Korea’s Mobile Phone Industry

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Early on, the mobile phone industry in Korea basically imported parts from foreign suppliers, and assembled them into finished products. But, over the past 20 years, the mobile phone has become the face of Korean industry, with cutting-edge technology. The industry is now preparing for a new leap into the popular smartphone market.

In 2005, Korea became the first to offer DMB (digital multimedia broadcasting) service, which enabled users to view terrestrial-broadcast programming on their mobile phones. And in 2006, Korea launched the world’s first video telephony service that allowed callers to see each other. Even more impressive is the fact that these applications were available on a standard mobile phone, and did not require a high-end model, thus demonstrating the innovative technology of Korea’s mobile communication sector.

The Samsung Electronics mobile phone facility in Gumi, Gyeongsangbuk-do Province is the production base for Samsung’s top-of-the-line mobile phones, including the recently released Galaxy S. This is also home to the “five-second production line,” that is capable of producing a mobile phone in only five seconds. In 1998, the production time per unit was 23 seconds, but by 2005 the time had been reduced to a world-record 5 seconds. After the inspectors on this line pick up a phone, in a matter of five seconds, they press the keys, check the vibrate mode, look for flaws on the exterior, view the colors of the LCD screen, and confirm that the camera function works properly. These inspectors are as quick with their hands as any magician.

Workers on other assembly lines go about their work with equal quickness and dexterity. Unlike the production plants for automobiles or large appliances, such as refrigerators or washing machines, the mobile phone facility does not utilize a conventional assembly-line process. Instead, a module method is adopted, in which one to three workers independently carry out ten or so assembly processes at a worktable. The workers take less than ten seconds to fit circuit boards packed with components into the phone body, which is secured with five or six tiny screws, measuring only 2 millimeters in diameter. In this way, the Gumi production facility churns out some 55 million mobile phones a year, which represent an aggregate value of 18 trillion won (about $16 billion). The facility is less than one-tenth the scale of an automobile or large appliance factory, but in terms of annual sales and profitability it is without a doubt the leader of Korea’s manufacturing industry. If you visit a mobile phone facility, it might be readily apparent that the mobile phone industry is ideally suited to a Korean workforce, which can use their natural dexterity and delicate touch to full advantage.

Early on, the mobile phone industry in Korea basically imported parts from foreign suppliers, and assembled them into finished products. But, over the past 20 years, the mobile phone has become the face of Korean industry, with cutting-edge technology. The industry is now preparing for a new leap into the popular smartphone market. Samsung Electronics and LG Electronics have managed to surpass such prominent global makers as Motorola and Sony Ericsson, rising to No. 2 and No. 3 in the world rankings. Samsung Electronics, with a 22 percent share of the global market, is steadily gaining ground on the world’s leading mobile phone manufacturer, Nokia of Finland. The success of Korea’s mobile phone industry can be attributed to an exquisite harmony among Korean entrepreneurship, the guiding hand of the government, diligence of local manpower resources, and the Korean consumer, who continuously seeks out the latest IT devices, but also demands flawless product performance.

Launch of CDMA

The success story of Korean mobile phones began in 1996 with the world’s first commercialization of CDMA (the U.S. mobile telephony standard). The protagonist of the Samsung mobile phone’s success, former Samsung Electronics Vice Chairman Lee Ki-tae, noted: “If Korea had not adopted the CDMA technology, the mobile phone industry would not have been able to grow as much as it has.” Korea’s adoption of CDMA technology was the result of Korean innovation, which brought in the original technology from abroad and created the world’s finest products through Korea’s unique ability to react to change and quickly apply solutions.

In the early 1990s, the Korean government began preparations to shift from analogue to digital mobile communications. First, a particular technology needed to be selected. In Europe, the GSM system was being commercialized and gaining acceptance. But the Korean government selected the CDMA as its technology standard. CDMA was the proprietary technology of a little-known venture firm, Qualcomm of the United States. Various experts and members of the media criticized the government’s decision, arguing for the already proven GMA standard, but the government panel was impressed with the CDMA’s superior call quality and frequency efficiency.

This decision was also fueled by Korea’s pride and patriotism to commercialize its own digital communication technology and to foster a domestic mobile phone industry, as well as the confidence that came from its independent development of a full-scale electronic switching system. But if you take a close look at the reality of the CDMA story in Korea, you would notice that the process was fraught with a succession of serious errors and technical obstacles. The project managers had to travel to every corner of the country to double check the connections, due to Korea’s mountainous terrain, while it is known that the Qualcomm consultants worked throughout the day and night during the Christmas holidays in order to meet the January 1, 1996 deadline for the launch of CDMA service.

