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The Study on the Smartphone Strategies of Samsung and LG The study on the Smartphone strategies of Samsung and LG before and after the iPhone launch in Korea By Dae-Won Kim THESIS Submitted to KDI School of Public Policy and Management in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION 2010 The study on the Smartphone strategies of Samsung and LG before and after the iPhone launch in Korea By Dae-Won Kim THESIS Submitted to KDI School of Public Policy and Management in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION 2010 Professor Seung-Joo Lee ABSTRACT The study on the Smartphone strategies of Samsung and LG before and after the iPhone launch in Korea By Dae-Won Kim In Korea, domestic mobile phone brands take up almost 90% of market share. Such market dominance was mainly driven by high customer loyalty to Korean brands and advanced technological prowess of Korean handset manufacturers. However, upon its arrival, iPhone started to reshape the market landscape. Smartphones became a new market trend. Hit by so called ‘iPhone shock’, Korean mobile phone makers lost their market hegemony and ended up falling behind the trend. Against this backdrop, this thesis aims to study why Samsung and LG Electronics lost ground to Apple, a newcomer in the mobile phone business, by analyzing the competitiveness of iPhone, the mobile phone industry before and after the launch of iPhone, and relevant policies and the strategies of Samsung and LG. It was the absence of ability to create new market that made them underperform in the smartphone market at the beginning. They adhered to shortsighted policies and second-mover strategies under which they only focused on maintaining existing profits instead of creating new market. I also found it interesting to see the gap in the market share between Samsung and LG since the iPhone shock swept the Korean market. Samsung managed to manufacture new products that rival Apple; whereas, LG saw its brand value falling. Behind this gap were their different positioning strategies. While Samsung strived to be the best, LG only tried to stay in the top tier. This determined the pace and quality of response to the rapid change in market environment, which ended up widening the gap in the market status. i ACKNOWLEDGEMENTS Before this thesis, I published a book entitled “Apple Shock” which explains to general readers about before and after the launch of Apple’s iPhone in Korea. The book describes the change in the Korean society after iPhone and reasons why Korean companies belatedly advanced into the smartphone market in chronicle order. While my book “Apple Shock” was focused on recording, this thesis analyzed corporate strategies and outcomes, which was completely different from documenting facts. To make this thesis as accurate and coherent as possible, I thoroughly looked through and analyzed relevant data that I had found, searched new material and had interviews. Those in related firms, journalists and professors supported me in this endeavor. I would like to express my gratitude to Professor Lee Seung-joo for supporting me to study and approach this issue from management strategy perspective. He has provided me with thoughtful and insightful advice. ii Copyright by Dae-Won Kim 2010 iii TABLE OF CONTENTS I. Introduction .……………………………………………………..…………… 13 A. Back ground and Purpose ….……………..……………………………... 13 B. Research Topic ……………..….…………………..……..……………... 15 C. Research Hypothesis …………………………………………………….. 15 D. Research Method ………………………………………………….…….. 17 II. Success Factors and Competitiveness of iPhone …………………………… 18 A. iPhone History ………………………………………………...…………. 18 What is smartphone? The first Smartphone of Apple The History of iPhone Sales volume Market share in the smartphone market B. Strength of iPhone ………………………………………………………. 26 WiFi App Store Capacitive sensing screen Contribution of iPhone to enhancing Apple’s corporate value The Future of iPhone Ⅲ. Competitiveness of Korean-made cell phones ………………….…..……… 34 A. The history of Korean mobile phone in light of Samsung Electronics … 34 Developing the first mobile phone on the occasion of Seoul Olympics Anycall beats Motorola Samsung goes global in 1996 Samsung and LG dominate the domestic market Samsung in crisis iv B. Korean cell phone market before iPhone ………………………………. 41 WIPI that blocked the introduction of iPhone The cartel of service providers delayed the debut of smartphones Another obstacle to negotiations: Apple’s global standard policy With iPhone, KT seeks to become No.1 The approach of Samsung and LG toward smartphones in light with their marketing strategies Lagging competitiveness of Samsung and LG smartphone Ⅳ. Change in the Korean cell phone market since the launch of iPhone …….. 