Korea's Smartphone Exports Continue to Disappoint

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On face value, a recent announcement from the Korean Ministry of Science, ICT (information and communications technology) and Future Planning suggests Korean smartphone exports are on the rise. The announcement states that mobile phone exports increased 8.3 percent in April when compared to February. However, beneath surface statistics lie some worrying numbers that are unexpected given the recent release of the Galaxy S6 from Samsung, the country’s largest device manufacturer.

Although smartphone exports showed a month-on-month increase of $760 million, component exports are solely responsible for this rise. The export of fully assembled devices actually declined, in particular to the US. Exports to the US market, one of the primary destinations for Korean handsets, dropped 58.3 percent to $380 million, largely due to an increase in the popularity of Apple devices, which captured 44.4 percent of the US smartphone market. Another worrying indicator is the 4.7 percent decrease in exports when compared to the same month a year ago. So while month-on-month growth is up Korean exports are still lower than they were a year ago by a significant margin.

The new numbers correspond with a troublesome trend that began exactly one year ago. In May of 2014 the Ministry of Science, ICT, and Future Planning also announced that the export of finished smartphones declined 7.5% when compared to May in 2013, which mirrors the current situation for Korean device manufacturers. Since the export of assembled units from Korea reached its height in 2013 they have been on a slow but consistent decline throughout 2014 and 2015. Luckily for Korea’s manufacturers the contraction of Korean smartphone exports is largely attributable to firms shifting their production to China and Vietnam rather than decreased demand for the product. So while Korean manufacturers themselves are doing fine in terms of overall smartphone shipments (though not fantastic, at least for Samsung and LG) they are no longer finishing their handsets in Korea in favor of presumably cheaper manufacturing bases overseas.

According to a study released by the Korean Import-Export Bank in June, 2014, Samsung was aiming to produce 80% of its smartphones in Vietnam. Based on this year’s export numbers it seems this statistic is being realized. Exports to China and Hong Kong grew to $850 million while exports to Vietnam more than doubled to $450 million (a 145.5 percent increase). Mobile phone imports increased 50.6 percent year on year, which is unsurprising; once you shift assembly to other markets you can’t exactly source domestic demand with locally produced devices. Although the latest numbers don’t exactly indicate Korea’s smartphone manufacturers are in trouble, moving their assembly lines does not bode well for Korean exports and their overall economy. Growing component exports can’t make up for this decline, particularly with respect to job creation, as components are largely manufactured using machines; finishing and assembly require more human hands to be employed. The loss of these jobs to more cost-effective countries such as China and Vietnam, while good for the bottom line of companies such as Samsung and LG, is unfortunate for average Koreans.