Is Korea Inc. In Danger of Losing Its Lead?

On a recent visit to Seoul I dutifully visited one of my favourite geek tourist destinations — the Yongsan Electronics Market. This is Seoul’s “temple” to consumer electronics, with eight floors of counters laden with cameras, PCs, notebooks, TVs, personal navigation devices (PNDs) and mobile phones stretching as far as the eye can see. The eighth floor is dedicated to mobile phones. On previous trips to the city, I’ve used what I’ve seen as a crystal ball to emerging trends in mobile phone design and technology.

When I first visited Seoul in 2004, South Korea was already a CDMA stronghold, and Korean consumers were hooked on the services available on their phones via a reliable and relatively high-speed mobile data network. This gave Korean companies such as LG and Samsung a considerable advantage over rival manufacturers as operators in Western markets struggled with nascent 3G WCDMA networks.

It was also apparent that vibrant colour screens were a key differentiator. They featured on Korean PNDs and mini-TVs delivering a quality of experience I had never seen before.

Other technology advances struck me during subsequent visits. By the time I visited Korea in 2006, it had a 3G WCDMA network as well as mobile TV DMB technology. I went out during the evening that the South Korean football team was playing a qualifying game for the World Cup. The number of people I saw in shops and restaurants crouched over their phones watching the game on innovatively designed clamshell handsets with rotating screens that allowed landscape TV viewing amazed me. I’d never seen anything like this before.

Although mobile TV subsequently failed to meet expectations on a global level, this was another example of Korean consumers being early adopters of cutting-end technology. This immersion in emerging technology trends undoubtedly contributed to Samsung and LG becoming the second- and third-largest manufacturers of mobile phones worldwide.

Yongsan Electronics Market, Seoul (Source: CCS Insight)

On my most recent visit, I took two of my colleagues who had not visited Korea before to the Yongsan Electronics Market. They were both extremely impressed by row-upon-row of the latest and greatest consumer electronics, but from my perspective, the eighth floor was a shadow of its former self. Several things struck me. The number of franchises had reduced dramatically, and there were no mobile phones that looked particularly disruptive or innovative. Furthermore, it was clear that the dominance of the two home brands had diminished and some brands had disappeared altogether. Talking to the shop assistants, it was immediately apparent that, as in other markets, Apple’s iPhone has had a major impact. The iPhone 3GS was one of the first foreign devices to really succeed in South Korea, and excitement is building in anticipation of the iPhone 4’s arrival. There were many displays promoting Apple’s newest device, albeit contravening Apple’s rigorous branding guidelines and doubtless giving Apple’s “brand police” sleepless nights (see image above).

The complete lack of any tablet products surprised me. Although this is a nascent segment that is dominated by Apple, I expected to see a multitude of devices from no-name brands. Of course this may just be a matter of timing, given that Samsung and LG have announced plans to release tablet devices, but historically I’m sure they would have had products available in their home market at this stage.

The feeling I got was reminiscent of a visit to Japan in 2002. I’d grown up with a perception that a visit to Tokyo would be like stepping into a time machine and visiting a future world, but I came away feeling disappointed having already seen many of Japan’s most forward-looking innovations at home.

My concern is that Korea could be reaching a similar tipping point. The baby-boomer generation that was motivated by the necessity to rebuild its country following the devastating Korean War of the 1950s is in transition. On this basis, Korea’s large consumer electronics conglomerates are going to have to look beyond home-grown innovation and diversify their operations to ensure they don’t miss emerging trends.

This is undoubtedly relevant in the mobile phone sector. Although Korean companies remain world leaders in areas such as screen and battery technology, it is no longer enough to excel in hardware alone. Software, services and content — many of which are emanating from the west coast of America — are now a critical part of the mix. Having a deep understanding of these trends as well as an opportunity to influence their evolution will require the Korean manufacturers (and others, such as Nokia) to reach beyond their corporate headquarters in their home markets and embark on a new collaborative approach to business. If they don’t move in this direction, they risk finding themselves in a similar situation to Japanese phone manufacturers, which gradually saw their global market share shrinking, leaving them with little option but to retrench to their home market.