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SALFORD BUSINESS SCHOOL

Msc Project Management

Melvern John Young


Student Number 00472174

Module:
Strategic International Business Management (RKC)

International Business & Strategy (March 2016)


Individual Assignment 1

Submitted via OnlineCampus


21 April 2016

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Index

1. Rationale ……………………………………………………………………………………………………………. 3

2. Analysis …………………………………………………………………………………………………………….… 3

2.1 Political Factors ………………………………………………………………………………….…… 3

2.2 Economic Factors ……………………………………………………………………………….…… 4

2.3 Social Factors ……………………………………………………………………………………….…. 5

2.4 Technological Factors …………………………………………………………………….……….. 6

2.5 Legal Factors …………………………………..………………………………………….…………… 6

2.6 Environmental Factors ……………………………………………………………….…….…..… 7

3. SWOT Analysis …………………………….………………………………………………………….….………. 7

3.1 External Factors Evaluation …………………………………………………….……………..… 7

3.2 Internal Factors Evaluation………………………………………………………….…….…….. 10

4. Modes of Entry ……………………………………………………………………………….………………..… 11

4.1 Exporting …………………………………………………………………………..…………….…..…. 11

4.2 Licensing …………………………………………………………………..……………….……………. 11

4.3 Joint Ventures …………………………………………………………………….…………..………. 12

4.4 Direct Investment ………………………………………………………………..…….……………. 12

4.5 Recommended Mode of Entry ………………………………………………………..………. 13

References ……………………………………………………………………………………………………………….…….. 15

Appendix A: Comparative analysis of the macro-environmental factors of, South Africa,


Russia, and South Korea

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1. Rationale.

The rationale for the authors selection of South Korea as a potential target market
for Spotify’s international expansion strategy is based on an analysis done that
included South Africa and Russia. (See Appendix A)

With over 20 billion listening hours since their launch seven years ago, Spotify is
gearing itself to bring music to more customers that ever before (Spotify, 2015).

“We want to be in a lot of different places. However, I can't speculate about when
we get there” (Daniel Ek, 2011).

Becoming a global company is an achievement not to be taken lightly, and not every
business that sets out to do it accomplishes the goal. (Forbes: 2013) Spotify’s
international expansion success and the experience gained places them in a
favorable position for further expansion and South Korea is no exception.

2. Analysis.

The following factors with respect to South Korea’s suitability as potential target
market were analyzed:

2.1 Political Factors.

Den Butter (2012) discusses the importance of the ease of doing


business in a country and the potential risk involved. South Korea
ranks number 4 (out of 188) in the Ease of Doing Business Index, better
than the 8th position ranking of Sweden (World Bank, 2016).

The 2014/15 Global Competitive Report states the following about


South Korea. (World Economic Forum: 2014)
 It is a Stage 3 Innovation-Driven Economy.
 It has the 22nd (out of 144) most innovative and sophisticated
economy in the world.
 The country also boasts excellent infrastructure (14th out of 144)

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South Korea’s ranking of 37 (out of 167) on the Corruption Perception
Index, positions it well above the average (Transparency International,
2016) but is still a point of concern.

Another point of concern is the rigidity of the labor market in South


Korea. Heritage.org (2015) rates the Labor Freedom in South Korea at
a disappointing 50.6%.

Black (1971) said only a free press that is allowed to report


transparently can expose wrongdoings in government, and with South
Korea’s ranking in Press Freedom declining recently (Reporters
Without Borders, 2015) potential investors should be prepared for
possible political fallout.

2.2 Economic Factors:

South Korea scores highly in global macroeconomic environment


indices (7th, second only to Norway among OECD countries) and over
the past half-decade has seen steady progress in economic freedom
(World Economic Forum: 2014). The acknowledgement of the
importance of regulatory checks and balances and the larger role that
is played by small and medium-size businesses in the economy in
South Korea has created a positive trade and investment environment.

Below find South Korea’s important economic data.

