Eastern promise

South Korean-based handset manufacturers Samsung and LG were the two standout performers in terms of growth in the second quarter; respectively occupying second and fourth place in global handset shipment rankings. Michelle Mills speaks with the general managers of the region for each manufacturer to ascertain the root of their success and their strategies for gaining ground against the market leader

LG’s Mohamad El-Yassir says the company’s restructuring of the mobile devices unit in the Middle East will reap rewards and carry on the momentum gained in other markets

For Mohamad El-Yassir, LG’s general manager for the mobile devices unit in MEA, the company’s handset business is on the verge of a breakthrough in the region. Having surpassed Sony Ericsson in the first quarter of this year for the fourth placed ranking in global handset sales, LG’s focus is now shifting to the Middle East and Africa in order to mirror the success the manufacturer has achieved in North America, Europe and South Korea.

Little known for handsets outside of Korea a few years ago, LG’s global market share
now stands at 8.8 per cent, with year-on-year revenue growth at 39 per cent between Q207 to Q208, and operating profit growth of 73 per cent for the same period. Yet for the MEA region, market share sits at a mere 2-3 per cent, which El-Yassir is confident will grow year-on-year.

“When LG began developing its structure for the mobile communications department two to three years ago – with a president and unit focused on these devices – it focused on the Americas, Europe and Far East,” recalls El-Yassir.

“The Middle East and Africa were not top priority at that time. Back then we would have people selling TVs and electronics and we would ask for a part of their show rooms for our mobile phones. Now the whole ballgame has changed and there is a full structure for mobile devices in the region with local and regional teams, as well as specialised distributors in telecoms.”

El-Yassir, a recent addition to the LG mobile devices team from Motorola, says that while LG’s original focus in the region is consumer electronics and appliances, the stage is now set for growth in mobile devices. And with his recruitment as regional general manager, he is gearing up for a regional recruitment drive, developing a specialist team to work with operators, and establishing relationships with key distribution channels.

Part of the transformation of LG in the region is in moving beyond the Korean mentality to become a full multinational company. LG traditionally brought a foreign service employee out of South Korea in order to manage a region, though a shift is occurring that is based on utilising local expertise. “So we are still thinking globally, but will now act locally in every market,” says El-Yassir.

“Our strategy is very simple – a very compelling product roadmap that fits the market based on consumer insights and shopping behaviour. We’re using mystery shoppers and studies in the markets to gain continuous feedback about our products, which we feed into our R&D in a systematic manner, and this helps us develop our products very fast,” El-Yassir asserts.

“We are trying to be available in all the categories except in the low-tier, non-profitable category, plus we’re investing heavily in the region with a very aggressive communication plan. Our go-to-market strategy is mainly about having specialised people in every market; specialised by channel, sub-channel and operator. If you put our products, our investment and the human resources we have in place, I think this formula will win and we will reach our objective of 10 per cent market share in the region by 2010.”

LG’s current global success can be attributed to a strong product portfolio, which includes what El-Yassir calls “multimedia monsters” – devices that have large screens, and are high in imaging, music, and features like push email and HSDPA. One example is its touchscreen 8-megapixel camera phone, the KC910, which it plans to launch in the Middle East next month.

Rival South Korean handset manufacturer Samsung gazumped LG in August with the introduction of its own 8-megapixel camera phone, the Innov8, with El-Yassir acknowledging that LG’s lack of a robust structure on the ground in the Middle East delayed its plans to be the first to launch such a device in the region. El-Yassir hopes to grow relationships with operators, developing products that match and enable their offerings.

LG has had a very strong relationship with Verizon in the US, which helped push the handset manufacturer to second place behind Motorola in that market. However, while the mobile handset business in Europe and the Americas is very operator-driven, most of the markets in the Middle East and Africa tend to be driven by retailers and distributors. LG is in talks with Vodafone, Zain and MTN among others, on how to gain a presence with these operators as strategic partners.

Samsung’s Sandeep Saihgal believes the company’s broad portfolio has captured new segments in 2008 including fashion, enterprise and high-end imaging

“In the US, whatever was in Verizon’s thoughts, on its wish list, LG responded to. When AT&T launched the iPhone, we launched something in return with Verizon that was very competitive in terms of screen, benefits and features. Verizon depends on LG as a key strategic partner in developing products that it needs in the US market, and that is what we are hoping to do here,” El-Yassir says.

“Nokia had a very robust retail marketing team and a very strong operator team, probably four or five years ago before anybody else started,” El-Yassir states, as he looks to describes some of ingredients to Nokia’s success in the region. “And that’s why they are very successful and a wellrooted business in the region.”

Research from UK-based advisory firm, Gartner showed Nokia enjoying a 39.5 per cent share of mobile handset sales globally in Q208 to end-June, with the fight being on in the next tier with only 7.7 per cent separating Samsung, Motorola, LG and Sony Ericsson in second to fifth positions respectively. Gartner also notes that LG has been strengthening its portfolio with competitive offerings and improving profitability, which has “clearly paid off”, with the vendor selling 26.7 million handsets in the quarter to end-June, up from 18.5 million a year ago.

Meanwhile, second-placed Korean manufacturer Samsung also exceeded expectations with a 36 per cent increase in second quarter year-on-year revenue growth, and more than 125 per cent increase in operating profit. Global mobile handset sales also peaked in the past quarter to an all-time high of 46.37 million units.

General manager of telecommunications for Samsung in the MENA region, Sandeep Saihgal, credits the company’s strong performance to successful product launches in 2008, namely in the high-end segment. The Giorgio Armani handset model did well in the fashion segment, while the 8-megapixel camera phone moved Samsung into the touchscreen segment. The company has also ventured into the Microsoft and Symbian operating systems – on top of its proprietary Samsung operating system – as well as dual-SIM card models, increasing its portfolio of devices across the board.

“It’s been exciting from us down to the retailers. They can see that Samsung is changing the face of retail because each phone is unique,” states Saihgal. “We keep seeing an increase in market share and I think that’s due to us capturing a lot of segments where we did not operate before. We have entered the very high-end segment with 8-megapixel camera and the new touchscreen Omnia phone, which are almost US$1000 products.”

Saihgal states that market share in the region is high at 18-20 per cent, and this is due in part to an increased focus, support and product range from the Korean headquarters. The Middle East and North Africa is considered a high growth market that needs focus for a fast time-to-market.

While most of the products are geared towards the consumer market, Saihgal expects Samsung’s range of operating platforms and especially the Windows-based 6.1 operating software, to appeal to corporate PDA users.

“The Windows operating system is becoming popular with the business segment, which wants to use the Windows platform to receive push email, while carrying Microsoft office files such as PowerPoint presentations and such like,” he comments.

“Our strategy to close the gap with Nokia will be a combination of technology-savvy products, marketing, and capturing the retailers, while convincing customers to prefer Samsung as a brand. One of the reasons we went into different operating systems and different product lines is that we wanted to see each segment of consumers become part of the Samsung family. And that’s important that once you are part of the family you keep growing with us.”