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CHANGES IN THE GLOBAL MOBILE MARKET AND NEW CHALLENGES FOR LG MOBILE
Namgyoo K. Park, Seoul National University Jeonghwan Lee, Seoul National University Junghyun Suh, New York University Hyojung Kim, Sangmyung University
CASE DESCRIPTION The primary subject of this case study falls within the scope of strategy. The secondary issues examined in this case study include globalization, marketing, decision-making, growth management strategy, industry structure attractiveness analysis, and understanding competitive advantage. The case has a difficulty level of four out of five, and is appropriate for the senior level. The case is designed to be taught in one hour, and is expected to require three hours of outside preparation by students. CASE SYNOPSIS The global mobile phone market has long maintained a double-digit growth rate, and its total sales volume has reached 1.24 billion. Today, the global market is dichotomized into developed markets and developing markets; alternative demands dominate the former, and new demands dominate the latter. The rise of smartphones is one of the hottest issues in developed markets. Recent changes in the global market landscape, initiated by the arrival of smartphones, is bringing to an end the market domination by the top five companiesNokia, Samsung Electronics, LG Electronics, Motorola, and Sony-Ericsson. The decline of Motorola and SonyEricsson, and the sudden rise of smartphone specialists such as RIM, Apple, and HTC are disrupting the market structure, and causing increasing uncertainty within the wireless business. Despite increasing market uncertainty, LG Electronics (LGE) managed to become the third-largest global mobile phone manufacturer by 2009. However, it might be too early to celebrate, as no one can guarantee the sustainability of LGEs growth in todays highly uncertain environment. Inadequate distribution channels are preventing LGE from catching up with Nokia in the developing markets, and competition in the developed markets among high-end manufacturers is becoming fiercer by the day. Moreover, LGE lacks competitive advantage in the smartphone market, which is the only market with high growth potential. LGEs smartphone manufacturing capacity falls behind that of RIM and HTC, and LGE has to depend on Microsoft and Google for the operating system software. LGEs application store (app store) is still in a nascent stage, and its growth potential is yet to be proved. In this context, this case study will
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lead the discussions on how LGE can survive in this challenging new environment as a late mover in the smartphone market. Besides, with the app storea disruptive innovation that is rearranging how digital contents are distributedexpanding its territory, discussions about LGEs strategies and its future prospects will provide meaningful suggestions not only for the mobile phone industry but also for other IT industries. INTRODUCTION
LG Electronics will achieve global market share of 10% and sales of a hundred million units by the end of 2009. By 2012, we will become the second-largest mobile phone manufacturer in the world. Mr. Seung-Kwon Ahn of LGE, at the Mobile World Congress in February 2009

In February 2009, when global economies were experiencing the aftermath of the financial crisis initiated by the sub-prime mortgage loans, the Mobile World Congress (MWC) of 2009 opened its first session at Barcelona, Spain. Mr. Seung-Kwon Ahn, the chief of the mobile communication division of LG Electronics Corporation (LGE), declared his future strategies with strong confidence to the attendants from all over the world. However, most of the audience was not convinced about the feasibility of his plans in the short term. It did not take long to prove the detractors wrong. At the end of the fourth quarter of 2008, LGE claimed third position in the mobile phone market, and its market share exceeded 10% for the first time in its corporate history. These surprising performances in fact reflected the goals promised by Mr. Ahn nearly half a year earlier. The double digit global market share of the LGE mobile division gains even more significance since the global economy was yet to recover from the crisis, and LGE acquired only a few top mobile telecommunication carriers. These numbers effectively killed possible concerns about the future of LGE and other related questions. Although initial doubts about the capability of LGE and its top management team had died down, LGE knew that it still had a long way to go. The volatile global mobile phone market made it difficult to look into the future, and situations could turn against them at any moment. As can be seen from the history of the market, a significant change in a mobile phone technology or product has always been followed by an acute change in market competition. As the core technology shifted from analog to digital, Motorola experienced a downfall while Nokia emerged a winner; LGE and Samsung Electronics Corporation (SEC) joined the top five brands when the mobile phone evolved from a simple gadget for voice communication to a complex multimedia device. These changes were just a beginning compared to the market transformation that the current mobile phone market is experiencing. With smartphones on the rise, the competition in the mobile phone market is entering a whole new phase. LG Electronics began to experience difficulties in such a business environment, with the market share in the smartphone market remaining modest, at best. In early September 2009, Mr.
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Ahn said to the executives of the Mobile Communications Business Division in a concerned tone:
We must put the success achieved so far behind us. Now we are facing a serious crisis in terms of future competition centered on smartphones. The entire company needs to contemplate on how to overcome this situation. I want to ask each department to establish plans to acquire competitiveness for our smartphones.

GLOBAL MOBILE PHONE MARKET OVERVIEW OF THE MOBILE PHONE MARKET The global mobile phone market in 2008 was predicted to be 1.24 billion in total volume, which reflects a 7.6% growth from 1.15 billion in 2007. This showed that the growth rate of mobile phone markets, which remained in double digits for the past several years, was falling, mainly due to the maturing global market and the effects of the financial crisis that originated in the US. Moreover, the market in 2009 was expected to drop to 1.2 billion, dropping 3.2% from 2008, due to decreased demand in the stagnating economy. The uncertain global economy rapidly caused the domination of the mobile phone industry by the five major manufacturers to crumble. Motorolas prolonged slump in North America and Sony-Ericssons weakened presence in Europe stimulated the restructuring of the global handset market. Nokia, SEC, and LGE formed the new triumvirate, dominating almost 70% of the global market in the second quarter of 2008. Motorola and Sony-Ericssons market strength was quickly dwindling; the aggregated market share of the two companies was less than that of LGE alone.
<Global Mobile Phones Sales> <2007 Regional Sales and Rates of Alternative Demand>

Source: Gartner

Source: Gartner

Although the growth rate of the mobile phone market is in a decline overall, there are a few promising segments where high growth rates can be observed. First of all, the markets in the
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emerging countries collectively referred to as the BRICs (Brazil, Russia, India, and China) show high growth potential. For instance, Brazil is currently the largest mobile phone market in Central America, accounting for 35% of the total Central American market. It also showed a drastic increase in growth rate: from 34.88 million in 2003, subscribers jumped to 86.21 million in 2005, 99.91 million in December 2006, and 1.7141 billion in January 2007. The Russian market, notorious for the massive distribution of smuggled mobile phones until the first half of 2005, is becoming more transparent with the help of strong governmental regulation imposed as part of the market transparency policy. The Russian government is strongly supporting the regulatory efforts to meet the qualifications that are required to join the WTO. India and China, with even bigger opportunities for market expansion, are attracting manufacturers. Their vast populationeasily over 35% of the world totalis expected to provide unprecedented market growth in the years to come. The number of mobile phone subscribers in India reached 100 million in April 2006, and the Indian mobile phone market recorded an annual growth rate of 47.3%. Since only 30% of the Indian population possesses a mobile phone, enormous potential for further growth still exists. China, whose population exceeds 1.3 billion, is an especially promising market for 3G mobile phones. The double-digit growth of mobile phone subscribers in China had mostly been centered on 2G services. In recent years, the growth rate of 2G subscribers gradually decreased as more customers signed up for 3G phones. In contrast to the Indian market, where low-end devices dominate, the Chinese market has demand for both high-end and low-end devices, and is also famous for its high preference for global brands. In short, the Chinese market wins a few points over India, and is perceived as one of the most attractive markets for global mobile phone manufacturers (Kim, 2008).
<Mobile Phone Market in India> <Mobile Phone Market in China>