Data Type Rating


Inflation Rate 2015 (World Bank, 2015) 0.7%
Sales Tax (VAT) on Digital Purchases (International Tax Review, 2015) 10%
Internet Economy as % of GDP (Statista, 2016) 8%
Cost of Living Index relative to New York City. (Numbeo, 2016) 73.18
Annual Disposable Income (OECD, 2014) $19.5k
Corporate Net Tax Rate (KPMG, 2015) 24.2%
Economically Active Population (Million)(World Bank, 2014) 26.3
GDP Growth Rate (World Bank 2014) 3.3%
Table 1: Political Risk Factors

South Korea has proven that foreign direct investment is a possibility


when the environment is created for an export orientated economy.

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Recent regulatory reform and infrastructure investment has
corporations convinces that Korea is a prime investment destination.

2.3 Social Factors

Of all the building blocks of social life, the impact of population growth
and age structure is the most predictable. Notwithstanding these
predictability, demographics are often ignored, despite the influence
they can have over the market's long-term performance (Peter
Temple, 2011). The Statistical Portal (2014) indicate that the
worldwide distribution of internet users is highly concentrated
between the ages of 15 and 44 years old. As much as 73% of all
internet usage is done by this demographic.

In this identified age group, North Korea has a population of twenty-


two million or 44.8% of their total population of more than fifty
million. (OECD, 2014). In the USA 87% of Spotify users are in the same
demographic age group of 14 to 44 years old (Civic Science, 2015). If
the same statistic is applicable to Korea it will result in more than
nineteen million possible users.

Enrolment rates at all levels of education are among the highest in the
world with a literacy rate of 99.9% (World Bank: 2015)

South Korea has a well-educated, hard-working labour force and


continues to take advantage of the country’s openness to foreign
capital investment (World Economic Forum: 2014).

Below find South Korea’s important social data

Data Type Rating


Population in Age Group 15 – 44 years (Million) 22.4
Annual Population Growth Rate 0.4%
Economically Active Population (Million)(2015) 26.3
Unemployment Rate (2015) 3.5%
Adult Literacy Rate 15+ Years. 99%
Average Median Age 40
Quality of Life Index (2015 Midyear) (total of 57) 14th
Table 2: Social Data

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2.4 Technological Factors.

A staggering forty-three million of South Korea’s fifty million


population, are internet users. Internet penetration is at 92%, average
data speed is 8.8 Mbps and South Korea has a Smartphone
penetration of 88% (Internet Stats, 2016).

The World Economic Forum’s (2015) Innovation and Sophistication


Factors Index rates South Korea 22nd out of 144 countries.

Over the past two decades, Korea has become one of the leading IT
nations in the world. It ranked number one among 152 countries on
the ICT Development Index in 2011. Koreans also rated highly in
internet access, number of wireless broadband subscribers, and wired
broadband subscribers (Korea Communications Commission, 2011).

These factor will contribute to a smooth entry into the South Korean
market by any firm heavily dependent on technology.

The biggest technological factor, from the author’s point of view, is


that Apple’s iOS operating system only accounts for 20% of
smartphone operating systems in South Korea (Counterpoint
Research, 2015). Spotify will immediately have an advantage over at
least one competitor due to the imbalance in operating system
preference.

2.5 Legal Factors


South Korea’s anti-piracy legislation came into effect in 2009 and great
strides were made to combat illegal copying and distribution of
copyrighted products. Penalties were severe and if found guilty firms
could be disconnected from the internet.
In July 2009 the Korean Copyright Commission was established and its
main function is the operation of the dispute resolution system,
including mediation and conciliation of copyright disputes. It is also
cooperating with international organisations with respect to copyright
protection (Korea Copyright Commission).

