Consumer Electronics Market in South Korea-Dissertation Writing Help
Executive Summary
Growth in the Consumer Electronics Market
The consumer
electronics industry in Korea witnessed 11.2% value growth and 9.6% volume
growth in 2008, representing a market size of 53.3 million units and 22.1
trillion Korean won. Value growth for
2007 was 8.9% and volume growth 10.0%. This increase can be explained by the
rapid replacement of consumer electronic goods for its digital equivalent in
sectors such as televisions or camcorders, or for an upgraded type of product
which applies to PMPs, navigation systems or phones. The decrease in unit price
has also driven up volume sales for certain products including laptops. The
CAGR for 2003-2008 is 8.2% in value and 8.1% in volume terms.
Gloomy Forecast for Korean Economy
The latest
financial crisis has hit the Korean economy intensely, with a rapid devaluation
of Korean won which lost a quarter of its value against the dollar in just one
week. Koreans also carry heavy personal debt which is higher than those of
Americans. Many Korean companies are struggling to make ends meet, the government
faces a hostile public, and the unemployment rate has risen. Korea has recently
lowered its economic growth forecast. Although the devaluation of won has made
Korean products more competitive overseas it has had a negative impact within
the domestic economy by destabilising the market environment, accentuated by
fleeing foreign investors.
Size Is Important
One of the
fastest growing products during the review period is laptops in which has seen
a 26.4% increase in volume terms, mainly driven by lower prices and the smaller
size of the product deeming it more attractive and convenient to users. The
digital cameras sector has seen a boost in sales as they have combined their
high end manual functions with the smaller compact cameras, introducing smaller
and more affordable DSLR cameras. This has led to growth in sales of digital
cameras which prior to this had been suffering stagnant growth.
Many Newcomers Face Bankruptcy
As the consumer
electronics industry has accounted for an increasing slice of market share
within Korea, a number of venture companies and existing companies have been
attempting to penetrate the market. The success stories of first-movers such as
ReignCom which started the MP3 player trend, DigitalCube which started the PMP,
or ThinkWare which initiated the navigations market in Korea – have inspired
many newcomers to join these markets. However, these markets have now reached
saturation due to severe competition thus resulting in driving out many of the
more recent entrants due to inadequate resources, business plans or plain
inexperience. This trend is especially prominent in the navigations sector
where the booming growth rate of 2005 and 2006 has resulted in a saturated the
market by 2007/2008.
Consumer Electronics Market Will Face Tightened Wallets
The consumer
electronics market is expected to grow as Korean companies will continue to
develop new digital products which will be eagerly bought by the consumers.
However, given the negative turn in the Korean economy, the rate of replacement
for the latest gadgets is likely to decline. Many consumers will restrict
spending on ‘luxury’ items in order to save expenditure for basic necessities
such as food, rent and education. This will in turn leave less disposable
income for consumer electronics products unless they are revolutionary.
Key Trends and Developments
Protruding ‘chaebol’ Dominance
The monopoly of
Korean ‘chaebols’ (big national conglomerates) is dominating the Korean
consumer electronics market. This can be seen in conjunction with the already
severe competitive nature of the market which places the bigger more
established companies at an advantage.
Outlook (of the trend)
The chaebols are
likely to continue monopolising the Korean consumer electronics market unless a
new innovative venture capital wishes to capture a new segment of the market.
However, given the predicted economic conditions, and the unfavourable
conditions which face SMEs (small and medium enterprises), the market is likely
to continue being dominated by the big companies like Samsung Electronics and
LG Electronics whose size will allow them to survive in the market.
Current Impact
The monopolistic
effect of Samsung and LG is significant in the Korean consumer electronics
market. This can be seen in the three of the biggest markets in the consumer
electronics industry: television, computer and mobile phones market. Samsung is in fact one of the main
competitors in the MP3 players, digital cameras, camcorders and home theatre.
This monopolistic
reality has led to an increasing number of companies choosing to ‘export’ as
their main business model. Increase in the commodities price and a devalued won
has led to the conclusion that the Korean domestic market is too small.
Especially for SMEs which wish to grow, the Korean market is too small which is
already dominated by the Korean chaebols.
Future impact
Continued
monopolies of chaebols could stifle Korean technology development as big
companies have the ability to cut costs according to the economies of scale but
may prevent innovation of young entrants by not providing any dynamic
opportunities. It is upon the basis of venture capital SMEs where technological
development lays, whose innovations and patents will be picked up by the
chaebols further along the process.
Another impact
is that many companies, in order to differentiate their products, will try to
redesign the aesthetic look of their products rather than develop or improve
their technology which is deemed more cost-effective. Robert Hayes from Harvard
Business School said that while price was the key factor to business 15 years
ago, design will be the key factor in the future.
Chinese Competition: Overseas and Domestic
Although Korean
products are taking a big portion of the Korean market, this trend is unlikely
to continue forever due to the cheaper cost of Chinese production. The computer market is said to be heavily
dominated by Chinese products even in the Korean market. Chinese products take
up 80% of the foreign toys and games sector in Korea.
