Samsung’s New Boss in China Struggles to Save TV Business

Kim Young-Ha is going to leave China after two years’ tenure as the president of Samsung China though he said in May that he would go to Chinese rural areas for more surveys.

Recently, Samsung Electronics is conducting a shakeup to its executive structure in China. As an insider from Samsung said, Kim Young-Ha, former president of Samsung Electronics Greater China will return to Korea to occupy other positions. His position in China will be taken by Park Jae Soon, former vice general manager of Samsung Electronics who was previously responsible for Samsung’s business in Korea.

The insider said that Park Jae Soon holds a higher position than Kim Young-Ha in Samsung. For a Korean company which attaches importance to the hierarch, this change means that Samsung gives more priority to its business in China and the main point lies with the TV business, which is the soft spot of Samsung’s business map in China.

Compared with the 20% market share of Samsung TV in the world, the Korean company has a rather embarrassed situation in China. According to the statistical data of GFK, Samsung only took 7% of the TV market in China in 2011. A source close to Samsung said that Samsung sets up the goal of increasing the shipment volume of panel TVs in China by 30% this year. This is a rather challenging goal since the whole Chinese home appliance market is under depression.

It is said that Park Jae Soon, who once contributed to the prosperity of Samsung TV in the North American market, will carry on the responsibility as the “firefighter” in China again.

Failure in Moving Down Distribution Channels

Localizing Samsung’s operations in China and moving down the distribution channels closer to consumers are what Kim Young-Ha devoted himself to in the past two years.

According to him, two years ago, only 20% of the department directors of Samsung China were taken by Chinese while now the proportion increased to 70%.

Kim Young-Ha liked going to the lesser markets of China. This April, he missed two weekly conferences of Samsung China in Beijing as he drove 5,000 kilometers to see Samsung’s stores in remote areas like Mianyang, Sichuan and Xinhui, Guangdong. Later he announced the plan going to Chinese rural areas for further surveys in September.

He called this a means of “on-the-spot operation”. In his opinion, the first- and secondtier markets in China have already been saturated and extending the distribution network to rural areas will be the trump for Samsung in China. In that way, Samsung plans to take back the distribution network control rights of Samsung’s products from nationwide retailers like Gome and Suning and set up its exclusive sales stores through the Chinese government’s measures of“giving subsidies to encourage rural consumers to buy more home appliances”, based on which it could initiate the price war with Chinese local competitors.

Then Samsung indeed had a good performance in China under his leadership. In the Samsung China Forum this March, Kim Young-Ha disclosed a group of data: the sales amount of Samsung Electronics’ products in China reached 9.5 billion U.S. dollars in 2011, up 32% from 2010. The growth is higher than its 21% increase in the world.

But why Samsung decided to replace KimYoung-Ha with Park Jae Soon at this moment?

This might be related with the “core play of TV” of Samsung in China. According to the data from China Market Monitor Co., Ltd, the retail volume of Samsung TV in the first-tier market of China dropped by 29.59% while in the second- and third-tier markets it respectively dropped by 26.34% and 22.84%. Samsung TV has the largest drop in the fourth-tier market, which is 36.17%.

Li Qiuwei, vice general manager of panel display operations at AVC, said that the dramatic decrease might be related with the distribution channels in the third- and fourth-tier markets.“Moving down the distribution channels is necessary. But the leadership change seems to tell that Samsung did not succeed in distributing sales channels in the third- and fourth-tier markets. It is hard to improve the brand awareness in this market and the distribution channels cannot be moved down enough in a short while. Samsung might adjust some pilot projects in the future.”

A source close to Samsung said that Samsung is enduring great stress in distributing sales channels in the third- and fourth-tier markets. And since the market size is not very big, problems of personnel management and marketing promotion exist as well. How to maintain the profit space for distributors with the low price, and how to build an efficient communication system and a perfect after-sale delivery and maintenance system, remain as the top concerns of Samsung in the third- and fourth-tier markets.

Hong Shibing, deputy director of the China Home Appliance Marketing Committee, said that Kim Young-Ha’s visits to the rural areas are more like putting up a “show”.

“The third- and fourth-tier markets are not so easy to get into as your wish. You should match consumption power of local people,” said Hong Shibing.

Liu Qiuwei said that Samsung kept a rather conservative strategy in the competition with domestic and foreign brands. For example, in the two golden sales-promotion periods in last October and this May, Samsung showed strong intents of “retaining profits” in the sales campaign and the price drop was much less attractive than Sony and Sharp, which affected its market share in China.

Focus on Repairing Shortages in TV Business

Park Jae Soon was considered the hero of Samsung Electronics to win the U.S. market. When he was responsible for the marketing as the sanding director of Samsung Electronics North America from 2006 to 2009, Samsung Electronics defeated Sony and other Japanese brands and took the champion in the U.S. market. Therefore his operating skill is confirmed by the board of directors of Samsung.

Li Yaqun, research director of Sigma Intell, said that the new boss’ main experiences and achievements are with the sales in developed markets, including the United States and Korea. Now the penetration rate of panel TV in China has exceeded 90%, showing that China has become a matured market for panel TV as well. Samsung changed the president of China with the hope of making use of his experiences in marketing to increase Samsung’s share in China’s TV market.

However, in Li Qiuwei’s opinion, though Samsung hopes to copy the successful experiences in the United States, the problem that the Chinese and U.S. markets are quite different from each other cannot be neglected.

Park Jae Soon will continue to face the challenges in distribution channels. As Li Qiuwei said, foreign consumers usually buy home appliances from big shopping malls, but the consumption environment in China is much more complicated. Foreign brands have to endure great stress in recruiting distributors in the thirdand fourth-tier markets. Their brand awareness could not match the domestic brands, which are also blessed by price advantages. This usually leads to the imbalance between investment and output.

Meanwhile, its major rival Sharp has already formed an alliance with Foxconn and thus is given more advantages in distributing in less important markets. Foxconn has cooperated with many home appliance retailers in China to build a distribution network covering from the firsttier cities to countryside. As Li Qiuwei forecasts, Samsung might change their product structure and marketing strategies after changing executives.

Hong Shibing pointed out that China and the United States share a different competition environment. In the United States, foreign brands play the main role while in China local brands represented by Haier, TCL, Changhong and so on pose great threat to Samsung. Simultaneously, Samsung stopped selling LCD TV in China this year and plans to produce more LED TVs, but the prices of LED TVs are higher than LCD.