Source: Bank of America, Merrill Lynch, Source: www.huawei.com MMC Group analysis

The developed markets, on the other hand, with subscription rates reaching nearly 100%, are showing stagnation in quantitative growth, reflected in the low number of new subscribers. Alternative demands for high functional devices constitute the strongest demand in these
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markets. The smartphone market in particular, which was once largely limited to North America, is growing at double-digit rates, and is leading to the rapid replacement of existing 2G and 3G mobile phones in the developed markets. According to Gartner, a market research institute, the overall mobile phone market in the second quarter of 2009 declined by 6.1% in sales volumes, while smartphone sales increased by 27%. The polarized state of the global mobile phone market, with smartphones at one end and low-end phones at the other, is expected to continue for a while. The demand for expensive smartphones is high in high-end markets, including North America, Europe, Japan, and Korea, while the demand in countries with less-developed economies is more for relatively cheap, low-end products. <Smartphone Sales Volume and Market Share> <Global Handset Sales Portion by Price Range>

Source: Gartner

Source: Strategy Analytics

RAPID GROWTH OF THE SMARTPHONE MARKET The history of the smartphone market goes back to the launch by Palm of its first PDA 10 years ago. Although this device was more of a portable personal computer (PC) than a communication device, it was embedded with a communication module, which justifies its being treated it as the origin of the smartphone. However, the Palm PDA failed to succeed with the masses due to its limited communication functions and applications, and appealed only to a handful of early adopters. The first smartphone that really opened up the potential for a whole new market was the BlackBerry, introduced by the Canadian company Research In Motion (RIM). Although the BlackBerry was successfully introduced into the market, RIMs growth was mostly confined to North America as it targeted corporate customers by providing solutions along with the product, such as the Instant Messenger service and an e-mail system linked with Enterprise Resource Planning (ERP). BlackBerry also adopted the QWERTY keypad, which is the standard keyboard layout, for easy utilization of its powerful computing functions. The mass market for smartphones began to grow at a much faster pace after Apple released the iPhone. The iPhone was first introduced to the public at the Macworld Conference & Expo held in San
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Francisco on January 9, 2007. In the first week of its release, the iPhone became a million-seller, signaling the beginning of the smartphone era. A smartphone is a mobile phone equipped with computing power similar to that of a PC. Mobile phone manufacturers, content providers, and customers all have their own reasons to covet smartphones, placing the product under the IT spotlight. Manufacturers can earn higher profit margins since smartphones are sold at higher prices; content developers are able to gain direct access to customers through the application stores (commonly referred to as app stores), without having to rely on other content providers or distributors; customers are drawn to smartphones as they increasingly wish to add mobility to their computing experience, such as by accessing e-mail, browsing the Internet, watching streaming videos, and so on. Smartphones, with their added computing power and faster network access, are considered to be the ideal choice to meet such needs. The recent boom of smartphones can be attributed to the advancement of technology, both inside and outside of smartphones. One of the reasons why early smartphones were not widely accepted was that they were simply not capable of executing the tasks the customers expected of them. Recently, the mobile CPU used in smartphones was upgraded to 1 GHz, which is almost up to the level of a PC, making the computing power of smartphones comparable to that of desktop or laptop computers. On the infrastructure front, HSPDA technology was applied to allow 14.4 Mbps of network speed when downloading data. Further, new touchscreen technologies allowed a more graceful and user-friendly UI, while full-browsing technology provided webpage screens identical to those on a PC. Smartphones are increasingly being perceived as a user-friendly device with convenient access to digital services, rather than as a special device for select corporate customers or early adopters. The explosive growth of the smartphone market, which started around 2005, is not showing any signs of slowing down. The annual growth rate of the smartphone market touched 45% in 2006, and smartphones are forecasted to take up 33.6% of the total market in a few years. In Korea and Japan, where broadband Internet access is widely available throughout the country, a mass demand for smartphones has only begun to appear. In the case of Europe and the US, however, broadband Internet access is not as widespread as in Korea or Japan; this drove the need for devices with highly functional mobile Internet access in these markets. Moreover, the need for mobile devices with fast network access is also rising in emerging markets, which will create more demand in the near future. Subscribers to mobile communication services, numbering around 3 billion in 2007, are expected to increase to 5.5 billion by the end of 2013. Nearly a billion new subscribers are expected from China and India. After a few years, after the number of subscribers grows to a certain level, alternative demand is expected to become greater than new demand, even in emerging markets. This would be especially true for the BRICs if their continuous growth in GDP maintains its current pace. Alternative demand, which represents the demand to replace existing mobile devices with new ones, will result in increased demand for high-end devices over low-end devices. A few particularly fast-growing emerging
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markets, including India, are heading straight toward building a nationwide wireless Internet network instead of investing in costly broadband Internet infrastructure; such a move would trigger new demands for smartphone in these emerging markets, where traditional 2G and 3G phones have reigned. ANALYSIS OF THE COMPETITION Until recently, the global mobile phone market had remained mostly stable, with the dominance of the Big 5: Nokia, SEC, LGE, Motorola, and Sony-Ericsson. The Big 5 dominated more than 80% of the total market. However, the market is going through a major transformation due to the fall of Motorola and Sony-Ericsson, Nokias slump, and the huge success of Samsung Electronics and LG Electronics, along with the rise of specialized smartphone manufacturers. <Market Share Distribution of Big 5 Manufacturers>
(%)

Source: Gartner Comparison of the Major Handset Makers Results in 2Q08 and 2Q09 (Unit: Thousand) 2Q09 2Q08 2Q09/2Q08 Market Return on Market Return on Market Sales Sales Sales share Sales Share Sales Share Nokia 105,413.3 36.8% 11.6% 120,353.3 40.4% 17.2% -12.4% -8.9% Samsung 55,430.2 19.3% 10.0% 46,376.0 15.2% 12.8% 19.5% 27.0% LG 30,497.0 10.7% 11.0% 26,698.9 9.3% 14.4% 14.2% 15.1% Motorola 15,947.8 5.6% -13.8% 30,371.8 9.2% -10.4% -47.5% -39.1% Sony-Ericsson 13,574.2 4.7% -16.3% 22,951.7 8.1% -0.1% -40.9% -42.0% Source: LGE investor relation information & Gartner

