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Jet.Net Market Entry Into South Korea

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BRADLEY, F., 2005. International Marketing Strategy. 5th ed. London: Prentice Hall

CZINKOTA, M.R. AND RONKAINEN, I.A., 1994. International Marketing Strategy Environmental Assessment and Entry Strategies. 2nd ed. Fort Worth: Dryden Press

International Telecommunications Union. 2003. Broadband Korea: Internet Case Study. South Korea Available at: http://www.itu.int/ITUD/ict/cs/korea/material/CS_KOR.pdf Viewed on 12/10/06

National Internet Development Agency of Korea. 2006. Korea Internet Whitepaper. Seoul, South Korea, Available at: http://eng.mic.go.kr/eng/user.tdf?a=user.board.BoardApp&c=2001&board_id=E_04_03&mc=E_04_03_01&ctx=annual_report
Viewed on 9/10/06

National Computerization Authority. 2001. 2001 Korea Internet White Paper. Available at: www.nca.or.kr/white/data/2002engwhite/review.pdf
Viewed on 12/10/06

DTI / Brunel University. 2002. INVESTIGATING BROADBAND DEPLOYMENT IN SOUTH KOREA: Broadband Mission to South Korea. Available at: www.broadbanduk.org/reports/SKorea_report.pdf Viewed on 08/10/06

Yun, K., Lee, H., Lim, S., 2002. The Growth of Broadband Internet Connections in South Korea: Contributing Factors. Available at: www.iisdb.stanford.edu/pubs/20032/Yun.pdf Viewed on 09/10/06

Communicaid Global Communication. 2006. Doing Business in South Korea. Available at: http://www.communicaid.com/south-korea-business-culture.asp
Viewed on 08/10/06

World Broadband Yearbook 2006. 2006. Country Overview: South Korea. Available at: www.telegeography.com/products/broadband_yearbook/pdf/wb06_skorea.pdf
Viewed on 08/10/06

Ministry of Information and Communication (MIC) and National Computerization Agency (NCA), 2002. 2002 Korea Internet White Paper. Avaliable at: www.mic.go.kr Viewed on 11/10/06

Data Monitor. 2005. Internet Access in South Korea: Industry Profile. Available at: http://web.ebscohost.com/ehost/pdf?vid=6&hid=121&sid=d304131c-b4e1-444b-9913-2606bf595eda%40sessionmgr105
Viewed on 08/10/06

Jet.net market entry into South Korea

Introduction

The basis of this report was to identify a suitable target market that would be best suited to launch Jet.net. On considering many potential candidates, South Korea has been identified as the country to export this service to. The main body will include an analysis of how suitable Jet.net is for the selected market by exploring its existing broadband market and information required for market entry.

Market Analysis

The broadband market in South Korea has significantly grown in the last six years, to the extent that South Korea has become the worlds leading nation for broadband internet use. As table 1 shows in 2004 the worth of the broadband industry totalled $7.8 billion with a continued steady growth throughout the period 2000-2004. This represented a compound annual growth rate (CAGR) of 46.8% for the five year period (Data Monitor 2005).

[pic]

Source: Data Monitor, June 2005 (TABLE 1)

The narrowband sector was the market‘s most abundant source of volume in
2004, with 19.5 million of the market’s overall user’s coming from this segment, which is equivalent to 61.5% of the total (Datamonitor 2005). But growth in this sector will be tiny as South Korea’s popular broadband sector gradually takes over the market.

[pic] Source: Korea Internet Whitepaper, 2006 (FIGURE 1)

AS the chart above shows in the last quarter of 2005 the internet usage rate has reached over 70% of the 48 million population with the number of internet users growing by 13.6% in 2000-20004, and expected growth still forecasted. This saw the market grow at a rate of 46.8%.

Target Market

In order to get a better understanding of the broadband market in South Korea, there needs to be an understanding of the potential consumers. South Korea’s hunger for technology has incorporated customers with a wide range of demographics in taking up broadband subscriptions. The usage rates of males tends to be higher than that of females, 78.5% of all males use the Internet which is 11.3% higher than females (67.2%). In the total population the numbers of Internet users are 17.78 million among males and 15.23 million among females (Ministry of Information and Communication 2006). This would suggest that the target market should not be distinguished by sex, as a large proportion of both genders use the internet, and should be targeted.

