Samsung sees rosy days in RI despite economic woes

Amid reports of companies pondering on moving operations elsewhere and the decision to close the local plant of Sony Corp., the story of Samsung Electronics Co. Ltd. as written by The Jakarta Post reporter Fitri Wulandari offers a different view in the economic uncertainty.

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.