Korean manufacturers need to focus more on a paradigm shift than on product quality if they want to be able to keep outperforming their fast-growing Chinese rivals.
At present, the manufacturing industry of Korea is sandwiched between that of China and Japan. Korea is 4.7 years behind the United States and is just 1.9 years ahead of China when it comes to scientific and technological competitiveness. The gap between Korea’s and China’s manufacturing sectors was narrowed from 11 to only three notches between 2000 and 2010.
“iRiver developed the world’s first MP3 player, but Apple’s iPod has become the final winner in the industry,” said Seoul National University professor Lee Keun at the Korea Economic Research Institute’s Oct. 27 seminar. He added, “The focus of business management strategy has to be shifted from product to service.” He also mentioned that Xiaomi is trying to enhance its software and application capabilities nowadays instead of concentrating on selling smartphones. “Huawei, which has a longer history than Xiaomi, put first technological strength and product quality like Samsung Electronics, but it is not Huawei but Xiaomi that recently outdid Samsung in the Chinese smartphone market,” he continued.
“The real threat against Korean companies is not the late starters competing in the same way, but the late starters coming up with a different paradigm,” he advised. As a method of maintaining the industrial leadership, the professor suggested M&As with fledgling companies in possession of promising technology and business models. “Samsung Electronics would have felt at ease if it had taken over Xiaomi at an early stage,” he commented.
Konkuk University professor Oh Jung-keun agreed with him, too. “The Chinese government is using its US$4 trillion foreign currency reserves for M&As for technology purchase purposes, and Japan is following the same way on the back of the weak yen that has continued for two years,” he explained, continuing, “However, Korean companies’ operating profits are decreasing due to the appreciation of the won, which has led to the lack of money for M&A, and I would like to emphasize on the importance of proper foreign exchange policy of the Korean government.” Professor Baek Yoon-seok, another panelist at the conference, called for more assistance for newly established firms and future entrepreneurs comparable to what the Chinese government provided for Alibaba founder Jack Ma.
In the meantime, researcher Seo Dong-hyuk at the institute predicted that Korean shipbuilders, petrochemical companies, and telecom device and display manufacturers would have to struggle more in five years due to their Chinese counterparts. “China is likely to increase its presence also in the general machinery and semiconductor industries,” he said, continuing, “China will catch up with Korea in almost all of the industrial fields except for automobile manufacturing within four years from now.”