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Abu Dhabi, UAESunday 21 October 2018

Apple and Samsung duke it out in South Korea

Apple and Samsung are fierce competitors with their popular smartphones battling it out across the globe, but with Apple opening their first ever retail store in South Korea in 2018, how is the iPhone maker faring in the homeland of Samsung?

South Korea's capital Seoul is one of the world's most technologically advanced, known for its rapid Internet speeds and advanced infrastructure.

It was one of the first to introduce city-wide free Wi-Fi, and 5G will be introduced commercially in 2019. It is the home of global tech titans Samsung and LG. But in one way Seoul lagged behind other cities.

Apple announced the opening of their first retail stores in May 15, 2001. Four days later, on a Saturday, the first ever Apple stores opened in Maclean, Virginia, and Glendale, California. "The Apple stores offer an amazing new way to buy a computer," said the late Steve Jobs, Apple's CEO at the time.

Over the years more stores opened, going on to stock the iPod, the Macbook Air, and the iPhone. Tokyo got its first Apple store in 2003. London a year later. Beijing in 2008. And the Middle East in 2015 with Dubai's Apple store.

But South Korea, the 11th largest economy in the world and one of the most technologically advanced, saw its first Apple store open on January 26, 2018.

On a sunny Sunday afternoon in late June, The National visited Seoul's sole Apple store to see how the iPhone maker is faring in the homeland of Samsung, its biggest rival. The outlet is located in Garosu-gil, a fashionable street in trendy Gangnam-gu, popular with tourists and chic locals. Inside the pristine and meticulous store, lined with four potted trees at its entrance, were a busy amount of people.

Ju-Won Shin, 38, an accountant, was sitting down at a table looking to buy an iPhone SE, while already owning an iPhone 6S and iPad Pro. What does he think of Apple? "Their products are easy to use, refined, and have a good vibe," he said. Shin preferred Apple to Samsung because "they're constantly trying hard to make good quality products."

Another store wanderer was So-ri Lee, 22, a waitress at a cafe, who was browsing phone cases. So-ri had an iPhone 8 and had been using it for two years. Before that she owned a Samsung Galaxy Mega. She said she preferred iPhone because she loved the design-- "it's pretty and easy to use, and now I'm used to iOS," she said.

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Apple had been gaining ground even before their official retail establishment, selling their phones through Korean network providers. Euromonitor estimates Apple had 16 per cent of South Korea's market last year, putting it in third place behind LG which held 19 per cent and market leader Samsung with 64 per cent market share.

Outside Korea's only Huawei store, a tiny shop that sells only budget Huawei handsets, The National conducted another small, unscientific survey. Huawei is China's preeminent smartphone manufacturer taking third place behind Samsung and Apple in global market share, and doing particularly well in Europe.

But it seems that Koreans didn't get the memo about the growing Chinese brand. Many of the young people passing by the Huawei store, which is located in Hongdae, a popular student area, did not recognise the brand. Hwang-Bo Seo-young, 22, a student, owned an iPhone 6S+, and had never heard of Huawei or any other Chinese brands, and preferred Apple to Samsung because of their design and photography capabilities.

However, Yu Young Lee, 34, a TV producer preferred her Samsung S8+ despite having owned an iPhone 6 for three years previously. "It's easy to use Android in Korea, not iOS, because there's many applications, and Android phones are compatible with lots of other devices in Korea, and customer service is better," she said.

Although some may argue South Korea is a relatively small market, it is still somewhat surprising for an Apple store to open so late in the country. Hong Kong, for example, which is both smaller in geographical area and market size, has six official stores. South Korea, with fifty-two million inhabitants, has also a very high percentage of smartphone users: a whopping 88 per cent compared to a global median of 43 per cent according to a 2016 Pew Research Center report.

So why did it take so long? Apple Korea decline to comment and although there is no definitive answer analysts believe the company was content to sell its phones through local distributors such as e-mart, authorized resellers, and through South Korean carriers.