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2.6 Environmental Factors.
Although South Korea is well accustomed to Typhoons and
Earthquakes any larger than normal occurrence will have a huge
impact on infrastructure and economic growth. This in turn will have
an impact on spending patterns with a direct impact on luxuries like
streaming services.
3. SWOT Analysis.
To fully grasp the complexity of the entry into a foreign market by Spotify,
the author makes use of information gathered by completing a SWOT
analysis, supported by Porters Five Forces Analysis, Internal Factor
Evaluation (IFE) Matrix and an External Factor Evaluation (EFE) Matrix. The
key points are discussed below.
3.1. External Factors Evaluation
 General Opportunities. At the time of preparing this report, Spotify
was available in 59 countries (Spotify, 2016). The fact that South Korea
is the 4th easiest economy to do business in, has a stage 3 Innovation-
Driven Economy, has the 22nd most sophisticated economy in the
world and with internet saturation rate at a staggering 86%, it is
astounding that the recommended entry into the South Korean
market has not happened earlier. The opportunity is available now to
not only fuel Spotify’s drive to add more subscribers to the existing 30
million, but also to add to the already growing list of artists. Spotify
currently has over 28 million songs in its library and their entry into
the South Korean market and subsequent addition of local repertoire
which is high in demand as indicated in the Digital Music Report (2014)
where 100% of the top albums of 2013 was locally signed artists.

 General Threats. There is a believe that piracy of music is gradually


declining (The Washington Post, 2013) but it is still a major threat to
the music industry. Since the advent of free music streaming, a
perception was created that subscribers has the right to access music
they want to listen to, where and when they prefer to listen to it,
without paying. Spotify and other streaming services need to add
additional value to their service if they want to attract more paying
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subscribers. The South Korean market especially is a culprit of piracy
as demonstrated when the International Intellectual Property Alliance
(2009) named South Korea as the world No. 2 music pirates.

 Industrial Rivalry. When Spotify expands to the South Korean market


they can expect to find the following competitors:

Type of Service
Competitor Name Download Subscription Advertising
Service Service Supported
Service
Bugs X X
Melon X X
Naver Music X X
Soribada X X
Deezer X X
MNET X X
Naver TV Cast X
Youtube X
Genie X
Monkey 3 X X
Ollehmusic X X
Groovers X
Mpion X
Samsung Music X X
Table 4: Industry Rivals

 Threat of Substitutes. It is believed that the biggest substitute risk for


Spotify is its own subscribers who prefer to receive the free version
rather than upgrading to the Premium service (Sarah de Ferrari, 2015).
Spotify itself was created as a substitute for rival streaming services
and with its 30 million subscribers is a huge success.

All the companies listed in table above could be substitute threats if


they amend their offerings to offer radio, video or live music
streaming.

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 Threat of Buyer Power: The threat of buyers having any bargaining
power is virtually nonexistent with respect of purchasing the Premium
subscription for as long as the Spotify brand appeals to the subscriber.
The service is uniform through its offering in any given market. The
only choice a subscriber has is weather the subscriber wishes to have
the free option with adverts or upgrade to the Premium subscription
where they can have offline playlists without adverts. Where buyers
have much bigger bargaining power is when it comes to switching
costs. The cost to buyers to migrate to other services is very low and
should there be any substantial loss of perceived brand value, large
numbers of subscribers can migrate or switch to other services at
virtually zero cost.

 Threat of Supplier Power. The threat of supplier bargaining power to


Spotify is very high. Generally, Spotify is supplied with digital music by
music labels that allow Spotify to play an artist’s, represented by said
music label, music to be streamed by Spotify. As n general assumption
when an artist allows its music to be streamed over one streaming
service they will let it be done over the broader spectrum of streaming
services. However, an artist has the right to withdraw its content from
any streaming service at very low switching cost. The process in doing
this is not complicated and it can be completed in very short period of
time. Additionally, the threat of supplier power is exponentially higher
when a high profile artist would withdraw their content from a
streaming service and get publicity in doing so. This publicity could
then prompt other artists who would have sympathy with or support
to a common cause to follow suit. As a huge amount of downloads is
only from a small amount of content, Spotify and other streaming
services stand the chance to be wiped out easily if significant
perceived brand value is lost.

 Threat of New Entrants. The possibility of new players in the streaming


market is very high. All the services in the market are very similar with
virtually no product differentiation. Brand identity in this industry is
very important. Those streaming services with the biggest marketing
and branding budget is the ones that will survive. In South Korea with
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its fourteen industry rivals, (see table 4) any serious new entrant could
just make an offer to acquire one of the smaller streaming services and
have an immediate presence in the market. With a decent budget and
an imaginative marketing campaign this new entrant could obtain
decent market share in a very short period of time.

