Fitri Wulandari

Fitri Wulandari
The Jakarta Post
Jakarta

Samsung has seen rosy days in Indonesia, despite the economic
woes that have plagued many electronics producers here in recent
years.

While many players in the electronics industry struggled to
cope with a variety of problems, including weakening demand,
unfavorable fiscal policies, labor disputes and corruption, PT
Samsung Electronics Indonesia (SEI), the subsidiary of South
Korean's giant firm, Samsung Electronics Co. Ltd. (SEC), has
enjoyed continuing growth over the past few years.

Its export value grew from only US$350 million in 2000 to $600
million in 2001. This year, the exports are expected to reach
$750 million, accounting for 10 percent of the country's total
electronics exports.

Its domestic sales have followed a similar trend. It booked
$60 million in 2000, $100 million the following year and an
estimated $200 million this year.

This year, the subsidiary of South Korea's fourth-most
valuable company also won a bid to build a fixed wireless Code
Division Multiple Access (CDMA) network worth $317.6 million,
covering Central Java, Yogyakarta, East Java, Kalimantan, Bali,
Nusa Tenggara, Sulawesi and other islands in eastern Indonesia.

It is part of state-owned PT Telkom's $1.8 billion mega-
telecommunications project.

Entering 2002, SEI moved aggressively to expand its business
and increase its presence in the domestic market.

This year, the business climate was not as good, as evidenced
by the recent decision by Japanese electronics giant Sony Corp.
to shut down its manufacturing plant in the country.

Like Sony and other players, Samsung faced similar problems in
carrying out its business in Indonesia: rampant smuggling,
bureaucratic red tape, labor disputes and unfavorable fiscal
policies.

However, Samsung managed to circumvent all the problems.

"We are not daunted by the situation. And compared with our
competitor, we dared to make a breakthrough," Lee Khang-hyun,
SEI's general manager for marketing told The Jakarta Post.

"For Samsung, Indonesia is a market with great potential. The
population is huge, manpower productivity is good and so is the
research and development," Lee stressed.

Unlike their Japanese competitors, which entered the country's
market 20 years ago, Samsung started up here only ten years ago.
By then, products from Toshiba, Sony and Sharp had flooded the
market.

In the beginning, Samsung did not pay much attention to
developing the domestic market. Most of its products were
exported.

It started to focus more on the domestic market in 1996, with
televisions and refrigerators being the first items sold here.

When the economic crisis peaked in 1998, Samsung was forced to
scale down its business. It closed down its television plant.

As the crisis began to ease somewhat, Samsung started gearing
up to enter the market with new strategies.

According to Lee, one of Samsung's keys to success in
reentering the market was its boldness in making new items for
the domestic market while others were reluctant to do so because
of bureaucratic procedures.

Government tax policy stated that an electronics manufacturer
must set up a new business entity, or subsidiary division, any
time it wanted to produce a new type of product, which includes,
of course, all the government fees and red tape involved in a new
venture.

This policy prevented producers from using their profits to
cover the production costs of new products, which cut into the
government's tax revenue.

At present, the total tax on electronic goods can be as much
as 52.5 percent.

"But without new products, you cannot compete against products
smuggled into the market. One cannot afford to continue producing
the same product," Lee added.

Globally, Samsung focuses on semiconductors, digital media,
telecommunications and home appliances. Its products include
VCRs, CD-ROMs, DVD combos, television sets, refrigerators,
cellular phones, air conditioners, computer monitors and washing
machines.

SEI has a plant at Cikarang, West Java, with about 2,000
workers, where it now produces VCRs, CD-ROMs, color televisions,
DVD players and computer monitors.

This year, SEI started to produce DVDs for export and color
monitors for the domestic market, as well as reopening its TV
plant. SEI also sold printers this year.

In addition, Lee attributed the success of SEI to unrelenting
support from its head office in Korea.

"The headquarters has given us space to develop the business
here. It hasn't hesitated to do that because it fully understands
the business environment here," Lee said.

SEI's success should also be attributed to technological
innovations made by its holding company, SEC. In the past four
years, SEC has managed to emerge as one of the world's most
innovative electronics manufacturers by developing digital
convergence technology.

Thanks to this technology, SEC can make value-added
electronics products equipped with information technology
features, for example, multimedia refrigerators or PDA phones.

More importantly, Samsung's products are tailored to meet
specific customer needs for each market.

In order to develop new, innovative products, SEC has invested
heavily in research and development (R&D). In 2001, its R&D
investment amounted to $1.82 billion, or 7.5 percent of total
sales. It has 14 R&D centers worldwide and 15,000 researchers.

Another factor that has played a role in its success has been
its aggressive, global brand campaign. SEC increased the budget
this year for the campaign by 21 percent, to more than $900
million.

This year too, international consultant Interbrand named
Samsung among the world's fastest-growing brands, valued at $8.3
billion.

In Indonesia, Samsung has also launched an aggressive
marketing campaign. According to AC Nielsen, as quoted by
business magazine SWA, in 2000, SEI spent Rp 1.26 billion on air-
conditioner advertisements, Rp 2.64 billion for audio-video
products, Rp 2.7 billion for TVs, Rp 2.6 billion for home
appliances, Rp. 6.9 billion for cellular phones and Rp 1.3
billion on refrigerator advertising.

The marketing campaign has borne fruit, as many of Samsung's
products now lead the domestic market. Its color monitors and CD-
ROMs now lead the market while its cellular phones are in second
place. Samsung's printers have moved up to second also, behind
those produced by Hewlett-Packard.

In view of this, SEI believes it will achieve its $750 million
target for exports and $200 million for the domestic market.

SEI, Lee said, was also confident that it would be able to
beat its Japanese rivals in just a couple of years.