
Rising cost of conducting business in South Korea is seeing some of the country’s ultra-competitiveness erode, with the result suppliers are having to provide more value-added products to maintain attractiveness, including those based abroad.
South Korea’s phoenix-like rise from the ashes of World War Two, when its economy lay in ruins with the country one of the poorest in the world, is well documented but automotive component manufacturers have had to act nimbly to keep that sharpness intact.
The Republic’s past and highly volatile current, position with its belligerent northern neighbour, has also meant a certain conditioning to military-type hierarchies, which has hitherto sometimes meant a rigid approach to production and staff relations, but the situation is changing.
“Because of the constant threat from North Korea, [South] Korea has compulsory military service, even now it is at least one year,” said bumper supplier, Plakor Czech director, Tae-Yun Yee at the recent CEE European Automotive Forum organised by Adam Smith Conferences in Prague.
“This has led to the workforce in Korea being highly disciplined and used to working in tough conditions. Even today business projects are seen as military programmes. In order to grow we need to change internally. Korean companies are losing their cost advantage.
“Korea is not such a cheap country to produce any more – we have higher wages and higher standards. There is a need now for Korean suppliers to make more value-added products. A good example is what happened in the ship building industry.
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By GlobalData“Korea in the 1960s made small, cheap boats by the 1990s Korea was the biggest manufacturer of ships but the problem was they were not value-added. China caught up and Korea lost this market because the Chinese came out of nowhere.
“Europeans [also] made value-added ships, so this is a lesson for the Korean supplier industry. This is especially the case for suppliers in the Czech Republic. This cost advantage is slowly eroding wages every year, going up by 14% every year. You can’t just focus on cheap product.”
The Plakor Czech director noted the traditional Korean approach had been people-dependent and not process-dependent. Consequently if staff are ‘obedient,’ it is simpler for them not to invest in the process.
“What that meant was every employee in a Korean organisation was vital,” added Yee. “This does not work in the Czech Republic. We have labour laws and a very high turnover rate – we need to move beyond that and make good processes.
“We have a company in Germany and it was a big culture shock for me when one of my employees took a week off because he had a cold – I was blown away.
“In Germany it was paid sick leave – in Korea we call that a job opening. I could not just bark orders and expect things to be done – it forced me to listen to my employees.”
Good process reduces costs insists the Plakor chief and if that process is not up to scratch, it makes businesses reactive and not proactive.
“We leaned very quickly it costs money not to invest in improving process,” he said. “If you want to do business with European OEMs, we learned price is not the only talking point.
“Sometimes they would reject us because they thought we were price dumping and we were not.
“It took a lot of work on our part to improve our internal processes. A lot of Korea [firms] are already there – a lot are still struggling.”