China was good Korea move

Highly competitive landscapes

In the world of intellectual-property lawsuits, this must be one of the biggest confrontations yet. The Wall Street Journal reported last week that Apple has sued Samsung Electronics, claiming that Samsung’s Galaxy cellphones and tablets “slavishly” copied Apple’s iPhone and iPad.

Samsung has said it will “actively” respond to the lawsuit and quickly filed countersuits of its own. “Samsung’s development of core technologies and strengthening of our intellectual property portfolio are keys to our continued success,” says the company spokesman. Is the lawsuit going to dampen customer interest in the Galaxy when it goes on sale in China this June? Unlikely. Samsung executives are unfazed, saying that the company expects sales of tablet PCs and smartphone shipments to China this year to reach 4.3 million and 62 million units respectively.

“Samsung will launch these products simultaneously in the Chinese market and other countries, differentiating us from other companies that launch products in China later,” says Yoon Boo Keun, the president of its visual display business (by “other companies,” he probably means Apple, which has previously preferred to launch products first in the US and only in China considerably later).

There are certainly reasons to be optimistic. Samsung is a leading brand in everything from refrigerators and mobile phones to LCD TVs and laser printers in the China market and the country now accounts for about 29% of Samsung’s global sales revenue.

Its business in China has grown quickly too, to $39.6 billion in sales last year compared to $1.81 billion 10 years ago. Samsung is also one of the largest exporters of goods from China, where it has 135 centres for manufacturing, research and sales. But since 2007, it has sold roughly 40% of its annual ‘Made in China’ production to the domestic market, says the Financial Times.

Samsung has also had its fair share of stumbles since beginning operations in China in 1985. It first opened sales offices in the 1990s but it soon discovered that Chinese in the hinterland didn’t have the disposable income to buy many of its products. In 2000, it shut down offices in smaller cities and focused entirely on first-tier locations like Beijing, Shanghai and Guangzhou.

“At first we thought we could sell to every Chinese,” Liu Ran, a marketing manager for Samsung in Beijing, told TIME at the time. “We learned a lot of lessons.”

Samsung also repositioned itself as a premium brand. In 2001, it introduced the A-288, a brightly coloured handset with a highly visible display that identified callers. Analysts thought the product was doomed to fail. Why would the Chinese consumer spend $360 – twice the average monthly salary – on a mobile phone? But Samsung went on to sell hundreds of thousands of A-288s, mostly to young professional women.

Samsung realised that it was onto something, and that mobile phones were considered fashion items. So it started rolling out a new model every few months. “[High prices] created a top-class image for our phones, which then increased sales,” says Park Sang Jin, senior vice-president for global telecom marketing.

Now Samsung wants to sell more LCD televisions too. Already the world’s largest flat-screen panel maker, it announced last week that it will invest $501 million in a China joint venture to develop its latest generation product. The announcement comes as part of a push to win customers over with its 3D TV technology. Separately, Samsung is also considering investing $230 million to acquire a 15% stake in Chinese flat-screen panel maker CSOT, a joint venture between TCL and the government of Shenzhen.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.