Chaebols strike back

One of the sectors worst hit due to the recessionary waves across the globe was the consumer electronics segment. With consumer spending declining in American and European markets, the consumer electronics companies were suffering with a tremendous drop in sales and exports. Korean Chaebols, LG and Samsung were grappling to find a way out of this and looking at ways to boost consumer sentiments and enticing them to spend. So it does not come as a big surprise that the two South Korean majors have managed to post a better-than-expected performance in the quarter-ended June 2009. Both companies have attributed the reasons for their healthy bottomlines to the bullish sales of TV and mobile phones and are forecasting that the quarter ending September 2009 too will yield healthy figures. LG has already announced that it expects its sales to increase by 10% in the coming quarter. One of the reasons for the strong growth numbers for these companies is that both had launched smartly priced touch phones, which did good business across the globe. LG has already displaced Motorola from its third position in the handset category and is looking aggressively to increase its market share. However, the overall market situation is still grim with Sony Ericsson posting a loss of $302 million for the same period. Market leader Nokia has also cut its outlook for the year ahead. A strong yen is keeping the profit margins of companies like Sony, Panasonic, Sharp and Toshiba under tremendous pressure. LG and Samsung did well in the last quarter as well. Sales of their flat screen TV and Liquid Crystal Display units also seem to be following an upward trend as consumers are expecting these products to offer latest technology at affordable prices. Analysts too are bullish in their expectations from LG and Samsung and are hinting that it could well be a sign that the two chaebols are entering into another growth phase.

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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