This paper focuses on Spotify as a music streaming company. The aim of the report is to recommend South Korea as an ideal international market for Spotify. The analysis below is based on macroeconomic factors. In addition, the strengths and weaknesses of the music streaming industry in South Korea are necessary so that Spotify can make the right decisions when venturing into the new market. Modes of entry have been outlined so that Spotify adopts an effective strategy when entering South Korea.
Rationale for selection: South Korea
Hamilton & Kim (2007) write that politically South Korea is stable after instituting democratic governance. A significant political challenge arises because of possible attacks by North Korea. The government ensures that South Korea’s economy is opened to all investors thereby leading to the development of the largest technology market in the world. South Korea has over 50 million citizens. Seoul, as the largest city, has over 10 million people.
Furthermore, South Korea is regarded as the fourth-largest economy in Asia. South Korea is also part of the developed nations that enjoy high standards of living. Democracy as a system of governance motivates investors to continue investing in the country’s economy. As a result, South Korea rarely experiences political conflicts. Spotify is likely to benefit from political stability as well as from democratic principles of government. Lack of political unrest and violence means that distribution channels assisting the Spotify e-commerce model would not be interrupted therefore South Koreans receive goods at the required time.
According to Park (2011), significant growth to $1.70 trillion is expected by the year 2018. Sectors that are critical to the economy include the service sector, real estate, transport, communication, and financial services. The country also has the most well-defined monetary policies that encourage investors. In 1999, the GDP of South Korea grew by 9.3% because of the economic and financial reforms introduced by the government.
Investors have great opportunities in sectors such as the financial sector, logistics, chemical manufacturing, distribution, shipbuilding, and telecommunications. High levels of economic growth can be attributed to the government’s commitment to restructure the economy. In particular, all banks are controlled by the national government. Furthermore, the government ensures that capital and foreign exchange markets are controlled so that interest rates are affordable to investors. In the process of controlling the economy, South Korea has witnessed stability in economic growth, as well as the introduction of economic reforms that attract investments.
The government also ensures that South Korea does not overly rely on exports. It encourages domestic businesses to make use of domestic markets through increased investments in the county’s infrastructure such as roads, rail, seaport, and airports. Restriction of imports by the government is part of measures introduced to motivate investments within the country.
High levels of economic growth would enable Spotify to roll out e-commerce businesses. Citizens who have a high level of income are likely to purchase products. Furthermore, it is highly possible that Spotify would make substantial profits since the society is willing to consume products. Low-interest rates, as well as exchange rates, are lucrative to Spotify and investment would not become costly. Return on Investment (ROI) in South Korea’s economy is considered to be probable for investors.
Chang (2012) asserts that South Koreans have a high standard of living. Wage rates are higher than those of neighboring countries. In addition, education levels ensure that investors can recruit the best-skilled employees. High wages imply that South Korea continues to attract employees from the international labor market who are ready to work in any sector. However, an aging population incurs that population growth is likely to be affected.
High literacy levels mean that the education system supplies highly qualified employees to manage businesses and set up companies in South Korea. Further, the highest wages in the region entail that South Korea can attract highly skilled and talented employees from all parts of the world. High standards of living also motivate consumers to engage in the consumption of products produced by various industries. The high level of disposable income makes it unlikely for businesses to miss out on high sales volumes. As a result, continuous production guarantees the survival of companies.
Technologically, South Korea is regarded as the 12th largest economy. Electrical and electronic products are considered to be crucial in the technological capability of South Korea. Also, South Korea engages in the largest production of computer chips and mobile phones. In terms of Internet connectivity, South Korea has the highest rates of Internet subscriptions. Mobile devices uptake amounts to 68% and is one of the highest in the world (Hamilton & Kim, 2007).
The government also continues to develop research and design centers in charge of the development of new technologies and inventions. The South Korea Telecom has innovated the highest Internet speeds of up to 300mbps and 450 Mbps for commercial usage (Sang-Bae, 2011). Satellite digital broadcast services are also part of technological advancements making South Korea an attractive destination for investments. Spotify as a champion in e-commerce should benefit from high Internet speeds as well as from high mobile phone penetration. Music streaming services are likely to thrive in a country that has the best telecommunication services in terms of Internet connectivity.
