Challenges Of Expansion – Philips Compact Fluorescent Bulb In South Korea

Introduction

Expansion of the product sale to the foreign market requires a thorough research on the economy, market, and possible challenges in the international market. The selected product in the case is Philips Compact Fluorescent bulb. This is a product of Philips Lighting section, a Dutch’s Company product that supply its lighting product internationally. The paper focuses on expanding the product’s market to Southern Korea which is an Asian country located in the Eastern part of Asia and those boarders North Korea, the Yellow Sea, and the Sea of Japan. The paper focuses on analysis all factors that may influence the product’s expansion, identifying the main challenges and evaluating the chances of exceling in this market.

Current Global Economic Conditions and their Effect on Local Macroeconomic Indicator

The economy of South Korea over the past five years has charted stable, with uninterrupted economic freedom progress. Recent past reforms have emphasized on improving regulatory efficiency and ascertaining a greater role for medium and small-sized businesses in the economy (Frieden, 1991). The country changing private sector has highly been boosted by a hard-working, well-educated labor force gets on capitalizing on the openness of the country to global investment and trade.  The country’s economic score in 2016 is at 71.7, with the country being ranked as 27th globally and 7th in the Asian Pacific region. The country demonstrates monetary stability and open market. The country has a population of 50.4 million persons, with a GDP of $1.8 trillion, GDP growth of 3.3%, and compounded GDP annual growth of 3.8% for a period of five years.  The country’s per capita income is currently at $35, 277. The rate of unemployment in the country is at 3.5%. The country has been experiencing the exports growth of about 9% since 2009 to the end of 2014.  Based on these statistics the country acts as a good market for new products, especially where quality is involved. The company has an export rate of 50.64% and imports rate of 45.31% based on the 2014 data (Heritage.Org, 2016).

The country business operations are also impacted by the government which controls its imports and exports using duties.  South Korea is a member of the World Trade Organization which made it to open its market and reduce most of its tariffs to enhance international trade.  The country duty rates range from 0 to 40% with average rates being 4.17%. The country’s government has also adopted laws that enhance free market trade in the country (Duty Calculator, 2016).

Forecasts for Population Growth, GDP Growth, GDP per Capita Growth, Export Growth, and Sales Growth

Just like most of the countries in Asia, Southern Korea contains a huge population. The population growth rate at the moment is approximated to be at 0.16%. Although the population is considerably high its rate of growth is considerably low which may affect its future consumption. The country is currently experiencing a slowdown in its economic growth, following China’s economy slow down. In this regard, the growth rate of the country’s GDP may go below the current value of 3.3% in the future. The country has recently experienced a decline in its exports following the Chinese economic slowdown, and this resulted to a decline in the exports to China resulting to a decline in the total exports. This also impacted the country’s imports indirectly, due to the impact it created to the country’s GDP. Southern Korea has been previously ranked as the 10th largest importer and 7th largest exporter in the world. Although the country slightly slowed down on its rate of export, the situation is not permanently. Nevertheless, it is predicted that Southern Korea’s rate of imports and exports may decrease further in the future. GDP per capita growth of the country is also anticipated to go down slightly, until the Asian economy stabilizes (Economy Watch, 2010).

Competitor’s Existing Production in the Selected Country

Philips will experience stiff competition from both local and international producers of fluorescent bulb operating in the Southern Korea market. There are various local producers of compact fluorescent bulb in the southern Korea. They Alim Industrial Co. Ltd, Dtitac Co. Ltd, Hi-Globe, Power Analog and Digital Co. Ltd, Solo Co. Ltd, and Solux Co. Ltd among others. Actually, there are about 507 companies dealing with CFL in Korea where they target the local market, middle East market and Southern and Northern Europe markets. This implies that the product will face stiff competition in the market. It will also experience competition from similar product from other countries that include China.

Forecast of Sales in the Selected Country

The Southern Korea CFL market is dominated by local companies that sells locally made CFL at a fair price. The country has also adapted to other alternative bulb particularly LED bulb that is used to substitute the CFL bulb in most cases. Besides, the lighting industry in the country is highly being dominated by LED lighting which is experiencing exponential growth year after year (Market Research, 2014). In this regard, the CFL market among other types of the lighting technologies is slowly being eliminated in the country. Thus, Philips may not manage to make high volumes of sales in the country. Moreover, Philips products are manufactured in developed countries where cost of production is considerably high. In this regard, Philips may not be able to compete with local companies and other products imported from Asian countries that have lower cost of production, and hence selling their products at lower prices.