When the demographics are broken down into age, it can be seen that the majority of broadband users are in the 21-39 age bracket making up 24.84 million of the population (MIC 2006). Within this age bracket those in their mid twenties heavily use broadband in Pc Bhangs (Pc rooms that small business run, similar to internet cafes) to socialise, and be part of a group in a culture where group interaction is overwhelmingly important. 25,000 PC Bhangs currently exist (Taylor 2006), and with the numbers increasing these businesses are very attractive in targeting.

To get a better picture of where the target market are located, usage rates can be split into the different cities, with Ulsan having the highest usage rate at 81.8% (MIC 2006). By interpreting these figures it would suggest that Ulsan would be the best place to introduce the service as it is the city with the highest usage rate in South Korea, meaning the consumers would not need too much educating, but would perhaps face stiff competition as the majority of the population are already subscribed to a ISP. Alternatively Jet.net could take advantage of the city with the lowest usage rate and launch the product in Jeju, as there is still more room for growth.
Although the broadband service is being made available to small business as well as homes users, Jet.net should try and take advantage of the small percentage of users who currently access the internet at work, as at current only 23.7% of users use the service at work compared to 97.7% of users in the home (MIC 2006).

With the offer of a modem and free router with web space Jet.Net should look at Wireless LANs, which are becoming big business in Korea. There are many coffee shops that already offer wireless LANs as well as airports, universities etc.

As Jet.net also cater to domestic and small business customers, the government through the National Computerization Agency and the MIC help assist small and mid-sized firms who cannot afford to have an IT team or to purchase the necessary IT material, as many of these exist and can be taken advantage of. This is referred to as the government’s Small Enterprises Networking Project and is aimed at helping small companies to catch up in IT (ITU 2005).

When identifying the target market, Jet.net will need to take into consideration segmentation, social lifestyle factors, as the use of the broadband service will not be down to price as South Korea with Japan have the lowest broadband prices as a percent per capita GDP in the world (DTI 2005), due to intense competition.
Broadband is currently being made available and accessible to all persons in South Korean society irrespective of their demographics. With the introduction of the “Ten Million People Internet Education” 4.1 million people were provided with basic internet skills (Yun et al. 2002). The program also targeted unemployed housewives, recognising that women have a strong influence on household purchases and their children’s education. This provided internet education courses programs for those who felt they were left behind at affordable prices, thus adding the possibility of those in the lower social class as a target market. As education is of great value in Korean Society, and with the inception of internet education programs, parents are most likely to use the service, thus should also be targeted.

Cultural Factors

To improve market entry, there a number of cultural factors that can affect the business transaction in South Korea. Although South Korea is becoming more and more modern since 1997, modern does not equal western. Business is conducted in a different way, as South Koreans approach business with an emphasis on “group spirit and harmony” (Communicaid 2006).
Koreans place great emphasis on the first meeting with a potential partner. Relationships are very important and introductions are crucial. These personal relationships are even more important than the actual business transaction. So there needs to be understanding that first meetings are a get to know affair rather than a focus on business factors. Business negotiations as a result of this will take longer when compared to western business culture. Jet.net, therefore, need to bear in mind that many business trips to South Korea will be necessary to reach an agreement or to close a deal.

Koreans in general are very open to new technology and are very rapid adopters of new and innovative products. The strongly homogenous Korean culture may account for some consumer herding characteristics (DTI/Brunel University 2002). Consumers have a wide choice of service providers, and with this at there disposable there is a culture to switch services, depending on what the provider are currently promoting.

Competitor Analysis

When entering an international market, Jet.net will need to understand the strategies of current and future competitors. Their strengths and weaknesses may suggest as Bradley (2005, p.69) said “opportunities and threats which allow it to identify appropriate strategic positions to adopt”. An understanding of the competitor’s size, growth, profitability, objectives and current and past strategies will provide them with a solid foundation in forming its own international strategy.