Key strategic issues of South Korea’s music streaming Industry
The music streaming industry in South Korea is worth over $172.4 million considering December 2015. Revenues are also expected to grow at an annual rate of 11%. By the end of 2020, music streaming in South Korea is expected to reach over $262.8 million. Further, South Korea has over 10.5 million music streaming customers. The number of customers using music streaming services is expected to increase significantly by 2020 (Statistica, 2016).
The average revenue per user as a key strategic issue in South Korea is also attractive for Spotify. In particular, the average revenue per user is about $22.85 reflecting a huge potential of achieving a high level of sales in South Korea. High Internet penetration rates in South Korea are necessary for the music streaming industry. Over 80% of the population has access to high Internet download rates (Iqbal, 2012).
South Korea’s music streaming industry is also based on increased value for recorded music. In late 2011, the recorded music industry brought total profits of $195.8 million (Statistica 2016). However, challenges in relation to the collapse of social networking platforms such as Cyworld has affected the value of recorded music. Digital music revenues are likely to increase thereby making Spotify competitive and profitable on the market. Furthermore, South Korea is one of the countries with the highest sales of recorded music. At the end of 2012, South Korea was the 11th largest market in terms of recorded music. High demand for recorded music and music streaming services is likely to increase the level of consumption among South Korean citizens.
Another key strategic advantage relates to an improved legal environment that encourages local artists to produce more music. Since South Korean enjoy local artists, it is necessary to consider South Korean music as part of products on the Spotify platform. Furthermore, South Korea’s attractiveness in terms of music streaming is aided by improved copyright laws. South Korean government ensures that copyright laws are established and complied with therefore online music streaming services do not stream any illegal content without consent of local artists. Music streaming service providers are required to register with the government to adhere to filtering measures (Marshall, 2015).
South Korea also has over 2.8 million music streaming customers between ages 25 and 34. The popularity of music streaming services among youth would enable Spotify to attract customers willing to purchase music. In addition, middle-income earners contribute to over US$3.9 million of revenues (Statistica, 2016). High levels of living standards mean that the society can afford music streaming services. High-income earners also contribute to over $2.5 million in profits in the industry of music streaming. It should be noted that such services are not preserved for the middle and high-class members of the society. Even people with a low income contribute above US$1.2 million of profits.
Also, the environment offers a good strategic option for Spotify. The company will need to focus on customers’ evolving needs in the music industry. Partnering with local companies will ensure customer service issues are addressed promptly. Further, local partnerships will foster Spotify’s ability to cater to the needs of future customers.
South Korean culture could prove to be a challenge for Spotify. Music streaming that focuses on musicians from western cultures is likely to be rejected by customers. South Koreans have a high preference for local artists (Chang, 2012). As a result, any music streaming service provider should consider the South Korean culture when planning the content of future streaming services. Unless local artists are preferred, an international music streaming company is likely to face certain difficulties. Language also makes a huge difference. The music streaming content should be presented in the Korean language in order to maintain a high level of understanding among consumers.
High levels of competition are another weakness in South Korea. Other competitors offering music streaming services include Apple Music and Deezer. Spotify would have to overcome a high level of rivalry in this market trying to attract customers towards its services. Apple Music and Deezer compete for unlimited access to music content libraries without a need for advertising. South Korea has a high level of music piracy, and music streaming is negatively affected by it. So far, any attempts by the government to eliminate or reduce this law violation remain unsuccessful. As a result, music streaming service providers are likely to experience an infringement of copyrights which would inevitably lead to reducing sales (Marshall 2015).
