Chinese firms to overtake South Korean brands

By Zhang Jingwei Source:Global Times Published: 2017/3/1 0:28:39

Illustration: Peter C. Espina/GT

South Korea is not a big country by area, but is arguably a nation of great renown. The Korean wave, or Hallyu, is sweeping across Asia and has fueled sales of South Korean beauty and makeup products across the region.

Also, South Korea appears to be all the rage in the global marketplace for home appliances and electronics, although the arena is generally described as a narration of three kingdoms - China, Japan and South Korea. Japan's clout in the global home appliance and electronics market seems to have weakened, and China still lags behind South Korea in terms of ownership of core technologies and the creation of independent intellectual property rights even though China could overtake South Korea in market share terms based on prices.

South Korean companies, which have long depended on the Chinese market, have been making inroads into the cost-effective Southeast Asian market since 2013. A total of 58.6 percent of South Korean companies identify Southeast Asian countries as potential markets, while 54.1 percent of South Korean respondents see China as a potential market, reported in January 2015, citing findings of an entrepreneur survey.

South Korean firms have established a strong foothold in Southeast Asia with brand recognition and market share, and home appliances vendors, notably LG and Samsung, hold a dominant position in the market. These leading South Korean brands have been exploring the Southeast Asian market for more than 20 years, with down-to-earth efforts and sound sales networks leading to strong brand equity. The Korean wave is apparently the icing on the cake, fuelling the popularity of South Korean brands in the region. As a consequence, Japanese home appliances brands that once dominated the Southeast Asian market have turned out to be fading powers. Chinese-made products will take a while to become more popular than their South Korean counterparts as Chinese products have long been tantamount to products made by original equipment manufacturers.

South Korean beauty and makeup products are also popular in Southeast Asia, as South Korean actresses and actors have become idols in the region.

South Korea's military product manufacturers are also exploring the Southeast Asian market, in the hope of becoming one of the world's top exporters of military products. Additionally, South Korean automakers and steelmakers have been eyeing a bigger slice of the Southeast Asian market.

The success of South Korean companies in the Southeast Asian market is an outcome of their business strategy of staying compliant with market trends, as well as changes in South Korea's industrial structure.

South Korea is an export-oriented nation that sits between two strong powers - China and Japan. There are competitive overlaps between the three countries in terms of exports, particularly in home appliances. This requires South Korean firms not only to explore new markets, but to get ahead of China and Japan in product lines. Thus, despite a reliance on the Chinese market, South Korea has not chosen to put all of its eggs in one basket, with the likes of LG and Samsung localizing production in Southeast Asian countries while continuing to focus on the Chinese market.

With the cost of investing in the Chinese market going up, it makes more sense for South Korean companies to expand into Southeast Asia where some brands already have a strong foothold. South Korean companies appear to better understand the local market, coming up with quality, yet affordable products. This is in contrast to Japanese products which are high in quality yet less affordable, and Made in China products that weigh too heavily toward price advantages.

Southeast Asian countries also tend to be wary of China but well-disposed toward Japan and South Korea, affected by Barack Obama's administration rebalancing in Asia, which helped increase South Korean brands' influence in the region.

The situation on the Korean Peninsula, especially South Korea's stubbornness on the deployment of Terminal High Altitude Area Defense (THAAD), has added jitters to South Korean companies over their operations in the Chinese market and has consequently made them ramp up efforts to shift toward the Southeast Asian market. In a suggestion of deterioration, South Korean conglomerate Lotte Group decided Monday to exchange land with the South Korean government for the deployment of the US anti-missile system.

Nevertheless, there's an emerging trend that Chinese companies are posing challenges to their South Korean counterparts in home appliances products and smartphones, which is reminiscent of the rout of Japanese home appliances companies as a result of the rise of South Korean brands. Chinese smartphone makers pose a threat to South Korean makers in the fallout of Samsung Note 7 battery explosions. More worryingly, Samsung heir Jay Y. Lee is currently locked behind bars in a corruption case that led to the impeachment of President Park Geun-hye, which will inevitably tarnish the global image of the South Korean technology giant.

South Korea still leads in the Southeast Asian market, but with rising competition from China, there arises the question of whether China will overtake its rival. 

The author is a senior research fellow with the Charhar Institute, a non-governmental think tank.


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