China is now more of a threat to Taiwan and SK than it is to Japan and the US. China can more easily replicate and displace the stage of the value chain currently occupied by Taiwan and SK (and indeed it has been doing just that).
A follow up to illustrate this point, as well as the "South Korea is doomed" assertion.
S Korea chaebol growth model hits limits - FT.com
November 19, 2014 9:03 pm
S Korea chaebol growth model hits limits
Song Jung-a
South Korea is good at overcoming short-term crises but the manufacturing-driven economy is now facing longer-term challenges to sustain growth amid increasing competition from neighbouring China.
Big export-based conglomerates called chaebol have led the country’s rapid industrialisation over the past half a century on the back of state financial support and regulatory protection to make the country the world’s 10th largest trading nation by volume.
South Korea has become a global leader in sectors including shipbuilding, flat screens, mobile phones and memory chips. There are growing questions, however, over whether a handful of big manufacturers such as Samsung and
Hyundai can continue to drive growth, especially as China is catching up fast in many industrial sectors.
“[South] Korea’s manufactured exports are losing competitiveness due to the narrowing technology gap with China, whose manufacturing industry is gradually shifting to higher-value-added goods,” says Lee Jong-wha, economics professor at Korea University.
China has become a powerful competitor to South Korea’s manufactured exports such as steel, ships, petrochemicals and electronics, although it is still way behind South Korea in some high-tech areas such as memory chips and automobiles.
“[South] Korean exporters, who have focused on catching up with Japanese and US rivals, have no strategy to fend off competition from China,” says Lee Geun, economics professor at Seoul National University.
The country’s
dominant business groups have come under particular pressure this year. Samsung Electronics has posted declining earnings for four consecutive quarters. Its operating profit plunged 60 per cent to a three-year low in the third quarter as it concedes market share to low-cost Chinese rivals such as Huawei and Xiaomi.
Hyundai Motor’s net profit dropped nearly 30 per cent in the third quarter as it is losing ground to Japanese rivals in the US with the weaker yen enabling Toyota, Nissan and Honda to offer big sales incentives to consumers. Hyundai also outraged investors by offering $10bn for a trophy headquarters site, raising questions about its corporate governance and capital management.
Increased doubts over the chaebol-led economic model have sparked calls to reduce the country’s dependence on such companies and strengthen the rest of the economy, especially
small and medium-sized business and the underdeveloped service sector.
“The growth model driven by a handful of big exporters has hit a limit,” says Suh Dong-hyuk, researcher at the Korea Institute for Industrial Economics and Trade. “We should promote innovation in start-ups and SMEs and develop service industries for more balanced and sustainable growth.”
Under the slogan of promoting a “
creative economy,” President Park Geun-hye is trying to foster an environment where venture firms can flourish by expanding financial support for innovative start-ups. But she has not made much headway in implementing her election campaign promise of curbing the chaebol’s power and propping up SMEs.
Small businesses still struggle to grow in the shadow of sprawling chaebol companies, which aggressively push down the prices of their suppliers or push independent rivals out of business with their economies of scale.
“Despite political efforts, the business environment where big businesses make profits at the expense of their small suppliers has not changed much,” says Mr Suh.
Experts say South Korea needs quickly to develop internationally competitive service industries such as medical tourism and IT services, if it is not to stall. They urge the government to increase the service sector’s productivity through deregulation while businesses should step up efforts to seek new growth drivers.
“The era for unconditional capacity build-up for capital-intensive industries is gone now,” says Michael Na, strategist at Nomura. “We should make money by selling competitive platforms and services.”
Overhauling the economic framework is not easy. Although South Korea boasts global manufacturers with vast international operations, regional expansion has been a painful process for its service providers.
A decade into their efforts to go global, the country’s banks still struggle to build a presence in other countries, while
retailers such as Lotte and E-mart have suffered big losses while expanding into China and other parts of Asia.
“Selling services is harder because you should understand others’ culture,” says Mr Na. “But many of our business leaders unfortunately lack such global sense and knowhow needed for successful overseas expansion.”
---
So will South Korea be able to rely more on its SMEs to take the place of the stalled chaebols? No.
http://blogs.ft.com/beyond-brics/2014/11/25/south-koreas-smes-struggle-to-compete/
South Korea’s SMEs struggle to compete
Tae-jun Kang | Nov 25 10:57
South Korea’s small and medium sized enterprises have been losing competitiveness over the past several years,
mirroring the declining power of its big export-based conglomerates called chaebol that have driven the country’s economic growth.
A report by the Korea Small Business Institute suggests businesses have failed to take advantage of government programmes to support SMEs and have shown a lack of innovation as they struggle to prosper in a sagging economy.
The report found that the output of Korea’s SMEs fell by 3 per cent between 2007 and 2012, with added value falling 2.9 per cent over the same period. A net 3,000 businesses closed during that period, leaving the total at 115,500 in 2012. Exports by SMEs fell 3.9 per cent between 2009 and 2013.
The institute warned that competitiveness would continue to fall unless the government took measures to support the sector.
The findings are supported by Korea’s Financial Supervisory Service, which surveyed a sample of 1,609 SMEs for a report published last week. It categorised 125 of the companies as “subjects for restructuring”, an increase of 11.6 per cent from a year ago and the biggest proportion since the financial crisis of 2008.
The FSS based its findings on soundness of cash flow, ability to meet interest payments and asset soundness.
“We have been doing this inspection since 2001,” said Kim Hak-moon, a leader of the SME support team at the FSS. “The figures definitely reflect a trend. Market conditions have not been favorable for SMEs recently.”
Kim said the weak Japanese yen, which is currently having a huge impact on the South Korean economy, was among unfavourable conditions facing SMEs.
A separate survey by the Korea International Trade Association found that 95 per cent of SMEs said the weak yen was having a negative impact on their businesses. Nearly 49 per cent said they suffered foreign-exchange losses while 24 per cent said they had seen their export volumes decline.
And Korea’s Small & Medium Business Corporation said the number of SMEs applying for credit to help deal with exchange rate fluctuations had increased by 25 per cent from last year. Most of them cited the weak yen as a reason, as their exports depended heavily on Japan. The SBC supplies loans at fixed interest rates for SMEs to support exports.
The government has launched several programmes to support struggling SMEs, including a “fast track” programme to simplify loan applications. The FSS said it would encourage banks to extent the programme and that it would offer guidance to SMEs on governance and competitiveness.
“The South Korean government has put a lot of effort into supporting SMEs lately, but one issue could be a lack of promotion,” said Hong Seong-chul, a researcher at the Korean Small Business Institute. “Some SMEs do not use what the government offers because they are not aware of it. Both need to find better ways of communicating with each other.”
, i don't want korean readers to think i'm some kind of 'shibba seki ilbo nim' 
