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Thursday, March 31, 2005


To really catch up, many more Samsungs needed

Staff writer

See the main story: Questions of history hound relations See related stories: 'Sunshine policy' still most viable approach to problematic North

The strong performance of a few major Korean firms like Samsung Electronics Co. does not mean that South Korea has caught up with Japan in economic development, the journalists from South Korea told the March 17 Keizai Koho Center symposium.

As the more powerful of the two economies, Japan should take the lead in moving forward the talks with South Korea on a free trade agreement, failure of which could jeopardize the prospect of a broader East Asian economic integration, the journalists said.

Hwang Ho Taeck, an editorial writer of The Dong-A Ilbo, quoted a Japanese corporate executive, whom he and the other journalists met during their visit to Tokyo, as having asked them: "Do you think South Korea has beaten Japan?"

The question, Hwang said, was apparently made in reference to the success of Samsung Electronics, whose profitability has outpaced those of Japanese electronics giants such as Sony Corp., Toshiba Corp. and Hitachi Ltd.

However, a nation's economic power is not gauged by the excellent performance of a handful of firms alone, Hwang said.

True, South Korea has some major globally-competitive firms such as Samsung and Hyundai, but the number of small and medium-sized firms with excellent technologies -- which constitute the basis of industrial competitiveness -- is far fewer than those in Japan, he noted.

Hwang said that since the late 19th century, Koreans have long been harbored a "Japan complex" -- a nagging sentiment that they always lag behind Japan after failing to defend themselves against the 36-year colonial rule by the neighbor that ended in 1945.

After its defeat in World War II, Japan was able to host the Tokyo Olympic Games in 1964, while Seoul had to wait until 1988 for its turn to stage the Games, he said. "There was a sentiment that South Korea is 20 years behind Japan no matter how hard it tries to catch up," Hwang told the audience.

With the success of Samsung and other globally-competitive firms, however, people of South Korea may finally be freeing themselves from this "Japan complex," he noted.

Comparing his latest visit to Japan to his first visit here two decades ago, Hwang said he himself had the feeling that perhaps downtown Seoul today may look more spectacular than Tokyo's Ginza shopping district.

Still, Hwang said it will be inappropriate to make a comparison between Japan and South Korea by merely looking at downtown Seoul. A large gap remains between Seoul and rural parts of South Korea in terms of economic development, and transferring capital functions out of Seoul is currently being debated to pave way for a more balanced growth throughout the country, he added.

Similarly, it will be inappropriate to discuss the South Korean economy merely by looking at Samsung Electronics, Hwang noted.

"So my answer to (the Japanese executive's) question is No," he said. "Japan is still far ahead of South Korea."

While Japan remains the world's second-largest economy, South Korea is the 11th-largest and the security risks related to North Korea is a negative asset for the country, he pointed out.

The symposium panelists said Japan's economy, despite recent indications that it is losing steam, is still on a recovery path led by the private sector, unlike the "artificial" upturns during the 1990s that were achieved through the government's pump-priming measures.

Choi Sung Whan, a senior economic and financial writer of The Chosun Ilbo, said the 1990s -- often described as the "lost decade" for Japan -- was in fact a period in which the nation was preparing for an ascent to a higher stage of economic prosperity.

Choi observed how the U.S. economy flourished in the 1990s following the slump and subsequent structural adjustments during the 1970s and 1980s.

Japanese firms have similarly achieved a comeback by introducing a series of painful restructuring efforts, he noted.

While South Korea is going through "growing pains," the Japanese economy is perhaps now experiencing "maturing pains," Choi noted.

Choi said he sensed a greater self-confidence on Japan's part -- that the nation has built up strength to survive a protracted slump.

There are also signs that the nation's economy is trying to change, he said, citing the recent appointment of an American executive as CEO of Sony Corp., the changing attitudes of labor unions as well as Internet firm Livedoor Co.'s takeover battle with Fujisankei media conglomerate.

Kim Young Kyu, a securities desk editor at The Korea Economic Daily, concurred that the 1990s was not really a "lost decade" for Japan. Rather, it was a period during which Japanese firms, which are the major driving force in the latest recovery phase, made efforts behind the scenes to build up real strength.

Some panelists pointed to sources of weaknesses. Many of them noted that despite a series of deregulations, the bureaucracy still plays an important role in Japan's economy.


Hwang of the Dong-A Ilbo charged that Japanese companies tend to be more inward-looking than their South Korean counterparts because they have a much larger domestic market to do business in.

For example, Hwang noted, Japanese electronics firms adopt domestic standards for products like cellular phones that are designed to shield themselves from foreign competition, whereas South Korean companies, because their domestic markets are small, are always sensitive to whatever standards will be adopted abroad so that they can be competitive in overseas markets.

The journalists also discussed the prospect of the FTA talks between Japan and South Korea, which have been stalled since November despite the plans by leaders of the two countries to conclude the talks by the end of 2005.

Japan and South Korea launched the talks in December 2003. But the two sides have been unable to hold talks since the sixth round of negotiations in November, due chiefly to differences over farm trade liberalization.

The FTA talks are not making much progress as both sides argue that the other party is responsible for getting the process going, said Jung Suk Koo, an editorial writer of the Hankyoreh newspaper.

South Korea, which faces the prospect of greater imports of industrial products from Japan, is urging Tokyo to make further concessions in opening up its agricultural markets.

Jung said he suspects that Japan's Foreign Ministry, which is mainly in charge of the FTA talks, does not seem to be in full control of the Economy, Trade and Industry Ministry and the Agricultural, Fisheries and Forestry Ministry, which have conflict interests in the negotiations with South Korea.

"I sensed that there is a problem in the system of coordinating interests among ministries," Jung said, charging that the Japanese government does not have an inter-ministerial consensus on how to go about the FTA talks.

Conflicting interests

Of course South Korea has similarly conflicting interests of industrial sectors and farm lobbies, but at least the government agency in charge of the negotiations with foreign counterparts is in full control of these interests, he argued.

What is at stake, Jung said, is not just an FTA between Japan and South Korea, but the prospect of a broader economic integration in East Asia.

Currently, Japan, South Korea and China are separately holding talks with the 10-member Association of Southeast Asian Nations for subregional free trade arrangements. There are mounting hope that such arrangements could lead in the future to creating a free trade area in the world's fastest-growing region.

"The Japan-South Korean FTA talks can be seen as a litmus test on how far the region can go to creating an East Asian community. We want Japan to have a broader perspective (in proceeding with the negotiations with South Korea)," Jung noted.

Japan often sticks to a position that it will not give up anything in dealing with other countries in East Asia, but unless it changes such a posture, the nation cannot possibly take on a leadership role in the region, he added.

Choi of The Chosun Ilbo also said Japan holds the key to success of the stalled FTA talks, because as the more advanced of the two economies, it has the capacity to absorb whatever losses that may result from trade liberalization.

The current stalemate over the talks may not be resolved unless Japan "leads" South Korea into concluding the negotiations, he added. (T.K.)

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