A few days after the tsunami struck Northern Japan causing extensive damage to Japan’s industrial heartland, stock prices of two key auto makers in Asia were moving in opposite directions. The prospects of Toyota, the Japanese auto giant whose factories were destroyed by the tsunami, were heading south. Across the sea, the fortunes of Hyundai, a South Korean rival to Toyota, were on the upswing. On March 14, when Toyota’s stock was down 2%, Hyundai’s stock jumped 8%. The stock markets were essentially conveying the message that what was a loss to one of Japan’s largest auto exporters was an advantage to its South Korean competitor.
The story was the same across other export-based industries such as the electronics and steel making. In each of Japan’s businesses suffering material damage from the tsunami and the earthquake, South Korean firms leveraged that loss to their advantage, touting their products as alternatives. For example, when Sumitomo Metal Industries, Japan’s third-largest steel maker, announced that it was closing a tsunami-struck facility, executives at Posco, South Korea’s largest steel maker, were busy answering inquiries from ship makers for 300,000 more tons of steel. In the U.S., in Florida and California, when customers looking to buy Japanese auto brands were presented with long delivery delays for Japanese brands, often up to as many as 60 days, they had no problem looking at Korean alternatives. Using the current market environment, Korean exporters have been actively cementing ties with new customers.
It should come as no surprise that South Korean exporters have tried to capitalize on the current weakened state of their neighbor. After all, 38 of the top 50 goods exported by South Korea and Japan overlap, and hence the competition among the two countries is fierce. The export-based industries of these two companies not only fight for a piece of the pie in the developed markets but also in developing markets such as China. In recent times South Korean exporters have been so aggressive in exporting to China, that in 2010, South Korea’s exports to China were the equivalent of 80% of Japan’s exports to China. This figure was less than 50% in the mid-2000s.
And the current earthquake has given South Koreans exporters more selling points. They point out that, compared to Japan, their geographic location is advantageous. The tectonic plates beneath Japan are so active, they argue, that the probability of production disruptions due to earthquakes is higher in Japan, and in turn, companies should source more parts from South Korea to mitigate some of these risks. Such reasoning might help South Korea get a temporary boost to its exports. The time is ripe.
However, more than the external threats, businesses and consumers alike seem to be attracted to the quality and the reliability of South Korean exports. On both counts, South Korean firms have largely closed the gap with their Japanese competitors. Furthermore, in just over two decades they have learned the art of marketing to such perfection that they have overtaken Japanese brands in many industries. For instance, Samsung’s brand image since 2005 has matched that of Sony.
In many cases, Korean exporters have even proved themselves more astute than Japanese companies in marketing their products. In early 2009, for example, when the problems in the U.S. labor market were hitting car sales, Hyundai’s ingenious plan to sell cars proved to be a big hit. Hyundai announced that if a customer lost his or her job after buying a Hyundai brand, the company would buy back the car. The success of the plan made Hyundai the only car maker to increase sales in 2009.
In recent times, South Korean exporters are challenging the Japanese might even in industries in which the Koreans have had little experience, like pharmaceuticals. Japan has been a frontrunner in the pharmaceutical industry for decades, accounting for 11% of the world’s production of drugs. But now, Samsung has decided to seize some of this market from its Japanese rivals. In early 2011, Samsung announced a joint venture with a U.S.-based pharma company to manufacture drugs based on biosciences.
Even so, the world still sneezes if the Japanese catch a cold. When it comes to technology it is still certainly true that Japan retains a substantial lead over South Korean companies. Without certain Japanese products the world comes to a standstill. Only the Japanese have the expertise to manufacture products such as speciality resins, silicon wafers, and precision motors. Yet, there is no doubt that Japan’s grasp on the exclusivity and the control of the supply of hi-tech products has actually slipped thanks to relentless South Korean exporters. Not to mention, the reliability of the South Korean manufacturers. And at this crucial time, you can be absolutely certain that the enterprising South Koreans will be quick to point that out. And the hard working and resilient Japanese will be listening.
Postcards from Around the World
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