By Maëlle Alquezar
While South Korea’s car market was mainly dominated by two local brands (Hyundai and Kia) five years ago, this trend looks to change nowadays with the increase of high-end imported cars.
In 2012, imports accounted for more than 10% of the South Korean car market in terms of volume and 23.2% in terms of value. It was the first time that car imports exceeded 10% of the domestic market. The reasons behind this growth include changes in South Korean car buyers’ tastes. Indeed, they seem to be more attracted to sophisticated design, performance characteristics and brand images. This analysis highlights the fact that local manufacturers are failing to offer high added value products and attractive brand images.
In 2012, the Hyundai-Kia Automotive Group ranked fifth among the world’s car manufacturers by selling 7.12 million units in which 3.63 million abroad and 3.49 million domestically. However, it lags far behind its Japanese competitors Toyota, Nissan and Honda, which produce more than 80% from factories outside the country. This striking difference can be explained by several reasons , including the fact that Hyundai-Kia does not have a lot of affiliated part manufacturers that can set up factories near its production bases abroad and operate there. By contrast, new facilities were successfully built by Japanese automakers’ parts suppliers near their production bases in North America and Europe and later in other regions such as China, South America and India.
A lack of innovation appears to be one of South Korea’s weaknesses and not only in the car industry. A report led by the Organization for Economic Cooperation and Development revealed that South Korea ranked at the bottom of OECD member nations in terms of “technology trade balance”. This number is obtained by dividing the technology exports value of each country by its imports. While the Japanese ratio was 4.60 (the best result), the South Korean one was only 0.33. That means that South Korean exported technologies are worth only a third of the price of imported technologies.
The South Korean manufacturing industry is facing several changes in the business environment which affect the sector including recent price increases due to the rising value of the Korean Won currency and the growing instability in the Korean Peninsula.
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