Going Independent?

Foreign companies that have acquired Korean domestic firms, such as GM Daewoo, Renault Samsung, and Samsung Tesco, are giving serious thoughts to going independent, detaching themselves from their domestic brands. At their initial entry to the Korean market, they used their acquired firms’ domestic brand names to alleviate anti-foreign acquisition sentiment and internal confusion, as well as to strengthen marketing effects. However, with more globalization taking place in Korea, foreign companies have become confident enough to take a more independent approach in the Korean market.

Among them, GM Daewoo is making the most aggressive moves. Since 2005, suggestions of taking “Daewoo” away from “GM Daewoo” – the company name that has been with the company ever since GM took over Daewoo in 2002 – were frequently heard inside the company. When the company conducted a survey on the issue in and out of the company last year, many responded that changing the company name would have a positive impact. Although the survey motivated GM Daewoo even more to do without “Daewoo,” the plan has been postponed at the opposition of some executives. Currently, GM Daewoo automobiles manufactured in Korea are sold under brands owned by GM such as Chevrolet, Buick, Holden or Suzuki in the overseas market. One official at GM Daewoo said, “Many of our customers who had already bought our cars got rid of the “GM Daewoo” logo on the car replacing it with the logo of Chevrolet. I think changing the company name will gain more momentum in two or three years’ time.”

Renault Samsung needs to renew its contract with Samsung for using the brand in 2010 when the current contract expires. When Renault bought Samsung Motors in 2000, it promised Samsung to pay 0.8 percent of its sales as royalty for using the “Samsung” brand name for ten years. Last year, the payment amounted to 16.66 billion won: equivalent to an average of 140,000 won of royalty per each car sold. At the moment, Renault Samsung’s SM3 cars are exported under the brand “Nissan.” The company will unveil “H45” cars at the end of the year and export them to Europe under the brand “Renault.” Renault Samsung is likely to stick to its name at least for the time being since the company is giving consideration to extending the contract. This is largely because the high value of Samsung brand has been useful to Renault in entering and settling in the Korean market.

Divorce between foreign and Korean brands is not confined to the automobile sector. Samsung Tesco, which runs the nation’s second largest retail chain “Homeplus” in Korea, is also thinking over a separation from the Samsung brand. Samsung Tesco was founded in 1999 when the Samsung Corporation’s retail division signed an agreement with U.K retail giant Tesco. Samsung Tesco is widely known as a successful case of foreign and local brand combination, with “Homeplus” just behind “E-mart,” the largest retail chain in Korea. For every new “Homeplus” outlet, Samsung Tesco currently pays roughly 400 million worth of royalty to Samsung Corporation. At the outset, Samsung and Tesco each owned half of the company. With continuous share capital increases on Tesco’s part, Tesco now owns 89 percent whereas Samsung is planning to reduce its ownership from the current 11 percent to five or six percent.

One official at Samsung Tesco said, “We are not so sure if we should continue to go with Samsung because the brand Homeplus has become more powerful than before. We believe that saying goodbye to the Samsung brand will have little or no impact on our sales.”

mobidic@donga.com changkim@donga.com