” said Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP), in New Delhi recently. “Hyundai have tremendously impressed the Indian market. The way it has set up manufacturing facility and attracted the Indian market is awe-inspiring,” said Kant.
Through its India plant, Hyundai Motor has exported 2.2 million “Made in India” cars all over the world till date. “Today, Hyundai is the largest exporters of passenger cars from India… we provide direct and indirect employment for 100,000 people in India,” says Bo Shin Seo, Managing Director & CEO, Hyundai Motor. Moreover, Hyundai has successfully attracted many Korean vendors in India, especially from the small and medium sector.
The current status is that Hyundai has 117 vendors, 420 dealers, and 5.7 million customers in India. The company also has a R&D facility in Hyderabad, and its key strategy now is to produce “Zero Effect and Zero Defect” products. Hyundai said recently that they are likely to come up with second manufacturing plant in India besides the one based in Chennai.
Technology with a touch
Meanwhile, Samsung entered the Indian market with its technologically advanced home appliances. “Today, Samsung is considered to be a trusted brand in India. It has a R&D facilities in India at Delhi, Bengaluru and Noida,” said Kant. Dr Jyotsna Suri, President, FICCI, says, “Korean brands, such as Samsung and LG, have made significant connect with Indian consumers.”
These brands were able to build their brand image at an early stage in India due to their defined marketing strategy Samsung not only has the highest market share in home appliances, but also has the same level of market share in smartphones.
The company became a leader in smartphones because of its mass production and cost effective products. It is giving tough competition to biggies like Apple, LG, Blackberry and HTC. Samsung is planning to open up its third manufacturing unit in India; it has two manufacturing facility already in India one in Noida and the other in Tamil Nadu providing potential employment in the country. “Today, 500 Korean companies are already doing business in India,” says Jehak Jang, Minister Counsellor (Economic), Embassy of the People’s Republic of Korea in India.
“These Korean companies can actually be an instrument for India to achieve its Make in India dream,” he further says. The Korean companies can help India increase its manufacturing growth from current 16 per cent to 25 per cent to country’s GDP. For instance, Korea’s Shop CJ is Asia No. 1 home shopping company and world’s second largest company. It has a market share of 25 per cent in India, which will increase 5 per cent by the end of fiscal 2015-16. Kant said,
“The company has a huge potential to shine in the Indian market.” Pointing out his views on the business expansion plan, Kenny Shin, Director & CEO, Shop CJ Network Pvt Ltd, says, “We have three warehouses in Gurgaon, Bengaluru and Mumbai. We are planning to start a warehouse in Kolkata within a year. We consider India as a potential business destination and partner. ”
The company is expected to become India’s top home shopping destination by 2018. Additionally, other companies, such as Hyosung, KC Cottrell, Eland and Mirae Assets, are also looking for partners and better business opportunities in India.
SMEs have a role to play
South Korea’s main mode of investment in India is wholly owned subsidiaries (WOSs) rather than joint ventures (JVs). WOSs are the most preferred form of investment of Korean big companies because they can afford to deploy sufficient capital and find skilled and cheap human resources in India for such operations, while SMEs prefer JV route to avoid investment risks in India.
The paucity of resources is also a reason to prefer JVs over WOSs. “We have seen success stories of many large Korean companies in India, we will further like to see a lot of small and mediumsized companies making success in India.,” said Kant.
He said, “The future for Korean companies does not lie in Korea. It lies in India both for manufacturing (for the domestic market) and for export.” Opining further, Jang says, “Korea is going to set up industrial park in Ghilot, Rajasthan where 13 companies will be setting up their units. We want to see success story in small and medium businesses in Korea. Once that is done, we can witness more Korean companies running into India and investing here,” he adds.
The share of large enterprises in Korea’s total investment in India is 72.9 per cent or $2.84 billion, while the share of SMEs is only 23.8 per cent or $930 million.
This article first appeared in the Indian edition of Entrepreneur magazine (August, 2015 Issue).