In the past few decades, the international economy saw the articulation of the Asian region, especially following the rise of multinational corporations (MNCs). The participation of the region in economic globalization continues to intensify. Although there are multiple sources of literature on the subject of Asian MNCs and global markets, there is a need to identify how they become international companies and the extent to which they establish competitive leadership in the global markets. Galiani, Torrre and Torrens (2013) state that Asian corporations, especially Korean electronics companies strategically expand to become major players in the respective industries surpassing the traditional giants from the United States and Europe. Indeed, that is a clear underestimation of behavior at the firm level that drives globalization processes. Scholars like Lapersonne (2013) Kim, John, and Ravi (2010) and Perry (2007) state that the major influences behind the rising influence of Asian MNCs are the “relational turn” and the “cultural turn” that state that global markets are slowly eliminating individual tastes and preferences and converging the various cultures into one international culture that is the primary driver of consumerism.
Consequently, the Asian companies recognize this and develop products that meet the international needs. Korea is one of the biggest players of the Asian global rise. Its electronics sector highlights the best performance in internationally. In fact, Korean electronics corporations are the leaders in the global electronics industry. Relatively, in order to identify the extent to which Korean electronics multinationals established competitive leadership in international markets, there must be a focus on the strategies that the companies use in the global economy. The discussion will highlight the strategies and establish the extent of the competitive leadership of the Korean electronics multinational corporations (MNCs). For this case, the two companies that will be in focus as case studies are Samsung Electronics (SEC) and Life’s Good (LG) which are the two biggest international electronic companies and are both from Korea.
Without a doubt, Samsung and LG (Life’s Good) are the two biggest global electronic companies. Both South Korean electronic organizations. It must be clear that both in the Information Technology (IT) and electronics industries, there are two factors that interplay and are pervasive: market and technology. As new products that embody new technologies come up, they expel the old ones. Thus, the entry into the electronics industry requires substantial efforts, especially in technological innovation. According to Altantuya, Jong-Wook, and Park (2014), IT is a factor that continues to expand in the electronic industry, and the only organizations that survive in the same are the ones that embrace not only innovation but creativity as well. In the coming few years, the technology that is in use today will not be in use.
The reason for this, is that the two factors, innovation and creativity, result into new products, with old products becoming obsolete. For example, in 1959, GoldStar (currently LG Electronics) produced the first radio in Korea (Kwon, Rhee, and Suh; 2014). The breakthrough marked the beginning of the electronics industry in Korea (Kwon, Rhee, and Suh; 2014). However, the radio is obsolete in the current period. Meaning, people no longer use it. The name of the radio was A-501 and was based on the Sanyo Model that previously existed (Kwon, Rhee, and Suh; 2014). Sanyo is a Japanese electronics company. GoldStar imported the components that it used to make the radio from West Germany. Nonetheless, prior to the manufacture of the first Korean radio utilizing the Sanyo model, the electrical and telecommunications industries existed, especially in the early years of the 20th century (Jun 2007). The reason behind mentioning the A-501 radio is because it is a symbol of the development of the Korean electronics industry.
Accordingly, the radio symbolizes the development of the Korean electronics industry in two respects, which are responsible for the competitive advantage that it enjoys in the global stage.
The first one is that Korea’s success arises from the fact that it imitates foreign electronic products using foreign technologies to manufacture better ones (Kim and Yoon, 2008). The second one is that large companies (chaebols) continue to play a significant role in the creation of industrial activities in the country (Kwon, Rhee, and Suh 2014). Chaebols refer to large South Korean conglomerates that families own. Both reasons are partially responsible for the fact that Korean electronic goods account for the majority share of the world’s electronic market with only a few of the electronic companies producing them. In fact, Korean multinational organizations are the leading world competitors that strive to change the market and technological environments. In this school of thought, GoldStar (LG) is not the only Korean electronics company that highlights the extent of competitive advantage that Korean electronic multinationals have in the global markets. Samsung Electronics Company (SEC) is also a Korean MNC that shows the kind of influence that the companies have on the international stage. Samsung first started operations under the Sanyo label in 1971 by producing black and white television sets that5 were 12 inches in size and were significantly cheap.
However, current statistics show that the organization is one of the world’s top electronics producers. According to Michelle (2010), in 2002, the market capitalization (market value) of Samsung surpassed that of Sony when it became $46.46 billion. Sony had a market value of $46.24 billion at the time. Currently, the company boasts of a market value of $147 billion (Samsung; 2016). Before the disaster that occurred with Galaxy Note 7, the market capitalization of the company was $173 billion. There were multiple cases of Galaxy Note 7 overheating and exploding, which caused a recall of over three million devices worldwide, causing a deep in the market value of the company by 15% ($26 billion) (Samsung; 2016). Notably, despite the losses that it underwent because of Note 7, the electronic giant is still a force in the international electronics market. Remarkably, at the beginning of 2001, the market value of the organization was 35.38% of that of Sony (Michelle; 2010). On the other hand, at the start of 2002, it rose to 81.78% (Michelle; 2010). Hence, comparing the competitiveness of the two MNCs, it is clear that Samsung is ahead of its competitor, with the same applicable to LG. There are strategies that the Korean companies continue to implement that make them the global leaders in the global electronics market.
