Enlarging horizon for exports
Korea Inc. can achieve $2 trillion in trade under next administration
By Kim Tae-gyu
There are two strategies for a one-trick pony to survive and thrive ― learn new tricks or hone old ones.
Korea Trade-Investment Promotion Agency (KOTRA) President Oh Young-ho recommends the second choice for the nation so it can do better what it’s best at doing ― increasing its share in global trade.
His remarks run counter to some economists that Korea should reduce its high reliance on cross-border transactions so as to diminish vulnerability to outside shocks. Currently, its trade volume is almost equivalent to its national output.
``If we turn our attention to domestic demand too much, our major growth locomotive of exports would shrink, which would not be good for the economy,’’ Oh said in a recent interview with Business Focus.
``We are required to seek a balanced model where exports take a front seat supported by domestic demand, which is in line with the suggestions of professor Raghuram Rajan.’’
Professor Rajan at the University of Chicago, who is thought as one of the top candidates to win the 2012 Nobel Prize for economics, came up with the ideas at a recent forum in Seoul, which KOTRA organized on the occasion of its 50th anniversary.
In particular, Oh expected that the country will be able to achieve the grandiose goal of doubling its annual trade volume during the next administration, which will start early 2013 through 2018.
``After reaching $1 trillion in trade, our predecessors have racked up a yearly growth rate of about 7 percent on average so that it took a decade to approach $2 trillion,’’ said Oh who took charge of KOTRA late last year.
``If we record double-digit growth over the following years, however, we can attain the goal of $2 trillion by 2017. It would be a tough mission but is not an impossible one.’’
Last year, Korea became the world’s ninth country to top the $1 trillion mark in annual global trades and set up a goal of surpassing the $1.1 trillion milestone this year.
Thereafter, the country’s next goal has been to reach $2 trillion and a flurry of experts predicted that the target would be completed by the end of the second decade of the new millennium.
Cold shower - sophomore jinx
Oh is not one who tends to present overly optimistic prospects and paint too rosy a picture on the future unlike many senior officials who tend to oversell their cheerful outlook.
The life-time bureaucrat famous for a no-nonsense approach was well aware of the facts that things are by no means good at the moment because of the struggling world economy.
Amid the slumps of two of the top three importers of made-in-Korea products ― Europe and China ― Korea has seen its exports get stalemated this year.
During the first five months, the country’s exports edged up merely 0.6 percent from a year before, which falls far short of its original annual target of 6.7 percent.
In particular, outbound shipments to China decreased by 1.3 percent over the five-month period while those to the European Union plunged by 15.2 percent despite the free trade pact between Korea and the EU, which went into effect beginning last July.
Broken down by businesses, exports of handsets and home appliances plummeted by 33 percent and 8.6 percent each while those of displays and semiconductors also dipped by 4.1 percent and 2.7 percent, respectively.
Against this backdrop, some even fear Asia’s fourth-largest economy might lose the membership of the $1 trillion trade club this year ― the sophomore jinx suffered from by a few predecessors like Italy and the United Kingdom due to the financial crisis in the late 2000s.
The Lee Myung-bak administration plans to downsize its goal for this year ― $595 billion for exports and $570 for imports ― and the details are projected to be announced soon.
Still, Oh believes that Korea would not follow the suit of Italy or the U.K.
``We are facing double whammies because things are much worse in Europe than our initial expectations while China is also struggling,’’ the 60-year-old said.
``But we are determined to record more trade than last year so that we will be able to remain above the $1 trillion mark as I reported to President Lee at a recent meeting.’’
Toward that end, Oh said that the country’s small- and medium-sized enterprises (SMEs) should improve their performance.
SMEs hold keys
Korea’s SMEs account for more than 99 percent of all business establishments and they hire almost 90 percent of overall domestic workers as a whole but their contributions to trades have been weak.
For one, a mere 2.4 percent of SMEs sell their products in overseas markets in comparison to other advanced economies such as Germany which boasts a double-digit rate.
As a result, conglomerates, dubbed chaebol here including Samsung and Hyundai Motor groups, have carved out a big proportion of the nation’s cross-border transactions up until now.
``The number of Korean manufacturers amount to around 300,000 and many of them vend their products only inside the national boundary,’’ said Oh, who is well known as a trade expert.
``We plan to study all the 300,000 small-sized manufacturers to learn why they do not cross the national border and will draw up policies to help them make a foray into the global scenes.’’
