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Thursday, Feb. 22, 2007

SOUTH KOREAN JOURNALIST SYMPOSIUM

China's rise may force Tokyo, Seoul to reassess business tie-ups


Staff writer

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News photo
Yasuhiro Goto

Japanese and South Korean companies should increase technological as well as capital partnerships as they both face the challenges of globalization and China's rising power, the South Korean journalists told the Feb. 9 symposium.

South Korea, for its part, needs to make its parts and basic materials industries more competitive, or it will continue to incur huge trade deficits with Japan, they said.

Lee Dong Joo, an editorial writer of the Maeil Business Newspaper, noted that the pattern of cooperation between Japanese and South Korean firms has changed a lot in recent years as Korean companies caught up with or overtook their Japanese counterparts in certain sectors.

"It's no longer the one-way cooperation (in which South Koreans sought Japanese technological and capital support), but a two-way and win-win partnership," Lee told the audience.

Lee cited the "strategic partnership" that South Korean steelmaker Posco has pursued with Japan's Nippon Steel Corp. since 2000, which includes a capital tie-up, technological exchanges and joint purchase of raw materials.

News photo
Lee Dong Joo (left) of the Maeil Business Newspaper discusses Japan-South Korean cooperation at the corporate level while his fellow panelists Kwack Jung Soo (center) and Koh Hyun Kohn listen. SATOKO KASAWAKI PHOTOS

It is a good partnership that helps the two companies better cope with the recent mega-alliances taking place in the global market, including the merger between Mittal and Arcelor last year, as well as China's large-scale investments in its steelmaking sector, Lee said.

Also, a liquid crystal display joint venture created in 2004 by Samsung Electronics and Japan's Sony Corp. is another example of a "win-win" partnership" that also helps the two firms to lead their rivals in investments for future-generation LCD panels, he said.

Lee urged Japan to change its mind-set about corporate-level partnerships with South Korea.

Such cooperation used to be considered in the past as a zero-sum game in which, for example, technological transfer to South Korea would only benefit Korean firms and result in losses for Japan, he said. Today, both countries should realize that opening up to each other would be mutually beneficial, he added.

This is all the more important in light of the rapid rise of China in global markets, Lee said.

The days are long gone when it was assumed that China is technologically 10 years behind Japan or South Korea, Lee said. Koh Hyun Kohn, an editorial writer for The JoongAng Ilbo daily, said a recent South Korean government survey showed that South Korea is only 1.7 years ahead of China in terms of information technology.

To survive the inevitable competition with China, Japanese and South Korean companies should pursue much closer cooperation in terms of capital, technology, patent and human resources, Lee said.

South Korean weaknesses

Koh of The JoongAng Ilbo said that even though South Korean firms have made great strides in certain sectors, the situation of bilateral trade with Japan points to the lingering weakness of Korean industries.

Since diplomatic ties were normalized in 1965, South Korea has consistently incurred trade deficits with Japan, with the deficit hitting an all-time high of $25.3 billion last year, he said.

On the other hand, South Korea had a trade surplus of $20.9 billion with China in the same year -- effectively paying the money it earned from China to Japan, he added.

This is because South Korean export industries still rely heavily on component and basic materials imports from Japan, which account for 60 percent to 70 percent of the deficits with Japan, Koh said.

"The more South Korea exports, its deficit with Japan will increase," he said, noting that even Samsung Electronics relies on imports from Japan. "The deficit with Japan will not disappear unless South Korea's technological power dramatically improves."

This is all the more worrying because China has a similar industrial structure of importing components and materials from Japan to make finished products, he said. China has the advantage of much lower labor and real estate costs, and is rapidly approaching South Korea in terms of technological competitiveness, he added.

Another source of concern, Koh said, is the recent decline of the yen against the won. Since 2004, the yen fell by more than 30 percent against the won, damaging South Korea's export competitiveness, he added.

South Korea suffers more from the won's rise against the yen than against the dollar, he said. A study by the Samsung Economic Research Institute shows that South Korea's exports would fall by 0.82 percent if the won rises 1 percent against the, yen he added.

In the U.S. market, for example, the price of a Hyundai subcompact car even became higher than that of a Toyota of the same class -- due to the yen's fall against the won, Koh said.

A major structural uncertainty of the South Korean economy, he noted, is that it relies too heavily on certain industrial sectors -- semiconductors, autos, wireless communications equipment and shipbuilding -- and a small number of leading companies that have achieved world-level competitiveness.

South Korea's semiconductor exports in 2006 increased 23 percent from the previous year, accounting for 11 percent of the country's overall exports.

Semiconductors have been the nation's leading export item for as long as 15 years and the chip industry accounts for 5 percent of South Korea's gross domestic product today, Koh said.

The industry leader Samsung is still ahead of its Japanese competitors in the memory chip business, but is increasingly threatened by the rapid technological advances of Japanese firms in new-generation products and their recent moves to seek a partnership with Taiwanese companies, he said.

Samsung Chairman Kun Hee Lee recently said the group needs to create new core businesses for the future other than semiconductors -- a remark that reflects South Korea's concern over the narrow base of its industrial competitiveness, Koh told the audience.

Labor problems

Kwack Jung Soo, a business writer for The Hankyoreh newspaper, noted how South Korea's top automaker, Hyundai Motor Co., may be close to Japan's Honda Motor Co. in terms of global market share but lags far behind the top Japanese automaker Toyota Motor Corp. in productivity -- due largely to its chronic labor problems.

Hyundai, which in 2006 saw its net profit plunge 39 percent from the previous year, has suffered from strikes almost every year since its founding in 1987, Kwack pointed out.

Such labor disputes resulted in production losses of 330,000 vehicles between 2001 and 2005, and last year alone its domestic production fell short of target by 150,000, he said.

This is in sharp contrast to the record-breaking performance of top Japanese automakers like Toyota and Honda, which have long had favorable labor relations and from which South Koreans can learn a lot, Kwack told the audience.

Yasuhiro Goto, an editorial page writer of the Nihon Keizai Shimbun who served as a moderator in the symposium, commented that while the growing threat of China is often mentioned in South Korea, it is this tight competition with close neighbors that make the region's economies stronger.

"Japan, China and South Korea all see each other as competitors, and this in turn prompts them to become more competitive and make the region the world's powerhouse," Goto said.



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