Look out, Japan. Rechargeable batteries are following the memory chip and flat-panel display to Korea. Time was, Japan dominated both, but Korean companies found ways to market and manufacture their products more efficiently. Now batteries appear to be headed on the same westward course. Korean companies "will snatch leadership in the battery industry in five years," predicts Shin Chan Hoon, chief analyst at the state-funded Korea Electronics Technology Institute.
Since 1999, Korean companies have poured more than $1 billion into factories to make the cells that power mobile phones, laptops, MP3 players, and just about any other electronic gadget. Heading the pack are electronics component maker Samsung SDI, a unit of the Samsung chaebol, Korea's biggest conglomerate, and LG Chem, a unit of LG Group, the No. 2 chaebol. After spending more than $300 million each on facilities, the two companies today have nearly 20% of the $3 billion global market for such batteries, twice their share of last year. By 2005 they plan to more than double their capacity, and each expects to have at least a 20% share. "We are investing up to 10% of our battery revenues in R&D to leapfrog the Japanese," says Sheen Sung Kyun, a senior manager at LG Chem.
Part of the shift can be explained by Korea's rapid move into cell phones. A quarter of the world's mobile handsets are now produced in the country. Samsung and LG -- the world's third- and fifth-largest phone makers -- together sold 59 million phones in the first nine months of this year. About half of those locally produced phones are equipped with Korean-made batteries. In addition, SDI and LG Chem supply other major cell-phone manufacturers with batteries tailor-made to their designs.
Korea's government is helping, too. In August, Seoul picked batteries as one of 10 strategic products it hopes will drive the country's economic growth. Some $1.5 billion has been earmarked to develop these strategic industries, while import duties have been halved to 4% for materials and equipment needed for battery production. "If semiconductors and LCD screens are the brain and face of the mobile phone, the battery will be the heart, so they're a natural area for the Koreans to move into," says Song Myoung Ho, director of the Battery R&D Association of Korea.
Korea's success is also helped by the travails of Japan's electronics giants. Sanyo, the biggest battery maker, remains strong, but No. 2 Sony Corp. (SNE) is overhauling its electronics operations, and analysts expect the company to focus its battery-making efforts on supplying its own products rather than selling to outsiders.
Korea's real challenge going forward may come from China. Even as SDI and LG Chem steal share from the Japanese, Chinese battery maker BYD Co. has taken a 15% share of the market. Other Chinese companies are sure to follow BYD as more electronic gadgets get made in China.
Another potential party-spoiler: All this competition is driving down prices. The cost of a lithium ion battery has been dropping by 10% to 20% a year since the mid-1990s. Still, everyone piling into the business is betting that, as consumers snap up ever more electronic gizmos to use on the go, they'll need more and better batteries. Survivors, then, will be those that keep investing in R&D and build the production facilities needed to achieve economies of scale. "This is the sort of game where the chaebol can play the best," says Choi Suk Po, technology analyst at Woori Securities Co. in Seoul. So expect the Koreans to keep charging ahead. By Moon Ihlwan in Seoul