Corporate News : SAMSUNG Signs Indian Telecom J/V Agreement(SEOUL) - Samsung Electronics Co. (SEC) is making inroads into the Indian telecommunications market, with a population of 900 million people. SEC vice-president Y.R. Song (chief of the Information Systems Division) and Larsen & Tonbro Ltd. (L&T) president M.P. Wagh signed a joint venture agreement in Seoul on April 17. The two companies each put up US$10 million in initial paid-in capital to start a company that will produce and market telecommunications hardware.
Products handled by the joint-venture include private exchange systems (from 1996, 100,000 lines of capacity per year), paging systems (from 1996, 50 systems per year), public phone exchange systems (from 1997, 500,000 lines of capacity per year), and transmission hardware (from 1998, 1,000 systems per year). Initial production will focus on items needed to build a modern telecommunications infrastructure in India. Over the next five years, a total of US$44 million will be invested in this joint venture.
The production operation will be in the city of Mysore, where L&T is located. Existing facilities and personnel at L&T can be utilized, and production costs will only be 10% of what they would be elsewhere in India, providing a huge competitive advantage. The sales headquarters will be in Munbai (formerly known as Bombay), the nation? economic hub, to facilitate the establishment of a nationwide distribution system.
Through this joint venture, Samsung Electronics will supply public phone exchange (switching) capacity of 4.3 million lines, private exchange capacity of 650,000 lines, paging systems for 300,000 subscribers and 5,000 transmission systems over the next decade. This output will represenet US$800 million in gross income and plans call for the new company to be among the top three in the Indian telecommunications market by 2001. It will also provide an opportunity to get Samsung further involved in the Southeast Asian and Middle Eastern markets.
According to the Indian government? Telecommunications Modernization Plan, US$16 billion will be spent by 2000 to get telephone access to 6% of the nation? families, which means supplying switching system capacity for 20 million subscribers. Demand in the private sector, meanwhile, will expand to 4 million private exchange subscribers and 3 million pager subscribers.
The Samsung-L&T joint venture is part of a US$629 million investment in India by 1999 by electronics subgroup of Samsung. At that time, the company will have a total of seven local subsidiaries in India, including a TV plant, home appliance plant (refrigerators, washing machines, microwave ovens), a terminal plant (pagers, key phone sets, cellular phones, fax machines), a monitor and computer plant, a color Braun tube plant and an electric parts plant.
Samsung intends to be among the world? top 5 producers of telecommunications hardware by the year 2000. To achieve this goal new production facilities are being built in China, Russia, India and Brazil, connected to R&D centers in Korea, the UK and the US to develop products designed especially for local markets.
The joint venture approach was used for entry into the Indian telecommunications market because the Indian government imposes very high customs duties on foreign products and encourages local investment. Trying to go into India alone is further complicated by the complex mix of races, languages, religions, and cultures in the vast country. A joint venture is also necessary for building a system of quality control, sales and after-sales service.
L&T, India third largest financial concern, has annual sales ofr US$1.2 billion. It is involved in high growth industries such as construction, engineering, telecommunications, and peripheral equipment. The company is well known locally and has outstanding capabilities in manufacturing, marketing and financing. L&T offers everything needed for early entry into the Indian telecommunications market.
Samsung Electronics Co., Ltd., a US$ 21 billion flagship company of Korean-based Samsung Group, is a world leader in the electronics sector, with operations in more than 60 countries. The company develops, manufactures, and markets audio and video products, household electronics goods, computers & peripheral products, display products, telecommunications & information systems, software tools & semiconductors. The company currently employs over 70,000 people worldwide.
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