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[Editorial] Rival’s assessment

It may be pleasing for our manufacturing giants to hear a major Japanese business newspaper admit Korea’s overtaking or close chase of Japanese rivals in the global market with such top-line products as cars, ships and appliances. But what is important is paying attention to how they assess the factors of success and failure in the intense rivalry between the two neighbors.

In an article titled “South Korean Manufacturers Globally Edging Out Japan Firms” in its Sunday edition, the Nihon Keizai Shimbun analyzed how South Korea’s Hyundai-Kia brands raised their U.S. market share to 9 percent during the first six months of 2011 to closely challenge Toyota’s 12.8 percent and Honda’s 9.6 percent. In 25 countries in Europe, Hyundai-Kia’s 4.7 percent share was 0.7 point higher than Toyota’s, the paper reported. In shipbuilding, South Korea’s Samsung Heavy Industries received orders for 14 LNG carriers and 10 drill ships overseas while Mitsubishi Heavy Industries received just one during the period.

The paper cited six reasons for the struggling of Japanese firms in their competition with Korean manufacturers. The primary weakness is the strong yen, which makes Japanese ships 30 percent more expensive. Next come Japan’s high energy costs ― the cost of electricity in Korea remains at 40 percent of Japan’s ― and Korea’s effective corporate tax rate of 24 percent against the 40 percent rate in Japan, the Nihon Keizai said. The paper also mentioned the greenhouse gas control, delayed free trade agreements, and various employment regulations.

What we note from this article is that the factors of Korea’s relative strength against Japan are mostly short-term advantages. There is no comparison of labor productivity, the most important element in manufacturing. Disadvantages in labor are being compensated for by advantages outside the companies, such as exchange rates and tax rates.

The Japanese paper also focused on the effects of Korea’s free trade agreements with the European Union, India and the United States (not yet ratified) which have a combined automobile market of 41 million units. This is compared with Japan’s FTAs with ASEAN and Mexico which opened a market of just 8.1 million cars a year. We are again seeing the need to expedite the ratification of the Korea-U.S. FTA.
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