Another One Bites The Dust: Groupon, Another Global Tech Corporation Plans Exit From Korea

Groupon recently announced liquidation of all assets of Groupon Korea, and a plan to focus all its efforts to promote its recent acquisition Ticket Monster (TMON) in Asia’s third largest e-commerce market. Groupon now joins the long list of global companies, which have failed to

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capture market share in South Korea. Recently (December 2012), Yahoo also shut down its Korean operations, as profitability became an issue in South Korea.

South Korea is a market with the highest internet penetration and broadband speeds, across the globe. But, Global companies have consistently failed to make significant inroads into these regional markets. Local companies like Naver and Kakao have been able to keep outside competition at bay and maintain market leadership. Moreover, these Korean companies are currently in the process of expanding their own reach to other south Asian countries.

Why do these companies leave?

Groupon, at a global level, is trying to become a mobile ecommerce marketplace, and is trying to move away from its daily deals segment. With its previous expertise and relationships, built in the local deals segment, this is a reasonable path to choose. In South Korea, TMON is already the biggest ticketing service and ecommerce player. Groupon’s strategy is to use the strength of a local player and expand in and with TMON, Groupon is trying to capture the local ecommerce space, and keep emerging rivals such as G-Market and Coupang at bay.

Digging back a little more, Groupon had acquired TMON from LivingSocial in 2013. LivingSocial again is an example of a global company, which moved out of South Korea to concentrate on its US operations. This acquisition made South Korea the biggest market for Groupon outside of US in 2013.

Yahoo had similar reasons to move out. In 2012, Marissa Meyer, CEO of Yahoo started restructuring Yahoo’s operations and shutdown all non-profitable activities. Yahoo entered South Korea in 1997 and has for the last 15 years, been trying to capture market share. It has finally decided to focus only on profitable activities. But, unlike Groupon which is planning to keep operating in South Korea through TMON, Yahoo decided to completely pull out in the face of fierce domestic competition.

Companies like Facebook, Linkedin and Twitter are finding it tough to crack the South Korean market. While they have seen some success, user acquisition has been much slower than in other regions around the globe, part the result of other local players such as Kakao Talk, that have huge local presence and home advantage.

In the mobile handset industry, HTC is another company that has tried to compete with the local giant Samsung and had to shut down sales operations in Korea. Motorola moved out in 2013 as part of the global restructuring program. Research In Motion is also considering shutting down its South Korean operations. In recent weeks we have also reported that both IBM and HP are also shedding staff in Korea.

What attracts these companies to South Korea?

Korea is a very small country (50M population), but what makes it such an attractive market?

South Korea has been one of the fastest growing economies in the world with a GDP of 1,156 billion USD. It is ranked 38th best country to do business in by Forbes. On the technology front, South Korea has 94% internet penetration and provides one of the fastest internet speeds. It also leads in global smartphone penetration with over 7 out of 10 people owning a smart phone. On top of this Korea is likely to be the first country to roll out a 5G mobile broadband network, demonstrating the nation’s drive to maintain its position of a Global Leader in all things tech. Simply put, global companies cannot risk losing in this lucrative market by expanding in Korea.

Why global companies are failing?

Korea has been able to produce some of the biggest names in technology like Samsung & LG that have managed to go global. It has many big local players in the tech industry like Naver and Daum in the internet space and KT and SK Telecommunications. But, global companies are having a hard time in Korea.

Many have attributed this failure, to a lack of understanding of cultural differences. Companies are trying to force fit a westernized model of business in Korea. Local companies understand the market better and can cater to the local needs and taste much better. These companies are still learning and soon will be able to see some growth.

A few Success stories

All is not gloomy for Global companies in Korea. Google has managed to gain some market share in Korea. But, unlike its global market leader position, it still ranks a distant 3rd, behind local search companies Naver and Daum. Social networking sites like Facebook and twitter have fared better in capturing the imagination of Koreans. Apple has also managed to compete with Samsung and gain 14% share in the mobile handset segment: Not great, but with the pride that Koreans hold their national corporations this is not a bad showing.

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Comments

comments

  • Agi

    I agree with you, South Korea has a unique local culture. Besides that, especially in web development, they use a different scheme from otheres who use some popular methods in web development world.