December 1, 2010｜Korean Peninsula
Professor, Faculty of Economics, University of Toyama
ROK manufacturing industry continues to further be in a situation sandwiched between the catch-up of emerging economies like China and developed countries like Japan. Even in assembly and apparatus industries, including steel, household electrical appliances, shipbuilding, and machinery, in which the ROK has had a comparative advantage to date, from the mid 2000s on the share for ROK-manufactured products on the global market has stalled or continued to decline and the presence of emerging economies such as China has been rising rapidly. In particular, via the rapid industrialization of China, its giant neighbor, ROK manufacturing industry has been pressed by the high waves of sophisticating its industrial structure, moving to high-value-added products and to services.
Looking at the ROK’s industrial structure, it has the structural problems of the lagging behind of the fostering of the components and materials industries and small and medium-sized enterprises, and the high degree of dependence on Japan in intermediate goods and capital goods, including for core components and materials, and plant. Consequently the degree of dependence on Japan is high in export industry plant and core components and materials, representative of the ROK, such as semi-conductors, and this has also become the cause of a huge trade deficit with Japan. These structural problems are ones that were formed and built up in the process of the ROK’s industrial development from the 1960s on, and are not problems that will be improved in the short term.
The ROK government, in order to continue moving forward the sophisticating of its industrial structure in response to such changes in the global competitive environment, entering this year has tackled the fostering of the components and materials industries, and also the fostering of their providers, small and medium-sized enterprises, via the amendment of the ROK “Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises”, etc. Specifically, this is the correction of unfair trading between large enterprises and small-medium enterprises and the strengthening of the oversight to that end, support for technological transformation to small and medium-sized enterprises, and the fostering of medium-sized enterprises that are globally-competitive (the World Class 300 Project), etc.
Within this, the putting of effort into support for small and medium-sized enterprises, via the construction of relationships of mutual engendering (cooperation) between large enterprises and small-medium enterprises, catches the eye. The relationships between ROK assembly enterprises and components enterprises are not long-term and sustained cooperative relationships, but the aspect has been strong of subcontractual relationships, centering on simple industrial commissions which had an aim of exploiting the low wages of the components enterprises, with the assembly enterprises prioritizing short-term profits. Regarding the government, it appears to have acknowledged that such relationships are one of the main causes for the fostering of small and medium-sized enterprises which have a capacity for technological development having lagged behind. In any case, in a form in accordance with a powerful push from the government, one after another large enterprises such as the Hyundai Motor Company and Samsung Electronics are continuously knocking out technological and capital support measures for small and medium-sized components manufacturers.
With having experienced trials and errors many times to date, however, there has been a limit to the government-led improvement of relationships among enterprises and the fostering of small and medium-sized enterprises. To the very last the relationships among enterprises are decided by the relevant system and the industrial structure. Regarding the relationships between large enterprises and small and medium-sized enterprises, in pressuring large enterprises with the logic of the strong and the weak, and by helping out the small and medium-sized enterprises, this means that the reform of systems and structure to form their base are a top priority. In the case of Japan’s small and medium-sized enterprises there isn’t government support and protection, and they have been growing by means of competition managed by their parent companies. This is because the effort to satisfy the demands of the parent companies for strict quality standards and reduction of unit price and the competition among component manufacturers have been nurturing competitive small and medium-sized enterprises.
In the ROK’s case, in terms of economic scale, the number of enterprises in manufacturing industry is too large in comparison with Japan and Germany. Furthermore, more than 99% of all enterprises are small and medium-sized enterprises and medium-sized enterprises that are competitive are few. Accordingly, systematic consolidation to invigorate the retreat of enterprises with weak competitive strength and mergers and acquisitions is a top priority. Then structural reform is necessary for small and medium-sized enterprises to carry out reorganization and integration by means of competition via market mechanisms. The government must intensively support the promising small and medium-sized enterprises that are left through such fair competition.
In conclusion, in order to effectively advance industrial structural reform and sophistication, government support and protection measures should not become an obstacle to fair competition for small and medium-sized enterprises, and in addition, rather than government policy being for short-term success, a “selection and concentration” taking a consistent medium- and long-term perspective will be necessary.
[Translated by ERINA]