3.2 Internal Factors Evaluation.

 Strengths.
- No differentiation between free and paid subscription with respect
to content.
- 70% of revenue paid to record labels and artists.
- Very transparent in dealing with record labels and artists.
- Artists can create playlists directly on Spotify’s website.
- Artists can sell their merchandise directly to Spotify subscribers on
their website.
- Unique agreement with FaceBook to share music with other Spotify
subscribers
- App development to link playlists with other social media like
Twitter.
- No music algorithms to suggest new songs to subscribers.
Subscribers search and build their own playlists.
- App availability over multiple platforms
- Abality to have local content available immediately upon launch in
a new market.
- Potential for cooperation with Handset manufacturers

 Weaknesses.
- Bargaining power of suppliers.
- Potential of large content loss if alienation of prominent artists
occurs.
- Repetitive commercials on free platform.
- Loss of subscribers in free platform to rivals.
- No algorithm for song suggestions.
- With free subscription needs constant data connection

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- Subscription cannot be shared between individuals at the same
time.
4. Modes of Entry
If the decision is made to enter the South Korean market, Spotify must be
aware of the impact the different entry modes will have on the success of
the entry. The decision on which one of the modes to use as entry can have
a detrimental effect on the success of that entry (Taşdemir, 2014).
Various ways of entering a foreign market is available and these include
exporting, licensing, joint ventures and direct investment amongst others.
Whichever mode is chosen, a certain set of resource and organizational
control requirements will have to be considered (Ahsan and Musteen, 2011).
Below find an evaluation, related to South Korea, indicating the general
advantages and disadvantages of the various modes of entry.

4.1 Exporting.

Advantage Disadvantage
Limited product adaption required No control over sales
Distribution straightvfrom source Supply line length
Minimum foreign investment Trade barriers
Economy of scale Import taxes
Speed of entry Tariffs
Bilateral agreements Industry protection
Regional cooperation Shipping cost
No exit strategy needed Branding constraints
New market opportunity Cost of warranties
Prohibits regional expansion
Dependence on exporter
Reduced learning potential

4.2 Licensing

Advantage Disadvantage
Low investment No control over assets
Speed of entry Licensee may become competitor
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Limited trade barriers Licence period is limited
Limited tariffs Limited control over exit strategy
Return of Investment Knowledge transferred
Legal protection Management distance
Limited cultural distance Contract negotiation
Limited import barriers Quality control
New market opportunity Customer perception
Branding recognition Potential loss of proprietary info
Royalty compensation
Circumvents barrier of entry

4.3 Joint Ventures

Advantage Disadvantage
Shared investment risk Partner selection difficulty
Shared resources Cultural differences
Empowerment conditions Foreign partner relationship
Knowledge transfer Dilution of control
Investor advantages Knowledge transfer
New market opportunity Partner may become competitor
Circumvents barrier of entry Limited control over exit strategy
Shared technologies

4.4 Direct Investment

Advantage Disadvantage
Small cultural distance Currency fluctuations
Low political risk Political change
Legal protection High labour cost
Investor tax incentives High capital cost
Control over sales Potential labour unrest
Control over brand
Own skills utilization
Proprietary protection
Resource transfer
Full ownership
Option of acquisitions
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No profit share
R&D controll

4.5 Recommended Mode of Entry

Spotify does not export a tangible product as such therefore the Export mode
of entry can be discounted as option.

Licensing and Joint Ventures as mode of entry are good options but the
disadvantages as per the above analysis outweighs the benefits Spotify
stands to gain by using them as modes of entry.

The author recommends that Spotify uses the Direct Investment option as
mode of entry into South Korea specifically. As a fully owned venture Spotify
can go into partnerships, joint ventures and licensing agreements from inside
South Korea and thereby exploit all three entry modes.

Some of the direct investment mode of entry’s advantages is discussed


below in more detail.

