Due to a severe global economic recession, South Korea’s export companies spent the worst year ever in 2015 but they did not easily fall down. With a desperate cost reduction, restructuring, efficient investment with the strategy of selection and concentration, and new market development, they achieved a good export performance in the frozen global markets.
This year, Korea’s exports and imports have been seriously affected by the international deflation. Both exports and imports have dropped due to the lack of global demands after the global financial crisis, China’s slowing economic growth and the decrease in raw material prices from the prolonged low oil prices. As the international oil prices rapidly dropped, Korea’s trade in oil-related products has significantly slowed down. This is the main reason of the decline in Korea’s trade volume. Falling oil prices led to trading losses of oil-related products by US$86.3 billion (101.62 trillion won) – US$25.2 billion (29.67 trillion won) of exports and US$61.1 billion (71.95 trillion won) of imports) – from January to October, compared to a year earlier, accounting for 79 percent of the overall decrease of US$109.3 billion (128.7 trillion won). With the cost of imports going down further than that of exports, however, Korea posted a cumulative trade surplus of US$83.2 billion (97.97 trillion won) until November this year.
The government said the nation’s export and import figures are not bad this year. Some say that it is a typical “recession trade surplus” as both exports and imports declined. But the government says that it is not the recession trade surplus since it is just the quantitative reduction due to the fall in the unit cost of exports and imports, and there is no actual change in the trade volume. It also said that imports dropped 16.6 percent from last year due to falling raw material prices but exports decreased only 7.4 percent, seeing growth in surplus.
In fact, the nation’s overall exports did not fall much. Exports in November dropped 0.2 percent to 16.01 million tons from 16.04 million tons a year ago. The figure in June stood at 16.73 million tons, up 10.7 percent from the same period last year. Considering such a severe global recession, Korea’s export firms has shown the strength.
With an increasing share in the global markets, Korea became the sixth largest exporter in the world last year for the first time, moving up a notch and pushing down France. The nation’s share in the global export market surged from 0.07 percent in 1964 to 3.29 percent in the first half of 2015.
A spokesperson from Korea International Trade Association (KITA) said, “Given the trend over the years, Korea will be able to surpass the Netherlands and join the top five global exporters when the nation makes more effort to improve the competitiveness in exports in the future.” In 2005, Korea’s exports were the 70 percent level of the Netherlands and half the level of Japan. However, the figures increased to the 94 percent and 85 percent levels, respectively, this year.
Trade Quality Improved
The export structure, which had been focused on conglomerates and traditional manufacturing industry, is gradually changing. In particular, the fact that the share of small and mid-size companies, including venture firms, in exports is growing is encouraging. From January to October this year, the export growth rates of conglomerates declined more than 10 percent from a year earlier but the figure of small and medium-sized businesses fell as little as 1.6 percent. Accordingly, the share of small and medium enterprises in exports rose 1.9 percent point from 33.8 percent in 2014 to 35.7 percent this year.
Exports of venture companies have increased for two years in a row this year, up 3.5 percent, its share in exports grew 1 percent point from 2 percent last year to 3 percent this year.
In addition, exports of items, which are innovative and closely related to people’s living such as cosmetics, OLED, SSD, processed food and cultural content, are picking up, diversifying the list of export. It shows how much the quality of trade has been improving.
Notably, export items are rapidly rearranging to the creative economic sector, which is closely connected to the people’s living including beauty, food and culture content. Cosmetics exports are soaring from 24.2 percent in 2013, 51.2 percent in 2014 and 58.2 percent in October this year.
With Hallyu, or the Korean Wave, cultural content exports showed an average growth rate of 15.7 percent from 2010 to 2014 and the figure is expected to reach 8 percent this year. Korean cultural content market has become the seventh largest in the world.
Moreover, exports of high-tech products, such as integrated circuit semiconductor, semiconductor equipment and optical lens, saw the double digit growth.
The new trend of Korea’s exports is “e-commerce.” As IT infrastructure, including online payment systems, has developed and distrust in overseas online shopping has resolved, based on experiences, the cross-border business to consumer (B2C) e-commerce is significantly rising. The global B2C transaction volumes are expected to reach US$304 billion (357.96 trillion won) this year, up 30.5 percent from last year, and nearly US$1 trillion (1,177.5 trillion won) in 2020.
New Frame of International Trade
Korea’s online B2C exports, or reverse direct purchase, is on the sharp rise thanks to the increase in overseas demand and simplification of customs procedures. From January to August this year, exports grew a whopping 283.5 percent from the same period the year before. The major export products are t-shirts, accounting for 25 percent of the total, makeup cosmetics with 9.2 percent, and women’s bottom with 9.1 percent.
Even when the global recession continues, the future of Korea’s exports is not all gloom. This is because Korea is expanding the global FTA network to the world’s top three economic powers.
As the FTAs with China, Vietnam and New Zealand took effect in December, Korea has established the FTA network with 51 countries that account for 74.6 percent of global GDP. Korea is the only country that has sighed FTAs with world’s leading economic power, such as the United States, the European Union, China and the Association of South East Asian Nations (ASEAN). Particularly, the Korea-China FTA will secure a stable base to push into the China’s domestic market and become a new growth engine for the Korean economy.
The government predicts that it will record similar export and import showings in the New Year as long as there are no influential variables. As the international oil prices are likely to remain at the level of US$40 to 50 (47,100 to 58,875 won), it believe that the margin of export products from the decrease in raw material prices will expand further. Industry sources also expect that the U.S. dollar will be strong, the oil prices will remain low and the Chinese economy will make a soft landing. They say that sales of individual companies can fall due to the decline in export unit prices but there will be gains from low oil prices at the state level.
However, industry watchers think that Korea needs to expand main items for export and improve the structure in the long run. As the conventional manufacturing industry is also decreasing in China its structure is reorganizing to new growth businesses and the advanced manufacturing industry, Korea should also come up with the strategy focusing on high value added products. Autonomous vehicle and eco-friendly sectors, which are emerging as the next-generation prospective businesses, are viewed as the leaders, which should be steadily fostered, along with wireless communication devices, which serves as a pillar of export, SSD, OLED and cosmetics, which continuously look up.
An official from the Ministry of Trade, Industry and Energy said, “At the moment when exports and imports dropped due to the decrease in unit prices, instead of the fall in actual export and import volumes, the trade surplus is not a bad signal. If oil prices keep remaining low in the New Year, Korea will maintain the surplus from the difference of unit prices.”