Crawford (2009); Junechun (2010); and Huang, Dyerson, and Harindranath (2015) argue that despite the negative impacts of the global financial crisis that took place between 2007 and 2008, Korean electronic corporations continued to make profits in the global market. Michelle (2010) provides similar information, arguing that although most companies made losses during that period, Korean MNCs (specifically Samsung and LG) reported sales growth of between 35% and 50%. The same organizations reported 30% sales growth in the same period (Kong; 2012). Korean multinational electronic companies edged out their international competitors, from Japan, the United States, Europe and China, to become the most profitable in the industry. Ultimately, Korean multinationals have the lion share of electronics in the global market. Hinterhuber (2013) gives the example of India. He states that the total value of the electronics market of the country is over $6 billion, Samsung, and LG command almost 70% of the same.
Although LG has more sales than its counterpart, Samsung also commands a major share. People in the Indian market prefer electronic products such as washing machines, microwaves, television sets, radios, and many others from the two organizations more than the products from other companies. Hoesel (2014) states that when most of the Korean MNCs enter into new markets, they experience a double-digit growth. Such is unlike other companies that enter into the same markets. The success of the firms is a function of many factors such as technology, positioning, and price. In attempting to explain the reason behind the success of the companies, Kim and Yoon (2008) state that the firms carry out sufficient research and development (R and D) that enable them to amortize costs.
Azmi (2009); and Yadav, Han, and Kim (2016) provide a compilation of three approaches that the Korean multinational electronic companies apply in the international market. The first one is the institutional approach. According to Azmi (2009), there are five aspects of this approach that Samsung and LG take into consideration when implementing this approach. They include formal arrangements, the economic orientation of the country, and innovativeness of the populace; entrepreneurship, and informal ingredients of the society. Rowley and Warner (2015) support Azmi (2009) by stating that Korean electronic organizations gain their competitive advantage by using the sizes of their business institutions and the statistics from the R and D that focus on the characteristics of the populace, especially the market, in formulating a suitable strategy to enter into a specific global market.
The second approach that the companies use is the implementation of market-centered theories. Yadav, Han, and Kim (2016) list the five market-centered theories synonymous with Korean electronic MNCs as correction of market failures by other firms in the industry, consideration of the domestic and foreign demands, and the competitive rivalry that exists among the domestic and international electronic organizations that operate in the market at hand. In addition to that, Samsung and LG also take into consideration industrial isomorphism (preservation of relations and sets in organizational structures) and supply industries in the markets of interest. The third approach synonymous with Korean electronic organizations is the implementation of the resource-based view strategy, which includes administrative heritage, international experience, resource access and appropriation, and organizational learning.
Young (2009) completed research that found that administrative heritage is a consequence of the family heritage, which is a feature of the Korean organizations. On the other hand, international experience is consequential of the number of years of operations of the specific organization. Resource access and appropriation occur as a result of the size of the organizations in the global stage while organizational learning is referent to the culture and behavior that the management supports (Young 2009; and Yadav, Han, and Kim, 2016).
Through the implementation of the three approaches above, there arise several strategies that LG and Samsung, among other Korean electronic organizations, use to gain a competitive advantage in the international market. Examining the strategies, it is clear that the firms use policies that are both similar and different from each other. For instance, Morgan and Sayer (2013) state that the dominant strategy that LG uses in the global market is the establishment of presence through the price mechanism. What that means is that the firm offers cheap prices for its products in new markets. The products have multiple features that are worth more than what the company offers for them. In the same school of thought, it does not push them in the market. Rather, it adopts the “value plus” platform that emphasizes the features that the products have (Morgan and Sayer 2013).
In contrast to that, the domain strategy that Samsung uses to approach a new international market is the creation of a brand image through the emphasis on the technological and design aspects of its products (Lee 2010). Contrary to LG that uses the price mechanism, Samsung does not. In fact, in product entry, Samsung charges its products at higher prices than those of LG (Lee 2010; and Lee and Trim 2012). However, there are cases where the two organizations interchange the strategies as a result of the market Research and Design statistics. Nonetheless, despite the feature of the market or population, the success of the Korean Multinational organizations lies in the innovation that they support. in fact, Kong (2012) states that while the basic concept of the features of the products originates in Korea, the organizations heavily invest in the development and design of products that meet the local tastes and preferences. for example, in 2009, Samsung India invested $13 million in setting up Uttar Pradesh, an electronic product in India (Elg, Hadjikhani, and Ghauri 2012). Korean companies do not use the same strategies in the global market as other electronic organizations. In fact, most of their competitors use marketing and advertising as the major two strategies in the internal electronic market.
