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Apple shock’s cautionary tale for South Korea

Posted January. 07, 2019 07:26,   

Updated January. 07, 2019 07:26

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Apple has slashed its revenue forecast in the first quarter of the year to 84 billion dollars initially from 89 billion-93 billion dollars due to sluggish sales in China. U.S. local media including the Wall Street Journal have called it the “China shock,” saying that Samsung Electronics’ sales decline should serve as a cautionary tale for foreign smartphone makers. The South Korean tech giant was atop the Chinese market in smartphone sales five years ago, but is holding below one percent market share in China today.

Apple’s “China shock” also offers a cautionary tale for South Korea about a great challenge posed by Beijing. Apple’s stumble in China indicates that Chinese smartphone makers have already caught up with their global rivals in terms of price competitiveness as well as quality. Japan’s electronics firms such as Sony had to find themselves outmaneuvered by South Korean companies in the past, and the same can happen between Seoul and Beijing. Apple’s predicament in China comes as a greater shock as it may signify that Chinese companies will soon be able to beat their South Korean competitors not only in the smartphone industry but also in semiconductors, automobiles, petrochemicals, steel, and shipbuilding industries.

Apple’s cut in its revenue forecast clearly demonstrates that China is growing beyond the world’s largest factory into the world’s largest market, and its repercussions will be greater for South Korea than the United States. Beijing is already the largest export market for Seoul, with 27 percent of the country’s total exports, worth 150.3 billion dollars, being shipped to Beijing. This is more than double the shipment to the United States. Consequently, a worsened economic relationship with China will serve as a “China risk” for the South Korean economy, which it experienced to some extent over the past few years following the deployment of the THAAD missile defense system.

Washington and Beijing are set to hold vice-ministerial trade talks in China this week. They may be able to find some common ground, but it is unlikely that a groundbreaking solution to the current trade spat between the world’s two superpowers will be presented. Therefore, it would be wise for us to consider the U.S.-China trade war as a fixed factor, not as a temporary one, such as conflicts over the installation of the missile defense system.

Samsung and many other South Korean firms have diversified markets to include India and Vietnam, and heavily expanded investment. The WSJ also advised that Apple learn from Samsung that is increasingly targeting emerging markets such as India. While appropriately responding to the global economic slump, the South Korean government should also speed up its “New Southern Policy” to reduce “China risks.”