20120603 Learning from S Korea’s success

Learning from S Korea’s success

By Eric Chiou 邱奕宏

The latest news that South Korea will join the “20-50” club of advanced countries by the end of this month — surpassing the threshold of US$20,000 gross national income per capita with a population of 50 million — again arouses mixed feelings among Taiwanese about the East Asian country.

South Korea’s rapid ascent in the global economic rankings over the past decade is fascinating. People who have recently traveled to Seoul are amazed by the drastic change in the skyline along with the modernization of the city.

South Korea’s economic rise can be observed through many indicators. For example, according to a WTO report last year, South Korea was ranked the world’s seventh-biggest exporter at a value of US$466 billion, while Taiwan declined to 16th place.

In the UN’s 2009 World Investment Report, three of South Korea’s biggest conglomerates — LG, Samsung and Hyundai — placed in the world’s top 100 non-financial transnational corporations, whereas Taiwan had none. Needless to say, South Korean popular culture has taken the place of the Japanese to become the most popular in Asia, reportedly generating US$3.8 billion in revenue from overseas markets last year.

Over the past decade, Taiwan has regarded South Korea as a primary competitor, while South Korea has strived to catch up with Japan. As most Taiwanese companies were satisfied to earn money by taking advantage of China’s cheap labor with the conventional original equipment manufacturing model, South Korean companies were working hard to expand their market shares in developed countries and to bolster their reputations in emerging economies with their own domestic brands.

While South Korea has concluded free-trade agreements (FTA) with the EU, the US, ASEAN and India — accounting for a significant portion of its total trade — Taiwan still struggles with follow-up negotiations connected to the Economic Cooperation Framework Agreement (ECFA) with China and has produced no observable progress on any FTAs.

Many attribute South Korea’s latest success to the bold and proactive actions taken by its government to support local firms and blame Taiwan’s misguided industrial policies, inflexible regulations and laggard bureaucracy, for example.

Given the differences in economic structures, population and the external constraints that exist between the two countries, it is not always fair to compare Taiwan and South Korea.

What is more important is to appreciate and learn the strengths and merits of the other. From this perspective, the supportive measures adopted by the South Korean government to encourage its companies to expand overseas are not only admirable, but the close collaboration between the public and private sectors as well as the spirit of collective teamwork between large corporations and small and medium-sized enterprises (SME) are similarly worth learning from.

For example, South Korea’s trade with ASEAN countries has improved remarkably in recent years. Trade between South Korea and Indonesia, the largest nation in Southeast Asia, has increased threefold in the past few years, from US$10.8 billion in 2007 to US$30 billion last year.

By targeting this promising emerging economy, South Korea is now expected to boost trade with Indonesia to US$100 billion by 2020 with the implementation of a comprehensive economic partnership agreement. Not surprisingly, anyone who passes through the customs channel at Jakarta’s main airport can easily locate TV monitors with noticeable LG logos. Similarly, gigantic billboards advertising Samsung’s products are erected on the top of many modern buildings along Jakarta’s major avenues. With the increasing spread of South Korean factories in Indonesia, South Korean shops and restaurants have also started to flourish.

From official FTA-boosting efforts through to the ambitions of private companies to expand overseas, South Korea has shown an incredible determination and solidarity to project its economic influences abroad. This has allowed it to pursue its global economic ascendancy with firm collaboration and united action from policies and guidance supported by the government.

By contrast, the private and public sectors in Taiwan are estranged partners.

Business owners often complain about the government’s prolific red tape, its lack of support and its indifference toward the harsh competition they face. Officials, on the other hand, defend themselves by citing regulatory constraints and legal limitations. However, in the growing integrated global economy where business competition gets evermore intense, the importance of collective action and cross-sector collaboration becomes more crucial.

Consequently, the role of government to provide companies with appropriate support and timely assistance should be emphasized. This point is particularly vital for Taiwanese companies, since the majority of them are SMEs, which are relatively disadvantageous in terms of personnel, finance, marketing and knowledge when it comes to exploring overseas business opportunities.