Type of the Economy in the Selected Country

Southern Korea has a market economy. This is a form of economy where in decision concerning distribution, production, and investment are founded on the market. These decisions are determined by demand and supply, services and goods prices as well as free system of pricing. The economy has very little central planning or government intervention. The country’s economy is ranked 17th based on GDP in the world with high purchasing power parity  

Difference in the Types of Economies and Their Impact on Business Expansion

The three different forms of economies include mixed, closed, and market economies. Market economy is a free economy where economic decisions are based on the market. The prices of different products are highly determined by the laws of demand and supply. Closed economy is a form of economy that is highly regulated by the government where there are no free imports or exports. Business operations are highly regulated by the government using quotas, high tariffs and duties among other strategies. Mixed economy on the other hand is a combination of command and market economies where some products are traded freely while others are highly regulated (Nelson, 1987). Market economy bring free competition in the market and thus, business success is highly determined the product competitiveness. In a closed economy, business expansion is regulated by the government rules and in most cases, government tends to promote local companies and thus, it is hard for imports to secure a higher position in the market. In mixed economy, the business success depends on the category the product is classified in. it can be in a free market products where success is determined by the product competitiveness or in a regulated sector where the governmental regulations determine business boundaries (Porter, 2000).    

Current Credit Market Conditions in the Country and its Impact on the Product Demand and Operational Planning

The country is currently offering credit at an interest rate of 1.25% to citizens and companies and at an interest rate of 1.34% between banks. The deposit interest rate is at 2.54%. The highest volumes of loans are presented to the private sectors. The low credit interest rate increases chances of people depending on the loans. This can highly increase individuals’ consumption rate which can highly enhance operation planning of any business (Trading Economics, 2016).

Central Bank Role on the Selected Country’s Economy

The central bank in South Korea has a duty to regulate inflation in the country and enhance the economic growth. Among the measures taken by the Bank of Korea to enhance the economy is holding the base rate at a certain value. This controls the rate of exchange in the country preventing major swing on the currency exchange rate. This highly enhances economic recovery during bad times.

Workforce Availability, Education and Job Skills in the Selected Country

Southern Korea workforce comprised of a total workforce of about 26.4 million individuals based 2014 statistics. Among them, 6.1% are employed in Agricultural sector, 24.4% are employed in industry, 69.5% are employed in services, and only 3.5% are not employed. The Southern Korea workforce is highly educated with people majoring in technical skills. The country is said to have a hardworking, well-educated labor force which highly contribute in enhancement of global investment and trade in the country (Global Edge, 2016).

International Production Challenges

Philips may consider developing their product in their Dutch plants and exporting them to South Korea. If this happens the company may experience a number of challenges that include stiff competition from LED which are highly advocated for by the South Korea government. Although the country is politically stable, there is lack of majority in the parliament, a situation that result to slow passing of bills relevant for economic growth. The country’s exchange rate is regulated under a certain base, reducing the exchange rate risk. 

Supply Chain Challenges

South Korea has a well-established logistic network, with diverse and high-quality transport network offering good access to global supply chain. The country has opened its market for international trade and thus, it highly minimizes business operation challenges including supply chain challenges. Thus, the company will highly manage to transport its good at a minimized cost (BMI Research, 2016). 

Comparative Advantages of Competitor

Philips is known for production of high quality products.  This has always provided the company with a higher competitive advantage over other similar producers in the globe. Nevertheless, the production cost in Dutch based company may make their product highly expensive compared to competitive product manufactured locally in Korea. Moreover, the government advocacy for LED light may make it hard for the CFL products to thrive in this market since they are highly substitutable. 

Recommendation Although South Korea has employed all possible measured to enhance foreign trade and investments in the country, Philips CFL cannot do well in the market. This is due to high government advocacy for LED light and thus, CFL demand in the country is going down. Moreover, there are many local CFL producers and other international producers from Asia who can provide this product in Korean market at a cheaper price than Philips can due to the involved production cost. In this regard, I would recommend Philips not to consider venturing into this foreign market for CFL product since it may never manage thrive as anticipated.

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