Losing to Korea, Japan eyes new tech battlefields

SEOUL/TOKYO Wed Nov 11, 2009 3:08pm EST

SEOUL/TOKYO (Reuters) - Japan has the technology, but South Korea has the product ... and the profits.

In the longstanding rivalry between these two near-neighbor North Asian technology industry heavyweights, the pendulum has swung Korea's way.

South Korea's Samsung Electronics (005930.KS) and LG Electronics (066570.KS) have wrested market share from Japanese powerhouses such as Sony (6758.T) and Sharp (6753.T) to become world leaders in mobile phones, memory chips and flat-screen TVs.

Yes, much of the shift is down to the vagaries of global currency markets -- the Korean won is 22 percent cheaper per dollar than two years ago, while the yen has gained 22 percent.

But there's more to it than just export competitiveness as the weaker won helps Korean exporters by making their products cheaper overseas.

Nimbleness and market savvy have bred branding success for the Koreans, who are lauded -- even by their Japanese rivals -- for their product strategy.

"We cannot help but admit that the decisive factor behind our loss to Samsung is product strength ... and marketing," Sony CFO Nobuyuki Oneda said late last month.

On October 30, Sony posted its fourth consecutive quarterly operating loss, though it did trim its annual loss forecast, while on the same day Samsung reported its best-ever quarterly net profit and gave an upbeat outlook for 2010.

"Japan has always been ahead with technologies," said Lee Min-hee, analyst at Dongbu Securities in Seoul. "What Korean companies do really well is act fast to invest and turn a new technology into a business."

In brand awareness, Samsung ranks 19th, according to Interbrand's global list, some way ahead of Sony's 29th, Canon (7751.T) at 33rd and Panasonic (6752.T) at 75th.

Analysts say Korea's ability to focus on the global market -- it's domestic market is small -- has paid off, and owner-centred management structures at business groups such as Samsung ensures speedy investment decisions.

The South Koreans have been quick to shift production overseas, making goods locally for fast-growth emerging markets from Russia and Brazil to Africa.

"Korean companies' strength is in speed. They are quick to make changes to develop and market products that consumers want," said Lim Tae-yun, a research fellow at Samsung Economic Research Institute (SERI).

Between 1997-2006, annual sales growth at Japanese electronics firms averaged 4.3 percent, well below South Korea's 22.5 percent and Taiwan's 32.5 percent, according to

SERI.

"We have been outdistanced by South Korean makers, particularly Samsung and LG, in business growth," said Panasonic President Fumio Ohtsubo. "We have been considerably handicapped by the yen and won's moves in opposite directions."

But it's not all doom and gloom for the Japanese.

EMERGING TECHNOLOGIES

Japan is determined to protect its lead in less commoditized, emerging technologies such as batteries, 3D TVs, lighting and solar and nuclear power.

If they lose in those battlefields, it could be a mortal blow to Japan's electronics industry.

A re-focusing is under way at Japan Tech Inc.

Toshiba (6502.T) is shifting from chips to power systems, while others are withdrawing from areas where they don't feel they can compete, such as Pioneer Corp (6773.T) exiting its flat-TV business.

Japanese firms including Sharp are leaders in the solar power industry, helped by past investment in panels and equipment, and have also invested early in medical devices and robotics. The Japanese also punch their weight in LED lighting, though Korea leads in televisions using LED backlight.

The Japanese have an edge in high-tech components, materials and equipment that are essential in Korean products such as mobile phones and chips, and firms such as Murata Manufacturing 6981.OS and TDK (6762.T) dominate the market for ceramic capacitors.

"Japan has kind of given up on the retail side, but it still plays really heavily in the components," said Brian Heywood, CEO of California-based Taiyo Pacific Partners, which invested $1.7 billion in Japanese stocks.

"They tend to be high value-added, high-margin products."

Japan could also follow the U.S. model and break away from traditional manufacturing to focus more on value-added software and services. Sony's content business and Fujitsu's (6702.T) IT services are examples.

But even in the relatively new technologies, Japan is not safe.

Analysts and company executives say Koreans' strength lies in product strategy and operations, and they may well catch up fast despite Japan's advanced R&D.

In rechargeable batteries for electric vehicles, a hot growth sector pioneered by the Japanese, emerging South Korean rivals such as Samsung SDI (006400.KS) and LG Chem (051910.KS) were quick to latch on and catch up by focusing on the more promising lithium-ion batteries.

Korean companies are also likely to become a strong future competitor in solar cells, using their strength in chips.

Samsung, which has just marked its 40th anniversary, said it would invest aggressively in future growth engines such as medical equipment, solar cell and bio chips.

"I still see a lot of competitiveness in Japan even though LG and Samsung have kind of kicked the pants off of some of the traditional areas," said Taiyo Pacific's Heywood.

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