Analysis of Best Buy's Expansion to Seoul

3368 words (13 pages) Essay

8th Feb 2020 International Business Reference this

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Analysis

         This document serves as an analysis on Best Buy internationalizing by being implemented in Seoul, South Korea. In this paper, there will be information and history based on Best Buy’s organizational culture. This paper will also explain a general analysis of the economic condition of Seoul, South Korea. It is an analysis of how Best Buy would fit into Seoul’s retail business world.

Introduction

          Best Buy is the largest electronic consumer retailer in the United States. Their products include a variety of related merchandises. This includes software, video games, music, mobile phones, digital cameras, car stereos and video cameras, in addition to home appliances washing machines, dryers, and refrigerators. They also sell their products in a non-commissioned sales environment (statistica.com). Their organization is branded on great customer care and quality pricing. This method has been important in Best Buys growth since 1966. Since the beginning of Best Buy’s opening date, they have been through every economic crisis and remain very prominent to date. This was done by making smart decisions when it came to partnerships with other dominant industries. Recently in 2018, their total revenue amounted to 38.7 billion just in the United States (statistica.com).

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         Best Buy’s next move should be to internationalize in Seoul, South Korea. One of the biggest reasons is that Seoul is one of the most technologically, advanced countries in the world. They are home to big corporations like Samsung and LG. Having these powerful, innovative companies in their backyard gives Seoul a leading edge in technology around the world. Best Buy opening a location in Seoul with these powerhouses in their backyard could increase the brand.

      Seoul, South Korea is the eleventh largest economy in Asia. It is ranked as one of the top eleven largest economies in the world, based on GDP(country.eiu.com).  One major reason is how they conduct business. It has one of the world’s largest gross national savings and reserves of foreign investment(cloudmine.info). This means that they are great at internalizing their money. Innovation and technology are also key factors that have fueled South Korean export competitiveness and driven the country’s remarkable economic rise over the past ten years. The growth rate has been so impressive that the East Asian nation went from being one of the poorest countries in the 1960s to becoming the world’s 13th largest economy in 2014, according to the World Bank (worldbank.com). Seoul, South Korea is currently one of the global leaders in mobile phones, consumer electronics, and broadband as well. Overall, their market demand for technology is more advanced than almost any country around the world. Seoul, South Korea greatest resource is their commitment to investing in Research and Development. Based on OECD analysis, they spend 5 percent of their GDP on R & D yearly(OECD.com). This is one of the highest percentages compared to other countries. Their ability to seek innovation and new information is revolutionary compared to other economies. Seoul is a “gold mine,” when it comes to investing in technology and growing a brand. This aligns perfectly with Best Buys objective.

External Analysis

 Seoul, South Korea has many adversities when it comes to major competitors around

 their economy. One of the most popular issues is the dispute of businesses within their local market. The Chaebols family, for instance, are a major player in the Seoul retail market. They are a dominant, family-oriented business that has their hands in exports and every major business in Seoul(country.eiu.com). The Chaebols are large, local conglomerate that dominates South Korea’s major export industries. This includes electronics, financial services, petrochemicals, retail, shipbuilding and telecommunications (country.eiu.com). The reach of the Chaebols extends to virtually every industry through horizontal and vertical integration, including in relatively new industries such as entertainment and e-commerce (country.eiu.com). It is true that SMEs and foreign businesses cannot compete in the local market without chaebol connections (country.eiu.com). This is a big hurdle but can be utilized as a Best Buy advantage. One reason is that Best Buy can discuss a plan and partner with the Chaebols. Based on their past experiences, this is a powerful tool that Best Buy has used in recent years. They survived the Amazon surge by partnering with dominant competitors. This can be a tool used to allow them entry into the Seoul business industry. Another angle we can explore is that the Seoul government actively favors new technologies, promotion of small and medium-sized enterprises and nurturing the country’s fledgling venture-capital industry. All these options can be utilized in favor of Best Buy being implemented into Seoul’s rich economy.

       Economic globalization and market forces also have been a major factor on how Seoul currently operates. South Korea’s 1996 entry into the OECD obliged the country to align its economic system more closely with international standards, and an economic crisis in 1997–98 drove many chaebols into severe distress, with some slipping into bankruptcy(country.eiu.com). The crisis encouraged some reform of local business practices but did, to some extent, dent the importance of chaebol contributions to output and exports.   It was, however, effective in creating room for foreign markets. South Korea removed any barriers to inward investment after 1997 to give foreign investors free access to the domestic market. The economic “weather,” of Seoul is something Best Buy is familiar with. Utilizing the route of becoming partners with the Chaebols or government could be beneficial for both parties involved. Adjusting to get into the market is what Best Buy can do.

