Korea loses ground to rivals: study

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Korea loses ground to rivals: study

Korea has long taken pride in its leadership in the automobile, electronics, marine and shipbuilding industries, but according to a recent study, it is already falling behind the United States, China and Japan even in these prized areas.

A report from the Korea Economic Research Institute showed on Thursday that the three countries have seen revenue continue to grow in these areas since 2011 - when the world began recovering from the financial crisis in 2008 - while Korea has seen revenue fall.

Korea’s marine industry has been hit particularly hard, with its year-on-year revenue growth rate falling from 40.8 percent in 2010 to negative 16.53 percent in 2014, the worst among the four countries. In contrast, Japan and China had their on-year revenue growth rates in the marine shipping sector swing to a surplus in 2011 and continue that upwards momentum ever since.

Revenue in the electronics business in Korea rose 25.55 percent in 2010 from a year earlier but posted a mere 4.1 percent growth, compared with 5.94 percent in the United States, 6.68 percent in Japan and 9.84 percent in China.

The situation is the same in the automobile industry. Korea saw the sector’s on-year growth rate at 23 percent in 2010 - second largest after China at 40.1 percent - but it fell to negative 0.36 percent in just four years. Korea’s chemical sector also fell from a growth rate of 20.51 percent in 2010 to minus 1.61 percent in 2014, the lowest among the nations. The ratio of operating income to revenue, a yardstick of profitability among Korean industries, has also worsened over time.

Korea’s steel industry had a ratio of 4.92 percent in 2010, the highest of the four countries, but it dropped to 3.95 percent in 2014, lower than the 6.55 percent in the United States and 5.27 percent in Japan.

The nation’s automobile industry also saw its ratio fall from 7.54 percent to 3.77 percent over the same four-year period.

As of 2014, the ratio for the United States stood at 8.84 percent and 5.91 percent for Japan.

Shin Hyun-han, a professor at Yonsei University’s School of Business, cited the relatively high cost of goods sold as the major culprit behind the regressing growth and profitably of the industries that propelled Korea’s industrialization in the 1970s and 1980s, which still sustain the economy.

The cost of goods sold refers to the total cost of making a product, and it is high in Korea because of inefficiencies in production, according to the study.

In the chemical sector, the United States saw the ratio of cost of sales to revenue at 30 percent in 2014, a moderate level.

In Korea, the sector’s ratio was over 60 percent. As that ratio rises, profitability falls.

The automobile, electric, electronic and marine transportation industries all displayed high ratios as well.

“Unless Korea improves its high cost of sales structure, its companies will keep falling behind in global competition,” Prof. Shin said.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]

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