Japan opens up lead over Korea in cars, machinery

Japan’s industrial edge over Korea in machinery and auto manufacturing has been strengthening, according to the Korea Chamber of Commerce and Industry (KCCI) yesterday.

Korea is ahead of Japan in electronics, shipbuilding and textiles, but that gap could be narrowed, unless Korean companies continue putting extra efforts such as international resources into their businesses and making wise use of free trade agreements (FTAs), the KCCI warned.

In a report released yesterday, the business interest group said Japan’s revealed comparative advantage (RCA) index in machinery was 1.70 in 2012, compared with 1.49 five years earlier. Korea’s RCA in the segment deteriorated from 0.98 to 0.90 during the same time span, the KCCI said.

Korea fared better in the auto industry, with its RCA improving from 1.64 to 1.71 between 2007 and 2012, but it still lagged far behind Japan, which rose from 2.83 to 2.91.

In electronics and electromechanics, Korea leads Japan with 1.72 to 1.38, while being ahead in shipbuilding with 7.73 to 3.12. The two countries showed similar competitiveness in steel, with 2.01 to 2.00.

The KCCI took note of Japan’s recovery in exports, boosted in part by the weakening yen, a potential threat to its Korean competitors.

Japan saw a 5.3 percent decline in its export increase rate during the first half of 2013 compared to the same period a year earlier, but the country saw 2.4 percent growth in the second half of last year. The KCCI experts cited the continuous investment in research and development and business restructuring efforts as the driving forces of the advancement in exports.

“Japanese companies so far haven’t shown large growth, despite their self-boosting efforts through dropping the yen’s value. Such efforts will definitely pay back its industries as time goes by,” said Shin Kwan-ho, a member of the KCCI advisory board and an economics professor at Korea University. “As Korea shows a large trade surplus preventing the won from being devalued compared to yen, Korean companies need to put extra efforts into maintaining their competitiveness.”

In a response to Japan’s recovery, the industry lobby group rolled out five guidelines.

The group advised companies to lessen potential currency risks by subscribing to exchange rate insurance programs and diversifying the international currencies they use to make transactions. They were also urged to act more aggressively in forming business alliances with local companies in the countries they are entering.

It also said the companies should keep pushing for mergers and acquisitions and make cooperative production lines with local and overseas factories in a bid to bring in international talents, technologies and business skills. The KCCI said that FTAs will be key tools in such efforts. About 67 percent of Korean export companies took advantage of FTA benefits as of last year, but that trend needs to spread to all companies, the group said.

Other measures include the upgrading of overall product values, which will make other countries choose Korea over Japan regardless of price, by investing heavily in research and development, talent fostering and management reforms with a goal of reducing production costs.

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]