Korean Brands Face Uncertain Times in Russia

"Pushed out by Japan, and jostled out by China."

This is the situation surrounding South Korean brands in Russia, called the land of opportunity in the 21st century.

While European and Japanese companies deserted Russia around the time of the foreign exchange crisis in 1998, South Korean companies were able to maintain high market share thanks to their firm activities.

But as a result of the recent market expansion in Russia, following the rise in oil prices which led Japanese and European companies to set forth consecutive waves of attack, South Korean brands are resigning from the top ranks one after another.

Japan`s Unhindered Advance-

According to a document from the Russian national tax office, South Korean and Japanese exports to Russia barely differed in 2002, standing at 930 million and 980 million dollars respectively. Until last year, the amount of exports from the two countries remained even, at between 5 billion and 6 billion dollars.

It is expected, however, that Japan`s exports have rapidly jumped this year, widening the gap between the two countries to greater than 5 billion dollars.

In October of this year, Russian Foreign Minister Sergey Lavrov said, “Trade between Russia and Japan was 12 billion dollars last year, but it will surpass 15 billion dollars this year.” In less than a month after this comment, Russian Deputy Prime Minister Sergei Naryshkin said, “Trade between the two countries will amount to 20 billion dollars.”

Russian experts analyzed that the explosive expansion in trade between the two countries was driven by the rapid rise in Japan`s exports of automobiles and consumer electronics to Russia.

Advancement in Japan`s automobiles production, in particular, played a decisive role in widening the export gap between South Korea and Japan. From January to September this year, exports of Toyota vehicles to Russia exceeded 110,000 vehicles, a 62% rise compared to last year.

South Korean automobiles are still the number one export to Russia. But Hyundai Motor, which maintained the highest market share in Russia until 2005, fell to 4th place this year from 2nd last year, exporting 950,000 vehicles between January and September this year. Russians are well aware that Hyundai lost its market power as a side-effect of the labor-management dispute in 2006.

Cell phones and consumer electronics, which used to be South Korea`s premium brands, are also struggling against high-priced goods from Japan. Between January and November this year, Samsung Electronics` export to Russia expanded 23% from last year to 3.8 billion dollars. But considering that Sony Ericsson is chasing closely behind in the cell phone category and Sony is also showing rapid growth in consumer electronics, predictions have been raised that Samsung will struggle to maintain its front-runner status in the future.

Washing machines, refrigerators, and TVs by LG Electronics, which had the greatest market share in Russia until 2005, have already been pushed down below 3rd place.

Low-to-Mid Priced Goods Jostled Out by China-

South Korean small and medium companies that export clothes or daily necessities to Russia are also struggling hard against Chinese companies.

In Vladivostok, Russia, recently, it has been common for products of South Korean small and medium companies to be kept in customs warehouses, unable to enter the market for more than half a month.

“Because of the rise in the number of trains running to and from China with oil, there is no room on the Trans-Siberia railroad for South Korean cargo which has arrived in the far-eastern region of Russia,” said Mr. Cho, a South Korean who recently visited the region.

In recent days China has been making use of its friendly relations with Russia to open export routes for low-priced vehicles such as Cherry. Cherry’s market share has tripled in Russia in recent times. Last year, China`s gross exports to Russia expanded 12-fold compared to those of seven years ago.

Senior researcher Oh Yeong-il of the LG Economic Research Institute said, “In the global market one mistaken policy or strike can result in “casualties” in export routes. We need to re-establish export strategies and recover the fierce driving power we had a decade ago.”

viyonz@donga.com