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September 2003: Volume 45, Number 9

Cooling Off with Chung Ho NAIS’ Joung
by Carlos David Mogollón, WC&P Executive Editor

Chung Ho NAIS is part of Chung Ho Group, a large Korean company that produces a diverse range of products, including bidets, feet massagers, vacuums, air purifiers, small refrigerators, icemakers and cosmetics--as well as point-of-use water treatment coolers, mini-softening devices and related components.

It's a big company.

It has 900 employees and more than 30,000 salespeople--independent dealers who sell direct door-to-door. Outside of Korea, the biggest buyers are Australia, the United States and Saudi Arabia. North America, Australia and Thailand are its fastest expanding markets. Growing at a 30-percent-plus clip per year, Chung Ho expects to gross $400 million in sales in 2003.

Founded in 1993 by W.D. "William" Joung, the chairman and CEO, it celebrated its 10th anniversary on May 1. It's compiled quite a record of innovation and awards in the meantime -- more than 150 different honors from government agencies, publications, associations and consumer organizations. These include prizes for customer satisfaction, design, service, marketing, management and environmental stewardship.

Among its milestones, Chung Ho introduced the world's first water purifier with a cold-water dispenser incorporating a "thermo-electronic component" for water cooling in place of a compressor in August 1995. This allowed alternate cooling than freon-based systems and more precise temperature control. In January 1997, it introduced the first cold water purifier with "a calling function with which consumers can answer the incoming call in the kitchen." Yup! Push a button with your finger or elbow--if you're cooking--and talk on the phone.

That's not all.

It introduced in July of this year the Ice Combo, which is the world's first RO water purifier with an ice machine built-in. It's a POU water purifier with a sediment filter, carbon pre-filter, RO membrane and carbon post-filter. As such, it produces crystal clear ice.

Others recently released include its Odyssey ß and Naissance Plus water purifiers and Good Morning ice machine. In the past few years it also introduced a line of commercial/industrial water treatment equipment. Bear in mind, about 7 percent of revenues are reinvested in R&D yearly.

Joung studied at universities in the United States and Korea, and holds a doctorate in chemical engineering. He also holds the Water Quality Association's Certified Water Specialist-Level 5 designation, having first attended the WQA in September 1993. ChunghHo was the first Korean firm to earn Gold Seal certification in 1995. It also has pursued similar marks from other testing agencies.

Joung notes that purified water first caught on in Korea in 1988 during the Seoul Summer Olympics when bottled water was popular among athletes and spectators refreshing themselves in the sweltering heat. Contamination of a major river in 1991 and ongoing media reports about environmental problems related to the country's rapid industrial development in the prior two decades made it very clear to consumers that tap water required additional treatment in the home, he says. As such, Chung Ho has enjoyed a captive market.

It hasn't all been easy. A fire early on shut down the company's factory for three weeks and a number of customers bolted for other suppliers. Still, survival is the name of the game and those who showed more patience were rewarded with Chung Ho's persistent success.

Before we get to the interview itself, here are a few facts on Chung Ho NAIS.

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Chung Ho NAIS Co. Ltd.
9F, NAIS B/D, 1597-2
Socho3-dong, Socho-Gu
Seoul, Korea
Tel: +82 (2) 3019-5020
Fax: +82 (2) 522-6531
Email: trade@ChungHo.co.kr
Website: www.ChungHo.co.kr

Management:
* Joung W.D., Chairman
* Hwang Jong Dae, President
* Lee Soon Se, Vice President

Revenue:
It expects a 30% jump in sales to $400 million in 2003, after 35% growth last year.

Operations:
In water treatment, manufactures primarily cooler POU systems incorporating filtration, RO and UV. Also makes some softening systems, icemakers and refrigeration equipment--as well as larger commercial/industrial water treatment equipment.

Sister companies:
Chung Ho International, Chung Ho Tech, Chung Ho Digital, Chung Ho NAIS Cosmetics, NAIS Mart, Bill Tec and Thermotek

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And now for the interview:

WC&P: When was Chung Ho NAIS founded?

Joung: In 1993--in May, actually.