 Small Cultural Distance. Cultural distance influences the entry mode


decision of companies that plan to expand into foreign markets
(Morschett, 2010). Varying differences in cultural norms between the
company’s origin and country one chooses to expand too will probably
cause difficulties, and increased attention must be given to address
this from the outset. This forces multinational enterprises to carefully
analyze the potential loss of control over their business and the
associated cost involved to mitigate the cultural distance (Gatignon
and Anderson, 1988). By making a direct investment Spotify will have
the option to be in the host country and have all the associated local
services available which includes labour, banking, legal and regulatory
advice thus minimizing the cultural distance.

 Legal Protection. Roy and Oliver (2009) report that the level of
accurate legal assistance of the country of entry exuberates the
concerns with respect to worries regarding identifying and negotiating
with partners in the host country. Being present in the host country
gives Spotify better access to proper local legal advice for various

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matters regarding industry regulations, labour and tax laws and
proprietary protection amongst others.

 Control over Branding. The importance of Corporate Brand Identity


and the management thereof must be managed from within the
company and always be under its own control (Simões et al., 2005). It
is of utmost importance that corporate brand identity be protected. In
the tree alternative modes of entry various levels of control over one’s
own brand is sacrificed. Only the direct mode of entry gives the
company total control over its brand.

 Tax Incentives. Parent companies would also go the foreign direct


investment route to get exposure to additional expertise, technology
and products. As the foreign investor, you can expect tax incentives in
South Korea that can be reinvested back into branding or profit share
with Spotify’s contributing artists. Parent companies also have the
opportunity to increase profit by concentrating some earning streams
in countries with lower corporate tax.

 Resource Transfer. By investing directly in a foreign country, Spotify


will directly be taking part in resource transfer and other exchanges of
knowledge, where both countries gain access to new technologies,
processes, clients and skills.

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References:

Ahsan and Musteen (2011). Multinational Enterprises’ Entry Mode Strategies and Uncertainty: A
Review and Extension, International Journal of Management Reviews, Vol. 13, (2011,) 376 - 392
Black, Hugo L (1971). United States of America Supreme Court Justice 1886 - 1971

Daniel Ek (2011). https://www.quora.com/What-are-Spotifys-plans-for-internat-ional-


expansion

Den Butter F. A. G. (2012). Managing Transactional Cost in the Era of Globalization


Northampton: Edward Elgar Publishing. Inc.

Digital Music Report (2014). IFPI Digital Music Report 2014. Lighting Up The Markets.

Digital Music news (2016). http://www.digitalmusicnews.com/2016/03/31/is-streaming-


making-piracy-worse/

Forbes (2013). www.forbes.com/.../walmart-carrefour-tesco-metro-successful-glo

Gatignon and Anderson (1988). The multinational corporation's degree of control over foreign
subsidiaries: An empirical test of a transaction cost explanation. J Law Econ Organ, 4 (2) (1988)

KPMG (2015). Corporate Tax Rates Table. https://home.kpmg.com/xx/en/home/ services/


tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

Heritage.org (2015). http://www.heritage.org/index/country/southkorea

International Tax Review (2015). http://www.internationaltaxreview.com


/Article/3433125/South-Korea-Archive/10-VAT-in-Korea-to-hit-top-e-commerce-companies-on-
July-1.html

Internet Stats (2016). Internet Users by Country (2016).


http://www.internetlivestats.com/internet-users-by-country/

Korea Communications Commission (2011). “Korea ranks global No. 1 in ICT field.” September
15, pp. 1-2

Korea Copyright Commission. http://www.copyright.or.kr/eng/about-


kcc/introduction/introduction.do

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Morschett (2010). Decades of research on market entry modes: What do we really know about
external antecedents of entry mode choice? J Int Manage, 16 (1) (2010)

Numbeo (2016). http://www.numbeo.com/cost-of-living/rankings_by_country.jsp

OECD (2013). Better Life Index. http://www.oecdbetterlifeindex.org/countries/ korea/

OECD (2014). Demography and Population. http://stats.oecd.org/index.aspx?