Spotify’s Internal Environment
The ability of Spotify to provide protected digital rights for music content is a key internal strength. In particular, protected content ensures that Spotify develops relationships with music performers without the slightest trace of a conflict (Marshall, 2015). As a result, Spotify is capable to serve a large market without compromising of ethical issues of digital piracy. Secondly, music streaming capability of Spotify is a key strength. Spotify enables consumers to listen to streamed music freely at 160kbit/s while premium subscribers could enjoy a considerable 320kbit/s. Premium subscribers receive high-quality streaming without advertisements. High-quality audio and video enable consumers to listen to music offline.
The research and development sector is also a key strength for Spotify. The company ensures that innovative features that enable consumers to enjoy its services are developed on a regular basis (Marshall, 2015). The ability to use highly skilled and creative employees is likely to make Spotify a competitor in the music streaming industry in the long-term perspective. The capacity to innovate is of essence in this industry, given that the future survival of the company is not affected.
Spotify services the US, Europe, and Oceania. The ability to serve several markets makes Spotify a perfect company that can roll out compelling music streaming services in South Korea. Current infrastructure and capabilities support Spotify to initiate new investments (Marshall, 2015). Furthermore, the ability to target smartphone users makes Spotify an ideal investor. Music streaming based on mobile applications is likely to be successful based on the high number of South Koreans with Android-powered cell phones. Spotify also has high levels of revenues and profits due to the formidable audience of millions of users. As a result, investments cannot be affected because there is a lack of funds.
Modes of Entry
The first mode of entry is to consider working with local artists in South Korea. Local artists as a reflection of the wider society make Spotify being viewed positively in South Korean society (Hagen, 2015). The need to ensure that stream music lovers in South Korea can identify themselves with local artists entails the necessity of supporting the aforementioned artists. Culture as a key component of music should be given a top priority.
An entry into a new market cannot bring desired outcomes when local culture, language, and music are not considered. Partnerships and agreements with local artists are necessary so that Spotify would support the South Korean music industry in order to promote talented performers. Without support for local talents and music, South Korean music streaming cannot achieve the desired outcome (Coe & Lee, 2009).
Mergers and acquisitions can also assist Spotify to enter the South Korean market (Marshall 2015). In particular, Spotify should consider merger or acquisition of a local music streaming company in South Korea. The need for mergers is based on the assumption that Spotify can benefit from already established local music streaming companies in South Korea. Merger with such companies reduces the costs of operations. In addition, mergers, in this case, ensure that the probability of success is high. Furthermore, mergers assist in acquiring knowledge and network assets of a specific market or industry. Spotify is likely to overcome legal and governmental constraints when mergers and acquisition of stakes in an existing music streaming company is considered.
Localization of Spotify: Spotify can also enter the South Korean market by developing another application that is not identified with the international market. A music streaming application for smartphone users should be designed specifically for South Koreans to make them feel appreciated. The new application should be based on the Korean language to make sure English is not a fundamental challenge in understanding service delivery. In addition, when developing a mobile application that focuses on the South Korean market, the company must ensure that the society has a mobile application that reflects their identity and ideals. Spotify as an international mobile application may not be met positively in South Korea because of cultural differences with western countries.
Spotify should also take into account a partnership with music television stations in South Korea. Music televisions provide an effective platform for Spotify to target consumers of music in South Korea and market its services and products. Furthermore, music television companies in South Korea would enable Spotify to spot and nurture local talented artists capable of sustaining the business in the long-term (Morris & Powers, 2015).
The most suitable market entry method involves mergers and acquisitions of a local music streaming company in South Korea. A locally established music streaming company in South Korea should be purchased. This merger with local music streaming companies will reduce the costs of operations. In addition, mergers increase chances to succeed on the market. Furthermore, they are of great help when getting accustomed to local culture and consumer preferences. Spotify would successfully endure any difficulties with government and business law if an appropriate company for merger is targeted.
Spotify should conduct in-depth market research of subscribers of music streaming services in South Korea. It ensures that Spotify provides services that meet the need of the customers. Spotify has to provide a guarantee that it will promote local artists as well as local content. In terms of promotion, Spotify should market music streaming services as the only company in South Korea that offers the possibility of downloading local songs.
