Japan as the Source of Inspiration for South Korean Business - Essay Example

International Business Ans In accounting for the transformation of the South Korean economy, Akamatsu(1961) offers a theory of economic development that is based upon the “flying geese paradigm”. The premise of this theory is that the developing country (in this case South Korea) develops its products by introduction of imports from a developed country (in this case Japan). Local production facilities are then established and the focus changes to an export based model where the developing nation races to catch up and the developed nation which is the lead goose, eventually tires and falls back. The foundation of this approach is that the developing country takes up industrialization and upgrades its own industries by capitalizing on the learning opportunities that are made available through its external relations with the more advanced countries. Japan is the primary source of inspiration for South Korean business because it has been the hub of industrialization in the post war scenario. Manufactured goods and primary commodities arrived mostly from Japan, which has also been the largest source of Foreign Direct Investment in South Korea. Diversification, stabilization and growth momentum are three aspects of the Japanese economy that have been vigorously adapted by South Korea. For example, in the post war reconstruction scenario, the South Korean state undertook early import substitution projects in cement, fertilizers, oil refining and synthetic fibers, utilizing Japanese imports as a means to standardize and develop its own products. Kim (1987) has explained how the Japanese tradition of considering bureaucratic careers as a means of legitimacy for State initiatives was also followed in South Korea, where the bureaucracy and the military have managed to retain themselves as elite groups. The most powerful bureaucratic organ was the Economic Planning Board, which coordinated economic policy through a control of the budgetary processes. Managers of the EPB were promoted into ministries, which produced strong ties between the regime and the largest conglomerate businesses, Chaebol, paving the way for rapid economic development by establishing its legitimacy in accordance (Evans, 1995). These Chaebols like Samsung and Hyundai were modeled along the lines of Japanese firms such as Sony and Toyota a group of formally independent firms that are operating in diverse industries and are controlled by family members, congregate into a large business group that is able to overcome market imperfections through the creation of internal capital and labor markets. (Yoo and Lee, 1987). In the post war scenario, Japan utilized this model to successfully emerge as an economic power and Korea’s imitation of this policy was also responsible for its economic success prior to the Asian financial crisis of 1997. Another area where the South Korean economy has imitated Japan is in the electronics industry. Japanese investment in this sector began in 1969, since Japanese movement overseas was based upon a globalization strategy. However, for the embryonic electronics industry in South Korea, this was an unprecedented opportunity because it allowed South Korean electronics producers the opportunities to establish joint ventures with Japanese counterparts and thereby learn production techniques and derive other benefits that enabled them to compete more effectively in the manufacture of electronic parts for sale to American firms.(Bloom, 1993:119-126) Ans 2: According to Baily (1993) the reason for Germany’s strong position and its ability to maintain trade surpluses is not the result of any inherent strength in its manufacturing sector as compared to the United States but because its rate of national savings are high as relative to its domestic investment opportunities. One of the reasons that may serve to explain the strength of Germany’s manufacturing industries is the geographic concentration of German manufacturing industries which is a prerequisite for spatial spill overs, such that the natural agglomeration of industries in a particular geographical area creates the spread of natural advantages of all the units within that area. Such advantages include the comparative advantages of shared resources, the availability of a specialized pool of labor, ease of transportation, readily available natural materials and access to capital resources or technological benefits. According to Szwejczewski et al (2005), one of the reasons for the strength of the German manufacturing sector is the close relationship between the manufacturers and their suppliers. Restricting this to a focus only on price is not effective in the attainment of a continuous supply of high quality materials that are obtained in a timely fashion and constitute value for the monies paid for the goods. The results of the study conducted by these authors among German manufacturing firms revealed a predominantly strong supplier relationship that exist, which have also improved in recent times. However, these authors also found in their study that there is a potential for German manufacturers to improve the performance of their firms through a higher level of adoption of the best practices in the area of supplier management. Another reason which may have contributed to the competitive advantage of German manufacturing firms is the focus on quality and innovation and the high levels of economic investment made by manufacturing firms on research to formulate new and innovative products. (Becker and Peters, 2005). However, globalization and the need to maintain a competitive advantage have resulted in challenges being posed to the strength of the manufacturing sector, one of which is in pricing of products. Germany has traditionally been high wage paying country with a well developed welfare system, however it is difficult for the country to maintain such internal HRM systems and survive in a global environment.(Begin 1997). The German manufacturing sector also needs to improve supplier management in order to stay abreast of changes and challenges developing in the global environment. The growing division of labor is a factor that is dampening the value added growth in the German manufacturing industry (Shintke and Weib, 2004). Due to an increased level of import of intermediary goods, there has been a widening gap between the trends for output and value added in the manufacturing industry and this trend needs to be tackled and reversed if sustained growth in the sector is to be maintained. References: * Akamatsu, K. (1961). “A theory of unbalanced growth in the world economy”, Weltwirtschaftliches Archive, 86(2): 196-215. * Baily, Martin N, 1993. “Made in the USA: Productivity and competitiveness in America.” The Brookings Review, 11(1) : 36-40 * Becker, Wolfgang and Peters, Jurgen, 2005. “Innovation effects of science related technological opportunities: Theoretical considerations and empirical findings for firms in the German manufacturing Industry.” Jahrbucher fur Nationalokonomie und Statistik, 225 (2): 130-151 * Bloom, M.D.H. (1993) “Globalization and the Korean electronics industry”, Pacific Review, 6(2): 119-126. * Devereaux, M.P. Griffith, R and Simpson, H, 2004. “The Geographic distribution for production activity in the UK”, Regional Science and urban Economics, 34: 553-564 * Evans, P. (1995). “Embedded Autonomy, State and Industrial Transformation”, Princeton: Princeton University Press. * Kim, K.S. (1994). “Industrial policy and trade regimes”, IN: L.J. Cho & Y.H. Kim (Eds) “Koreas Political Economy”, San Francisco: Westview Press). * Shintke, Joachim and Weib, Jorg-Peter, 2004. “Growing Division of Labour dampening value added growth in manufacturing industry.” Economic Bulletin, 41(12): 423 * Szwejczewski, Marek, Lemke, Fred and Goffin, Keith, 2005. “Manufacturer-supplier relationships: An empirical study of German manufacturing Companies.” International Journal of Operations and Production Management, 25 (9/10) : 875-898 * Yoo, S. and S. Lee (1987). "Management Style and Practice of Korean Chaebols," California Management Review, 29(4):. 95-110. Read More