Samick Musical Instruments Co., Ltd.

views updated

Samick Musical Instruments Co., Ltd.

424 Chongchon Dong
Pupyoung Gu, Inchon
Korea
Telephone: ( + 82) 32-453-33557
Fax: ( + 82)32-453-33769
Web site: http://www.samick.co.kr

Public Company
Incorporated: 1958 as Samick Piano Co.
Employees: 1,555
Sales: W 171.5 billion ($143 million) (2002 est.)
Stock Exchanges: Seoul
Ticker Symbol: 02450
NAIC: 339992 Musical Instrument Manufacturing

Samick Musical Instruments Co., Ltd. is not only the world’s largest manufacturer of grand pianos, it is one of the world’s largest producers of musical instruments in general. The Inchon, Korea-based manufacturer produces a full range of pianos, electric and acoustic guitars, basses, banjos, autoharps, harmonicas, and other instruments. Samick produces more than 20,000 pianos per year in its Grand Piano Factory in Korea and in its 430,000-square-meter facility in Bogor, Indonesia. Samick’s pianos are sold under the Samick name as well as under a variety of brand names, including Koher & Campbell and Knabe. The company also manufactures pianos for a number of other piano names, including Hyundai and DH Baldwin/Wurlitzer. With a manufacturing capability of more than one million guitars per year in factories in Korea, Indonesia, China, and the United States, Samick also ranks as the world’s leading stringed instrument producer. The company sells its guitars under its own brand names, including Samick, Abilene, Silvertone, and the Greg Bennett Signature Series. Samick also manufactures guitars for many other companies, including Fender and Gibson, at its stringed instrument factory in Korea and its Bogor, Indonesia, plant and operates a dedicated Upright Piano and Piano Action plant, as well as its own sawmill and woodworking facility in Korea, a smaller factory in California, and a plant in Harbin, China that produces wooden guitar and piano parts. Samick also operates its own research and development facility in Korea. Since the late 1990s, the company had been operating under bankruptcy protection and was acquired by a consortium led by Korean construction company Speco in November 2002. At the beginning of 2003, Samick announced that it had agreed to acquire 60 percent of Germany’s Bechstein (which in turn acquired 15 percent of Samick) in a move designed to give Bechstein access to the fast-growing Asian market, while providing Samick access to Bechstein’s technical expertise. Samick is led by former Speco president Kim Jong-sup.

Building a Korean Musical Instruments Firm: 1950s–1970s

With its economy and manufacturing capability devastated by the recent war, Korea began seeking to redevelop its manufacturing sector with a launch into new industries. Musical instruments became a target market, and the 1950s saw the emergence of a number of new companies, such as Seoul’s Young Chang, founded in 1956. Two years later, there appeared another prominent Korean name in musical instruments, Samick. In that year, Hyo Ick Lee founded the Samick Piano Co. in Inchon. Like other Korean companies of the time, Lee’s company initially acted as an importer for other brands—in Samick’s case, the famous American piano brand Baldwin.

Samick quickly turned to manufacturing, however. In 1960, the company began building its own pianos, using imported parts, under its own name. The company’s initial production remained limited to more easy-to-build upright piano models and in the early years were targeted at the domestic market. Samick and other Korean instrument manufacturers were aided by the country’s educational system, which including musical education as part of the required curriculum.

By 1964, Samick’s manufacturing confidence and capability had grown sufficiently for the company to make its first moves onto the more lucrative export market. At the same time, the company began to extend its production into other musical instrument categories, notably guitars. The boom in rock and folk music following the success of Elvis Presley, as well as the Beatles and other British Invasion groups, had created a worldwide demand for acoustic and electric guitars. Samick’s own guitar production began in 1965, joining the flood of cheap (and often low-quality) Asian-made guitars that overwhelmed the market in that decade.

Nonetheless, Samick slowly moved toward a higher quality market. The company continued to improve its piano manufacturing techniques, and in 1970 its production abilities had developed sufficiently for it to launch its first grand pianos. At the same time, the company began to step up the quality of its guitar production. As part of that effort, Samick formed a joint venture with Texas-based International Music Company (also known as the Hondo Guitar Company). The new company introduced modern U.S. production methods to the Korean market, while taking advantage of the low-wage level in Korea to offer inexpensive, entry-level guitars.

Hondo initially produced a line of classical and folk guitars before adding its first electric guitars in 1972. By 1974, the company’s electric guitars had achieved a certain level of quality, and Hondo became one of the largest-selling entry-level brands by the mid-1970s. Hondo added a variety of instruments to its line during the 1970s, including banjos, while continuing to make product improvements. By the end of that decade, Hondo was selling nearly 800,000 instruments per year before fading out in the 1980s.