WC&P: What was your background prior to starting the company?

Joung: I studied business administration and chemical engineering, the subject of my doctorate, in the U.S.A. and Korea. I also earned the Water Quality Association's Certified Water Specialist-Level 5 (CWS-V) designation.

WC&P: From where did you earn your doctorate?

Joung: The University of Minnesota.

WC&P: Who is the president of the company?

Joung: Mr. Hwang Jong Dae

WC&P: Who is the vice president?

Joung: Mr. Lee Soon Se

WC&P: When did Chung Ho NAIS start making water treatment products and why?

Joung: Chung Ho NAIS has continued to manufacture water and air purifiers since its establishment. And recently, also, it makes ice machines, bidets, softeners and even refrigerators, including a special one for kimchi which is a vegetable mix--seasoned with garlic, red pepper and ginger, and pickled and fermented--that is the national dish of Korea. As for why, Korea faced serious contamination of air and drinking water in late '70s, owing to speedy industrial development strongly driven by the government. And Korean people started to be concerned about drinking water. Further, their concern about drinking water grew as the potable water was supplied to the players of Asian Games in 1986 and the Seoul Olympic Games in 1988. The treatment methods for this included bottled water and coolers. Then, in early 1991, the Nak-Dong River-- which was the main drinking water source for inhabitants of the southern part Korea--was seriously contaminated by some factories discharging toxic waste/chemicals into it. All mass media started to allow bigger portion of their coverage to drinking water and accounts of other water quality problems. People acknowledged that tap water is not safe for drinking any longer and felt the necessity of some agent to clean tap water for safe drinking. At that time, only some companies were importing water purifiers from overseas, mainly the United States. And only several companies started to fabricate water purifiers after importing almost all parts from the United States. In 1993, Chung Ho NAIS was established and started to manufacture RO water purifiers and air purifiers. The marketing plan is direct selling--door-to-door--with salespeople numbering currently 30,000 and sales volume of about US$400 million anticipated for this year.

WC&P: Since it seems as if Chung Ho produces a wide variety of products such as cosmetics, refrigerators--even running discount marts as well--in addition to water treatment equipment, please describe how Chung Ho NAIS fits in as part of Chung Ho Group?

Joung: Now, Chung Ho NAIS is the headquarter company of the group, which a number of other companies that focus on manufacturing, sales, distribution, after service, export and technology.

WC&P: What all is included in the company's product lines?

Joung: We still do water purifiers, but the items of bidet, softeners, ice machines and kimchi refrigerator have been added.

WC&P: What water treatment technologies are incorporated into your water treatment products?

Joung: For the water purifiers, we do only reverse osmosis technology with UV sterilization included for most models. According to a market analysis, at present, the water purifier's market dimension--for point-of-use--in Korea will reach a total of US$950 million for this year. This market has grown speedily from US$340 million in 2001 to US$600 million in 2002 and, again, an expected US$950 million in 2003. Our targeted sales volume for this year is US$400 million. Now, the portion that RO filtration systems make up of the total water purifier market in Korea, i.e., at point-of-use, is about 80 percent. It is by far the leading system sold in the water purification market in Korea. And direct selling has been leading as the primary channel to market. More recently, though, the market share for rentals has been expanding rapidly. The rationale for rentals' growing popularity includes:
1) customers can rely on regular visits and examination of the system by qualified technicians to make sure it's functioning properly and equipment dealers can rely on recurring income from replacement filters and parts, as well as the monthly rental fee; and
2) it was introduced to the water purifier market in Korea in 1998 owing to IMF mandates so that more consumers had easier access to water purifiers because of the environmental situation. As such, the water purifier’s usage rate among households in Korea grew to 22.3 percent in 2002--and, this year, it's expected to reach 30 percent.

WC&P: What’s the latest product?