In less than a year, the Korean government’s gamble paid huge dividends. Samsung Electronics and other Korean mobile phone makers quickly gained control of the domestic market with their technologically advanced digital mobile phones. By the end of 1996, Samsung Electronics captured over 50 percent of the domestic market, while Motorola, which had dominated the Korean market during the analogue mobile era, saw its market share plunge to less than 20 percent. The originator of wireless mobile communications and manufacturer of the world’s first mobile phone, Motorola had miscalculated the impact of Korea’s conversion to CDMA and did not move fast enough on its digital product line, resulting in disastrous market consequences.

Tech-savvy Consumers

After the launch of CDMA, the number of domestic mobile phone users literally skyrocketed, from 3.18 million in 1996, the first year of CDMA’s adoption, to 6.83 million in 1997, 23.44 million in 1999, and 29.05 million in 2001, an exponential increase in a matter of just a few years. Korean mobile communications providers, such as SK Telecom, KTF (now KT), and LG Telecom (now LG U+), offered subsidies to mobile phone purchasers, as part of a fierce competition to attract new subscribers, which also served to boost the market’s explosive growth.

Another factor was the Korean consumer, who was constantly on the lookout for the newest IT products. Korea is known the world over for purchasing a variety of high-priced mobile phones, while the turnover rate for mobile phones among consumers is incredibly short, about 18 months or so. In Korea, this tendency is related to the fact that consumers think of their mobile phone as a kind of social indicator, which reflects their sense of fashion and ability to keep pace with technology trends. As a result of this consumer demand, Korean mobile phone makers adopted a business model under which they pushed for the development of as many models as possible for continuous introduction to the domestic market. And based on consumer response, the most popular models would then be exported abroad. Moreover, the Korean consumer’s penchant to complain about even the most minor flaw forced the domestic manufacturers to implement stringent quality-control standards.

The effectiveness of this process enabled Samsung Electronics to achieve a milestone of 10 million sales of its SGH-T100 model. Released in 2002, the mobile phone was said to reflect the ideals of Samsung chairman Lee Kun-hee, which led to its being known as the “Lee Kun-hee phone.” In particular, this model was revolutionary for its unique design, which enabled the unit to fit snugly in the palm of your hand, and its application of a full-color LCD screen, a world’s first. There were those who questioned the wisdom of including a then-pricey color LCD screen in a mobile phone, but this Samsung innovation led to a consumer craze for the color-screen mobile phone in Korea and worldwide, which helped to vault Samsung into the ranks of the world’s top three manufacturers of mobile phones.

Another advantage for the Korean mobile phone industry was the large number of makers of electronic components in Korea. For example, for the supply of semiconductors and displays to produce mobile phones, Samsung Electronics, Hynix Semiconductor, and LG Display were all recognized for the global competitiveness of their products. As such, the domestic makers of mobile phones were especially well positioned to develop innovative products that could be brought to the market in the shortest period of time.

In addition, Korea’s mobile phone industry has been highly responsive to market trends, and the professional dedication of its product engineers has made a great contribution as well. For example, the No. 1 global maker, Nokia, will introduce about 30-40 new models in a year, but Samsung Electronics is likely to develop and release up to 100 new models each year. Korean engineers immerse themselves into product development, even working seven days a week, in an effort to develop products that respond to rapidly changing trends. This effort has led to a number of hit products, such as the previously mentioned “Lee Kun-hee Phone,” as well as the Blue-Black Phone, which features a slide-top body, and the stylish Chocolate Phone, which appealed to younger generation consumers. Former Samsung Electronics Vice Chairman Lee Ki-tae was known to conduct his own product testing by stomping on a brand new phone or tossing it into a washing machine. Prior to concluding a business contract with the CEOs of foreign communication enterprises, he would hurl his phone against a wall as a live demonstration of the durability and reliability of Samsung products.

World-class Mobile Phones

The consumer popularity of Samsung’s mobile phones helped to establish a global image of Korea as a maker of top-quality mobile phones, which provided a boost for other domestic mobile phone producers, such as LG Electronics and Pantech. All the while, Korea’s 

mobile phone exports soared, setting record-high sales year after year. In 1996, Korean mobile phone exports amounted to some $1.22 billion, but this figure swelled to an incredible $13.62 billion by 2002, a 10-fold increase in export revenue in less than 10 years. After the launch of the third generation of mobile communications in 2000, the growth rate of Korea’s mobile phone exports further accelerated.