However, the Korean firms use product image and price mechanism. They also produce micro-localization and localization to meet the preferences of the diverse markets in which they operate (Hill 2014). For instance, in India, Samsung builds speech technology that helps Indian households in understanding how to operate the machines (Michelle 2010). By building the products to meet such needs, they fit them into their (Indian) lifestyles and culture. Thus, customization is one of the strategies that the organizations apply. Another good example is the when LG build television sets that have 2000-wat speakers that it sells only to the country after research findings by the form revealed that the market prefers bass loud sounds (Jean, Chious, and Zou 2013).
One of the best ways to measure the extent of competitiveness of organizations is to use Porter’s Five Forces. The first item of Porter’s five forces is the industry rivalry. Yang (2014) states that industry rivalry in the international electronics market is significant for the Korean companies. For example, some of the international competitors of the organizations are Motorola, Nokia, and Sony, which also have significant market share. Therefore, competition is intense and market margins are tight. For that reason, the Korean conglomerates ensure that they state ahead of the competitions through constant research and development (R and D), innovation, and creativity. Research findings indicate that the current life cycle of most electronic goods is one year (Kim 2012). Thus, institutions operating in the industry must roll out new products at such intervals to remain relevant and competitive. The second item in Porter’s five forces is barriers to exit and entry.
According to Yang (2014), the electronic goods industry has high barriers to entry as well as exit because of the extent of the sizes of the companies that operate in the market. The competitors in the market are large conglomerates that have high capitalization values and operating costs. Some of the factors that provide barriers to entry are supply chains and distribution networks. Crawford (2009) states that exiting the industry is easier than entry because all it takes is a decline of sales. The best example in such a case is Sanyo, which was profitable in the past decades. However, due to the challenges in the market that it could not meet, it declined in sales such that its products are obsolete, making it unprofitable. The next factor in Porter’s five forces is the threat of new entrants. Samsung, LG, HTTC, Apple, and other companies operating in the market have high economies of scale that provide a cost advantage over new entrants.
Kwon, Rhee, and Suh (2014) state that to enter the market, there is a great need for a massive capital investment that most organizations lack. for that reason, there is a barrier to entry for companies that provide substitutes (new entrants). Thus, it is a competitive advantage for the Korean firms because other competitors have challenges in entering the global market. In the same school of thought, access to consumer technology, distribution centers, and warehouses is difficult for the new substitutes (Perry 2007). Hence, there is a significant reduction of threat for the new entrants, leading to a decline of the likelihood of an increase in competition. The factor is the bargaining power of the buyers. Yang (2014) argues that the Korean electronics companies do not use complex methods to lock-in their customers. In fact, the market is free to switch to other products like Sony and Apple. There is no extra cost that is involved. Indeed, that fact increases the bargaining power of the buyers significantly. However, to ensure that the conglomerates have customers, there are additional factors that they provide such as information comprehensiveness, product functionalities, and price sensitivity that gives them a competitive edge over their competitors (Kim, John, and Ravi 2010).
However, it must be clear that the same factors increase the bargaining powers of the buyers. The last item of Porter’s five forces that provide the extent of competitiveness of Korean multinationals in the global market is the bargaining power of suppliers. The paper established that most of the supplies of the Korean forms are foreign. Accordingly, the bargaining power is primarily dependent on the type of supplier. Chongsuk (2009); Lee and Trim (2012); and Rowley and Warner (2015) give findings that indicate that suppliers that supply the general components and parts do not yield substantial power of bargaining because of the organizations’ volumes of order as well as their abilities to negotiate for better prices than the ones that they (the suppliers) are offering.
On the other hand, suppliers that supply particular products such as Google (Android) have substantial power because the organizations lack alternatives for the supplies. For that reason, the Korean conglomerates recognize the significance of developing policies of a strategic corporation with their suppliers. The companies also maintain extensive communication with their suppliers among various initiatives and programs like Supplier Dialogue Fair and Shared Growth Day (Lee and Trim 2012; and Rowley and Warner 2015).
The paper examines the extent to which Korean electronic multinationals established competitive leadership in international markets. It is clear that Koran conglomerates are the largest and most profitable MNCs in the global electronics market and industry. LG and Samsung are the subjects of discussion in the paper. The case study is the Indian market. Indeed, from as early as the 1970s when LG and Samsung first began operations, the Korean companies grew to become the most respect companies in the global electronics market. One of the highlights of the paper is that product customization is the most important strategy that the companies use in entering new markets and maintain them. There are also innovation and creativity. In the discussion of Porter’s Five Forces, it is clear that “industry rivalry, barriers to entry and exit, the threat of new entrants, bargaining power of buyers, and bargaining power of suppliers” are important in the maintenance of the competitive advantage that the Korean multinational organizations have over their competitors (Rowley and Warner 2015).
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