Samick’s thrust remained with its own brand, which was extended with the introduction of a line of harmonicas in 1971. In 1973, in recognition of the growing diversity of its musical instruments range, the company changed its name to Samick Musical Instruments Mfg. Co. Throughout the decade, Samick continued to modify its manufacturing methods in order to enhance product quality, and by the end of the 1970s the company had already become a major exporter of grand pianos at a time when the market for the larger pianos was growing steadily.

Samick continued to target the export market, especially the United States, where it opened a branch office in 1978. The lower production costs of Korean-made instruments made them attractive entry-level pianos, and a number of brands began contracting Samick to build their lower priced models. Such was the case with the Schumann piano brand, based in the United States, for which Samick produced pianos beginning in 1979.

By the late 1970s, the Korean musical instrument industry had largely caught up to its primary Japanese competitors in terms of quality, while at the same time retaining Korea’s lower production costs. Samick, too, had joined in the bid for higher quality by constructing new, automated production facilities that reduced the need for a large pool of expensively trained employees and at the same time enabled it to increase and maintain quality standards. The company opened its new guitar factory in 1979; the following year, it automated both its stringed instruments facility and its upright piano plant. That year, also, Samick opened a branch office in Germany, in order to introduce its brand to the European market. In 1982, the company established a full U.S. subsidiary, Samick Music Corporation.

Quality Growth in the 1980s

Throughout its more than twenty years in business, Samick had maintained close ties with Baldwin. In 1982, the two companies formed a joint-venture, Korean-American Musical Instruments Co. That company started up production in 1983, becoming the manufacturer behind Baldwin’s entry-level Wurlitzer brand, as well as another brand, DH Baldwin.

That year also marked a new phase in Samick’s own piano production. In March 1983, the company signed on Klaus Fenner, one of the world’s most renowned piano designers, to provide design and technical assistance for Samick’s grand piano production. By October of that year, Samick had completed a new dedicated grand piano factory, and in 1984 the company debuted its first Fenner-designed piano. That design won the prestigious Gold Prize award from the French piano specialist magazine Diapason in 1985.

Samick’s quest for quality was to continue throughout the 1980s and was given a boost by the founding of the company’s own research and development center, the Samick Musical Instruments Development Institute, in 1987. A major innovation introduced by the institute was a safety closing system for grand piano lids. The company also added a new piano line, that of digital pianos. In 1988, the company took a new step forward when it went public. That year it also acquired the prestigious Köhler & Campbell brand. Founded in New York in 1896, Kohler & Campbell was one of the largest piano companies in the United States during its heyday but had gone out of business in 1985. The addition of the Kohler & Campbell brand gave Samick an entry into the high-end grand piano market. The company then opened a U.S. production facility in California in 1989 for the Samick, Kohler & Campbell, and other piano brands.

Meanwhile, Samick’s guitar and other stringed instruments had continued to make dramatic quality advancements, encouraging the shift of worldwide instrument production, and particularly of guitars, to Korea. The company became a major manufacturer for a number of well-known brands, including low-end models for the famed Fender and Gibson brands. Supporting Samick’s growth was an expansion of its string instrument facility, as well as continued automation upgrades at its main piano and warehousing facilities.

Company Perspectives:

Samick Musical Instruments Co., Ltd. was established in 1958 with the purpose of “enriching human life” through music, the universal language. On the strength of our 43 years of extensive experience in the production of musical instruments, Samick has grown into the largest manufacturer of musical instruments in Korea and the world’s largest piano company. We now pledge ourselves to the future, concentrating on the production of the world’s finest quality instruments. We intend to make the musical needs of our valued consumers our top priority.

By the end of the 1980s, Samick, which entered the export piano market under a variety of brand names, began to shift its emphasis to its own name as it established a reputation for affordable quality. By the beginning of the 1990s, Samick had already become one of the world’s leading manufacturers of pianos, with exports topping $100 million, and the Samick brand itself had an established reputation.

Struggle and Recovery in the 1990s and Beyond

The rising standard of living in Korea led to increased wage and production costs, and the musical instrument industry began to look to new, lower-cost markets. Samick joined that trend, launching a wood processing subsidiary in Harbin, China, in 1990. In 1992, Samick took a step further, with the opening of a $30 million, 430,000-square-meter plant in Bogor, Indonesia. The new subsidiary, PT Samick Indonesia, began operation in 1993.

The Indonesian subsidiary gradually took over production of the company’s entry-level instruments, beginning with acoustic guitars in 1993. By 1995, the facility had gained sufficient expertise to begin production of electric guitars as well, followed by upright pianos in 1996 and grand piano production in 1998. By the beginning of the new century, the Bogor site was producing some 15,000 pianos and 500,000 guitars each year, while Samick focused its Korean manufacturing capacity on higher end products. These, however, often featured wooden components produced by the Bogor plant.

