Competitive Intelligence

South Korean Business Sees Gold in Olympic Games

South Korean companies like Samsung and Hyundai are big Olympic sponsors in Athens for the summer games starting next weekend:

Samsung Electronics Co. and Hyundai Motor Co., two of the meet's 32 international corporate sponsors, are poised to use the occasion as an opportunity to let themselves better known to worldwide spectators and TV viewers.

Samsung Electronics, the world's top memory chip manufacturer, is participating in the 2004 event as one of the main sponsors, called Olympic Partners.

The company first became an Olympic Partner in 1997, a year after group chairman Lee Kun-hee joined the International Olympic Committee (IOC).

Since that time it has poured an undisclosed amount of money into the Olympic Games as a sponsor while promoting its mobile handsets and wireless devices at the games.

For this year's event, it will be providing about 14,000 mobile phone handsets to IOC members, officials at the Olympics and reporters. Their handsets will provide real-time information on game schedules, results and other Olympics information using a service called Wireless Olympic Works.

Near the main Olympic Stadium, Samsung Electronics will set up a 1,057 square-meter facility to promote its products, including more than 200 mobile phones, and will provide free international calling services for visitors.

It will also set up large-sized logos and advertisements in stadiums and throughout Athens, which is expected to draw 1.5 million tourists.

It has also set up a 1.8-meter-tall replica of a mobile phone at Athens International Airport. The sponsorship that Samsung Electronics was awarded also allows it to set up advertisements with the Olympic logo on them in Olympic member countries throughout the world.

The company will further participate in the Olympic torch relay, which began June 4 and ends on August 13, taking the torch through 34 cities in 27 countries. Yun Jong-yong, the vice chairman of Samsung Electronics, will run in the torch relay in Athens on August 12.

Company Chairman Lee Kun-hee will leave South Korea Friday to participate in the Olympics' opening ceremony and an IOC meeting on August 13. Including the leadership, more than 400 Samsung officials will be at the two-week event.

Hyundai Motor became a National Sponsor in the automotive category for the Athens Olympics, participating as a sponsor for the first time. It was awarded the sponsorship in 2002.

For the Olympics, the automaker will be providing more than 500 vehicles, including Starex vans and the Equus sedan for athletes, reporters and other officials. It too will set up large advertisements at the event.

...and it's apparently having a deliterious effect on Samsung's operating profits:

While the companies are tightlipped about the exact amount that they paid, Kim said each company has to pay an average of $70 million to $100 million to win sponsorship rights and spends an additional $210 million to $300 million to market their products.

It is notable that such massive marketing spending occurred when Samsung Electronics' ratio of operating profit to sales declined in the information and telecommunications sector in the second quarter.

The company said at an investor relations session on July 16 that its sales and operating profit in the information and telecommunications sector for the second quarter this year were $4.19 billion and $686 million, respectively.

The company's ratio of operating profit to sales was 16 percent, down more than 10 percentage points from the previous quarter's ratio of 26.7 percent. This was the first time the company had a ratio of operating profit to sales below 20 percent since 2001.

Samsung Electronics attributed the decline to the increased marketing spending, which includes those for the Athens Olympics and others as well.

Cho Sin-hyeong, a company official in the media department, said marketing spending was "the main reason behind the decline."

"The spending includes marketing costs for the Athens Olympics, as well as marketing spending in other countries, mainly in the United States," Cho said.

The real argument is whether it's worth it. For Samsung, who's brand value in 1999 was estimated at $3.1 billion, 100th in the world, it finished 2003 at $10.8 billion and 25th place.

- Arik