55 A. iPhone became the market trend ………………………………………... 55 iPhone’s two-day presales surpassed sales of Omnia 2 for a month iPhone shock hit SKT hard With iPhone, smartphone becomes mainstream B. The decline of Korean cell phone manufacturers in light of stock prices of LG Electronics …………………………………………………………….. 59 LG was not ready for smartphone competition Target price was cut half, reaching new low C. Galaxy S for iPhone catches up ………………………………………… 64 Samsung bet on Galaxy S Galaxy S is the culmination of Samsung’s second-mover strategy Galaxy S, the copycat cell phone of iPhone D. Different choices made by Samsung and LG …………………………. 68 Samsung’s strategy: to become a winner in both hardware and OS LG Electronics’ strategy: to focus only on handsets by giving up OS Ⅴ. The growth strategies of Korean mobile manufacturers …………………... 71 A. Analysis tool : Seven Key Questions for Growth ………………………. 71 B. “Where and when to compete?” ……………………..………………….. 72 Samsung and LG are paying keen attention to the growth of the emerging market Samsung in 2007 and LG in 2009 recognized the importance of smartphone v C. “Who to target as customers?” …………………………………………. 77 Samsung’s target point and positioning in light of its first smartphone Uncertainty about demand for smartphones D. “What to Offer?” and “How to Compete?” ……………………….……… 80 Bipolarized market Customer values delivered by smartphones are in line with feature phones Samsung and LG felt sense of urgency in the face of iPhone shock Paying attention to the imminent challenge in the emerging market Subtle difference between Samsung and LG in their positioning strategy E. “With Whom to Partner?” ……………………………………………… 86 Collusion between cell phone makers and carriers Strained relations between Samsung and KT after iPhone The core of smartphone—eco system There is no such a thing as win-win relations between Conglomerates and SMEs F. “What if?” …………………………………………………………….. 92 Unexpected popularity of iPhone Samsung’s low-end strategy Ⅵ. Conclusion …………………………………………………………………….. 96 A. Summary of Key findings ……………………………………………. 96 Changes in the Korean market before and after the introduction of iPhone B. Implications from Korean Companies ………………………………….. 99 Decreased customer loyalty to domestic brands due to iPhone shock Limitation of second-mover strategy C. Implications from Korean Government ……………………………….. 102 D. Conclusion …………………………………………………………….. 104 Limitation of second-mover strategy The importance of strategy Limitation of Research Ⅶ. Tables and Figures …………………………………………………………. 109 Ⅷ. Bibliography ………………………………………..………………………. 156 vi LIST OF TABLES 1. 2009 monthly handset sales volume and market share of Samsung & LG ……….... 110 2. iPhone specifications ……………………………..………………………………… 113 3. Connections by Bearer Technology(Q2 2009) ………….………………………….. 114 4. Comparison of iPhone 3G and 3GS ………………......……………………………. 115 5. Prices of different iPhone models ………………….………………………………. 115 6. Technical Specifications of iPhone4G and iPhone3GS ……………………………. 115 7. Global smartphone market share by manufacturer …………………………………. 118 8. iPhone payment plan and available service ……………………………………….... 118 9. Overview of Smartphone Operating Systems and AppStores ……………………… 120 10. Apple Inc Selected Financial Information-Balance Sheet …………..……………. 122 11. The profitability of Apple and Samsung ………………………………………….. 123 12. Samsung Electronics’ ten million seller phone …………………….……………... 126 13. Samsung Electronics Mobile History after Anycall birth ……………………..….. 126 14. Samsung’s Smartphone …………………………………………………………… 127 15. Overview of LBS ………………………………………………….……………… 130 16. The number of subscribers per service provider ………….………………………. 131 17. Market share of Samsung and LG before the launch of iPhone ….……………… 132 18. Global sales of leading handset manufacturers …………………….……………. 133 19. Smartphone market share ……………………………………………….………… 134 20. The number of subscribers using service provider identification numbers …………. 137 21. SCH-490’s Special Features …………………………..………………….……….. 147 22. Omnia 2 price comparison ………………………………..……………….……… 148 23. Price of Omnia 2 and iPhone after price adjustment …………………..………….. 148 24. Capacity comparison between Omni2 and AMOLED Phone …………….………. 149 25. Samsung Electronics 2010 2Q ……………………………………………….…… 152 26. Samsung Electronics Mobile Earning and Performance ……………………….…. 153 27. LG Electronics’ Main Products …………………………………...………………. 155 vii LIST OF FIGURES 1. Mobile Phone Market Share in Korea ………………………………...…………… 110 2. Mobile phone sales volume in the first week of Dec 2009 …………..…………..… 111 3. Share of smartphone in the Korean handset market in 2010 ………..……………… 111 4. Five bestselling mobile phones before the launch of iPhone ………………………. 112 5. ROKR E1 Phone …………………………………………………………..……….. 113
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