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FALL OF MOTOROLA AND SONY-ERICSSON Motorola Motorola originally started its business as a battery manufacturer in Chicago, and then boldly jumped into the radiotelegraph and wireless communication business. The new business proved to be an enormous success. Motorola tripled its earnings between 1990 and 1995, and became the leader among the first-generation mobile communication players. Motorolas dominance of the market came to an end when the second-generation mobile phones were introduced in the market. In 1998, the company lost its market leadership to Nokia, as it failed to secure the digital cellular technology that was critical to build second-generation mobile phones. In 2001 and 2002, Motorola recorded losses to the tune of USD 3.9 billion and USD 2.5 billion, respectively. To turn the things around, Motorola hired Ed Zander, former chief operating officer (COO) of Sun Microsystems, as the new CEO. The first thing Zander wanted to do was to improve Motorolas new product development capability. The main office of Motorola was moved to a chic, modern-looking place in the urban area, which was meant to provide an innovative atmosphere to the organization. Zander also hired Geoffrey Frost, former Nike brand campaign master, as the chief marketing officer (CMO). These efforts immediately showed results, and the outcome was RAZR, an ultra-slim mobile phone, which became a megahit as soon as it was released. Motorolas comeback, led by Ed Zander, unfortunately ended with RAZR. Its subsequent products failed to outperform the multimedia phones of its competitors such as LGE and SEC, and Motorola was back on the downward track. Motorola not only experienced a record-breaking loss of USD 4.2 billon in 2008 but also failed to effectively take on the emerging markets in Asia and Africa with its low-price handsets. It was not surprising when Motorolas global market share plummeted to 5%. Motorola also suffered in its main market, North America. Motorolas market share in North America dropped to 17%, and the first and second place went to SEC and LGE, respectively. In the second quarter of 2009, Motorolas operating profit fell to 13%. Motorola had announced several layoff plans since the second half of 2008 in an effort to improve its profitability that had remained in the red since 2007. In addition to the layoff plans, newly hired CEOs Greg Brown and Sanjay Jha (former COO of Qualcomm) have been concentrating fully on the smartphone market as their core strategy to put the company back on track. The results of their strategy were Droid and Click, which were released very recently. These Android-base smartphones were developed through collaborations with Google, and were very well accepted by the market. However, it remains to be seen whether the commercial success of these two models would be enough to restore Motorolas lost glory.

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Sony-Ericsson Sony-Ericsson was formed by a 50:50 joint venture of Sony (Japan) and Ericsson (Telefonaktiebolaget LM Ericsson, Sweden). With Sonys brand power and business know-how in the electronic devices market and Ericssons mobile communications technology, the joint venture ranked third in the global market soon after its launch. Sony-Ericssons differentiation strategy had mainly focused on emphasizing the superior multimedia performance of its products. However, Sony-Ericsson began to lose its competitive edge when other companies also introduced popular multimedia mobile phones. Sony-Ericssons decline picked up speed due to stagnation in the western European market, which the company heavily relied on; this directly damaged the companys overall performance. To make matters worse, Sony-Ericsson had difficulties in entering emerging markets because its product portfolio was mainly composed of expensive high-end devices. By the end of 2010, the objective of Sony-Ericsson was to save 880 million Euros from operating expenses to cover up the losses and to secure liquidity. To meet the objective, SonyEricsson has been undergoing a major restructuring process since 2008, and has replaced Hideki Dick Komiyama with Bert Nordberg, former head of Ericssons US technology division, who took over as the new CEO and president. However, given the present conditionsSonyEricssons global market share of 8.1% in the first quarter of 2008 dropped to 4.7% in one year, and its operating margin in the second quarter of 2009 marked only 16.2%not too many people believe Sony-Ericsson will bounce back. STAGGERING NOKIA Nokias history dates back to the nineteenth century. The Nokia Company (Nokia Aktiebolag), Finnish Rubber Works Ltd. (Suomen Gummitehdas Oy), and Finnish Cable Works Ltd. were established in 1865, 1898, and 1912, respectively. These companies merged in 1967, and the current Nokia group was established. When the group was first formed, Nokia engaged in very diverse business fields, including rubber, tires, electricity cables, paper pulp, and so on. Jorma Ollila, who was appointed CEO in 1992, saw this as a misuse of the groups resources and decided to focus on one business segment. This decision led Nokia to become the worlds leading company in the mobile communications and multimedia sector. Nokia quickly overtook the market leader Motorola, and dragged them down to second place in 1998. Since then, Nokia has remained the undisputed leader in the mobile phone industry. There are two driving forces behind Nokias success. First, Nokia dominates not only the developed markets but also emerging markets such as Asia, the Middle East, and Africa. In fact, Nokias presence is stronger in the emerging markets. Nokias 2008 second-quarter market share of 47% in the Asian market and 66% in the African market indicate how much influence the company has in these markets. Unlike developed markets, which are mostly facing
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stagnation in the mobile phone industry, such emerging markets are expected to maintain an annual growth of over 4%. Successful market diversification helped Nokia keep its place as the market leader despite a strong euro and the economic crisis. One of the unique characteristics of the mobile phone market in the emerging countries is that the manufacturers are themselves responsible for distribution most of the time. Nokia already possesses its own distribution channels in the major emerging markets (100,000 in India, 120,000 in Africa, and 60,000 in China), while many other manufacturers are facing difficulties in even entering these emerging markets because they lack distribution channels.
<Nokias Regional Market Share in 2Q08>

Source: Son, M.-S. (2008), Is Nokia Invincible? LG Business Insight.

