Two years and multiple advancements in technology later, the market has completely changed. Their profits for the third quarter of 2014 were slashed by 60% compared to last year – but why?
It’s because Samsung falls firmly in the middle in the technology spectrum. Apple’s got the high end smartphone game locked down, and other companies are producing cheaper smartphones.
That might not seem like a huge deal, but once you barbados telemarketing database realize Samsung is responsible for nearly a quarter of South Korea’s economy, you start to understand why there’s a problem. The South Korean economy is already suffering under multiple fronts and with Samsung under-performing so badly, things are not looking bright for the technology-reliant nation.
Effects of Technology on Economies
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It’s a simple principal of business – learn and understand what your competition is doing, then do it cheaper. That’s exactly what Xiaomi did.
Xiaomi was in the news recently for seeking $1.5 billion in fresh funding, which would make the company valued at more than $40 billion – double what Sony is valued at, and 2.5 times what Lenovo is valued at. How did they do it? They took a look at the specs of iPhone and Android devices then produced smartphones with slightly lower specs. The result? They sold out of their entire allotment of Redmi to India, 40,000 phones, in a little over 4 seconds.
What Does this Mean for South Korea’s economy?
As mentioned earlier, Samsung is responsible for nearly a quarter of South Korea’s entire economy. Business was booming since demand was pouring in from other countries, like China. That quickly changed.
In just a single year, Xaimomi has jumped from a 4.1% market share in China to a 15% share. It steadily outsells both Samsung and Lenovo. Worldwide, however, Xaiomi only has a 5.3% market share.
If a company in China is producing their own electronics at a much cheaper price, there’s no need to import electronics from South Korea. Since South Korea relies so heavily on Samsung, an electronics company that exports products that a longtime buyer is no longer importing, their economy is in trouble.
It’s not happening in just China, either. Samsung is flatlining in India. For the third quarter of 2014, Samsung had 0% growth, yet the smartphone market grew by 64%. This is, again, thanks to domestic and cheaply imported products
China’s economy surged past South Korea’s in the early 2000’s, which caused South Korean companies to set up factories in China. The wages were much cheaper there, so it was easily the more attractive option.
As China’s economy continued to prosper, South Korea’s declined. South Korea began to rely heavily on the factories in China to produce goods for Samsung, but thanks to Xiaomi, people in China are buying domestically.
The Dangers of a Chaebol-Dependent Society
After the high growth seen in the 1970s,, the power of the chaebol (conglomerates) increased with support from the government. Now, much of the Korean economy is controlled by the chaebol, with more than 75% of the GDP comprised of the sales of 10 large chaebol. In other words, if the Samsung-led chaebol group decline, the whole structure of the Korean economy will fall. A harsh gaze is now falling on Korean conglomerates, or chaebol, in the wake of the “nut rage” case. With cases of founding families of chaebol acting as they please being revealed one after another, normal Korean people are beginning to look in despair at this chaebol-dependent society.
In particular, the public’s abandonment of the chaebol has been accelerated by President Park’s favoring of the chaebol, which has come to the forefront. A column entitled “Seoul’s Chaebol Fixation” was published in the Wall Street Journal on 1 February. This column pointed out that requests were made by Korea’s ruling party for parole and the preferential treatment of chaebol family officers who had been booked for tax evasion and embezzlement. It criticizes that “South Korea’s chaebol dependence has led to a culture of indulgence for owners of large businesses.”
Korean’s longterm economic stability demands
minimally, a system that is not devoted to the chaebol. However, the current situation demonstrates that the current administration has not tried to do create such a system. As of now, the entire Korean economy cannot but rely on the performance of the chaebol, and so it appears that will continue on a little longer.