South Korea may lose out to China

South Korea may lose out to China

SEOUL: Monthly drops in exports were mere aberrations to the
Korean government and corporations, which had grown accustomed to
watching overseas shipments continuing to increase with few
disruptions. But their complacence began to ebb a short while
ago, and finally their confidence waned completely when it was
announced early this month that exports had declined for the
fifth consecutive month in July, this time plunging by as much as
20 percent.

News about the biggest year-on-year monthly drop in more than
three decades had top government policymakers and corporate
executives running scared. They were understandably worried that
Korean exports could possibly be headed for a long-term slump as
their major markets -- the United States, Japan and Europe --
continue to show few signs of an early recovery.

The main cause of a decline in overall exports was the
slackening demand for computer chips in the United States and
other advanced nations, where the information technology sector
went into a nosedive earlier this year. As a result, the portion
of semiconductors in Korean exports dropped from a monthly
average of 15.9 percent last year to 10.9 percent last month.

On the other hand, autos, shipbuilding, petrochemicals and
steel products, which are also leading Korean export items, fared
much better than computer chips.

Under these circumstances, it would be logical to believe
Korean exports would regain vitality once the so-called New
Economy in the United States and elsewhere is powered again by
information technology. Indeed, many decision-makers in the
government and corporate planners actually say so, and they may
be right because a slump in semiconductor exports will be
transient though it may last longer than the usual.

But when it comes to a long-term export strategy, this group
of people is misguided because they have failed to factor searing
competition from emerging economies -- particularly China -- into
their predictions.

Some Korean corporations are feeling the heat of fierce
competition with China, which is no longer a country depending
solely on low wages to churn out low-end products. They have
ample reason to fear that they may sooner or later take a
drubbing from their Chinese counterparts in world markets.

First of all, Korea and China will soon have to compete head-
to-head against each other in exporting autos, petrochemicals,
steel products and textiles -- manufactured goods that are
included among those the Chinese government is determined to
develop as its major export items in the near future.

In addition, China's transformation into an industrial
powerhouse, which would pose a direct threat to Korea, is aided
by multinational corporations operating in Asia, which are
transferring their production facilities to China. World pundits
are already predicting that before long, industrial bases in
other Asian countries will be hollowed out.

With China fast catching up, Korea needs to overhaul its
policy on industrial production and export strategy. And timely
guidance has recently come from Bain & Company, a U.S.-based
corporate consultancy, which proposed in July that Korea develop
conventional industries into knowledge-based ones, invest more in
education, research and development and induce brains and
investments from abroad.

Be it with or without advice from a consultancy, it certainly
is time for Korea Inc. to reinvent itself. In this regard, it is
heartening to see the Ministry of Commerce, Industry and Energy
working on proposals that include the development of new
technologies, the combination of conventional manufacturing with
information technology, biotechnology and other new technologies
and the integration of different industrial sectors for the
production of new products.

The new industrial policy also needs to incorporate
initiatives from entrepreneurs as it did in the early 1970s when
the late founder of Samsung Group, Lee Byung-chul, decided to
invest huge amounts of money into the risky business of
semiconductors -- an item, which, notwithstanding its current
setbacks, has since grown into an engine of growth not only for
the corporate giant but for the entire nation.

We may find another trailblazer in Chung Moon-soul, founder of
Mirae Corp., a producer of chip-making equipment, who has donated
30 billion won to KAIST, a Daejon-based research-oriented
university, to create a new department for the integration of
information technology and biotechnology.

Such initiatives will certainly help the government formulate
a new industrial policy and build a new industrial base under the
policy, which is badly needed to generate future growth.

-- The Korea Herald/Asia News Network