Second, Nokias superior manufacturing capabilities are also responsible for its success. According to Gartner, Nokias sales volume was 15 million in the second quarter of 2009; this was higher than the aggregated total of the other Big 5 companies, even though Nokia had lost 8.9% points of its market share in that quarter. This gap in sales volume provides much stronger economies of scale for Nokia, which in turn enables more cost reduction. Nokia applied the platform strategy to its manufacturing system from 2000, and is currently pushing toward the standardization of its hardware components by introducing the MIPI (Mobile Industry Processor Interface). Nokia also aims to standardize the software for its devices by building all operating platforms based on the Symbian operating system (OS). Nokia now possesses an even stronger manufacturing competence to supply a wide selection of devices at lower prices. In August 2007, Nokia announced the launch of Ovi, its new service platform. Ovi was launched to extend Nokias reach, and to re-position itself as a web platform service provider rather than a simple device manufacturer. Further, Nokia restructured its existing four business groups (mobile phones group, multimedia group, enterprise solutions group, and networks group) into three new business units in January 2008: device unit, service & software unit, and
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market unit. This move was a clear indication of Nokias determination to become a platformbased service and software provider. After restructuring internal organizations, Nokia went on to acquire companies such as NAVTEQ (a navigation software manufacturer) and Loudeye (the leading music content provider). Until around 2005, Nokias position as the market leader seemed unshakeable. However, the recent changes in the global market put Nokia in a difficult situation. Nokias overall market share has been decreasing from the time when it recorded a high of 40.4% in 2007, and its disparity with SEC (which had been almost up to 30%) is also continuously decreasing. Nokia is losing market shares in high-end markets where manufacturers specializing in smartphones are cutting into Nokias share of the market. Ironically, the problem lies with Nokias platform strategy, which was the driving force of its strong manufacturing ability. The platform strategy enables the production of many different devices on a single platform, thus greatly reducing cost. However, when Nokia wants to produce a fundamentally new device, the company has to rebuild the whole platform, which could take more than two years to complete. A platform strategy lacks flexibility in unpredictable conditions. Despite all its market power and resources, Nokia was not the first to release the full touchscreen phone. In addition, the success of Apples iPhone and App Store, together with the recent surge of Googles Android-based smartphones, made inroads into the potential customer base of Nokia as a web platform provider. As a result, both Nokias year-to-year sales and market share decreased by 12.4% and 8.9%, respectively, in the second quarter of 2009. Symbians market share in the OS market also experienced a significant decrease from 63.5% in 2007 to 52.4% in 2008. Nokia is taking various measures such as reducing production, announcing temporary layoffs, and increasing investments in high-end device developments, in an effort to turn the status around. THRIVING SAMSUNG ELECTRONICS Samsung Electronics Corporation (SEC) was the first Korean company to produce its own mobile phones. The company began its domination of the Korean domestic market in 1994 with the release of the Anycall brand of mobile phones. The company quickly extended its reach to the global market. It built up technological development and product design capability with amazing speed. With its accumulated capability, SEC is now accepted as a notable mobile phone manufacturer across the world. As the mobile phone business of SEC developed and its markets began to mature, the company actively transferred its factories overseas, in order to maintain the cost competitiveness of its products. Samsung moved most of its factories to locations where cheap labor was readily available, except for the one factory in Gumi, Korea, where SEC manufactured its premium products. The new factory locations included Tianjin, Shantung, and Xien Jien in China, and Haryana, India. The factories set up in China and India were specifically intended to manufacture low-price devices. The contribution of the Gumi plant to total production volume
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gradually decreased from 63.3% in 2006, to 52% in 2007, and then to 34.7% in 2008. Samsung also actively adopted the platform strategy of Nokia to further reduce costs. As a result, the average selling price of Samsung mobile phones constantly dropped, reducing the disparity between SEC and Nokia from USD 38 in 2007 to USD 24 in the fourth quarter of 2009. Samsung, which had always aimed to overtake Nokia and become the global leader, is currently facing another challenge, as the market is shifting to smartphones. In the North American market, Samsung sold 2.5 million Black Jack handsets through AT&T and 1.5 million Instinct handsets through Sprint in 2008. According to Gartner, SEC had a market share of 4.2% in the smartphone market, selling 1.6 million devices in the fourth quarter of 2008. This was a 2.6% increase from 1.8% in the fourth quarter of 2007. One of SECs most recent moves was the unveiling of the S8500 Wave handset at the Mobile World Congress (MWC). Wave is the first handset operating on the Bada OS that was developed by SEC. Bada and Wave were both part of SECs initiative to develop its own set of unique standards encompassing handsets, operating system, and an app store. Samsung is currently aiming at sales of 10 million smartphones operating on Bada and developing at least 1,000 applications that could run on the platform by the end of 2010. THE RISE OF SPECIALIZED SMARTPHONE VENDORS The sluggish economy seems to have had little effect on manufacturers specializing in smartphones. Even as the overall mobile phone market was slowing down, they showed impressive growth rates. Apple of the US, RIM of Canada, and HTC of Taiwan had the most outstanding results. Their market share tripled since the third quarter of 2007, adding up to 5.4% of the total mobile phone market in the second quarter of 2009. The average growth rate of these companies in the same period reached 15.9%.
<Growth of Smartphone Makers> (Unit: Thousand, %) <Sales and Growth of RIM, Apple, and HTC vs. Others> (Unit: Thousand, %)

Source: Gartner

Source: Gartner

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Research In Motion The Canadian communication device manufacturer, Research In Motion (RIM), which was established in 1984, quickly became the leader in the smartphone market after it released the BlackBerry. The most significant feature of the BlackBerry was its e-mail solution. BlackBerry users can send and receive e-mails regardless of where they are, allowing them to deal with pressing business matters faster. Users can also easily manage their schedule through the Outlook program, and chat with other people using the instant messaging service installed on BlackBerry. The beauty of this device was that users could do all of these functions even as they were striding down the sidewalk, far from any desktop computer (Kim, 2008). BlackBerry adopted the QWERTY keypad, and there was a track-ball in the center of the device (which performs the same functions as a mouse does for a PC); these features were meant to provide as much of a PC-like environment as possible. Fortune selected RIM as one of the worlds 100 fastest-growing companies in 2009. Even as Apples iPhone generated a buzz in the global market, Rim outperformed the iPhone in the North American market in the first half of 2009, reclaiming its dominance in the US smartphone market. The BlackBerry is most commonly used by business people in North America and Europe, which are advanced markets in B2B solutions. There are about 19 million users across more than 130 nations. During the last three years, RIM recorded an average increase of 84% in earnings per share, and a 77% annual sales growth.
<Market Share of the North American Smartphone Market> (Unit: %)

