Adapt or expireExports, the driving force behind Korea’s phenomenal economic growth, are in trouble. Our exports registered negative growth in the first quarter, down 2.9 percent compared to the same period last year. We still run a trade surplus but that’s because exports decreased at a lesser rate than imports. Neither are healthy trends. According to statistics from the Bank of Korea, domestic demand accounted for 1 percent of the 0.8 percent economic growth rate in the first quarter, while net exports contributed to a fall in the economic growth rate to the tune of 0.2 percent.
Export powerhouses had a bad quarter. Samsung C&T Corporation, a trading company of Samsung Group, saw its operating profits drop by a whopping 57.7 percent. According to the Korea International Trade Association (KITA), 38.4 percent of local exporters last year could not pay interest costs with their operating profits - a 5.1 percent increase compared to 2013.
Economic experts point to structural factors such as a shift in global trade rather than temporary factors like the fall of the yen and plummeting oil prices. Kim Keuk-soo, head of the Institute for International Trade of Korea at KITA says, “In the past, if the world economy grew 1 percent, our trade grew 2 percent, but now the figures are the same.” Moreover, China is pursuing economic growth through domestic demand not merely through trade, which puts something of a damper on our exports to that large market.
If you look deeper, however, a lack of preparation can be seen in our economic growing pains. Though such a shift was foreseeable a decade ago, our exports stopped short of meeting the outstanding changes occurring in China, where imports of consumer goods like garments, cosmetics and pharmaceuticals are rapidly rising to satisfy growing demands of customers. China also increasingly imports from Europe and the United States, not from Asia.
But some local brands are succeeding because they were prepared. AmorePacific, Korea’s leading cosmetic company, has become a household name in China by concentrating on the unique needs of its overseas customers. The company has grown into the fourth-largest cosmetic company in the world.
Now is the time to elevate our products to global brands by taking advantage of our elevated image. A stumbling block is some of our industries’ inability to adapt. Local companies must adjust their strategies to come into today’s world.
JoongAng Ilbo, April 25, Page 30