Jet.net’s broadband service will be competing against many domestic internet service providers of similar nature. The relatively high level of competition is reflective of the country’s status as a developed market and has helped to keep prices low, encouraging broadband take-up in recent years. Competition in the market is fierce, with many companies competing for a share. Korea Telecom (KT) the telecommunications service provider have the largest market share at approximately 51.2% of the market, followed by Hanaro Telecom (29.6%), with a group of other companies making up the remaining 19.19% of the market (World Broadband Yearbook 2006).

[pic]
Source: Ministry of Information and Communication 2005 (FIGURE 2)

Korean Telecommunications (KT)

KT began their broadband development in 1997 with 1500 subscribers. After introducing the service they found it ‘unprofitable’ at the time due to high equipment costs and the long pay-back period. The successful launch of two new entrants (Thrunet in July 1998 and Hanaro in April 1999) persuaded KT to offer commercial ADSL services at its competitors' price point of US$30 per customer (40% less than KT’s original price plan). At the present time KT have over six million subscribers double that of the nearest competitors Hanaro. The company is headquartered in Seongnam City, Gyeonggi province and employs in the region of 53,000 people. The company recorded revenues of $11.9 billion during the year ended December 2005, an increase of 2.4% from 2004 (Data Monitor 2005).

After researching KT’s success with their broadband deployment, it was found that this can be attributed to the very dense housing patterns in Korea. More than 90 per cent of the households are located within 4 km of KT’s local exchange (DTI / Brunel University 2002). The majority of offices and half of all the households are in apartment complexes and dense commercial areas. So, Jet.net should take note that with the short distances economies of scale are achieved in providing broadband service. Therefore, the majority of the population in Seoul face very little quality degradation in the service that they receive. Due to the advancement of technology, Jet.net will need to be aware that KT can now install ADSL access up to 10-15 customers per day, per technician, in comparison to 2-3 customers a day about two years ago.

Hanaro Telecom

Hanaro Telecom was founded in 1997 and is the second largest internet based service provider by market share. The company claims that their infrastructure has a significant presence in Korea’s 7 Major cities and also in a further 73 cities across Korea (MIC 1999). Hanaro was one of the first movers in the broadband services market, with the company’s broadband subscriber base reaching 3.6 million in December 2005 (MIC 2006).

When investigating Hanaro and their decision to enter the broadband market, I have come to the conclusion their decision were influenced by a number of factors.

These included:

❖ Government policy ❖ Market deregulation ❖ The (then) current state of technical progress ❖ Perceived demand for high bandwidth services

An analysis of Hanaro’s original market entry strategy would suggest that it was based on a number of objectives. This included building the number one brand image in the market, thus obtaining loyalty from their customers. Hanaro had also tried to focus their initial efforts on the most lucrative market segments, by using existing Cable networks to achieve a position in the residential market (Datamonitor 2005).

Onse Telecom

Onse Telecom was incorporated in 1996 and acquired the internet portal Shinbiro from Hyundai information Technology in October 1999 (Data Monitor 2005). In the following year it launched its broadband ISP Shinbiro sshark. Coming late into the market, Onse has struggled to make an impact and steal market share away from its more established rivals. It applied for bankruptcy protection in April 2004, and remains under the control of the Suwon District, and although filing for bankruptcy Jet.net will need to be aware that there is the prospect of new ownership some time in the future. At current Onse Telecom is owned by Hyundai Electronics (28.3%), Iljin Group (11.93%), Lotte Group (8.9%), and the investment Bank (7.1%) with the remainder distributed (World Broadband Yearbook 2006).

Service Distribution

As Jet.net is a service, consumers are not able to pick it up from the shelf. So, channels where consumers are able to subscribe to the service need to be created. In order to create these channels an awareness of how consumers currently subscribe to current ISP’s in the market needs to be known. During the creation of this report this information was not able to be found, so extensive research into where competitors have placed their service in terms of how consumers can purchase it needs to be conducted. This requires research into possible channels of purchase such as through websites, by telephone, or through partnerships with stores where subscription can be taken up.

Attracting customers to these channels will require an effective market strategy that should be oriented towards Korean culture and current society, as the rapid internet distribution can be attributed to certain parts of Korean culture.
E.g. The enthusiasm for children’s education (which is considered to be the highest in the world) has been capitalised on by some ISP’s, by emphasising the internets benefits on education and academic performance, thus prompting parents to turn to the Internet for educational goods and services.