Spotify should also engage in the constant development of music streaming services and its features. Constant innovation and creativity would create a competitive advantage in a market full of rivals. Competition cannot be achieved when new services are not innovated and consumer’s needs and desires are disregarded.
South Korea music streaming industry is worth over US$172 million. Investing in the music streaming industry of South Korea would enable Spotify to benefit from high levels of music streaming consumption. In terms of economic factors, a high level of economic growth that entails a high standard living enables South Koreans to engage in the purchase of music without any financial challenges. A mean High Internet speed is high and it is extremely necessary for music streaming applications are not affected by slow Internet connection. Spotify needs to invest in more resources and constantly innovate to stay ahead of the game. Innovation will assist the company to defend its market share and deliver quality services to its customers.
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Appendix: Macroeconomic factors of South Africa, Russia, and South Korea
South Africa’s macroeconomic environment is characterized by a stable government headed by the African National Congress. As a result, the stable political environment had led to the implementation of policies that encouraged social integration and employment generation. Despite political stability, South Africa still experiences high levels of political unrest. Trade unions have held demonstrations due to the government’s inability to pay appropriate wages to employees. Violent protests and demonstrations have also been witnessed in gold mines. Pressure from trade unions as well as political unrest are key concerns for investors. Furthermore, consumer confidence has also been on the decline in terms of the ability of the government to guarantee a stable political environment.
Economically, South Africa has introduced a 30% corporate tax on profits generated by organizations. In terms of interest rates, the Reserve Bank ensures that interest rates are controlled so that the private sector is not disadvantaged. Exchange rates and trading are based on trade liberalization policies. As a result, total exports exceed $95 billion. Since 2009, GDP level has been on the rise in South Africa. The service sector dominates the economy thereby contributing over 60% of GDP. Increased economic growth is an ideal environment for other investors to set up a company.
Social and cultural factors in South Africa relate to high levels of unemployment. As a result, a low amount of skilled workers may negatively affect investors looking for qualified employees. Furthermore, South Africa is affected by high rates of crime. Crime is a safety threat to people as well as capital punishment. In terms of technologies, South Africa has well developed infrastructures such as rail, airports, and roads, all modern and properly functioning. Upgrade of infrastructure was necessitated by the construction of stadiums to host the 2010 World Cup. Electricity, which is crucial to economic growth, is still of a poor quality and distribution in South Africa. The government has made plans to produce electricity from nuclear power.
Governmental control of businesses characterizes the political environment in Russia. Lack of democracy and unstable political environment affects investors. In addition, corporations do not always follow regulations set by the government. Furthermore, political parties have control over the legislature. Russia also has the highest levels of corruption as well as challenges in freedom of speech. Economically, Russia is affected by economic sanctions imposed on the country by the international community. All industries have demonstrated a downward trend in economic activity. In 2012, Russia’s economic growth was at 2% of GDP. Inflation is also on the rise as well as high-interest rates.
Socially, Russia’s education supplies skilled labor to investors. Pressure from Western countries continues to pose a threat to the country’s traditional cultures. Furthermore, Russians perceive foreign brands to be inferior to home-made brands. Technologically, poor intellectual property legislation continues to affect Russia. The country also experiences a low level of technological advancement. Industries such as weaponry and telecommunications, as well as manufacturing of appliances, are highly developed.
- Stable democratic government.
- The economy is opened to all investors thereby leading to the development of the largest technology market in the world.
- Over 50 million citizens.
- Fourth largest economy in Asia.
- A developed nation.
- Significant growth to $1.70 trillion is expected by the year 2018.
- In 1999, the GDP of South Korea grew by 9.3% because of economic and financial reforms introduced by the government.
- South Koreans live a high standard living.
- High literacy levels mean that the education system supplies highly qualified employees to manage businesses.
- High wages.
- Production of Electrical and Electronic products.
- Production of computer chips and mobile phones.
- Mobile penetration is at 68% rate and one of the best in the world.
- Highest Internet speeds of up to 300mbps and 450 Mbps for commercial usage.