Korea builds export boom with parts made in Japan
A flood of South Korean automobiles, videocassette recorders, and color televisions is reaching America's shores. For many Americans, the Korean boom is all too reminiscent of Japan's earlier entry onto the world trade scene. Like Japan before it, Korea is building its economic miracle on a base of rapid export growth, led by a huge increase in its trade surplus with the United States.
But even those who warn of a ``second Japan'' may not realize that many of those Korean products are at least partly ``made in Japan.'' Korea's industry, particularly in the high-technology areas, is largely based on Japanese technology and still depends on a flow of Japanese components and spare parts.
``Look at this videocassette recorder,'' said Akira Suwama of Jusco, Japan's leading retail chain, pointing at a latest VCR made by Korea's Samsung Electric Company. ``This has a Korean brand name on it, but actually is more Japanese than Korean because more than half of its components are made in Japan.''
The result is a curious triangular trade relationship between Japan, South Korea, and the US. ``Korea buys parts, machinery, and materials from Japan, manufactures them into complete products, and exports them to the US,'' says Shin Yong Uck, an official at the Tokyo office of the Korea Export Promotion Corporation. Thus, as Korea's trade surplus with the US grows, its deficit with Japan increases apace.
Hyundai's popular Pony Excel is a typical case. As the most popular imported subcompact in the US, Pony has come to be perceived as a symbol of Korea's economic miracle. But about half the parts in Pony's export model are made in Japan, mostly by Mitsubishi Motor Company, according to industry sources.
Park T.S., an official at Hyundai's Japan branch, admitted that his company used Japanese parts on key sections of its export models to ensure high quality. ``We needed to make sure that we establish a good reputation for quality in the US market,'' he said. ``The best way to get good-quality parts was to use Japanese parts.''
Korean officials increasingly complain about this dependent relationship with Japan. ``America's perception is that Korea is becoming a second Japan and invading their market,'' said Mr. Shin. ``But in actuality, we are not nearly as strong as Japan. In fact all the money we earned in the US and other overseas markets is sucked in by Japan.''
``The faster the Korean economy grows, the more the deficit with Japan will grow,'' said Baeg Won Jae, a Tokyo-based economist at the Korean Foreign Traders Association.
``The Korean economy doesn't have an economic infrastructure which is strong enough to support rapidly growing exports by itself.''
Instead of building up its own infrastructure, which would take much longer, Korea has chosen a route to a quicker success by using some Japanese technology.
``It was a short cut to success for Korea,'' Mr. Baeg said. ``Instead of spending years to build up the lower end of the economy, Koreans thought since the Japanese have already done what we have to do, why not take advantage of it.''
The Koreans have followed Japan into the American market, building a $7.3 billion surplus in the last year. The deficit with Japan has had parallel growth, from $3 billion in 1985 to $5.4 billion last year. The US is now pressing South Korea to reduce its surplus, while Koreans are trying to reverse their deficit with Japan.
The Korean government recently launched a five-year campaign to transfer imports from Japan to the US and the European Community. The minister of trade and industry, Rha Woong Bae, has asked the South Korean electronics industry to import from non-Japanese sources even if Japa nese companies offered better deals.
Like Americans, Koreans say their trade deficit is partly the result of a Japanese market closed to foreign goods.
``The reason most Korean exporters turned to the US and European markets was that the Japanese market was more closed and harder to break through,'' he complained. ``Besides high tariffs, there are so many unreasonable restrictions and regulations that it takes enormous costs to accommodate Korean products for the Japanese standard.''
``The responsibility of the imbalance is not only ours,'' replies Kazunori Shimizu of Japan's Ministry of International Trade and Industry. ``The Korean government has neglected the situation for a long time.
``We understand that now they have registered a landmark surplus in overall trade, and US pressure is getting more and more severe. So they needed something that they can blame. They looked around, and they found a growing deficit with Japan.''
While the deficit has grown, Korean exports to Japan have also been increasing rapidly during the last year, taking advantage of their price-competitiveness because of the yen's steep rise in value against the Korean won. Samsung's VCR is now sold at Japanese retail chains at 30 percent less than the Japanese equivalent. Hyundai and Daewoo Motors, two major Korean automakers, plan to plunge into Japan's fierce automobile market next year with their popular subcompact models.
There are good reasons that Koreans are reluctant to change their close economic links with Japan. The two countries have a similar economic structure, based on human rather than natural resources, and both rely on exports to promote growth.
At the same time, geographic proximity allows Japanese companies to provide quick service, thorough maintenance, and cheaper shipping costs. The two countries are about 100 miles apart across the Sea of Japan.
The relationship is not likely to change significantly in the near future. Korean companies are still seeking joint ventures with Japanese companies to gain access to technology. But increasingly, they are also investing in their own research and development.
``It will take at least 10 years to correct the imbalance with Japan down to a reasonable level,'' said Baeg. ``But if we don't start taking it seriously now, Korea will always be subordinate to Japan economically and perceived as a ``second Japan'' by Western countries. You know we want to avoid that by all means.''