DataSetCode=RPOP

Peter Temple (2011). Interactive Investor. Why demographic data is important.

Civic Science (2015). http://www.emarketer.com/Article/Pandora-Maintains-Strong-Audience-


Lead-Over-Spotify/1012476

Roy and Oliver (2009). International joint venture partner selection: the role of the host-country
legal environment. J Int Bus Stud, 40 (5) (2009)

Spotify (2015). https://news.spotify.com/se/2015/12/01/drake-is-the-worlds-most-streamed-


artist-on-spotify-for-2015/

Spotify (2016). Select Your Country. https://www.spotify.com/uk/select-your-country/

Statista (2016). http://www.statista.com/statistics/250703/forecast-of-internet-economy-as-


percentage-of-gdp-in-g-20-countries/

Taşdemir (2014). A Theoretical Approach to the Methods Introduction to International Markets

The Statistical Portal (2014). Distribution of internet users worldwide as of November 2014, by
age group. http://www.statista.com/statistics/272365/age-distribution-of-internet-users-
worldwide/

The Washington Post (2013). https://www.washingtonpost.com/business/technology/music-


piracy-on-the-decline-as-digital-music-sales-grow/2013/02/26/5ca43fe2-804b-11e2-b99e-
6baf4ebe42df_story.html

International Intellectual Property Alliance (2009). http://www.iipa.com/2009_SPEC301


_TOC.htm

Transparency International (2016). Corruption Perceptions Index 2015.


http://www.transparency.org/cpi2015#results-table

World Economic Forum (2014). The Global Competitiveness Report 2014–2015


http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf

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World Bank (2015). Adult Literacy Rate. http://data.worldbank.org/indicator/ SE.ADT.LITR.ZS

World Bank (2014). Labour Force Total. http://data.worldbank.org/indicator /SL.TLF.TOTL.IN

World Bank (2014). GDP Growth Rate. http://data.worldbank.org/indicator


/NY.GDP.MKTP.KD.ZG

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Appendix A

Comparative analysis of the macro-environmental factors of


 South Africa,
 Russia,
 and South Korea
to identify a suitable attractive target market for Spotify’s future international
expansion strategy.
In identifying the most suitable market for Spotify’s international expansion the
author focused on the differences of the three countries and used a brief PESTLE
analysis to determine which market is most suitable for expansion into. Score of 1
is allocated to the highest rating and a zero for the other candidates to identify the
suitable country.
Only the latest available data was used.
The rationale for the identified market is discussed in the main document.
1. Political Factors:

Factor South Africa Russia South Korea


Rating Score Rating Score Rating Score
Ease of doing business (World Bank, 2015) 73 0 51 0 4 1
Financial Stability (Global Economy, 2015) 106 0 155 0 84 1
Corruption Perception (Transparency 61 0 119 0 37 1
International, 2015)
Labor Freedom (Heritage.org, 2015) 58.7% 1 57.6% 0 50.6% 0
Freedom to Trade (Heritage.org, 2015) 77.0% 1 72.4% 0 74.6% 0
Press Freedom (Reporters Without Borders, 39 1 152 0 60 0
2015)
Sub Total 3 0 3
Table 1: Political Risk Factors

In the score above South Korea and South Africa obtained the same amount of
points. These points were allocated using date from different sources which were
calculated up to 2014/15.
Recent developments in the South African political environment (IMF, 2016)
which are not reflected in the above ratings will carry a negative weight with
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respect to making the decision on which country will be identified as the suitable
candidate for expansion into.
Similarly, the 2014/15 ratings of Russia might be bias against them due to political
events over that period in Ukraine and Crimea. (The Nation, 2014)
2. Economic Factors

