Ahead of the Pack; South Korean Firms Have Invested Smartly in India, Targeting Its Middle Class and Export-Platform Potential
Overdorf, Jason, Wehrfritz, George, Newsweek International
Byline: Jason Overdorf and George Wehrfritz (With B. J. Lee in Seoul and Sumeet Chatterjee in Mumbai)
In one whopping megadeal, South Korea has become the largest foreign investor in Asia's second emerging giant, India. On Aug. 31, Korean steelmaker Posco established a local subsidiary in the eastern Indian state of Orissa, paving the way for a controversial mill and mining complex that will cost the world's fifth largest steelmaker $12 billion and employ some 40,000 workers once it's fully operational in 2010. The behemoth dwarfs India's previous foreign-investment centerpiece, a $3 billion power plant launched by Enron in 1993. Yet even before shovels hit soil, Posco's arrival has triggered an outcry among anti-globalization activists and opposition politicians, who see a scheme to snatch, then export, Orissa's vast iron-ore reserves.
Their clamor--and the global buzz over China's emergence as an economic superpower--mask a deeply significant trend in Asian business: Korea Inc.'s rise to prominence on the Indian Subcontinent. By the numbers, Korea now tops the list of countries investing in India since New Delhi launched economic reforms back in 1991--at more than $14 billion. South Korean firms like Hyundai, LG and SK Group have carved out a notable presence in the country--the world's second largest and a potentially huge market for products like refrigerators, washing machines and television sets.
In just a few years, South Korean brand appeal has eclipsed Japanese rivals like Sony and Honda, and even the nation's biggest cricket stars have become known as Team Samsung, thanks to a successful sponsorship campaign. "South Korean firms have become household names in India," says Rakesh Shukla, an economist at the National Council for Applied Economic Research in New Delhi. "[And] India has become an investment hot spot for the South Korean companies."
Confucian Korea, multiethnic India: it's not, on the surface, a natural match. Why the pairing works is a study in global commerce that offers lessons that non-Korean investors have already begun to heed. Though their strategies differ in nuance, each of Korea's chaebol (conglomerates) follows the same general game plan in India: intensively research the market, hit the ground running and localize, localize, localize. Thus Hyundai developed a new car, the Santro, especially for the Indian market and achieved near-complete localization of its supply chain within its first year of production. They target specific markets, create new (sometimes, state-of-the-art) products to serve them and usually beat their competitors to the store shelves--the exact opposite of the one-size-fits-all strategy still common among other multinationals in India. "We learned to treat Indian consumers with far greater respect than, for instance, a Japanese company was going to do earlier," says B.V.R. Subbu, head of Hyundai's Indian autoworks. " 'Good enough for India' is the kind of approach they have had."
In bilateral terms, Seoul and New Delhi have become key economic partners. Korean ventures have helped to establish India's vast potential as an alternative to China--both as a market and as an export platform for products like cars and white goods. Korean businesses now pursue a two-pronged "China plus one," or "Chindia," strategy as a matter of course, partly to hedge against a currency shock, recession or political unrest in the Middle Kingdom. India is LG Electronics' No. 3 strategic market after the United States and China, for example. "Korean companies rely too much on China. India has a great potential to [help us] reduce that risk," says Park Bun Soon, a strategist at the Samsung Economic Research Institute in Seoul. "You can't put all your eggs in one basket."
Arguably, Korea Inc.'s best weapon in the battle for Indian market share could be empathy. Unlike Japanese, British or American rivals, Korea is a newcomer to the club of industrial powers. …