Source: Changewave Research

Apple Apple Computer Inc, established by Steve Jobs and Steve Wozniak, started as a computer manufacturing company in 1977. Apple literally led the world into an era of personal computers by successfully launching the worlds first desktop computers with a keyboard and a monitor
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(i.e., Apple I and Apple II). Apple was also the first to introduce the concept of a graphic user interface (GUI) through its Macintosh products. Such accomplishments made Apple a symbol of innovation in the computer industry of the twentieth century. Apple did have some difficult times in the early years of the twenty-first century, when several of its new products failed in the market, and Steve Jobs was driven out of the company. When Jobs returned, Apple got a fresh lease of life, and started launching a series of innovative products from 2007, such as the iPod (a portable MP3 player), Apple TV (a multimedia device for households), the iPhone (a smartphone), and the iPad (a tablet computer). The iPod and iPhone especially were well received in the market. Apple entered the mobile handset market, which had already been showing signs of saturation, for two reasons. First, the iPod was losing its initial glamour, and Apple was looking for a new growth engine. The sales of the iPod had been growing at a whopping annual rate of 200%, which was unquestionably the main driving force behind Apples rapid growth. Since 2006, however, iPods sales growth had slowed down to double-digit rates. Of course, this was only natural as the iPod had by then claimed more than 50% of the total MP3 player market. Nevertheless, Apple wanted to find its next growth engine that could replace the iPod in order to keep the company on the rise. A more fundamental reason could be found in Steve Jobss forecast of the IT market. At All Things Digital, a conference hosted by the Wall Street Journal on May 30, 2007, Jobs stated that the future of IT lies in mobile phones. This was in sharp contrast to what Microsofts Bill Gates had forecast; he had previously claimed that personal computers would become the black hole of other IT-related devices. Although seemingly contradictory, these remarks clearly indicate that the players in the mobile phone and PC industries would soon cross paths. Apples entry into the mobile phone market was not simply about developing new products to secure a future growth engine, but was really about forming a foundation to build competitiveness in the future IT market. The iPhone attracted a great deal of attention, causing a huge impact on the mobile phone market upon its release. The first iPhone was sold in the US at 6 p.m. on June 29, 2007. Customers formed endless lines at outlets to buy the new device. A million units were sold in the first week, and the hype continues with its share of ups and downs. One of the reasons for the iPhones success was its good looks, of course. Apples service model, designed to maximize the user experience, was another main reason behind the scene. The iTunes service, which had made the iPod so successful, was applied directly to the iPhone. This caused a large number of customers who had already experienced and loved using iPod to shift to the iPhone and Apples App Store. Despite its grand opening, the iPhone fell a little short of the groundbreaking results that iPod had shown initially. Apple only sold 6 million units of the second-generation iPhone; it had expected to sell 10 million. The most critical reason for the insufficient sales was its excessively high price (USD 499 for the 4 GB model and USD 599 for the 8 GB model) compared to the
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average price of other mobile phones (USD 130 in 2007). To increase the sales of the iPhone, Apple gave up its profit-sharing model. Apple stopped receiving part of the profit from the mobile communication service providers, and cut down the price to USD 199 (4 GB) and USD 299 (8 GB). iPhones market share leaped to 10.7% in the fourth quarter of 2008, from 5.2% in the previous year. The iPhone is currently sold in about 80 countries, including the US, Canada, France, Germany, Japan, Taiwan, and Korea. HTC Established in 1997, Taiwans HTC started its business as an original design manufacturer (ODM) for other companies in the mobile phone business. HTC pioneered the smartphone market hand in hand with major OS providers, such as Microsoft and Google. HTC also maintained strategic partnerships with Intel, Texas Instruments, Qualcomm, and other global communications service providers (such as Orange, T-Mobile, Vodafone, Verizon, and NTT Docomo). Having accumulated sufficient knowledge and experience, the company unveiled its own brand of smartphones in June 2006. Before unveiling its own brand, HTC showed remarkable growth by releasing a series of well-accepted products for other companies: the Microsoft smartphone (2002), the first Microsoft 3G phone (2005), and the first Microsoft Windows 5.0 Smartphone (2006). Even after releasing its own brand of phones, HTC manufactured the first Google phone, Nexus One (2010). HTC was ranked number two on Business Weeks Asian Top Information Technology companies in 2007, and number three among global IT companies in 2006. HTC annually invests 25% of its total profit for R&D and for developing its manufacturing capabilities. PAST AND PRESENT OF LG ELECTRONICS HISTORY OF LGES MOBILE PHONE BUSINESS The history of LGEs mobile phone business can be traced back to 1995. On March 6, 1995, LGE held the launch of Hwa Tong, an analog handset. This event signaled LGEs entrance into the mobile phone industry. LGE initially organized their handset division under LG Information & Communications, Ltd, which merged with LGE in September 2000. LGE invested a substantial part of its retained earnings on information and communications throughout this process to build competence in a field with high growth potential. LGEs devotion toward the handset business began to produce concrete results by 2001. In the first quarter of 2001, the company recorded a 2.5% share in the global market, and joined the ranks of the global top ten for the first time. In the fourth quarter of 2001, LGE had sold 10 million handsets worldwide, and became one of the top eight global manufacturers.

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Page 104 With strong performance in 2001, we are now confident that the mobile handset business will be our core business in mid- and long-term perspective. LG Electronics Annual Report, Kim Jong-eun, Head of Mobile Communications Division

In August 2001, LGE decided to enter the European market, which primarily used the Global System for Mobile Communication (GSM). This indicated LGEs efforts to become a truly global company, as GSM accounted for 70% of the global market at the time. In the first quarter of 2003, LGE increased its market share to 5.2%, and jumped ahead of Sony-Ericsson to become the global number five. LGE achieved greater success in the third-generation WCDMA handset market. In the fourth quarter of 2004, its efforts to succeed in the future communications market paid off: LGE became the global leader in the third-generation WCDMA handset market. The capability to effectively embed multimedia technology into digital devices, which LGE had accumulated while manufacturing digital household appliances, made this possible. Its WCDMA handsets were ahead of those of its competitors in features such as visual communication and battery life. The global success of the Chocolate Phone, introduced to the market in October 2005, proved LGEs global competitiveness. It became a global steady seller, with sales of 15 million units. LGE also became a pioneer in using touchscreen technology with the success of the Chocolate Phone. Since the Chocolate Phone was one of the earliest handsets with a full touchscreen, the phones success made the technology popular in the mobile phone industry. Since then, LGE released many other highly successful handsets, such as the Shine Phone (with a stainless steel casing) and the Beauty Phone (with an aluminum case and a built-in 5-megapixel camera). All these helped to push LGE up to the third place in the global handset market in 2009.
<Sales Revenue of LG Electronics> (Unit: KRW 100 mil)

Source: LG Electronics IR Report

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Page 105 LG Electronics mobile phone business history 1979 1986 1989 1990 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007 2005 2008 2007 2007 2008 Established Goldstar Semiconductor Started developing handsets in partnership with US companies Started sales of handsets Changed name to Goldstar Information & Communication, and imported STAREX-TD to Vietnam Manufactured Vietnamese communication devices, and established a joint venture, VKX Operated Russian communication and established a joint venture, ROKOTEL Changed name to LG Information & Communication Released worlds first CDMA handsets Commercialized CDMA PCS system, and supplied the equipment Developed worlds lightest CDMA PCS phone Released worlds first wireless Internet mobile phone Merged with LG Electronics Entered North and East European GSM markets Released worlds first mobile TV phone Became global number one in CDMA Awarded 3G CDMA industry development award four years in a row Successfully demonstrated LTE (Long-Term Evolution), the 4G mobile communication standard in mobile devices 10 million Chocolate phones sold by April; 15 million Chocolate phones sold by December Applied 4G mobile communication standard (LTE) in mobile devices; developed worlds first device modem chip Unveiled Touch Watch phone, which enables global visual calls Became one of the Top 3 in global handset sales