              Another important area that must be considered is the current electronic industry in Seoul. For instance, one of the top electronic retail stores is called Yongsan electronic market(Tripadvisor.com) This mall consists of 20 buildings and 5,000 stores. It sells every product from mobile, appliances to microwaves and LG devices. Based on research and feedback from people who have experienced this mall, it had terrible reviews. One of the biggest reasons is the terrible sales experience customers received. Numerous consumers and visitors are not a fan of this market because of their poor customer care and cheap products. The one thing that Best Buy can provide in that market is a customer-service oriented store. Best Buy core values has always been based on customer relationships. Quality of products provided by Best Buy is also relevant to their business. A bad reviewed product would never make it to the sales floor in Best Buy. They have a meticulous, chain of command when it comes to how they handle their operations. They have a manager dominated sales floor, which means an employee has the power to price match and satisfy a customer. It goes a long way in international retail. Educational seminars are another strong point to the Best Buy brand. Having experts who teach the community how things operate results in customer satisfaction and retention. Best Buy’s format has resulted in a 98 percent satisfaction rate(Bestbuy.com). This means that Best Buy can use their power of relationships to get involved in the community and provide a trusted brand. This has worked in the states and based on Seoul’s feedback in the retail industry currently there, it would work.

       Political and legal standards in Seoul, South Korea have a democratic position with their community. They currently have a president by the name of Moon-Jae-in which is known to have a liberal based party. After dominating his re-elections, he implemented a new plan for South Korea. In October 2017, the government announced a five-year policy roadmap for boosting job creation, which includes as one of its priority areas a focus on combatting discrimination against temporary and part-time workers. As of mid-2018, Lawmakers of Seoul, are exploring several mechanisms for achieving this goal, including incentivizing the conversion of such workers to regular contracts and imposing more stringent reporting obligations on firms(country.eiu.com). The government of South Korea also has implemented recycling and shutting down waste throughout the community as well. Best Buy is huge on recycling and keeping things green. They were recently named as one of the top five cleanest companies of North America(statista.com). Another great thing is Seoul’s employee policy. Best Buy is always looking to expand employment and their culture is based on having excellent employees. Their benefits encourage employee growth in their personal lives because they are aware of what effect it would have within their stores. By implementing this same procedure in Seoul’s culture, it would increase employment and align with Mr. Moon-Jae-In’s concept of how businesses should operate in Seoul.

Internal Analysis

       Based on Porter’s model, Seoul has a huge market for electronics and innovative technology. This presence of demanding customers pressures firms to innovate faster and produce better products(Cavusgil). Samsung and LG are headquartered in Seoul. This is a big reason why Seoul are world leaders in technology. The impact of Best Buy being in that circle would increase innovation. There are a cluster of suppliers there as well. This is evident at the Electronic mall in Seoul. Being able to get in Seoul’s market for quick demand of innovative technology and competitors would improve Best Buys business. Competitive advantage of a nation depends on the collective competitive advantages of the nation’s local firms(Cavusgil). Over time, this relationship is reciprocal; the competitive advantages the nation holds tend to drive the development of new firms and industries with these same competitive advantages(Cavusgil). Demand for innovative technology and competitors would grow Best Buy’s business. Growth is essential in the retail industry.

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        Another great thing about Seoul’s economy is that having better products and electronic services at Seoul’s convenience can increase wellness, health and overall living. This is a great service that Best Buy can reciprocate in Seoul. Best Buy strongest point is customer interaction in the community and education. In other words, they can be the market and bridge between consumers and big corporations. Being the official, “voice,” for Samsung and LG can create a closer gap within the Seoul community. Being able to say they are a representation of great products and innovation can steer the storyline of Best Buy into a bigger stage in the business of retail. In the end, Best Buy can provide a benefit in the Seoul community. That is better products and quality service.

       Seoul consist of high cultural values and Best Buy respect values. Seoul is dominantly family-oriented in how they handle business. Partnership and understanding South Korea’s values are essential for Best Buy to thrive in Seoul. Best Buy can involve locals in the community to run sales and services within the store. They can make sure that their approach is the Best Buy way but with a Seoul tradition. This would increase relationships in the community and increase revenue.  Having the information or product of new innovations, right at their fingertips, can increase sales as well.