Product lifecycle

To take full advantage of entering the South Korean broadband market, the life cycle for this service needs to be known, the reasons for the success of its growth and whether there is any room for improvement or whether it has reached the stage of maturity.

In the current market although the usage rate is high, expected growth is still forecasted. The main reason for this is the rate at which South Korea have become the leaders in technology, unrivalled across the globe. It has become immersed in the everyday life of members of society, to the extent where it is vital in order to do normal and simple business. Therefore advances in technology appear to be influencing the take up of broadband as a necessity. As well as the importance of technology, future government projects will see a substantial market increase by the year 2010. By 2010 the government envision broadband to be commonplace in every household (MIC 2006).

Secondary market research conducted helps aid this argument as Table 2 and Figure3 show. The broadband market is forecasted to reach an anticipated CAGR of 23.7% to the period 2004-2009, which is expected to drive the market to a value of $22.7 billion by the end of 2009, compared to £12.6 billion in the current year. This will result in the expectation that Korea will overtake Japan by 2009 to become the region’s second largest market. Although this forecast is weaker than previous periods the growth rate is still substantially high. The high growth can be linked to the introduction of the “Ten Million People” campaign, the introduction of competition regulations, and the increase in living standards after the economic recession of 1997, which fuelled the demand of choice, and the shift in government policy that resulted in low prices and a rush of new subscribers after years of inactivity (Data Monitor 2005).

South Korea Internet Access Market value Forecast: $ billion, 2004-2009
[pic]
Source: Data Monitor (Table 2)

[pic] Source: Data Monitor 2005 (Figure 3)

The volume increase (the number of internet users) are expected to slow moving forward, but despite this it is still expected to expand with remarkable strength. Projections forecast a 4.8% growth for the five-year period 2004-2009, to a total volume of 40 million users from 33.85 million users at current (National Internet Development Agency of Korea 2006).

From viewing figures published by the national internet development agency of Korea, 78.9% of all Korean households own a computer (Korea internet white paper 2006). When compared to the number of households online, there are still 8% of households who do not subscribe to a broadband service but who own a computer. This figure amounts to just under four million of the total population whom competitors have not managed to attract.

Market Entry

When entering the South Korean market Jet.net should consider local manufacturing rather than exporting the service from the UK, as there is already a proven broadband market that is thriving. Another reason why Jet.net should have a local presence is the difficulty in exporting a service that requires high customer contact. As Jet.net is an internet service provider, its intangibility makes it difficult to differentiate it in a different country and culture. This is because it cannot be displayed easily, communication, especially across borders, is difficult. Jet.net need to consider building an infrastructure, Local Area Networks, similar to that of their competitors in order to build a large customer base around the major cities and compete with the competitors. The connections will need to be reliable, with fibre optic cables running from building to building delivering high speed internet.

Regional centres need to be built around the country to provide technical and after sale support. Customer contact is a crucial issue here. The provider must be in close contact with the customer, the closer the contact the richer the customer relationship, therefore a local presence in the foreign market is important. Technical support and call centres require high technical skills, so staff need “culturally sensitive interpersonal skills” (Bradley 2005), as they are directly involved in the operation of the service. Using local nationals as providers in call centres who speak the fluent language is essential when building an infrastructure for the service. This also includes field engineers who would be installing the service in homes and business

Entry into the broadband market in South Korea is relatively straightforward as the government’s involvement is oriented towards protecting the consumers to remove a “digital divide” (ITU 2003). The government have implemented its policies for competition based on deregulation and market principles for the telecommunication sector into the internet market. This favours Jet.net as there is very little entry regulation of internet services. The government’s “hands-off policy” has allowed any businesses wanting to provide high speed internet access to start and provide a variety of services following notification (DTI/Brunel University 2002).

To enter the market Jet.net must simply notify the South Korean government that they want to go into business. They must then lease facilities from licensed infrastructure providers or obtain their own facilities-based license.
Although the government have introduced little regulation, they have also encouraged facilities service providers (FSPs) to anaylse the performance and quality of ISP’s. FSPs job are to compete monitor and announce the quality of service performance (e.g., actual connection speed, days taken for installation, etc.) provided by the companies.

