ASIA-TRADE: South Koreans Challenge Japanese on Region’s Roads

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Jun 7 1996 (IPS) - Japanese auto-makers would take more than just a casual glance at the news dominating Jakarta newspapers these past few days. It’s about Indonesia’s new ‘national car’ to be built by South Korean firm Kia Motors Corp.

The issue is a politically sensitive one in Indonesia involving a deal made by a private company run President Suharto’s youngest son who was able to seal the agreement after the government passed new laws on tax breaks and concessions on the import of auto- manufactured parts and machinery.

For Japanese auto-makers, the interest would not be so much in the domestic politics of Indonesia — their main concern is in the huge market gains being made by South Korean companies in an Asian region that has for decades been flooded by Japanese cars.

“The situation is changing fast for Japanese companies in Asia. One good example is Korean companies which have pushed Japanese companies to a side in the fast developing region by just selling cheaper products,” explained Yukio Hanabusa, an economist at the Institute of Developing Economies in Tokyo.

Official foreign investment statistics recently released in Tokyo begin to tell the picture.

Up till the mid-1980s, Japan’s overall direct investment in Asia topped the combined total of all other Asian competitors. Not so today.

Intra-regional direct investment, mainly from South Korean, Taiwan and Singaporean companies, totalled 356 billion dollars in 1994 — about three times as much as the 117 billion dollars from Japan, the United States and Europe combined into the Asian region.

Statistics released by Japanese trade houses similarly show that the newly industrialising countries in the region are taking a big bite into the Japanese pie — mainly in the manufacture of cars, electrical equipment and computer software.

Between 1986 and 1990, Japanese companies accounted for 24 per cent of all investment in South-east Asia; between 1991 and 1994, the share was eight per cent.

One of the main reasons why Japanese companies are losing their edge, say analysts, is because its competitors are offering cheaper products.

The auto-manufacturing industry is a case in point.

South Korean made cars are priced at around half that of Japanese cars, which till recently controlled 90 per cent of the newly emerging markets in South-east Asia.

In recent years, the rising value of yen against the dollar has increased prices of already expensive auto parts made in Japan, and imported by Japanese companies in South-east Asia.

And while Japanese made cars retain a reputation of being of higher quality, their sophisticated technology is no longer a big enough selling point, say analysts.

“The Asia consumer is on the look out for a bargain, not for a car that is designed with such expensive extras as high pollution control or safety standards,” explained Hanabusa.

Daewoo Motor, a leading South Korean conglomerate, for example boasts having made deals worth more than five billion dollars in auto-parts manufacturing projects over the past year. The firm says 95 per cent of its foreign investments is in Asia.

“Increasing globalisation is the only way to survive,” explained Lee Sung Sang a director of Daewoo, recently. “Our cost effectiveness is our major weapon.”

Analysts do not expect Japanese auto-makers to sacrifice quality in order to compete on prices. Rather, they say the Japanese will channel their attempts into making new inroads in the U.S. and European markets.

“We see a new pattern emerging,” explained Kazuaki Tanada, a South-east Asia expert at the Japan External Trade Organisation (JETRO). “Japanese companies are not making the profits they expected and are even withdrawing from Asia.”

Figures released by Japan’s ministry for international trade and industry show that of the 627 Japanese companies which established subsidiaries overseas in the 1990s, 233 subsequently withdrew in 1994. Fifty-one per cent of the retracting companies were operating in Asia.

In Malaysia, for example, there has been a sharp fall-off of Japanese private investment in recent years — from 204 companies in 1994 to 175 in 1995.

“Not only do they (Japanese companies) face tough price competition from the newly industrialising countries, such as South Korea, but also higher wages in the once popular destinations such as Thailand and Malaysia, which makes it double difficult to ensure their lead,” explained Hanabusa.

Wages in Malaysia, for instance, have almost trebled during the past two decades. Japanese companies are now looking at setting up subsidiaries in countries like Vietnam.

Indeed, for the new rich in the once closed economies of Indochina, a Japanese-made car is a status symbol, and as far as quality and reliability go, other auto-makers in the region still have a lot of catching up to do, says Hanabusa.

“On a short-term basis Japanese companies are facing problems in the emerging Asian market. But from a long-term perspective Japan’s sophisticated technology will still make these companies very competitive,” he reckons.