Joung: We introduced in July of this year the Ice Combo, which is the world's first RO water purifier with an ice machine built-in. It's a POU water purifier with a sediment filter, carbon pre-filter, RO membrane and carbon post-filter. Other core parts include a booster pump, solenoid valve, auto-flushing valve and infrared water level detector. Other features include a power-save mode which disengages hot water heating overnight, during the day or while on vacation. A lock button disables the unit from any inadvertent operation, such as for families with small children. It also has an automatic diagnosis and alarm mode to stop the system if it's not functioning properly and alert the user. And it uses an environmentally friendly coolant, R-134a, rather than freon. It's really the latest in a long line of advances that Chung Ho has introduced to the market. Other notable product developments include the CH-TEC, which was introduced in August 1995 and was the world's first water purifier with a cold-water dispenser incorporating a "thermo-electronic component" for water cooling in place of a compressor. Among the positive points this offers is it doesn't require freon, it's virtually silent and it provides precise temperature control. Then, there's the CH-650 model, which was the world's first water purifier with a cold-water dispenser and a calling function with which consumers can answer the incoming call in the kitchen. It was introduced in January 1997. The phone receiver and speaker are built into the system. And there is a button to receive or hang up. Press one time: You can hear the voice of caller through the built speaker; and one more press of the button enables you to hang up while you just stand at the sink without any phone or earphone. In our catalogue for this model, we recommend press the button by elbow because their hands are stained with foodstuff especially for Korean food. With these innovations, Chung Ho NAIS has won principal prizes about 150 times from various government bodies, publications, associations or consumer groups for "best quality" or "management." We are very proud of those.

WC&P: How many people does the company employ?

Joung: In addition to the sales force, 30,000 direct sellers, Chung Ho NAIS has a staff of 900 people.

WC&P: Are all of these people at the company’s main facility or does it have multiple facilities?

Joung: They work at one headquarter building in Seoul as well as two factories Chung Ho has in two local provinces. There are 32 local offices all over the country for administration, including A/S--after sales service. Then, we have 120 offices for the salespeople all over the country.

WC&P: When did the company begin to export?

Joung: Chung Ho began to export products to Japan in February 1994.

WC&P: When did you begin exporting to the United States?

Joung: We began to export to the U.S.A. in 1999.

WC&P: Do you have a U.S. subsidiary?

Joung: We do not have any subsidiary company in the U.S.A.

WC&P: What other companies do you do business with in the United States?

Joung: We do business with USA companies such as: Rexair Inc.--we have been importing vacuum cleaning system from them; The Dow Chemical Company--we import raw materials for RO membranes from them; and MyClearWater Inc.--we export RO water purifiers to them.

WC&P: In what--or how many--other countries does the company sell its products?

Joung: In 24 countries including the United States, Australia, Portugal, Japan, Thailand, Mainland China, Sweden, Saudi Arabia, Peru, France, etc.…

WC&P: How much business do you do in Europe?

Joung: We do export RO water purifiers to Europe--France, Portugal, Sweden, etc. It accounts for about US$350,000 monthly.

WC&P: In which countries does Chung Ho sell the majority of its products?

Joung: Australia, the United States and Saudi Arabia.

WC&P: In which countries does is it experiencing the greatest growth?

Joung: The United States, Australia and Thailand.

WC&P: In what areas is it anticipating the most growth?

Joung: North America and Thailand.

WC&P: How does it sell its products--foreign sales offices, distributors, franchises, independent dealers, mass retail stores, the Internet?

Joung: Largely through independent dealers.

WC&P: Can you assign percentages to each of those?

Joung: 100 percent independent dealers.

WC&P: On what does Chung Ho place the most effort/emphasis currently?

Joung: Recently, Chung Ho NAIS launched three new models of products: the Ice Combo; the Odyssey ß and NAISsance Plus-Water Purifiers with hot and cold dispenser, combination of water purifier and water cooler; and the Good Morning Ice Machine-Ice Cuber with high volume capacity). Among them, Chung Ho's efforts and emphasis is on the successful launching of the Ice Combo in the domestic and overseas market so that this unit is seen as the leading product model representing the company .

WC&P: What do you anticipate for the future of your company?

Joung: Chung Ho will be the leading maker and specialized seller of comprehensive and valuable home appliances in the world as the business territory is uniquely expanded item by item.

WC&P: What do you anticipate for the future of the water treatment industry?

