Venture Companies Like Pantech Must Be Able to Thrive

      August 14, 2014 14:11

      Pantech, Korea's No. 3 smartphone maker, filed for court receivership on Tuesday, unable to overcome a severe cash crunch. Founded in 1991, the company is among Korea's first generation of venture companies that eventually grew to generate W3 trillion (US$1=W1,029) in annual revenues by the mid-2000s and become the world's No. 7 mobile phone maker.

      But Pantech suffered several close calls as it competed with heavyweights Samsung and LG, eventually entering its first workout program in April of 2007 following a liquidity crunch.

      After drastic restructuring, it managed to pull off four consecutive quarters of profits, but faced a fresh crisis in March. Its debts swelled uncontrollably as it provided massive subsidies to sell its smartphones, and founder and vice chairman Park Byeong-Yeop resigned taking responsibility for the company's financial woes. 

      It is sad to see a symbol of Korean venture capital file for bankruptcy protection. Pantech's demise is even more heartbreaking because it demonstrates just how tough it is for any young company to survive in Korea's corporate landscape, which is dominated by huge voracious dinosaurs.

      A salutary model is the performance of China's Xiaomi, which has grown massively in just three years since its founding to threaten Samsung. Xiaomi drastically reduced costs by outsourcing all of its production to subcontractors and shaved distribution costs by taking orders only online.

      The company itself concentrates on software development and constantly upgrades the programs on its smartphones, resulting in soaring sales.

      But Pantech followed Samsung and LG's strategy of doing everything itself, from production to marketing, and that meant it simply could not keep up with its bigger rivals. In a nutshell, Pantech's demise is the result of bad strategy. 

      If Korea's economy is to develop in a healthier way, venture companies like Pantech must be able to thrive. But if they simply ape the big family-owned conglomerates, they will end up getting burned.

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