Though the deregulation of the internet market means it is simple to enter the market, this produces its own problems as this deregulated environment has produced too many service providers for the market size, causing overlapping investment, because of this the government are currently considering an industry restructuring (Yun et al. 2002).

Conclusion

An analysis of the market suggests that it has not reached maturity as a progressive government, the technological advancement in South Korea surpasses that of other countries, and the need for high speed internet is becoming ever crucial in its society. On going governmental projects will mean customers will need to upgrade their connection as Korea’s core broadband structure will increase to 100Mbps (BBC online 2006). This is an opportunity for Jet.net to enter the market as customers will be changing their connections by using the infrastructure in Korea, as Market entry is not a problem.
Research suggest that the industry still has room for more growth, though this growth has significantly reduced since the introduction of broadband, and is now starting to show some signs of saturation in the market. As well as being established the competitors are very large, holding a large share of the market, which Jet.net need to take into consideration as there is a chance of not being successful in this industry.

References

BRADLEY, F., 2005. International Marketing Strategy. 5th ed. London: Prentice Hall

CZINKOTA, M.R. AND RONKAINEN, I.A., 1994. International Marketing Strategy Environmental Assessment and Entry Strategies. 2nd ed. Fort Worth: Dryden Press

International Telecommunications Union. 2003. Broadband Korea: Internet Case Study. South Korea Available at: http://www.itu.int/ITUD/ict/cs/korea/material/CS_KOR.pdf Viewed on 12/10/06

National Internet Development Agency of Korea. 2006. Korea Internet Whitepaper. Seoul, South Korea, Available at: http://eng.mic.go.kr/eng/user.tdf?a=user.board.BoardApp&c=2001&board_id=E_04_03&mc=E_04_03_01&ctx=annual_report
Viewed on 9/10/06

National Computerization Authority. 2001. 2001 Korea Internet White Paper. Available at: www.nca.or.kr/white/data/2002engwhite/review.pdf
Viewed on 12/10/06

DTI / Brunel University. 2002. INVESTIGATING BROADBAND DEPLOYMENT IN SOUTH KOREA: Broadband Mission to South Korea. Available at: www.broadbanduk.org/reports/SKorea_report.pdf Viewed on 08/10/06

Yun, K., Lee, H., Lim, S., 2002. The Growth of Broadband Internet Connections in South Korea: Contributing Factors. Available at: www.iisdb.stanford.edu/pubs/20032/Yun.pdf Viewed on 09/10/06

Communicaid Global Communication. 2006. Doing Business in South Korea. Available at: http://www.communicaid.com/south-korea-business-culture.asp
Viewed on 08/10/06

World Broadband Yearbook 2006. 2006. Country Overview: South Korea. Available at: www.telegeography.com/products/broadband_yearbook/pdf/wb06_skorea.pdf
Viewed on 08/10/06

Ministry of Information and Communication (MIC) and National Computerization Agency (NCA), 2002. 2002 Korea Internet White Paper. Avaliable at: www.mic.go.kr Viewed on 11/10/06

Data Monitor. 2005. Internet Access in South Korea: Industry Profile. Available at: http://web.ebscohost.com/ehost/pdf?vid=6&hid=121&sid=d304131c-b4e1-444b-9913-2606bf595eda%40sessionmgr105
Viewed on 08/10/06

Further Reading

Paltridge. S. 2001. ‘The development of broadband access in OECD countries,’ OECD. Viewed on 09/10/06
Firth. L. and Kelly. T. 2001. Regulatory Implications of Broadband Workshop, Geneva, Swiss, ITU. Viewed on 10/10/06

National Statistical Office, 2001. 2000 Population and Housing Preliminary Report Available at http://www.nso.go.kr/report/data/spce00-1.htm viewed on 12/10/06

Economist.com. 2002. Country Briefings: South Korea, Factsheet. Available at http://www.economist.com/countries/SouthKorea Viewed on 08/10/06

Lee. N. and Eom C. 2001. ‘IP Telephony and the Internet: Republic of Korea Case
Study,’ the 3rd World Telecommunications Policy Forum, ITU, March 2001

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