2009 2009 Source: LG Electronics official website (www.lge.co.kr)

BEHIND THE SUCCESS OF LG ELECTRONICS LGE has frequently used a strategy that simultaneously targets the developed markets (i.e., US and Europe) and the developing markets (i.e., Central/South America and Asia). Emphasizing both sides of the global market resulted in the balanced sales of LGE mobile phone devices in both developed and developing markets. As part of this strategy, LGE is planning to open about a hundred LG Mobile brand shops to expose customers in developing markets to LGEs high-end goods. This was an alternative solution intended to promote the sales of its premium devices, since existing shops in developing markets were not suitable for emphasizing LGEs prestigious image. LGE plans to maintain its profit margin to a reasonable level by focusing on the sales of its premium handsets, and by preventing the chicken game price war that can occurespecially when the product portfolio is focused only on low-end products.

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Page 106 < Rate of LG Electronics regional sales>

Source: LG Electronics IR Report

LGE performed particularly well in the North American market. A study of the North American market showed that SMS usage was more than doubling every year, along with the need to send e-mails using mobile phones. LGE took the findings of this study seriously, and released mobile phones equipped with QWERTY keypads to maximize messaging efficiency. The devices were dubbed Envy and Rumor. The Envy series generated sales of more than 8 million units in North America. Envys successors such as Envy Touch and Xenon also became million-sellers. The success of these models in one of the most developed markets in the world contributed to LGs reputation, and increased its market share in the North American market to 22.6%. This was the biggest success for LGE so far, considering that LGEs global market share was marked at 10.7% in the second quarter of 2009.
<Market Share in North American Mobile Phone market> <LG Electronics Global Mobile Phone Market share>

Source: Strategy Analytics

Source: LG Electronics IR Report

LGEs strategy of covering developed and developing markets simultaneously has another advantage: it increases the total supply, thus strengthening the economies of scale, and hedging the impact of various regional economic factors. In other words, diversifying the sales
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market reduced the risk of global operations. For example, LGE made up for the decrease in demand in the North, Central, and South American markets as well as the Korean market in 2008 (caused by the economic crisis) with the increase in sales in the Indian market. This contrasts with the strategies adopted by Motorola and Sony-Ericsson, which had either neglected developing markets or depended solely on a single market. The strongest driving force behind LGEs success, however, was its capability in developing innovative products through the active adoption of new technology and hardware designs. Its innovative products are certainly the most important reason behind LGEs success in the developed markets. The Prada Phone, the Chocolate Phone, the Shine Phone, and the Voyager all used innovative technologies that stood out from the competition: touchscreen technology, QWERTY keypad, stainless steel casing that had not been used before due to signal disturbance caused by the metal, and so on. These products set the trend in the global market with innovative technology and excellent design, contributing to building LGEs presence as a premium brand. LGE has its own channels of substantial scale to efficiently deliver key components; this fact had a favorable impact on LGEs positioning of itself as a premium brand. The cost and quality of the different modules, such as the MP3 player and camera, are decisive factors in the total price of a handset, as the costs for these components take up most of the production cost. Having these components supplied at a low cost is crucial for mobile phone makers in order to cut down the price (Pak & Kim 2007). LGE is a conglomerate with a highly efficient, vertically integrated organizational structure. The core components can be sourced from internal suppliers like LG-Philips LCD and LG Chemicals, allowing efficient cost management. Efficiently managed intercompany transactions within the group enabled LG to eliminate unnecessary costs, and this enhanced the price competitiveness of LGs final products in the global market. The managers were able to accumulate know-how on effective intercompany dealings, and could strengthen the link between partner companies through repeated transactions. Transportation costs were also reduced because the locations were nearby. Another advantage of using internal suppliers is that suppliers tend to provide their best products, manufactured on the best infrastructure, without the need for too much tiresome negotiations or supervision, since a long-term relationship is assured (Williamson, 1975, 1983). Increased competitiveness derived from internal partnership (as in this case) is being successfully practiced in Korean conglomerates, where a top-down command approach is the norm; this makes it difficult for other companies with different cultural backgrounds to imitate this model (Barney, 1991). This is one of the factors behind the success of LGE and SEC that has enabled them to step ahead of their competitors in manufacturing complex multimedia handsets that require various modules with diverse embedded functions.

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THE NEW ORDER IN THE SMARTPHONE MARKET Smartphones, often referred to as the PC at your fingertips, require a whole new level of manufacturing capabilities compared to mobile phones. Hardware quality and distinguishable designs, which were the key success factors in the past, became less important. One of the key factors in making smartphones is to provide high-quality content services to the users. As most of the contents provided to smartphone users come in the form of various applications, this creates pressure on handset makers to supply an ample volume of useful applications. Applications, in turn, cannot operate by themselves. The need for a fast and reliable OS that can enhance the computing performances of smartphones has also greatly increased. The few companies with the capability to develop their own OS for smartphones gained a powerful voice in the transformed mobile phone market. All these new factors in the current smartphone market changed the competition, and made it much more complicated. In order to measure a companys competitiveness in the current smartphone market, a comprehensive evaluation is necessary that would encompass the hardware devices, OS, and applications offered by the company. COMPETITION IN HANDSETS The main contenders vying for excellence in the smartphone market include the traditional mobile phone manufacturers (Nokia, SEC, LGE, Motorola, and Sony-Ericsson) and the specialized smartphone manufacturers (RIM, Apple, and HTC). Nokia remains at the top among these players, with the highest market share, even though it is experiencing a sharp decrease in its market power. In order to overcome the situation, Nokia began to actively release smartphones in 2006, and upgraded its product portfolio to a higher level. Nokias efforts to increase the portion of smartphone sales to over one-third of Nokias total sales paid off. However, Nokia was a step behind its competitors in releasing smartphones, and had lost a substantial amount of market strength in North America, more than in other markets, where the demand for smartphones was increasing explosively.
Comparison between 074Q and 084Q of the major smartphone makers (Unit: Thousand, %) 4Q08 4Q07 4Q08/4Q07 Sales Market share Sales Market Share Sales Market Share Nokia 15,561.7 40.8% 18,703.3 50.9% -16.8% -19.8% RIM 7,442.6 19.5% 4,024.7 10.9% 84.9% 78.9% Apple 4,079.4 10.7% 1,928.3 5.2% 111.6% 105.8% HTC 1,631.7 4.3% 1,361.1 3.7% 19.9% 16.2% Samsung 1,598.2 4.2% 671.5 1.8% 138.0% 133.3% Others 7,829.7 20.5% 10,077.3 27.4% -22.3% -25.2% Total 38,143.4 100.0% 36,766.1 100.0% Source: Gartner