Factor South Africa Russia South Korea


Rating Score Rating Score Rating Score
Inflation Rate 2015 (World Bank, 2016) 4.6% 0 15.5% 0 0.7% 1
Sales Tax (VAT) on Digital Purchases 14% 0 18% 0 10% 1
Internet Economy as % of GDP (2016) 2.5% 0 2.8% 0 8% 1
Exchange Rate against 1 Euro (2016) 16.43 1 74.97 0 1294 0
Cost of Living Index (2016) 100 0 94 1 101 0
Local Purchasing Power Index (2016) 126.1 0 57.42 1 120.64 0
Annual Disposable Income kUS$ (2013) $7,4k 0 $19k 0 $19.5k 1
Corporate Net Tax Rate 28% 0 20% 1 24.2% 0
Economically Active Population 19 0 76 1 26 0
(Million)(2014)
Economic Growth Rate (2016 projected) 0.7% 0 -1% 0 3% 1
Sub Total 1 4 4
Table 2: Economical Risk Factors

3. Social Factors

Factor South Africa Russia South Korea


Rating Score Rating Score Rating Score
Population in Age Group 15 – 44 years 21 0 58 1 22.4 0
(Million)
Annual Population Growth Rate 1.6% 1 0.2% 0 0.4% 0
Economically Active Population 19.9 0 76.3 1 26.3 0
(Million)(2015)
Unemployment Rate (2015) 25.1% 0 5.1% 0 3.5% 1
Adult Literacy Rate 15+ Years. 93% 0 99% 1 99% 1
Average Median Age 25 0 39 0 40 1
Quality of Life Index 156 0 88 0 170 1
Sub Total 1 3 4
Table 3: Social Risk Factors

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4. Technological Factors

Factor South Africa Russia South Korea


Rating Score Rating Score Rating Score
Internet Users (million) (2016) 28 0 102 1 43 0
Internet Penetration (2016) 51% 0 64% 0 92% 1
Ave Internet Data Speed (Mpbs) (2015) 2.5 0 7.5 0 8.8 1
Smartphone Penetration 37% 0 45% 0 88% 1
Sub Total 0 1 3
Table 4: Technological Risk Factors

5. Legal Factors

5.1 South Africa:


South African Labor Laws are skewed against the employer. Government and
trade unions are regularly negotiating on minimum wage payments and with
the Unions as part of the ruling alliance employers are finding it increasingly
difficult to employ. High labor cost puts a damper on economic growth.

Black Economic Empowerment laws are constantly being adapted and BEE
ratings is now mandatory for all new entrants into the corporate market.

South Africa has a high occurrence of pirated music and film and with high
levels of corruption not much can be expected to be done to effectively
combat the problem.

5.2 Russia:
Recent Political fallouts with the west and the sharp drop in crude oil prices
has forced the Russian government to embark on a program of rapid change
to save the economy. Results are that tax laws and other legislation are
constantly adapted to stimulate economic growth. It makes it difficult to plan
on the short and medium term. Russia has a high occurrence of pirated music
and film.

Russia has recently introduced a new law whereby copyright owners can
apply to fast track the judicial process to settle disputes of piracy.
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5.3 South Korea:
South Korea’s anti-piracy legislation came into effect in 2009 and great
strides were made to combat illegal copying and distribution of copyrighted
products.

In 2009 South Korea was cited as the country with the second most cases of
music piracy.

6. Environmental Factors
6.1 South Africa:
The South African region is currently undergoing one of the biggest droughts
on record. It has already put a damper on economic growth and will have an
influence on near future spending patterns as food gets more expensive.
6.2 Russia:
Russia’s huge geographical area makes it unlikely that one single
environmental event will have a significant effect on its economy.

6.3 South Korea:


Although South Korea is well accustomed to Typhoons and Earthquakes any
larger than normal occurrence will have a huge impact on infrastructure and
economic growth. This in turn will have an impact on spending patterns with
a direct impact on luxuries like streaming services.

7. Risk Factors Score

Factor South Africa Russia South Korea


Score
Political Factors: 3 0 3
Economic Factors 1 4 4
Social Factors 1 3 4
Technological Factors 0 1 3
Legal Factors 0 0 1
Environmental Factors 0 1 0
Total 5 9 15
Table 5: Risk Factors Score

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8. Conclusion
The author’s interpretation of PESTEL and the analyzing of recent data indicates
clearly that between the three countries suggested, South Korea is the country
suited for Spotify’s future international expansion.

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