Oh said that SMEs should play a pivotal role without regard to time horizons ― not only in dealing with the short-term difficulties in trades but also in achieving the $2 trillion goal in the mid to long run.
``It is one of our top priorities to nurture small-sized exporters, which would be building blocks in our becoming a genuine global powerhouse down the road,’’ he said.
``By 2015, we will about double the proportion of exporters among SMEs from the current 2.4 percent to 5 percent.’’
Oh pointed out, however, it would be a tall task because the overreliance on chaebol and the lack of globally recognized SMEs, sometimes called hidden champions, have something to do with the country’s policies in the past.
Korea Inc. underpinned a small number of conglomerates in the 1960s and 1970s so as to chalk up fast growth.
Such an approach, called as the imbalanced growth strategy, paid off to create a flurry of big-name players such as Samsung and Hyundai, which transformed from also-rans to genuine worldwide juggernauts.
Yet, such tactics demonstrated downsides ― with relatively little supports of the government, SMEs failed to take firm root although they are so significant in terms of national welfare like the employments.
``For fast growths, we have employed the tactics of boosting a few big firms in strategic industries. As a result of seeking after unbalanced growth policies, SMEs were relatively sidelined,’’ Oh said.
``It would not be easy to correct the deep-rooted dependence on big players. It cannot be addressed overnight but we will continue to put forth efforts because SMEs are so significant by now.’’
Quality vs. quantity
The negative ripple effects of the unbalanced growth strategy are ubiquitous as amply demonstrated by a flurry of indices representing the country’s quality of exports.
For example, Korea’s added-value index of exports has remained stagnant in the neighborhood of 100 since 2005, which implies that it has failed to make progresses in generating more added values from trade.
By contrast, the figures for most advanced economies are around 115.
And its imported intermediate goods explain more than one third of its exports, which is almost 2.5 times higher than that of the United States whose rate is just 15 percent.
Furthermore, the index of export market penetration is low and along the same line, Hirschman Herfindahl Index (HHI) is high, which indicates how much its exports depend on a limited number of destinations and items.
In a nutshell, the country’s quality of exports simply does not live up to its quantity due in no small part to the unbalanced development strategy, which dates back to 1960s.
``Just five items account for 41 percent of our exports, which is way too high. We need to curtail the proportion and to achieve the goal, once again, SMEs have to make a dent,’’ he said.
``We will put the mission of buttressing SMEs on the front burner and plan to offer tailor-made support programs so that they can make their presence felt across the world.’’
Oh picked a few Blue Oceans, which can provide lucrative revenue to Korean SMEs or conglomerates such as animation, medical tourism, medical services, energy industries and defense sectors.
In particular, the KOTRA president fixed his eyes on the public procurement markets, which he said are ultra-large but the country has thus far failed to tap into for some reason.
``The public procurement markets are huge in the United States as both of its central and regional governments make orders in bulk. And there is another big buyer of the United Nations,’’ he said.
``We could not compete in the market because the U.S. asks for track records for any bidders and few Korean entities have experiences of winning public U.S. orders. But things changed thanks to the free trade agreement (FTA).’’
After the FTA between Korea and the U.S. was effectuated midway through this March, the U.S. governments started acknowledging Korean firms’ records of winning public orders here.
``Thanks to the FTA, our outfits can now register as a vendor for any U.S. deal and we plan to help our SMEs follow the procedures so that they will be able to win orders there,’’ he said.
``Plus, we will support their financing along with other public agencies such as state-backed lenders. Then, they will substantially jack up our exports in the not-so-distant future.’’
Shining track record
Oh started his career as a government official in 1980 and over the next two and a half decades, he assumed a torrent of major jobs with regarding to trade in the commerce ministry.
The Seoul National University graduate, who majored in chemical engineering, served as vice commerce minister for a year from February 2007 before joining Sogang University as a professor midway through 2008.
Oh, who earned his Ph.D. in economics from Kyung Hee University, took advantage of his expertise in trade by taking the vice chairmanship of the Korea International Trade Association in 2009.
He also played a pivotal role as director of the G20 Business Summit organizing committee, which took place in 2010 on the sidelines of the G20 summit in the nation’s capital.
He took the reins of KOTRA on Dec. 5, 2011 ― the very day the country’s accumulated annual trade volume topped the $1 trillion plateau for the first time in its history.
With a rare combination of contagious passion for work and unceremonious style, Oh is famous for his ability to get things done through employing the right people and strategies at the right time at the right place.