Chipping, chopping, and changing is this South Korean auto-major's way. But it isn't working in the Indian marketplace.

By Ranju Sarkar

Car-manufacturers drive, but it would be easier to chart Daewoo's strategy by foot. The South Korean auto giant, the first foreign company to take on the Indian car market-after Suzuki Motor Corp., that is-has zipped at blind turnings, crawled on freeways, and made an annoying habit of taking sharp U-turns in the last 5 years. Wonder of wonders, its debt-laden parent, the $71.53-billion Daewoo Group, is also taking one helluva U-turn.

South Korea's second-largest chaebol has always been growth-hungry, but it is now desperately trying to reduce its $52 billion in debt (5 times its assets) by half. Over the past 2 months, the Daewoo Group's chain-smoking Founder-Chairman, Kim Woo Choong, 62, has announced that the sprawling conglomerate's focus will now be solely on trading, finance-and automobiles. And the group has already decided to shed all, or parts of its ship-building and luxury hotels businesses, and is also looking to exit from heavy industries like steel.

Of course, the Daewoo Group's 1,070-MW power projects in India will feel the fallout of the restructuring. On June 30, 1999, came the (proverbial) AXE: 50 CEOs from the Daewoo Group-including our very own N.H. Nam, Chairman, Daewoo Motors India (Daewoo Motors)-were asked to quit en masse for the second time in 2 years to facilitate the restructuring. Although all the details are not available, Daewoo insists that most of them, including Nam, have been reinstated (sans salary, on short-term contracts).

Meanwhile, last fortnight, Daewoo's application for transferring Daewoo Corporation's 91.63 per cent stake in Daewoo Motors to Daewoo Motor Co.-its wholly-owned subsidiary in South Korea-received the approval of the Foreign Investment Promotion Board. By doing so, Daewoo has consolidated its automobiles business under a single umbrella. And a platform, Daewoo hopes, for the Matiz, of which it has sold 400,000 all over the world since its launch in April, 1998.

On the face of it, nothing has changed very much for Daewoo Motors. The company expects to sell 30,000 Matizes in the domestic market, and export another 30,000 in 1999. In May, 1999, it also launched the Nexia, a contemporary version of the Cielo. On the cards is the launch of a luxury car, probably, the Nubira. And the company also claims it will export 70,000 engines and transmissions this year as opposed to just 20,000 in 1998-99. Yawn!

This business-will-be-better-than-usual air cannot hide Daewoo's terrible run. Its net losses of Rs 42.73 crore in 1997-98 are a reflection of its innumerable strategic flip-flops, where the company tinkered with the price, product, and positioning of its small- and mid-size cars. Daewoo's ''flexible'' marketing strategy for the Cielo has sullied its image in the Indian market. And the premium positioning strategy for the Matiz bombed. Worse, a terrible faux pas: its recent ad highlighting the company's contribution to the Indian Army's efforts in Kargil only attracted allegations of bad taste.

No wonder Daewoo's financials continue to be under pressure: while the company has yet to finalise the accounts for the year ended March, 1999, sales for the second quarter ended September, 1998 (Q-2, 1998-99)-the latest period for which figures are available-fell by 37 per cent to Rs 54.75 crore. During the same period, Daewoo's net losses increased by 68 per cent: from Rs 4.80 crore in Q-1, 1998, to Rs 8.05 crore in Q-2, 1998. The extent of Daewoo's financial problems can be gauged by the fact that, in 1997-98, the company did not include Rs 120.36 crore of accrued interest in the Profit & Loss Account, adding, instead, the figure to secured loans.

So, what goes wrong at Daewoo? Is there a mindset or culture problem at Daewoo? Or does it face a perception problem, as S.G. Awasthi, CEO, Daewoo Motors, constantly intones?

DEMAND DELUSIONS. In its bid to outwit the Japanese and the American car-makers, Daewoo furiously expanded capacity in the 1990s. But, in its hurry to enter new markets, it committed many mistakes. For example, when its investment proposal for China got caught in red tape, Daewoo immediately allocated the investments to India. Clearly, the decision to build a plant with an annual capacity to manufacture 1.20 lakh cars and 3 lakh engines and gear-boxes was not backed by an adequate understanding of either the Indian or the global markets.

Both markets did not live up to Daewoo's expectations. Take exports: in 1998, Daewoo shipped only 20,000 gear-boxes to its parent. The problem is that Daewoo's engine- plant mostly makes large-capacity (1,600-cc and above) engines. However, in the wake of the Asian crisis, the demand in Daewoo's markets has shifted to smaller, economical cars. By the time the company realised that it had to launch a small car-even in India-to gain sustainable volumes, its investment in the engine-and-gear-box unit had become redundant.

So, the Matiz was launched in October, 1998, with low indigenisation-levels of 25 per cent. That pushed up the sticker-price of the Matiz to Rs 3.67 lakh. Adds Awasthi: ''We also found it difficult to source completely knocked-down units from South Korea, which forced us to launch only a single variant.'' While the Matiz has managed to sell only 10,488 cars since its launch in November, 1998, the Hyundai Santro (price: Rs 2.93 lakh-Rs 3.62 lakh for 3 variants) has sold 30,300 cars since its launch in October, 1998.

Says B.V.R. Subbu, 43, Executive Director (Marketing), Hyundai Motor India: ''The Matiz's initial pricing was unrealistic.'' Obviously, Daewoo should have first factored in the price, and then the features-not the other way around. In April, 1999, the company was forced to rework its strategy. Out went the single-model plan, and in came a range of 3 models: a stripped-down standard model (Rs 2.67 lakh), a deluxe model (Rs 3.04 lakh), and an executive model (Rs 3.48 lakh).