Given that a breakthrough in Taiwan’s FTA impasse remains unforeseeable, the Taiwanese government may consider taking more proactive action and adopting more pragmatic strategies to help local companies expand into overseas markets to counter South Korea’s fierce competition and arrest the downward spiral of Taiwan’s global trade.

According to an SME white paper — published last year by the Small and Medium Enterprise Administration — the obstacles Taiwanese companies encounter when operating overseas include a lack of marketing channels and a shortage of international trading personnel. In addition, companies also complain that they lack relevant information about overseas markets and face thorny regulatory barriers from importing countries.

Given the small scale and limited capacity of Taiwanese companies, the government could consider taking a more proactive role in planning a long-term strategy, coordinating all public and private sector sources, uniting different sectors of industries and providing key support to further enhance the competitiveness of Taiwanese companies in the global marketplace.

Take the organization of a carrier battle group as a metaphor: The government should play the role of flagship commanding its various battleships and fighter jets and providing them with accurate information, sufficient ammunition and timely logistic support. More importantly, it has to set a practical and well-organized battle plan by coordinating all units of the fleet in order to bring their firepower into full play.

Learning from South Korea’s recent successes in establishing itself in emerging economies, the following points may be worth consideration:

First, on the domestic front, the government must recognize the strengths and disadvantages of Taiwanese companies, understand the difficulties they face and provide the key assistance they desperately need. To achieve this, regular and candid dialogue between the government and industries is required. In this regard, various industrial/business associations should assume this pivotal role in unifying the myriad Taiwanese SMEs and faithfully express their requirements to the government.

The government should coordinate different associations from across various sectors and professions, seek cross-sectoral cooperation and organize a united front when pursuing expansion into overseas markets.

Second, given the various constraints placed on SMEs, the government should provide all necessary support and practical assistance to help these companies penetrate overseas markets.

In addition to holding typical business fairs and exhibitions to attract foreign buyers and create business opportunities for Taiwanese companies, the government should go beyond the role of simply matchmaking by extending services to include marketing analysis by sector; legal and regulatory consultation; and information on local businesses, for example, in the countries being targeted by Taiwanese firms.

It is particularly crucial for the government to help companies overcome the enormous regulatory barriers they face in emerging countries since many of these economies have rather complicated and puzzling regulatory requirements for foreign products.

This extension of the government’s support would help businesses to reduce their risks and operating costs substantially, while effectively improving the efficiency of Taiwanese companies doing business abroad.

Third, considering the importance of market intelligence to overseas business expansion, the government should establish offices in a few targeted nations to provide Taiwanese companies with practical and timely information, such as updated customs regulations, importation application procedures and relevant major industrial policy changes. These offices could also serve as a one-stop shop to provide useful solutions and answer Taiwanese companies’ inquiries when operating in that country.

Although Taiwan’s overseas representative offices and the branch offices of the Taiwan External Trade Development Council take partial responsibility for the aforementioned functions, it remains essential that the government integrate relevant resources and set up offices that would allow them to concentrate on providing help to Taiwanese companies abroad.

Finally, the government should consider deploying industrial associations, academs or think tanks to conduct regular, in-depth market surveys and regulatory investigations of targeted countries and provide Taiwanese firms with the most up-to-date and useful information, which would help make up for weaknesses in the knowledge gap.

Furthermore, the compilation of export guides — by sector and nation — with standard operating procedures laid out in detail so that companies can access overseas markets seems necessary and valuable, since it can effectively reduce Taiwanese companies’ learning costs, increase their willingness to go abroad and improve their chances of success.

In the past, Taiwan’s policies designed to support its corporations were not as sophisticated, nor did they include a long-term view like those of Japan, while they were not as bold and aggressive as those in South Korea.

Perhaps it is time to revamp the existing routine and to renovate our business-government relationship, in order to take on the arduous challenges that lie ahead.

Eric Chiou is an associate research fellow at the Taiwan Institute of Economic Research.