Joung: Basically, I see the future of water treatment industry as lucrative and challenging. For the time being, the current growing trend will be continued. But this growth rate will be dull in the end when the market would need new concepts in filtration, sterilization (beyond UV) and the functions of independent units (for example, fusion products).

WC&P: What do you mean by "fusion products"? Please elaborate...

Joung: Fusion products mean one machine with multiple functions--for example, water purifiers with ice machines, air purifiers with oxygen enrichment capabilities…

WC&P: Tell us an interesting story or anecdote about your experience in water treatment?

Joung: When we developed the water purifier with hot-and-cold dispensers in 1994, 17 R&D workers fueled all this endeavor into developing that machine for 15 days without going home or enjoying regular sleeping. Eventually, they succeeded in developing it as a successful model. It's been the main stepping stone for the long run of our business success.

WC&P: What challenge have you or your company had to overcome?

Joung: In the beginning of business, when we had to manufacture water purifiers all day long--24 hours a day, a big fire broke out in the factory. So, we had to stop manufacturing of products for three weeks, while many customers left to other manufacturer’s products.

WC&P: How did you overcome the loss of customers? What did you do to win back their business?

Joung: After the fire, we had to focus on the fact that the important factor for customers’ buying decision was the quality and reliabilty of the product… Our company administrative staffs participated in manufacturing--helping the workers in order to recover the production loss for two months. And, through this, the staffs and workers have come to be unified at heart in loving the products and company. Naturally, their sincere devotion to product quality was prominent and that encouraged the customers to return. Meanwhile, Chung Ho NAIS has been funneling more than 7 percent of annual sales into R&D to ensure customers the quality they want and to develop uniquely new products. As such, the customers have seen Chung Ho NAIS as the most reliable pioneering company in water purification market.

WC&P: What is the greatest growth the company experienced in revenues/sales this year? Last year?

Joung: Last year, we had 35 percent growth. And we expect more than 30 percent growth this year in sales, again, to about US$400 million.

WC&P: What percentage growth does it anticipate next year?

Joung: We still anticipate the growth percentage of next year of better than 30 percent.

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FYI: Water in South Korea
* Water Korea website: www.water.or.kr/engwater/ewk_main.html

* "Water Quality Standards of South Korea": www.pacrim.ucdavis.edu/water/pollutants/standards/s_korea/sk_standards.htm

* "President Kim Receives Report from Environment Minister," www.korea.net/kwnews/pub_focus/content.asp?cate=01&serial_no=290

* "Korea: Major Rivers/Reservoirs Cleanup Project--Competitive Situation," Industry Canada: http://strategis.ic.gc.ca/SSG/dd73034e.html

* "Ministry to enforce tougher anti-virus regulations for Korea's tap water": www.unep.or.kr/english/media/koreanews_010507.html

* Global Water Intelligence, "Korea Shows Great Appetite for Private Sector Participation": www.globalwaterintel.com/Samples/feb01.htm

* "With Red Cross help, DPRK gets reprieve from waterborne diseases": www.reliefweb.int/w/rwb.nsf/0/0d09a0f0831c2e8fc1256d160043b7e6?OpenDocument

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Join us next month for two Executive Q&A interviews -- one with Gary Strunak, national sales manager of Tomlinson Industries; the other with Bill Waltz, senior vice president and general manager of Pentair Water Technologies.

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For earlier columns in this category, click on the link below or hit the 'List All' button.
Showered in Filters with Sprite’s Farley  August 2003
All in the Family with Kinetico’s Prior  July 2003
Filling the Gap with Aquest’s Oliver  June 2003
Taking a Dip with Industrial Test Systems’ Jaunakais  May 2003
In the Know with Innowave’s Christensen  April 2003
Cleaning Up with Harmsco’s Lee Smith  February 2003
Aldex Chemical’s Al Preuss Speaks Up  January 2003
An Evolving Concept with ECI’s John Borger  December 2002
Durda Fills Niche at Aeration Industries Int’l  November 2002
A to Z with Charger Water’s Buzz Goldstein  October 2002
A Moment with Enting’s Mel Entingh  September 2002
Barnstorming with Pro Products’ Robin Barna  August 2002