Korean companies struggling in the Chinese market

Posted on : 2016-01-05 17:43 KST Modified on : 2016-01-05 17:43 KST
Chinese companies are gaining advantages in price while also closing the technology gap, leading to falling market shares for their Korean rivals
Chinese Market Shares for Samsung Electronics & Hyundai Motor
Chinese Market Shares for Samsung Electronics & Hyundai Motor

A Samsung cell phone user for over 10 years, Jiu Zhepan (35, Beijing), had been a “Samsung fan” until April 2014, when he switched from a Galaxy Note 3 to a Huawei phone. “I’d been loyal to Samsung ever since I started using an Anycall phone back in 2004, but after seeing that there was no noticeable difference in function at half the price, I decided to make the switch to a Chinese-made phone,” Jiu said during an interview in Beijing on Dec. 27th. “Even my family and friends are starting to switch for the same reason.”

Guo Yu, who works for a cell phone dealer at Zhongguancun, regarded as Beijing’s version of Yongsan Electronics Market, also admitted that iPhones and Huawei phones are the “bestsellers,” while the rest are “indistinguishable.”

Korea’s leading cell phone brand, Samsung Electronics, once held the number one position in the Chinese market and effectively dominated the international cell phone market as well. However, things have changed. Now, with commodity phones pouring into the market that offer the same functions at a cheaper price, the Samsung Galaxy S6 Edge is pitted against the iPhone 6S, while the low-to-mid-range Samsung Galaxy A and Galaxy J struggle to compete with prices offered by Huawei and Xiaomi.

According to figures by market research firm Strategy Analytics, Samsung’s market share in China peaked at 19.7% in 2013. Since then, Samsung phones have been on a steady decline, posting 13.8% in 2014 and 7.2% as of the third quarter of 2015. The decline is reflected in its international market share as well.

Chinese local auto brands Great Wall Motors, JAC Motors and Changan Automobile have gained tremendous ground in the automobile market after each releasing an SUV in the KRW 10 million (USD $8,000) price range. Hyundai Motors belatedly made a move to compete with more affordable Tucson and Santa Fe SUVs by cutting the price back by about 20,000 or 30,000 yuan (US$3,000 to US$4,500), but did not see the results they’d hoped for. The Tuscon, which had sold by the thousands each month in 2014, saw that number decrease to the hundreds last year. Meanwhile, Hyundai Motor’s market share in China - which the company had managed to hold at 6% - slipped to the 5% range.

The intermediary goods industry, which includes steel and petrochemicals and has greatly depended on the Chinese market is also taking a beating.

“Fluctuating market growth in China has brought about an unprecedented decline in the price of steel and its consumption. This is now leading both Chinese and foreign companies to struggle for their very survival,” said Han Song-hui, an executive at POSCO E&C China.

The decrease in demand, fed by slowing growth in China, is taking a toll on South Korean exporters. However, the greater threat lies in the fact that Chinese businesses are not only gaining an advantage over their rivals in price competition, but are also closing the technology gap with South Korea.

“Chinese businesses are narrowing the gap with global competitors through technological innovation. If Samsung Electronics cannot maintain its technological edge, it could be at risk of losing significant ground in the market, too,” said Li Mingxing, permanent vice chair of the China Enterprise Confederation.

“The government policy aimed at fostering the manufacturing industry, called ‘China Manufacturing 2025,’ noticeably overlaps with South Korea’s growth dynamic. In most areas, China is at a similar or more advanced level,” said Park Rae-jung, head of the LG Economic Research Institute in Beijing.

Experts advise that the South Korean manufacturing industry must part ways with the present growth model to form a completely new paradigm.

“We’ve been able to succeed in imitating and improving upon the conceptual model provided by developed nations, but we’ve gone as far as we can go. We need to gain the ability to offer concepts that are at once creative while also fundamentally original,” said Lee Jeong-dong, professor of industrial engineering at Seoul National University.

By Lee Jeong-hun, staff reporter

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