The rise of aftermarket, a new paradigm in Korea’s economy

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Today’s topic is ‘aftermarket’. Some of you should have heard of this but I bet most of you haven’t since it is still considered as a neologism. I will explain about aftermarket first before we get into the actual contents. Aftermarket is a market where you change your automobiles’ parts or repair. I know that some of you have a hard time upgrading your smart phones which is why you visit A/S center nearby. This is also considered as an aftermarket. Some people say that aftermarket is strictly limited to automobiles industry but this is not true. Aftermarket exists in merchandise, finance (where people trade securities that have already been issued) and is expanding further. The thing is that most of the people recognize aftermarket as a market related to after service and not as an independent market.

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In short, the scope and significance of aftermarket is growing day by day. Ever since the global financial crisis companies started to focus on repairing and expanding existing facilities rather than investing in new equipments. As a consequence, numerous techniques have been developed and aftermarket is now taking up 60% of total global investments. Aftermarket has higher profitability than selling merchandise and is less prone to volatile market situations. Secondary Chinese firms are focusing on the aftermarket which is making Korean companies anxious. But Korean corporations have profound experiences in heavy industries, plants, shipbuilding and so forth, so it should be easy for them to make an market access.

This kind of phenomenon is closely related to finance too. The core reason why companies should focus on the aftermarket is that it can form a relationship based on trust with its customers. For example, let’s take a look at the insurance industry. According to Korea’s commercial law a policyholder can close its account any time he or she wants to one month after contract. This works the same for the credit card industries unless the subscriber agrees to specific terms related to the termination of contract. This is probably the reason why the financial industry is focusing more on after-contract matters than conclusion of the contract.

This is not all, focusing on aftermarket in financial industries enables them to expand their business scope and also directly increase sales. Things that can be earned might seem like intangible assets in the first but these intangible assets will bring out huge benefits afterwards.

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According to the Samsung Economic Research Institute’s new strategic report, Korean companies should be extra careful in the followings. First, businesses should focus on providing after services which can actually solve customer’s realistic problems. Second, they should not only focus on making profits by selling products but also consider aftermarkets which can widen customer’s range of choice. Lastly, they should analyze and point out problems claimed by customers as well as fix those problems in the next models. In the aftermarket firms will be able to solve customers’ problems, solidify their customer base in the existing markets, and also find opportunities for new businesses. In short, companies, manufacturing businesses in particular, should remember that the aftermarket is not a secondary market that goes along with product sales but an independent market.

by Hyok Hee Kwon (kwonhyokhee@naver.com)

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