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Among the specialized smartphone manufacturers, RIM and Apple are growing stronger in the smartphone market, with HTC following closely behind. RIM provides strong enterprise solutions, and is well known in the North American market, although its high reliance on the North American market could also be its weak point. Nearly 80% of RIMs total sales come from the North American market, and AT&T accounts for about half of these sales. Apples remarkable growth is in part propelled by the Apple App Store, which is believed to be the most successful application store to date. The competence of the iPhone comes not only from the device itself, but also from the synergy created by its App Store. However, some worry that the closed architecture of Macs OS and App Store, along with the iPhones extremely limited hardware portfolio, will have a negative influence on the future growth of Apple. The Taiwanese smartphone maker HTC became more widely known to the public because of its Google Phone.
< Sales Breakdown of Nokia Handsets> (Unit: EUR 100 mil) <Touchscreen Panel in Mobile Phones> (Unit: Million, %)

Source: Garcha, K., Armaly, W., & Sultania, A.

Source: DisplayBank (2008)

SEC and LGE, which are number two and three in the global mobile phone market, have released smartphones since the second half of 2008, and are currently holding on to relatively small market shares. Motorola and Sony-Ericsson, on the other hand, have kept from investing large sums in the smartphone market due to their ongoing restructuring. COMPETITION IN OPERATING SYSTEMS Smartphone users are very sensitive when it comes to choosing which operating system (OS) to use; this decision is just as crucial as deciding on the device itself. They demand that the computing performance of the OS is close to that of a PC, and they expect their use of the smartphone to be an extension of their PC usage experience. Therefore, it is very important for smartphone companies to equip their devices with a fast and reliable OS that can support a
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certain amount of workload with minimum errors. Currently, Nokias Symbian, Microsofts Windows Mobile, and Googles Android operating systems are competing to be loaded on to various devices, while RIM and Apple had developed exclusive operating systems for their devices. A recent trend in the smartphone OS industry is the emergence of open source OS. An open source OS allows users to develop applications, using the software development kit (SDK) provided by the OS developers. Leaving the source codes of the software open to other developers would ultimately enable the open source OS to be upgraded faster, and would provide a wider variety of applications to consumers than the closed-source systems would. This is essentially why many analysts predict that Google Android would be the most successful player in the future. Strategy Analytics, a US market research company, projected that Google Android would increase its OS market share to 4.4% by the end of 2009, from its current market share of 0.5%. The Android OS aspires to be an open source OS, and is based on the Linux system, promising broad potential for further service development. LGE, SEC, Motorola, and SonyEricsson, along with HTC, are planning to or are already actively releasing smartphones using the Android OS. Nokia, while gradually losing market dominance due to the surge of Android and iOS (Apples OS), still dominates the smartphone market with a 45% share, and is most likely to achieve the strongest economies of scale. Its decision to change from Symbian to an open source OS would certainly support its current strong market position. Nokia, however, has canceled its plans to release an Android handset due to fears of losing Symbians market leadership.
<Global OS Market Share> (Unit: %)

Source: Gartner

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COMPETITION IN APPLICATIONS As the hardware and operating systems of smartphones are improving rapidly, the competition to provide various applications that run on smartphones is also receiving new attention. An app store refers to an online space where various applications are sold or provided free to users. Application developers, varying from huge corporations to individuals, can upload their products to an app store, which is then sold directly to users. The applications that are downloaded by the users can be used without any further processes. The profit generated from the sales of applications is shared between the app store operator and the software developer according to the terms of their agreement. The most distinct characteristic of app stores is the openness in developing applications: app store operators disclose their software development kit (SDK) to the public, and anyone can utilize the SDK to develop a new application, and commercialize it. The current app store competition was initiated by the success of Apples App Store. Apples App Store opened in July 2008, and accumulated 1.5 billion downloads and 65,000 applications by July 2009. Companies running app stores are not limited to manufacturers specializing in smartphones such as Apple, RIM, and Palm. Major handset makers (such as Nokia, Samsung, and LG), OS developers such as Google and Microsoft, and mobile communication service providers (such as Vodafone, T-Mobile, and Verizon) are all currently operating app stores, or have plans to open an app store in the future. Although an app store is generally characterized by its openness from the point of view of the developers, the consumers perspective of the extent of this openness varies, depending on the providers. For instance, only customers with Apple devices can use Apples App Store, and their devices do not have access to other app stores. On the other hand, companies without their own app stores or mobile OS do not prevent their users from downloading applications from other companies app stores. The recently opened LGE app store has also adopted this format. In certain other cases, companies with their own OS do not allow access to other users, but do permit their customers to access other app stores. The importance of contents distribution can be clearly seen by comparing the market share and return on sales of the different mobile phone providers. The top three players of the marketNokia, Samsung, and LGhad a total market share of 70% in the second quarter of 2009, but their return on sales was only about 10%. In contrast, RIM and Apple, with only 2.7% and 1.9% market share, respectively, had return on sales of over 20% each. These differences occur due to the disparity between the cost of sales, sales expenses, and operating expenses for the two groups. The profit of traditional mobile phone manufacturers is mostly generated by hardware sales; manufacturing hardware, unfortunately, involves high cost of sales, high sales expenses, and high operating expenses. RIM and Apple, on the other hand, generate their profit not only from selling hardware but also from selling contents, which requires extremely low fixed and variable costs.
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<Growth of Apple App Store>

<2Q09 Market Share and Operating Margin>

Source: Apples published report

Source: Each companys IR reports

COMPETITIVENESS OF LG ELECTRONICS IN THE SMARTPHONE MARKET Based on its strength in hardware manufacturing, LGE leaped to third place in the global mobile phone market in terms of global market share. Nevertheless, LGEs competitiveness still remains insufficient to make it the top player in such a fast-evolving smartphone market. The OS for LGE phones are supplied by Google and Microsoft, and the LG Application Store is still in the early stages of development. The current conditions of LGE are well captured by the evaluation of the competitiveness of the smartphone makers in 2008 which showed that LGE was ahead of its competitors in hardware designs, WCDMA Chipset technology, and basic manufacturing capability. However, LGE was weak in areas such as software, intellectual property rights, and brand, signifying that the advantages of LGE in the smartphone market are limited to the capabilities the company already had in the traditional mobile phone market.
2008 Competitiveness Analysis of Smartphone Makers Fields Nokia Samsung Sony-Ericsson Apple RIM HTC Size 9 5.7 5.3 2.3 2.3 2.3 Supply 10 7 4 6 7.5 4.5 Product portfolio 8 7.3 6.7 3 4.7 5 WCDMA Chipset 10 6 8 2 2 6 Intellectual property rights 10 2 8 0 1 1 Service 6.7 4.3 4.7 5 7 4 Software 5.5 3.5 5 9.5 7 5.5 Brand 10 8 2 9 6 1 Management 7 4 5 8 7.5 10 Design 6 7 6 7 5 6 Total score 82.2 54.8 54.7 51.8 50 45.3 Rank 1 2 3 4 5 6 Source: Credit Suisse Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