The new strategy is, obviously, working. For instance, Daewoo sold 1,000 Matizes in April, 1999, 2,250 Matizes in May, 1999, and 2,584 in June, 1999. Encouraged by the higher demand, Daewoo has gone into double shifts to rev up production. But then, so has ''headstart'' Hyundai. In any case, the stockmarkets have reacted favourably, pushing up the Daewoo scrip from Rs 8.60 on April 15, 1999, to an above-par Rs 13.70 on July 14, 1999.

POSITIONING PROBLEMS. Internationally, Daewoo occupies the lower end of the mid-size segment. However, it tried to tap the premium segment in India initially. In 1995, the vacant mid-size segment-occupied by the Maruti Esteem and the Contessa-was virgin enough for a new player to make a mark. Daewoo also hoped its positioning as a manufacturer of quality cars would help while launching small car models in the future. So, the Cielo was launched, and, by the second quarter of 1996, Daewoo was selling 1,600-2,200 Cielos a month.

But then, top-bracket competition was just around the corner. And, expectedly, Daewoo's premium positioning was hit by the launch of General Motors' Opel Astra and the Ford Escort. To outwit them, Daewoo's dealers began offering discounts on the Cielo: between Rs 30,000 and Rs 1.10 lakh per car. In January, 1998, Daewoo formalised the discounts by slashing its price by Rs 1-1.30 lakh. The base-price of the Cielo came down to Rs 4.90 lakh. And, overnight, from a premium car, the Cielo became a discount brand. In fact, the Cielo's marketshare in the mid-size segment has come down from a high of 29 per cent in 1996-97 to 13 per cent in 1998-99.

In March, 1999, Daewoo managed to sell just 255 cars while new-comer Honda sold 1,359 Citys and Maruti sold 1,616 Esteems. And even though the Cielo Executive (the only variant) is competitively-priced at Rs 5.38 lakh, Daewoo's misadventures has created a perception problem. A burden that the Nexia-priced at Rs 6.56 lakh, the Cielo's upgraded avataar with similar looks-will have to contend with. Awasthi hopes that the Cielo and the Nexia together will give Daewoo volumes of 10,000 cars this year. That is, he is shooting for a marketshare of 23 per cent-up from 13 per cent in 1998-99.

Daewoo's tinkering with pricing and products has not only confused the consumer, its 110 distributors too are unable to tell what the company will do next. But that is synonymous with the Daewoo culture. For, in other countries, Daewoo's marketing is a learning curve, which keeps changing ever so regularly. In other words, the Koreans think only about today-not what will happen tomorrow. While that has proved to be a boon in developed, mature markets, where price-cuts and repositioning models are facts of life, the Indian consumer has reacted unfavourably.

Admits Awasthi: ''The perception (about Daewoo) is linked to the market never having been exposed to competition. Today, all the other car-manufacturers-like Maruti Udyog and Ind Auto-have slashed prices too.'' True. But Daewoo would, probably, have been more successful if it had first entered the small-car segment, and then resorted to aggressive pricing to outwit the market-leader, Maruti Udyog.

THE FUTURE SPOKES. Says Awasthi: ''We want to address all segments of the automobile market.'' With so much driving on the Matiz, will Daewoo manage to meet its ambitious sales targets for this year? The Matiz has been a big hit in the European market, and Daewoo's Indian outfit wants to cash in on that. This year, Daewoo plans to sell 200,000 Matizes in Europe, and it plans to source 30,000 from India.

As for the domestic sales target, Daewoo's odds are even. Sales have been picking up, but the Matiz has one factor (yes, it's got to do with perception) working against it. Both the Maruti Zen and the Hyundai Santro have bigger, 1,000-cc engines than the Matiz's 800 cc. Says auto expert Murad Ali Baig, 59: ''Many customers not comfortable with the Santro's looks and will be attracted to the Matiz.'' Of course, once all car-manufacturers meet the Euro II norms, the price-differential between the Matiz and, say, the Santro will come down.

In the case of its mid-size car strategy, Daewoo is benchmarking the Nexia against Mitsubishi's Lancer GLXI pet (price: Rs 7.20 lakh), but offering it for Rs 65,000 less. Proclaims Awasthi: ''We are offering the value of the most expensive mid-size car, but pricing it lower.'' Especially since the Cielo's downgraded image might rub off on the Nexia, which has the same body but a 1,500-cc, double-overhead camshaft, 16-valve engine.

And, the less said about the Cielo Executive's chances, the better. In September, 1998, Daewoo launched 2 luxury buses: the 20-seater Royale and the 32-seater Caravan. Daewoo managers are tight-lipped about how they have fared, but rivals carp about how not a single one has been sold! However, the car-maker's enthusiasm hasn't been dampened.

On the cards now is the launch of a luxury car, the Nubira. With an estimated sticker-price of Rs 14 lakh-Rs 16 lakh, Daewoo will position its new car between the Mercedes-Benz E-Class and the Opel Astra. It will be driving into a completely new niche. Clearly, Daewoo's hopes rest on the Matiz-and the Matiz alone. It is also time for some tough decisions, like shutting down or shifting abroad the engine plant. For, if Daewoo makes any more mistakes, it'll be goodbye for good. No more comebacks.

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