"Eventually it just became strange that there was no company-owned retail presence in Korea," says Jay Milliken, an Asia regional lead at Prophet, a brand consultancy, "but by the time they opened the store Apple was already doing better from a market perspective."

However, although Samsung, LG, and Apple are competitors, the relationship between the three companies are closer than one might imagine of rivals. Samsung has been a microprocessor, screen, and memory chip supplier to Apple for iPods, iPads, and iPhones. Samsung supplied 100 million OLED displays for the iPhone X's production. As sole supplier Samsung can charge higher premiums, but Bloomberg recently reported Apple might soon be using LG as an alternative supplier.

Samsung recorded a huge profit of $50 billion (Dh184bn) for 2017, a considerable increase from 2016's $27bn. The latter half of 2016 was a tough time for Samsung as the Galaxy Note 7 fiasco cut into the company's profits and reputation. But 2017 was a big rebound as sales of memory chips in servers and mobile devices propelled their profits.

For 2018 memory chips remain the main earner for Samsung, accounting for 75 per cent of operating income, according to analysts. However, for the second quarter of 2018 Samsung has released an earnings guidance report that suggest an end to their seven straight quarters of record operating profit. Analysts believe this is due to sluggish sales of its Galaxy S9 flagship. "The S9 is expected to hit the lowest sales of any flagship model since the S3 with just 30 million units this year,", said Lee Seung-woo of Eugene Investment and Securities, in Seoul's newspaper The Choson Ilbo.

LG Electronics, meanwhile, and their smartphone division, is locked in a battle for second position in Korean market share with Apple. In 2017, Strategy Analytics reckoned Apple had 17.7 per cent to LG's 17.4 per cent, with strong growth for LG in the last quarter of last year. However, they predicted that LG will have an "uphill battle", unless the company could come up with something innovative this year.

Globally LG has been losing money from their mobile business with intense competition in the high-end segment from Samsung and Apple and in the budget segment from Chinese rivals. Overall LG Electronics' other divisions such as home entertainment, TV, and home appliances are faring well, leading to some speculation whether LG may ultimately shed its loss-making smartphone business.

LG and Samsung are members of South Korea's chaebol, large family-controlled conglomerates. These chaebol (whose characters combine "rich" and "clan"), which also include Hyundai, Lotte, SK Group, Hanjin, and Kumho, play a powerful role in Korean politics and society. Together the chaebol had a huge role in the "Miracle on the Han River", a period of rapid development following the end of the Korean war.

Samsung Group, which includes large shipbuilding, construction, life insurance, and advertising companies, is the biggest of these, and over the past decade its largest subsidiary Samsung Electronics accounted for over 14 per cent of South Korea's GDP. The Lee family, who are behind the Samsung Empire, are Asia's second richest family with a fortune of $40.8bn, according to Forbes.

But South Koreans are getting tired of the close relationship between the wealth-controlling chaebol and their politicians. In 2017 Samsung heir Jay Y. Lee was jailed as part of the scandal that ousted South Korean president Park Geun-hye. Park was sentenced to 24 years in prison for abuse of power and corruption in April of this year.

However, Jay Y. Lee, the de facto head of Samsung Group, who was convicted of bribery, was eventually set free after he had his five-year sentence reduced and suspended, leading to public anger. It was not the first time a business leader convicted of corrupt behaviour was treated leniently.

After promises to crack down on corruption and loosening the ties between government and chaebol, the current President of South Korea Moon Jae-in came into power on May 2017. However Moon's attempts to enact reforms have been stymied by his party's lack of a majority in parliament, where many members are still influenced by chaebol.

Across Seoul, from the popular underground mall of COEX, to Yongsan train station, a central transport hub, Samsung has retail stations that promote their flagship handset the Galaxy S9. But among the populace of this gleaming capital more and more are using iPhones, especially among the young, who also seem to be fans of Apple's AirPods. In South Korea change is occurring, but some changes take a little longer than others.