Apt pupil - Samsung of S.Korea

Wayne Arnold / April 28, 2012, 0:43 IST

The Japanese may have pioneered the model of a vertically integrated electronics manufacturer, but Samsung looks to have perfected it. The Korean company started by pulling apart Japanese TV sets, then reverse-engineered the manufacturers’ business model. By avoiding their missteps, it’s driving them out of TVs and carving up the smartphone market with Apple. Now, as more business is coming from emerging markets, Apple needs to watch out for Samsung’s still-growing appetite.

Samsung, which made its name in televisions, is more of a smartphone company. Phones account for most of its sales and earnings growth. It sells more of its Galaxy product than Apple does iPhones. Yet, Samsung is still turning a profit on everything it makes. It has a larger share of the global TV market than Panasonic, Sharp and Sony combined, and is making money. It even makes money on LCD panels and memory chips.



Japanese companies say they are hurt by the rising yen, which erodes earnings abroad. Korea’s won has fallen 29 per cent against the Japanese currency in the past decade. On average, though, the won has dropped only about 1.7 per cent a year. The cheap won was probably most helpful to Samsung in the 1980s, when the price advantage gave it breathing space to make up ground on quality.

Samsung did learn from its neighbours’ mistakes, though. Japanese firms made their own parts, and avoided trading with rivals. Samsung is a major supplier of chips and screens to competitors like Apple. The Japanese cannibalised the TV market by developing both LCD and plasma-screen. Samsung bet on LCDs. The Japanese stuck to a more profitable home market for mobile phones. Samsung discovered a new world of profit overseas.

The problem for the Japanese - and Apple - is that Samsung can now outmuscle them. Sony spent only half the $2.4 billion Samsung shelled out on R&D last quarter. And though Apple’s investments are ample, it is having to turn to Sharp and Sony to reduce its reliance on Samsung for high-end components.

Samsung has also perfected the Japanese tactic of product differentiation, and offers several versions of its Galaxy at different prices. Added choice could help it extend its lead on Apple in fast-growing but more price-sensitive emerging markets like China. Even Apple, now, could get bitten.

Model Media
Wei Gu / April 28, 2012, 0:41 IST

There is profit, it seems, in propaganda. And such is the promise, the flotation of People.cn, the online version of People’s Daily, has been accorded a value larger than The New York Times.

People.cn is still small in revenue and profit terms. The New York Times’ 2010 revenue was 45 times bigger, and net earnings eight times as large as that of People.cn. But the Chinese website is growing much more quickly. Revenue surged 75 per cent in 2010. After a 74 per cent jump in the price of its shares on debut, People.cn is valued at 73 times 2010 earnings. That gives it a market capitalisation 68 per cent bigger than that of The New York Times.

There may be some irrational exuberance in the People.cn share price. But the company has at least three key strengths. First, it has the kind of exclusive content that attracts readers and advertisers. People.cn is the preferred information disclosure site for government agencies, such as the Chinese Ministry of Education and the Office for Taiwan Affairs. It also has an online message board that allows the public to correspond with top leaders. Much of the content might look like propaganda, and it is hardly that popular. People.cn only scrapes into the top 50 in individual visits to China-based websites, according to ChinaRank. But the content has a value that attracts valuable advertisers. State-owned companies, which want to raise their profile among government officials, are especially enthusiastic.

People.cn does not just rely on advertising though, and that is its second strength. The company earns licence fees from other websites that use its material. It also builds and maintains websites for government agencies and the Communist Party. Such outsourcing services contributed to 22 per cent of its revenue in 2010. China’s Treasury has been its biggest customer since 2008.

Third, Beijing has showered People.cn with perks like tax breaks and subsidies to boost the role of state media. People’s Search, one of its subsidiaries, had no revenue in 2010 but a profit of $4.9 million. People.cn also has coveted licences, such as value-added mobile services. Western media companies can hardly ape its ways. But they are enviable.



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