LG 3.7 4.5 3.7 6 1 3.3 3 3 4 7 39.2 7

Motorola 3.7 6.5 2.3 2 4 4 3 5 1.5 1 33 8

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However, LGE has a few reasons to be optimistic about its future in the smartphone market. For instance, there are many ways to make up for the capabilities that are lacking, by cooperating with other companies. The success of Apple and HTC each gives inspiration, in rather contrasting ways. Apple had its strength in its OS and applications, but it had no previous handset manufacturing experience. Despite such circumstances, Apple achieved its success in the mobile phone market through its partnership with Hon Hai Precision Industry (an electronics manufacturing services company in Taiwan) that had mobile phone manufacturing ability. This was possible because providing fast computing experience is much more important for smartphones than simply providing good quality calls; this enabled the company to make up for the deficiencies in manufacturing capacity with OS and contents related capabilities. In contrast, Nokia, which enjoyed its cost competitiveness through the efficient platform strategy that no competitors could imitate, is currently struggling in the smartphone market. On the other hand, HTC possessed competitiveness in hardware development and manufacturing, while being less competent in OS and application development capabilities. However, HTC was able to become number four in the global smartphone market as a result of its close ties with Microsoft since the beginning of its business. The cooperation with Microsoft strengthened its software competitiveness, which is a crucial element in developing smartphones. HTC learned to manufacture smartphone devices best suited for the OS provided by other companies, and supplied devices to companies (such as Sony-Ericsson and Palm) using Microsofts OS. HTC currently manufactures devices under its own brand, using Google Android. While Apples case indicates that software competitiveness is more important than manufacturing capacity, HTCs case indicates that a company with an excellent smartphone manufacturing capacity can thrive in the smartphone market through partnerships with software vendors. Due to the multi-faceted competition in the smartphone market, it is hard for a single company to claim monopoly in all segments. A single company with all of the capabilities needed to create good smartphonesthe capacity to manufacture high-quality handset devices, strong economies of scale in distribution, continuous innovation in hardware manufacturing capacity, the ability to develop and maintain a stable and user-friendly OS, and an attractive app storeis very unlikely to appear in the near future. It would be a much smarter move to find the right partners, as Apple and HTC did, in order to thrive in the smartphone market, rather than to try to cope with all of the problems single-handedly. In this context, the recently initiated LG Enterprise Application Partnership Program to target the B2B smartphone market in North America is a notable initiative taken by LGE. The objective of this program is to provide differentiated software services to LGEs corporate clients, under close cooperation with thirteen partner companies, including Microsoft, Bloomberg, and Good Technology. Although this move shows that LGE is seeking to remove its weaknesses through partnerships, it does not imply that LGE will only focus on such a
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method. While LGE agreed to participate in creating the Wholesale Application Community (WAC) that will act as an open app store platform, it also clearly stated the commitment to expand its own LG Application Store. It is obvious that LG has chosen another direction when compared to Samsung, which is currently striving to create a standard of its own, and dreaming to foster its own mobile ecosystem. The future outcomes of these contrasting decisions by the two giants are already attracting interest. EPILOGUE Since launching its mobile phone business in 1995, LGE has recorded an annual growth rate of 32.4% in the first decade of the twenty-first century. LGE became the third-largest mobile phone manufacturer in the first half of 2009, with over 10% share in the global market. However, LGE cannot yet rest on its achievements in the highly uncertain environment of the global mobile phone market. As the smartphone rapidly expanded its presence in the mobile phone market, the structure of competition became more complex with handset devices, OS, and applications all coming into play. LGE suffered from low market share in smartphones due to the absence of competitive advantage in some of these areas. Competition among the participants is becoming fiercer as the global market landscape changes, along with the need to apply different strategies for manufacturing handset devices, developing OS, and providing applications. LGE now needs to establish and effectively implement a new strategy in order to secure competitiveness in the smartphone market. Can LGE continue its success in the smartphone markets in North America and Europe with its current positioning? Maintaining LGEs success or realizing an even higher goal depends on its future strategies, and their implementation. Changes taking place in the mobile phone market has already led, and will continue to lead, to seismic shifts in the industry. Companies reluctant to change have always fallen behind in the new order of competition. What strategic decisions should LGE make in order to secure competitiveness in a short period of time, when a new business model centered on the smartphone is being established in the market? REFERENCES
Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17: 99-120. Dyer, J. H., & Singh, H. 1998. The relational view: Cooperative strategies and sources of interorganizational competitive advantage. Academy of Management Review, 23: 660-679. Jansen, J. J. P., Van den Bosch, F. A. J., & Volberda, H. W. Exploratory innovation, exploitative innovation, and performance: Effects of organizational antecedents and environmental moderators. Management Science, 52(11): 1661-1674. Kim, W.-S. 2008. Homo Mobilians, Opening the world with mobile phones, Ji-Sung Publishing. Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

Page 115 Lawrence, P. R., & Lorsch, J. W. 1967. Organization and Environment: Managing Differentiation and Integration. Cambridge, MA: Harvard Business School Press. Pak, C.-S. & Kim, S.-H. 2007. Korean Mobile Communications service and the change and the development of the handset manufacturing business, Seoul National University Publishing. Pfeffer, J., & Salancik, G. 1978. The External Control of Organizations: A Resource-Dependence Perspective. Harper & Row: New York. Porter, M. E. 1985. Competitive advantage: Creating and sustaining superior performance. New York: Free Press. Porter, M. E. 1996. On Competition. Boston: Harvard Business School. Van de Ven, A., & Drazin. R. 1985. The concept of fit in contingency theory. Research in Organizational Behavior, 7: 333-365. Williamson, O. E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press. Williamson, O. E. 1983. Credible commitments: Using hostage to support exchange. American Economic Review, 73(4): 519-540. Zajac, E. J., Kraatz, M. S., & Bresser, R. K. F. 2000. Modeling the dynamics of strategic fit: A normative approach to strategic change. Strategic Management Journal, 21: 429-453. Zollo, M., Reuer, J. J., & Singh, H. 2002. Interorganizational routines and performance in strategic alliances. Organization Science, 13: 701-713.

Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

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