What’s wrong with sandwiches?
South Korea is often said to be in a conundrum because it is sandwiched between developed and developing countries. Now doomsayers say it is not merely being sandwiched but crushed to pieces as if by a nutcracker.
Are they being extreme? The term nutcracker was applied first to South Korea in a report by consulting group Booz Hamilton published in October 1997, coinciding with a looming crisis the country faced in the following months. The report warned that South Korea was stuck in a competitive nutcracker comprised of China’s low costs on the one side and Japan’s excellence in mainstream industries like semiconductors, steel, automobiles, and electronic appliances on the other. The country went through a major crisis in the late 1990s but through steady liberalization in the 2000s, manufacturers became stronger and continued to drive the country’s growth.
In 2007, when Samsung Electronics was at its peak, its group chairman, Lee Kun-hee, said the next 20 years could be tough due to challenges from both sides. Samsung always becomes tougher when a mighty challenge confronts it and managed to stay on top in the electronics field after Lee’s warning.
The so-called sandwich theory has resurfaced as South Korea is mired in a lengthy growth slowdown while Chinese companies are making big strides and catching up to Korea. The slowdown cannot be attributed to fiercer competition overseas as it is mostly due to a prolonged slump in domestic demand. The global economy has failed to pick up and emerging markets are also struggling. Korean exporters can hardly expect to do well.
Some say Korea Inc. has lost competitiveness, pointing to a slowing of exports to China. China has become the factory of the world. Much of Korea’s exports to China are intermediary commodities needed for manufacturing in China. If China’s exports slow, so would its imports of intermediary items. Reduced exports to China, therefore, should not be solely seen as a weakening of Korea’s competitiveness.
Being stuck in a sandwich can be feared if international trade is seen purely from a competitive perspective. Trade, however, can also be reciprocal. If neighboring countries do well, a rivalry may increase. At the same time, it also means a bigger market in which to sell our own products and services. Globalization has accelerated this phenomenon. Korean trade still benefits from it.
The sandwich theory is not persuasive in the historical context. When Korea was experiencing staggering growth rates, Japan was stuck between the United States and South Korea. But few said Japan was fatally sandwiched between the two. Few blame the recession Japan has been in since 1990 on Korea’s economic strength or America’s. The same goes for Europe. There is history of smaller countries like Denmark and Switzerland suffering when bigger European nations like Britain and France did well. These smaller countries actually achieved larger per capita incomes than their bigger neighbors. They used their partnerships with bigger countries wisely.
Competition is what any company faces if it advances onto a global playing field. Any corporate contestants from any country is sandwiched in some way if it is not either at the top or the bottom. Korea is not alone. It just means one needs to strive harder to move on and stay in the competition.
All countries are in a developmental stage. Challenges are there in different stages. If they see only competitive disadvantages, they can turn negative. But there are always benefits and opportunities too. If we set our eyes on them, we can discover positive facets and bigger markets. Sandwiches are always tastier if there are more layers inside.
Translation by the Korea JoongAng Daily staff.
JoongAng Sunday, Jan. 18, Page 31
The author is an economics professor at the National University of Singapore.
by Shin Jang-sup
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