Kim Young-soo

In 1990, I was posted to Hong Kong. For those who move to the territory, there is a shopping list of consumer electronics, and at the time it included a Sony Trinitron TV, a Panasonic VCR, a Sony camcorder, a Nikon camera, and a Whirlpool refrigerator. The Sony TV stood out as a product of unrivaled class, while TVs made by Samsung and LG were relegated to the back of the shops.

Nineteen years on, the shopping list has changed. Samsung and LG have taken the top two places among digital TV makers, and the list now includes many other Korean-made products such as the Anycall cell phone. It was quite a shock to see that Korean manufacturers had caught up to the Sony empire, the very symbol of technology and innovation.

Sony was founded in 1946 as Tokyo Telecommunications Engineering Corporation and made tape recorders and transistor radios. In 1979, it introduced the breakthrough Walkman, and it has continued to innovate, developing the CD player and taking the world by storm in 1994 with the launch of its PlayStation game console.

But more recently Sony has seemed less invincible, reporting a 290 billion yen deficit in fiscal 2008 and laying off 16,000 employees at the beginning of the year as part of severe restructuring. In contrast, Samsung, which was previously not even considered a competitor, recorded an operating profit of W2.5 trillion (US$1=W1,245) and total sales of W32 trillion for just the second quarter of the year.

The reason for Sony's fall is simple arrogance. It became confident that its technology beat anything out there and believed that consumers would always buy Sony because it had the best technology. One good example is the VCR, which employed Betamax technology and thus excluded the rest of the market. Sony's competitors united to adopt the VHS format, and consumers chose VHS because it offered a wider selection of content. Sony was forced to withdraw from the VCR market.

The decline of the Walkman, the first portable music player, followed a similar pattern. In following up on its cassette tape and CD players, Sony decided to leverage its superior strength in optical disc technology to make the MiniDisc player its next-generation device, based on the belief that it would dominate the market. But the market chose the MP3 format, which used microchips to store music. As a result, Apple's iPod replaced the Walkman.

Apple had taken a different approach from Sony's. While Sony focused on the excellence of its technology, promoting the optical disc's ability to store hundreds of thousands of music files, Apple focused on compatibility, which enabled users to easily download music from the Internet. And Apple chose a Taiwanese manufacturer to produce its iPods and iPhones.

The digital world is changing faster than Sony expected. There are no longer many technologies that only Sony is capable of making, and new ideas are being co-opted incredibly quickly. Closed systems in which one company can do everything are rapidly becoming obsolete.

Samsung Electronics and LG Electronics are making record profits despite the global recession. Businesses should only count on consumer loyalty during the good times. It takes decades to win the no. 1 spot, but only a second to fall from it.

By Kim Young-soo from the Chosun Ilbo's News Desk