By the end of 1995, Samick had claimed the number one spot for sales of grand pianos in the world, with more than 18,000 sold that year. Yet 1996 nearly spelled the end of the company when it was forced to declare bankruptcy amid the economic turmoil in Korea and the rest of the Asian region. While the company’s musical instruments business remained profitable, Samick had been hit hard by an attempt to diversify during the 1980s.

That effort had begun in 1986 with the formation of Samick Products Co. and had led the company into such areas as furniture, computer equipment, heavy industrial equipment, caster manufacturing and distribution, and even deep-sea fishing, complete with a fleet of tuna boats. Samick had hoped that the broader manufacturing base would give a stronger financial foundation for its musical instruments sales. Instead, the company found itself unable to turn a profit in most of its new ventures, winding up with a debt load as high as $400 million. In 1996, after defaulting on promissory notes of nearly W 13 billion ($10 million), Samick declared bankruptcy.

Samick’s prominence as a musical instrument maker, and the division’s relative health and strong growth, saved the company from going under. Its new administrators agreed to a restructuring in which Samick shed all of its money-losing businesses and regrouped around its musical products operations. By 1998, the company had succeeded in shedding nearly all of its failed businesses (a process completed in 2001) and most of its debt. The slimmed-down company was also able to report profits that year.

Samick remained under court protection into the next decade as it refocused on expanding its musical instruments sales. The company received a boost in 2000 with a $50 million original equipment manufacturer (OEM) contract to supply grand pianos to Baldwin, which itself had filed for bankruptcy the year before. The relationship between the two companies was to grow even stronger the following year when the former head of Samick’s U.S. operation joined Baldwin as its new CEO. The year 2000 also marked the debut of the new and well-received “World” piano line designed by Klaus Fenner. Samick gained another boost when it acquired the rights to the highly regarded Knabe brand name as well. The company also launched a new “silent” piano system that year.

Samick at last found new owners in September 2002 when a consortium led by Korean construction company Speco purchased it for W 125 billion ($10 million) and retired nearly all of its remaining debt. Former Speco president Kim Jong-sup was named chairman of Samick. “You can consider this a brand new start for the company,” Jong-sup told the Korea Herald. “Under brand new management, we will aim to become a top piano brand in the world not too far in the future.”

Samick’s new financial backing quickly produced results. In December 2002, the company announced that it had acquired 60 percent of Germany’s Bechstein, a company which had been in business since 1853 and which had provided pianos for the likes of Franz Liszt and Claude Debussy. The deal was expected to give Samick access to Bechstein’s technical expertise, while Bechstein, having acquired 15 percent of Samick as part of the deal, gained an entry into the fast-growing Asian market.

Key Dates:

1958:: Hyo Ick Lee founds Samick Piano Co. as an importer of Baldwin pianos for the Korean market.
1960:: Samick begins production of upright pianos using imported parts.
1965:: Samick begins production of acoustic guitars as part of its diversification into the broader musical instruments market.
1978:: A branch office in Los Angeles is opened.
1979:: Samick opens an automated guitar-production facility.
1982:: The company establishes a U.S. subsidiary and launches Korean-American Musical Instruments Co joint-venture with Baldwin Piano & Organ Co.
1987:: Samick Musical Instrument Development Institute is formed as a part of a research and development investment campaign; the company begins production of digital pianos.
1988:: Samick goes public, listing on Seoul stock exchange, and acquires Kohler & Campbell piano brand.
1996:: The company declares bankruptcy and begins to sell-off its diversified operations to refocus on musical instruments.
2000:: Samick signs an original equipment manufacturer (OEM) agreement with Baldwin and launches a Fenner-designed line of pianos.
2002:: Samick emerges from bankruptcy, being acquired by Korean construction group Speco.
2003:: A high-end line of pianos is launched.

By April 2003, Samick appeared to have overcome its troubles. With revenue growth of nearly 30 percent, it pushed past the $200 million mark. With the launch of a new line of high-end Knabe-branded pianos, Samick was prepared to claim a place among the world’s leading quality piano makers in the new century.

Principal Subsidiaries

HARBIN Samick Corp. (China); P.T. Samick Indonesia; Samick Europe GmbH. (Germany); Samick Japan; Samick Music Corp. (USA).

Principal Competitors

Kawai Musical Instruments Manufacturing Company Ltd.; Suzuki Metal Industry Company Ltd.; Peavey Electronics Corp.; Yamaha Corporation of America; Young Chang Akki Company Ltd.; Baldwin Piano and Organ Co.; Fender Musical Instruments Company; Gibson Guitar Corp.