Non ordinary constraints in the S. Korean mobile phone market
Case summary
Until very recently Apple’s iPhone was not introduced in S. Korea. The heavily regulated market dominated by LG and Samsung does not seem to have place for foreign brands. However a governmental ruling has allowed Apple to sell its iPhone in S. Korea. This is the 2nd step in making the market more competitive, after this year’s withdrawal of the requirement that handsets are based on a Korean made technology (Wipi).
However, despites the government’s efforts of making the market more competitive, it is too early to talk of serious threats for Samsung and LG. The Korean brands have a strong branding and for Korean consumers having a foreign brand phone brings inconvenience relating the product repair services. Also Samsung and LG are very aware of local environment and produce phones that fit their customers. The other main stumbling point of foreign companies is the way to deal with the sensitive issue of data control and in the case of mobile phones mainly positioning data, this because of military concerns about N. Korea.
Article: Oliver C. and Jung S.A. (2009/A), How smartphone became Seoul-friendly, Financial Times: September 23 2009, http://www.ft.com/cms/s/0/f75e927e-a865-11de-9242-00144feabdc0.html
Case commentary
This case is demonstrating the difficulties entering the Korean mobile phone market. There are lots of issues which companies should consider before they enter this market, which consequently leads to a large extent of avoidance of the Korean market by many mobile phone companies. The two large local brands, naturally, do not have to deal with these issues, which leads to a relatively protected market and strong position for LG and Samsung.
The market in this case can be very well analysed using the PESTEL analysis (Lynch 2006: 84-85). When using this analysis one can see the key factors which make market entry difficult in this particular case are: Political, Sociocultural, Technological and Legal factors.
The main political issue affecting in fact entire South Korea is the conflict with the North. Tension between the two countries is very high and has its legal consequences in the regulation of cell phone capabilities and technologies. According to the FT especially the access to maps and global positioning data are a sensitive issue, since it infringes laws preventing political figures from being tracked (Oliver C. and Jung S.A., 2009/B). FT reports that another legal issue has this year been withdrawn; which was the requirement that handsets in Korea should be based on Wipi (Oliver C. and Jung S.A, 2009/A). Apple has been able to work its way around the positioning data laws, by cooperating with the Korean firm KT, who are already licensed to handle sensitive geographical data.
Sociocultural aspects definitely play a huge role in this market as well. The two main and local brands Samsung and LG have a great understanding about the local market demands as well as they have great brand strength in Korea. The shared market share in Korea for Samsung is 70%, big names like Motorola, Nokia and Ericsson have tried but have not been able to successfully obtain a significant market share.
There are also technological factors, other than the “Wipi” factor, which play a key role in the penetration of this market. For this I am mainly speaking out of personal experience, since I have spent a total of 3 months in a Korean university in two summer semesters. The first time I arrived in Korea I learned that I could not use my mobile phone there. The reason for this is that Korea’s phone network is working on a different bandwidth than the phones in the rest of the world. The antenna which is able to receive this bandwidth is in generally only used in Korean cellular phones.
Another aspect which I encountered was considering both technological and sociocultural issues. It is the fact Koreans are using more advanced technologies in their daily lives than Western consumers. An example of this I encountered in my first trip to Korea, 2 years ago. When I entered the underground, I saw literally every single Korean staring at their mobile phone, with a circa 20 cm antenna coming out of the phone. The case was all those people were receiving the regular television channels on their phones. This was 2 years ago, but I haven’t seen this getting off in Europe yet. In my experience the Koreans very much like innovation and the latest technologies, and they are provided with this by Samsung and LG, who very often, basically use Korea as a test market for their innovations, before they will launch it in the rest of the world.
In this case one can also consider the critical forces regarding to Porter’s 5 forces model (Porter, 2004: 4). The one, most critical force, observed from the Korean manufacturers’ side, is the extremely low threat of entrants. This is due to the specific and unordinary entry barriers of the Korean market which have been described previously. Porter (2004: 13) regards “government policy” as one of the six major sources of entry barriers; this is the particular barrier which puts constraints on the Korean cellular phone market. From this case one can see that only one of the five forces from Porter’s model can put such constraints on a market that it becomes very unattractive for foreign firms to invest in.
In terms of CSR the Korean brands also have a huge advantage in Korea, over foreign brands. For example the University I studied in, SungKyunKwan University, is one of Korea’s leading universities and finds it’s most important sponsor in Samsung. As I have experienced many of the Korean students are striving for a job within Samsung, as working with Samsung provides a good salary, good secondary conditions and also social status. Also both organisations (Samsung and LG) are the main sponsors of several sports teams, which are often partly named after the sponsor (e.g. LG Twins Baseball team and Suwon Samsung Bluewings Football team). In these ways, by sponsoring universities and sports clubs, the brands can count on sympathy from the Korean consumers.
Regarding iPhone, one can identify that it is using a similar generic strategy (Porter: 2004, 34-48) in the Korean market, as it uses in the rest of the world: differentiation. Differentiation is defined by Porter (2004: 37) as creating something that is perceived industrywide as unique. From the many possible forms of differentiation Apple’s iPhone differentiates itself mainly by design, brand/image, technology, features, quality, and functionality. For the Korean consumers I would say the technological, design and brand/image factors are the most important, due to their high appreciation of innovative technologies and high appreciation of status products.
I think this case is a good example, because it shows some very non-ordinary difficulties which apply for this specific market, but not for other markets. The Korean mobile phone market is a totally different market than the global mobile phone market. This is actually best experienced when you are in Korea, where you will see the obvious differences in mobile phone design and usage as from arriving at the airport.
The case also shows the highly complex environment of this particular market, and the way in which this environment affects the approach of mobile phone companies to Korea. It shows this particular market needs a different approach than the rest of Asia and the world. Some companies, for example Nokia, choose not to compete in this market, where others choose to compete, but with a different strategy and business plan.
One can learn from this that not every industry is the same in every country or region. There can be many constraints if one wants to enter a market with which it is unfamiliar. Only one particular constraint can have as a result that the market becomes very unattractive for foreign competitors.
Weblink
http://www.ft.com/cms/s/0/f75e927e-a865-11de-9242-00144feabdc0.html
http://www.ft.com/cms/s/0/d268d778-a80f-11de-8305-00144feabdc0.html?nclick_check=1
References
* Lynch (2006), Corporate Strategy (4th ed.), Pearson Education Limited
* Oliver C. and Jung S.A (2009/A), How smartphone became Seoul-friendly, Financial Times: September 23 2009, http://www.ft.com/cms/s/0/f75e927e-a865-11de-9242-00144feabdc0.html
� Oliver C. and Jung S.A (2009/B), S. Korean regulators relent on iPhone sales, Financial Times: September 23 2009, http://www.ft.com/cms/s/0/d268d778-a80f-11de-8305-00144feabdc0.html?nclick_check=1
* Porter, M.E. (2004), Competitive Strategy (1st Free Press Export ed.), New York: Free Press
Key Words
South Korea, Mobile Phone, Market Entry Constraints, Entry Barriers, Protectionism, Samsung, LG, iPhone