It has been 110 years since the automobile was first introduced in Korea. King Gojong imported two Cadillacs from the United States in commemoration of his 40th anniversary on the throne in 1903. The first Korean made car was the “Shibal”; born in a tent as a remade version of the US Army’s old Jeep in 1955. Government support began in the late 1960s, with the nation’s first mass-produced car “Pony” developed in 1975. This car was first exported to Ecuador in 1976.
The nation’s car exports became active in the 1980s. Hyundai Motor’s Excel sold roughly 200,000 units in the United States. Since then, Korea’s auto industry has continued to grow, with it now the world’s fifth largest car producing country.
According to the Korea Automobile Manufacturers Association (KAMA), Korea manufactured 8.2 million cars in 2012, accounting for 5.4% of global production. Car exports saw revenue of US$ 71.8 billion during the same year. Korea has been in the world’s top five in terms of car production for eight consecutive years, with China the world’s number one for four consecutive years, the US as the world’s number two, and Japan number three.
Indeed, the auto industry is leading the Korean economy as an export strategic industry. In 2011, roughly 67.7% (3,151,708 units) of all Korean made cars were exported, a 12% increase year-on-year, and nearly double that of 2000 (1,676,442 units).
In 2010, the auto industry accounted for 11% of national manufacturing and 10.4% of national added value. The auto industry has a big effect on the upstream and downstream industries, and ultimately creating a huge number of new jobs. According to Statistics Korea and The Bank of Korea, the auto industry had roughly 1.75 million directly and indirectly-employed workers nationwide in 2010. This is nearly 7.3% of the nation’s workers (23.83 million), meaning one in seven families were engaged in the auto industry when assuming that the nation’s 50 million population belonged to families of four members.
It is obvious that the auto industry has made both quantitative and qualitative growth. However, there are still challenges to be overcome in regards to sustainable growth. Experts point out the Korean auto industry has enjoyed some “reflective benefits”caused by crisis in the Japanese auto industry. Japanese car makers suffered from parts recalls in the US market, a devastating earthquake, and floods in Thailand where many of them have production bases.
Professor Kim Pil-soo of the Automobile Department of Daelim University said, “Now it is time for us to compete in the global market by ourselves, without help from the external environment. The traditionally powerful car makers from Europe are expanding their market dominance in Korea, while US cars are emerging from their former negative image by pushing the envelope in regards to fuel efficiency, emissions and design.”
The first thing that the Korean car makers have to do is to upgrade their image from low and middle-price brands to that of premium brands. Furthermore, in order to imprint the image of a premium brand on global consumers and maximize profits, Korean car makers need to develop source technologies for core parts, an area which is known as a weak point. The auto industry demands the government reduce tax rates and simplify related laws and regulations in order to stabilize domestic consumption.
The recently-spotlighted shorter working-hours and labor issues are other big obstacles. Professor Lee Ji-man of Yonsei University said at a recent event, “If the shorter working-hour policy limits working on holidays, the auto industry will suffer from deteriorated working-hour flexibility, increased fixed expenses for new facilities, lowered capacity, and increased production costs. Furthermore, additional employment will increase labor costs, which will result in weakened cost competitiveness.”
The auto industry also needs to strengthen the strategic alliance among competitors. Professor Kim Soo-wook of Seoul National University said, “Korean car makers need an open innovation strategy in order to improve sluggish demand growth and sustain competitive power. It will help reduce R&D expenses and improve the problem of a shorter product life cycle.”
Some global car makers have recently turned to strengthening strategic alliances with competitors. Such an attempt for open innovation can create a new level of competitive power by combining technological power and other merits.