Outlook (of the trend)
Economic
nationalism is important in Korea, as many people (especially the older
generation) prefer well-known Korean brands. Samsung is especially favoured for
the ease of access of its after-care service
Also in September 2008, after the devaluation of Korean won, the
president called for economic patriotism in order to conserve the flight of
dollars overseas. Despite all this effort, the hard conditions facing the
Korean economy and closing gap between Korean and Chinese products are going to
make it difficult to push away Chinese goods simply for economic nationalism
alone.
Current Impact
According to the
UN trade statistics for 2005, there were 59 Korean products in the world market
which was the world leader in the sector, coming ranking 17th in the world. Out
of these, Chinese products came second after Korean products out of a total of
eleven products. The Korean Government has recognised that Korean companies
will need help and they have recently announced their plan to help the SMEs.
Future impact
Given the recent
downturn in the Korean economic market and that its GDP growth has dropped to
2% per year, the technology gap between Chinese and Korean goods are expected
to narrow down even further, as Chinese GDP growth still remains above 7% per
annum which will help to create a workforce specialising in technology and also
increase the budget for research and development.
Quality Not Only Quantity
As the
convergence trend is more of a pre-requisite, consumers now want not only more
devices but their expectations of what the product can offer has also risen. In
contrast to this trend, simplicity works as well in the case of Wine Phone
which has won the hearts of many older Koreans with its simpler functions such
as larger texts.
Outlook (of the trend)
The demand for
better quality pictures will increase budgets in technology advancement.
However, the consumers will soon be dissatisfied with just this one feature and
companies will need to come up with a new way of enticing these customers to
replace their already well-functioning electronic gadgets. One way of this
could be by developing new designs or better functions, or they could develop
something completely innovative.
Current Impact
The new trend is
for high definition TVs and the digital camera market with an increase in sales
in both. HDTVs help to supplement the home-theatre products bought by many
Koreans for entertainment. The digital camera industry is an excellent example
with the recent appearance of popular DSLR cameras which has caught many
companies by surprise. Many consumers are going beyond simply increasing the
number of megapixels to ‘upgrading’ their cameras.
Future Impact
Soon, quality
will be an expected and ordinary feature for all gadgets rather than a high-end
feature only for the exclusive. However,
it is becoming harder for companies to innovate their products as many of the
obvious ideas have been realised. The expected level of quality is increasing,
as technology development is quickly being followed by consumer demand and many
users are becoming sophisticated enough to exploit these newer functions. As
the devices become more sophisticated it will become more important to be able
to service technology.
Wibro and Iptv
Korean
fascination with the internet has long been displayed by the wide broad
penetration rate. Now it is entering the TV, computer and mobile phone market
by the introduction of wibro which would allow wireless internet everywhere.
Korean consumers already spend a long time on their phones with games, texting
and sending photo messages. Wibro
enables unlimited communication.
Outlook (of the trend)
Given the easy
broadband access in Korean culture, including thousands of internet cafes
(called PC-baangs) this could inhibit the necessity of Koreans to need to use
wibro. However, the marketing of wibro seems to be effective, including many
devices which would benefit from this trend including IPTV, smart phones and
laptops. This trend has the potential to catch on exponentially as more and
more people use wibro.
Current Impact
The television
industry is talking of a potential debate between IPTV and HDTV. For example
KTF (a telecommunications operator) was demonstrating how internet social network
sites like CyWorld can be viewed in the living room televisions which would
help connecting families by accessing each other’s photos.
The mobile phone
industry is talking loudly of smart phones. For example, Samsung’s Haptic was
the market leader for the first half of 2008. The wibro service which started
in June 2006 is in the process of becoming much more nationwide.
Future impact
Apple Computer’s
iPhones and Google’s new internet phones are all expected eagerly. After
initial resistance the market is likely to grow given the nature of Korean
tendencies to try the latest products Depending on how quickly the trend kicks
off, many companies will have to incorporate wireless internet design into
their new products.
Stifled Local Idea Generation Leads To Overseas Market
Korea has been
so far the leading country in idea generation in many consumer electronics
goods. This can be seen in their world leading status in the latest
developments of televisions, MP3 players and mobile phones. However, there is a
sign that the rate of innovation has been slowing down and no new ideas have
emerged since the mid 2000s.
Outlook (of the trend)
The current
global financial crisis has affected the amount of capital available worldwide,
not just in Korea. However, the crisis has hit Korea much more severely than
other countries because of its reliance on high levels of foreign investment in
the country. Therefore, many companies
will still continue to target overseas despite facing more tough conditions
simply for the reason that it is relatively better than Korea in obtaining the
required capital to grow their businesses.
Current Impact
The lack of
credit in the business industry means that small companies are now looking
overseas to fund their projects. For example, Korean web venture companies are
going to Silicon Valley, such as 3D SNS (Social Network Service)’s Nurien which
was funded 15 billion won from the US. Furthermore, Korean regulations
disfavour overseas investors by imposing higher taxes. This makes raising
capital in Korea very difficult.
Future Impact
If this trend
continues, this would lead to a significant fall in the idea generation status
of Korea and may in fact stifle local growth. Many of patents developed by
Korean companies will be represented by American or Chinese brands given their
headquarter offices are overseas and they were funded by overseas banks or
investors. This trend would accentuate until the Korean economy has more
favourable credit circulation.