        Another great reason for market entry is that Seoul communities have a 109 percent cell phone use rate (Rousse-Marquet). This means that phone use is widely used there. Every person there, at least, have two phones. This is a great advantage for Best Buy because of the phone usage there. They also have the fastest internet speeds in the world (50 reasons why/CNN.com). This is relevant in providing services for mobile technology within the store. Seoul is also the leader of mature mobile brands (Rousse-Marquet). Mobile technology expands in Seoul before it is considered in other areas of the world. This is a major mission that is relevant to the Best Buy brand. How do they continually profit in the long run with old technology? This would solve their long-term questions of mobile innovation and maturity. Best Buy biggest selling devices are mobile phones. Best Buy’s biggest concern in the states is the cluster of providers and fast-evolving technology. Operating in Seoul would help Best Buy to stay ahead of competitors, by being close to their suppliers. Having direct information on where technology is going with their mobile department could help that area of Best Buy. This would also be beneficial to Best Buy because their older technology could be still utilized by maintaining a long relationship with mature phone supplies.

Implementation

       Best Buy implementation process is another hurdle they will have to deal with. One reason is the Seoul does not allow full foreign investments into their country. Foreign investment in South Korea may take the form of a branch, an incorporated subsidiary or a joint-stock company(country.eiu.com). Foreign investors tend to prefer the joint-stock company. Partnerships are very uncommon in Seoul. Limited partnerships and limited companies were introduced following amendments to the Commercial Code implemented. In 2012(country.eiu.com). Best Buy just needs to take a small approach to prove their value in Seoul. The joint-stock company approach has several attractive features for Best Buy. They can issue a variety of investment securities, including preferred shares, bonds, and debentures. But after formation, the great thing is that the number of shareholders is not limited. It is a familiar form of a corporate entity, easily accepted by the South Korean authorities and the business community(country.eiu.com). No permit or license is required to establish a joint-stock company. This is great for Best Buy. Establishing a joint-stock company, foreign investors must follow the same procedures and must be granted the same level of treatment and protection as their domestic counterparts. To establish a joint-stock company, it is necessary to draw up articles of incorporation(country.eiu.com). A foreign-invested company may be established before the full contribution of foreign cash or capital goods if criteria for organizing a company are satisfied(country.eiu.com).  This means that Best Buy will go in not owning a dominant portion of their business but taking this approach will get them started in the Seoul market. Persevering through this hurdle will eventually expand their business, but this is the Best Buy approach. Best Buy has survived through partnerships and sharing revenue. By sharing their business with Seoul, it will create trust and longevity in their market. This is an international trade strategy that works in globalization.

     My first recommendation would be doing an acquisition as an entry mode. This provides a large jump into Seoul’s market. Best Buy can buy competitors, suppliers, and distributors. This will create a huge competitive advantage. They should hit the retail industry in Seoul, hard. There are a lot of bad businesses in Seoul, South Korea. This will delete bad businesses in the electronic retail industry and re-enforce a different standard with the community. A turnkey project is another way Best Buy can enter into Seoul’s current markets. They can pay contractors to design and construct new facilities in Seoul. They can also attain expert training to get the right personnel into their stores. This is a great move because Best Buy can appease both ends of this bargain. They can receive profits regardless of limited direct investment opportunities in Seoul, South Korea. The only downfall is that this process can also be short-term due to its conditions.

     The timeline of entry should be around one to five years. One of the reasons why is Seoul’s process of acquiring space, business documents and establishing a site. This will take a while for Seoul, South Korea to process Best Buy’s company. I would take roughly, three years to get a building established. Another thing is doing enough research and partnerships with manufacturers in the region. Marketing and promoting Best Buy would take some time. Seoul needs to be informed about what Best Buy has to offer. This process would work because there is only money being invested in establishing credibility and rapport in Seoul. Going overseas and doing research is a very important step before Best Buy can implement their business in Seoul, South Korea.

Conclusion

  In conclusion, I believe Best Buy should internationalize in Seoul, South Korea. They have a rich, innovative community and they are open for partnerships. Even though there are many obstacles to globalizing in Seoul, it is worth it.  By being close to their most profitable distributors and having a cutting-edge business strategy they could be very successful.

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