Within a year after releasing the slide-top Blue-Black Phone, Samsung Electronics recorded sales of more than 10 million units. Despite the fact that the Blue-Black Phone was marketed as a luxury-price phone, with an unheard of $500 price tag, it enjoyed especially strong consumer demand in the advanced markets of the United States and Europe in spite of weak demand for mobile phones in general, making its success almost beyond expectations. The Blue-Black Phone started a worldwide trend for the color black, in contrast to the previous tendency for silver or white mobile phones. As such, the Blue-Black Phone earned 3GSM’s “Best Mobile Handset” award, a kind of “Oscar” for the mobile phone industry, in 2005, while the U.S. business magazine Fortune included a full-length feature article that described the entire development and marketing process of the Blue-Black phone, as part of its 75th anniversary edition.

As for LG Electronics, its own meteoric ascent began in 2005. LG Electronics struggled somewhat when its development of mobile phones based on the European GSM standard encountered delays, but with the launch of the third-generation mobile phone market, it became Korea’s second-ranked manufacturer of mobile phones, behind only Samsung Electronics. The first product to herald LG’s global emergence was the Chocolate Phone, released in 2005. This hit product, which combined stylish design with its distinctive chocolate color, became LG Electronics’ first model to break the 10-million sales mark. In March 2007, LG followed this up with the world’s first touch-screen phone, the Prada Phone, which was designed in cooperation with the world-class designer, Prada. Five models of LG Electronics mobile phones have become 10-million sellers thus far, enabling it to unseat Motorola from the No. 3 ranking in global market share.

First in the World

Korea’s mobile phone industry has been the driving force behind the development of its mobile communication services, as well as the growth of the IT parts and content industries. For example, Korea launched the world’s first video telephony service in 2006. In June 2010, Apple CEO Steve Jobs demonstrated video calling as a key innovation of the iPhone 4, but Korea had already adopted its own video calling service in 2006. Moreover, Korea also introduced the world’s first DMB (digital media broadcasting) service in 2005, which enables users to view terrestrial-broadcast programming on their mobile phones, along with countless other “world’s firsts,” such as ring-back tone and wire-wireless music portal services.

Even more impressive is the fact that these applications were available on a basic mobile phone, and did not require a high-end model, thus demonstrating the innovative technology of Korea’s mobile communication sector. In all likelihood, if Korea was an English-speaking country, the landscape of today’s smartphone and mobile content markets would be completely different. The failure of Korean communications enterprises, such as SK Telecom and KT, to make noticeable headway in markets abroad despite their cutting-edge mobile phones and services, is due in large part to an inability to surmount linguistic and cultural obstacles, rather than technological constraints.

Smartphone Era

There is no doubt that the smartphone era has presented the Korean mobile phone market with a new challenge. In the six months after Apple’s iPhone arrival in the Korean market, in late November 2009, it has managed to garner some 700,000 users, far exceeding people’s expectations. Domestic firms predicted that iPhone sales would amount to about 100,000 units, but this was well off the mark. The Korean consumer’s tendency to quickly embrace the latest IT products and to regard the mobile phone as a fashion accessory clearly contributed to the iPhone’s widespread popularity. Of note, the iPhone introduced Korean consumers to not only the smartphone’s

new hardware but also its diversity of mobile content. Apple’s 

App Store has provided Korean game makers and other content providers with potential access to the worldwide content market. On the other hand, the smartphone proved to be an abrupt shock and unexpected challenge to Korea’s telecom providers and mobile phone industry, which had failed to advance beyond voice calls and wireless Internet access.

Although the iPhone’s success has been surprising, Korea’s 

mobile phone makers are just as quickly preparing the launch of their own smartphone models. Only six months after the iPhone’s debut in Korea, Samsung Electronics released its Galaxy S model, a smartphone that is fully comparable to the iPhone, while LG Electronics and Pantech are preparing to release their own cutting-edge smartphones, with features that will dazzle overseas consumers. Korean mobile phone manufacturers have adopted the OS software developed by Google and Microsoft, but they intend to optimize the software applications in an effort to differentiate their smartphone models, based on user-friendly features. Korea’s mobile phone industry has learned how to adapt foreign-developed technology and to add its own innovations to create an even better product. Together with its proven ability to respond quickly to market developments, the Korea mobile phone industry seems well on its way to turning a crisis into another opportunity.